Congress Set to Enact Only Now-Unneeded Innocent Spouse Fixes, Part 2

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This is the second part of a two-part post on innocent spouse legislative changes proposed to be made in the Taxpayer First Act of 2019. 

This part of the post discusses the bill’s proposed change that would override an existing IRS regulation that provides for a 2-year limit for filing a request for innocent spouse relief under section 6015(f).  Of course, the IRS has long ago abandoned enforcing that regulation limit and has issued proposed regulations that follow the proposed statutory amendment.  So, this provision is essentially unnecessary, unless you don’t trust the IRS to stick with the position that it has now maintained since 2011. 

This part of the post also details three other proposed changes to the innocent spouse section that Nina Olson has previously sought, but that, sadly, are not included in the bill.

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Background on 2-Year Rule

For a spouse to elect relief under subsection (b) or (c), the statute requires that an election be made no later than 2 years after the IRS commences collection activities. Subsection (f) equitable relief applies only if relief is not available under the other 2 subsections, but the subsection (f) contains no provision for a date by which relief under it must be requested.

In a 2002 regulation (Reg. sec. 1.6015-5(b)(1)), the IRS provided that a request for subsection (f) relief must be made no later than the same 2-year deadline applicable to elections for relief under subsections (b) or (c).

In Additional Legislative Recommendation #1 of her 2006 Annual Report to Congress, at Vol. I, pp. 540-541, Nina Olson first recommend that Congress amend subsection (f) to provide that a taxpayer may request relief thereunder at any time that the collection statute of limitations is open.

Then, in Lantz v. Commissioner, 132 T.C. 131 (2009) (en banc), the Tax Court held that Congress had deliberately spoken by its silence in not providing for a statute of limitations for requesting relief under subsection (f), and, therefore, the regulation was invalid.  

The IRS appealed Lantz and similar Tax Court rulings that followed it to various Circuits. Three Circuits promptly disagreed with the Tax Court and held that the regulation was valid.  Lantz v. Commissioner, 607 F.3d 479 (7th Cir. 2010); Mannella v. Commissioner, 631 F.3d 115 (3d Cir. 2011); Jones v. Commissioner, 642 F.3d 459 (4th Cir. 2011).

Information provided to Congress by Ms. Olson in early 2011 provoked letters from Congress to the Commissioner in April 2011 asking the IRS to withdraw its regulation under subsection (f) as not in accordance with Congressional intent.

A few weeks after those letters, I had a chat with Ms. Olson in the hallway at the May 2011 ABA Tax Section meeting.  She told me that the IRS was worried that if there was no 2-year limit, then taxpayers would forever request relief under subsection (f).  I told Ms. Olson that this was not a real concern, since taxpayers would only request relief from balances due while the collection statute of limitations under section 6502 was still open and would seek refunds only while the statute of limitations for refunds under section 6511 was still open.  I told her that the situation was analogous to that for people seeking relief from penalties under section 6404(f) on account of erroneous IRS written advice. I pointed out to her that there is a regulation under section 6404(f) (Reg. sec. 301.6404-3(e)) that provides: 

An abatement of any penalty or addition to tax pursuant to section 6404(f) and this section shall be allowed only if the request for abatement described in paragraph (d) of this section is submitted within the period allowed for collection of such penalty or addition to tax, or, if the penalty or addition to tax has been paid, the period allowed for claiming a credit or refund of such penalty or addition to tax.

I suggested that such section 6404(f) regulation could be modified for a replacement section 6015(f) regulation. To my embarrassment, minutes later, in a speech she gave to the whole Tax Section, she thanked me for “solving” the Service’s Lantz regulation repeal concern.

Christine and I represented a taxpayer in a Lantz-type case, Ms. Coulter, in the Second Circuit.  After oral argument there (held the day after the Fourth Circuit opinion was filed in Jones), it appeared that the Second Circuit intended to affirm the Tax Court and create a Circuit split.  However, the Second Circuit never ruled in the Coulter case because, in July 2011, the IRS issued Notice 2011-70, 2011-2 C.B. 135, stating that the IRS would no longer argue for any 2-year limit for requesting relief under subsection (f).  The Notice stated: 

Individuals may request equitable relief under section 6015(f) after the date of this notice without regard to when the first collection activity was taken.  Requests must be filed within the period of limitation on collection in section 6502 or, for any credit or refund of tax, within the period of limitation in section 6511.

In 2013, the IRS issued proposed regulations that would incorporate the filing deadlines set out in Notice 2011-70.  REG-132251-11, 2013-2 C.B. 191.  However, those proposed regulations have not yet been finalized.

