Published on:

Statutes of Limitations for Innocent Spouse Actions : Part 2 of 4 Parts

This article is part 2 of a 4 part series on Innocent Spouse basics.  Be sure to read all four parts.  Also, check this blog regularly for new information on innocent spouse law, as I will write about it frequently.  I’ll keep you posted of new cases and developments from the IRS.

So, if you are in Asheboro or Reidsville, or wherever, this four part article should answer your questions about innocent spouse tax law and how it might affect your North Carolina divorce.

Find out in this article how Congress, in a bipartisan effort, helped protect the innocent, whether from domestic violence or other domestic abuse, including financial abuse.

Background and Statute of Limitations

(a) A two-year statute of limitations applies to mandatory innocent spouse relief; relief must be requested within two years of the filing of the return.  There is no express statute of limitations for discretionary innocent spouse relief.

(b) By regulation, the IRS ruled that the two-year limitations period on requests for mandatory innocent spouse relief under § 6015(b) and (c) also applies to § 6015(f).  Treas Reg. § 1.6015-5(b)(1).

(c) The Tax Court, sitting en banc, held that the regulatory statute of limitations violated § 6015 and was invalid.  Lantz v. Comm’r, 132 T.C. 131 (2009).  Lantz was reversed on appeal, Lantz v. Comm’r, 607 F.3d 479 (7th Cir. 2010), but the reversal applied only in the Seventh Circuit.  The Tax Court held in Hall v. Commissioner, 135 T.C. 374 (2010), that the Seventh Circuit was wrong, and that it would continue to follow Lantz in cases arising outside of the Seventh Circuit.  At least two other Circuits then agreed with the Seventh Circuit that the regulatory limitations period was within the IRS’s authority.  See Mannella v. Comm’r, 631 F.3d 115 (3d Cir. 2011); Jones v. Comm’r, 642 F.3d 459 (4th Cir. 2011).

(d) Congress was not happy, and there was a strong bipartisan move to reject the regulatory statute of limitations.  Legislation was introduced, stating expressly that there should be no limitations, period, on requests for discretionary innocent spouse relief.  See H.R. 1450 112th Cong. (2011).  There was particular concern that many innocent spouses could not meet the two-year deadline, because they were kept in financial ignorance by the other spouse, and perhaps even subject to physical abuse for trying to learn more about finances and taxes.

(e) The IRS blinked.  In IRS Notice 2011‑70, 2011‑32 I.R.B. 135, 2011 WL 3035113 (Aug. 8, 2011), it announced that it would no longer apply the regulatory two-year statute of limitations.  The notice applies retroactively, and even permits reconsideration of certain requests previously denied.

But see Haag v. United States, 736 F.3d 66, 67 (1st Cir. 2013) (IRS may deny retroactive relief where case was fully litigated before Notice 2011-70 and IRS did not stipulate that the request was denied solely due to untimeliness).

(f) The notice states that the IRS will revise Treasury Regulation § 1.6015-5(b)(1) in a manner consistent with the notice.  Proposed regulations were published in 2013, see 78 Fed. Reg. 49242‑01 (Aug. 13, 2013).

(g) The basic framework for resolving requests for discretionary innocent spouse relief was set forth in Revenue Procedure 2003-61.  In IRS Notice 2012-8, 2012‑4 I.R.B. 309, 2012 WL 29100 (Jan. 23, 2012), the IRS announced that it would issue a new Revenue Procedure setting forth a revised test

(h) The Tax Court held that proposed new language was only proposed, and it continued to apply Revenue Procedure 2003-61.  See Yosinski v. Comm’r, T.C. Memo. 2012‑195, 2012 WL 2865808, at *5 n.9 (2012).

(i) The new framework was formally published as Revenue Procedure 2013‑34 on October 21, 2013, which is discussed fully in Part 3 of this article series on Innocent Spouse Basics.

By Carolyn J. Woodruff, JD, CPA, CVA