Proposed Statutory Language on 2-Year Rule Repeal

Despite the legislation probably no longer being needed, section 1203(a)(2) of the Taxpayer First Act of 2019 would amend section 6015(f) to add a new paragraph (2) reading as follows:

(2) LIMITATION. — A request for equitable relief under this subsection may be made with respect to any portion of any liability that —

(A) has not been paid, provided that such request is made before the expiration of the applicable period of limitation under section 6502, or

(B) has been paid, provided that such request is made during the period in which the individual could submit a timely claim for refund or credit of such payment.

Other Needed Statutory Fixes Not Adopted

In prior posts here and here, I have noted that Ms. Olson has also requested that Congress amend section 6015 to:

  1. Make the subsection (e) filing deadline nonjurisdictional and subject to equitable exceptions. NTA 2017 Annual Report to Congress, Legislative Recommendation #3, at Vol. I, pp. 283-292.  This change would result in the overruling of three recent opinions where employees of the IRS accidentally misled taxpayers into filing late by telling the taxpayers the wrong date for the 90th day.  In the cases (where the Harvard clinic was counsel for the taxpayers), the taxpayers argued that the subsection (e) filing deadline is not jurisdictional and is subject to estoppel and equitable tolling.  The appeals courts all held that the filing deadline is jurisdictional, so cannot be subject to equitable exceptions.  Rubel v. Commissioner, 856 F.3d 301 (3d Cir. 2017); Matuszak v. Commissioner, 862 F.3d 192 (2d Cir. 2017); and Nauflett v. Commissioner, 892 F.3d 649 (4th Cir. 2018).
  2. Clarify that section 6015 relief can be raised in district court collection suits brought by the DOJ. NTA 2007 Annual Report to Congress, Additional Legislative Recommendation #3, at Vol. I, pp. 549-550.  This change would overrule a number of district court opinions that have held that they lack jurisdiction to give section 6015 relief in such suits.  See, e.g., United States v. Elman, 110 AFTR 2d 2012-6993 (N.D. Ill. 2012); United States v. LeBeau, 109 AFTR 2d 2012-1369 (S.D. Cal. 2012), and United States v. Stein, 116 AFTR 2d 2015-6504 (W.D. Ky. 2015) 
  3. Clarify that section 6015 relief can be raised in district court and Court of Federal Claims refund suits brought by taxpayers. NTA 2018 Annual Report to Congress, Legislative Recommendation #4, at Vol. I, pp. 387-391.  This change would overrule the district court magistrate’s opinion in Chandler v. United States, 2018 U.S. Dist. LEXIS 174482 (N.D. Tex. 2018), adopted by district court at 2018 U.S. Dist. LEXIS 173880 (N.D. Tex. 2018), which held that district courts lack jurisdiction to consider section 6015 relief in tax refund suits.

It is unfortunate that these more urgent fixes to the statute have been ignored.  I wonder, though, if the reason that these additional proposals have been ignored is that they are opposed by the IRS, but the changes proposed for the Taxpayer First Act of 2019 have not been so opposed (because, really, not changing current IRS practice)?  It would be unfortunate if the Congress is giving the IRS veto power over good ideas to amend section 6015.

Carlton Smith About Carlton Smith

Carlton M. Smith worked (as an associate and partner) at Roberts & Holland LLP in Manhattan from 1983-1999. From 2003 to 2013, he was the Director of the Cardozo School of Law tax clinic. In his retirement, he volunteers with the tax clinic at Harvard, where he will be Acting Director from January to June 2019.

Comments

  1. Norman Diamond says

    “(2) LIMITATION. — A request for equitable relief under this subsection may be made with respect to any portion of any liability that —
    (A) has not been paid, provided that such request is made before the expiration of the applicable period of limitation under section 6502, or
    (B) has been paid, provided that such request is made during the period in which the individual could submit a timely claim for refund or credit of such payment.”

    (A) is particularly useful for taxpayers not residing in the US since the applicable period of limitation is unlikely to ever expire.

    (B) seems ambiguous. Under US v. Kales, if a taxpayer submitted a timely claim for refund or credit, and later repeats the claim, the claim is still a valid claim. If (B) includes repeated claims because they’re still valid, that’s good. If (B) excludes repeated claims because the repetition came later than the time period that was valid for the original claim, that’s not so good. Other courts are supposed to still have jurisdiction but it’s hard for a low income person to obtain justice from them.

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