Three influential senators have written to Internal Revenue Service Commissioner Doug Shulman, asking him to re-evaluate the two-year time limit for innocent spouses to request tax relief.
Senate Finance Committee Chairman Max Baucus, D-Mont., Tom Harkin, D-Iowa, and Sherrod Brown, D-Ohio, called on the IRS on Monday to conduct a review of the regulations limiting the time that innocent spouses have to file for equitable relief from joint tax liability. Innocent spouse provisions excuse a spouse from liability for unpaid taxes on a joint return if they did not know or have reason to know of the unpaid taxes when the return was signed.
The senators said that providing only two years to file for innocent spouse relief runs counter to the spirit of equitable relief, which was designed to act as a “safety valve” for innocent spouses, taking into account all the facts and circumstances of each case.
“Taxpayers in Montana and across the country shouldn’t be forced to pay a tax or penalty they’re not responsible for,” Baucus said in a statement. “We made important changes to protect innocent taxpayers seeking relief from their spouses’ liability to ensure fair and equitable treatment. Now, we are concerned this two-year limitation denies relief to the very taxpayers the law was designed to help–the innocent spouses unaware of these IRS collection activities because of intimidation or deception by their spouse. We must re-evaluate these limits so all taxpayers are treated justly and have time to file for tax relief they deserve.”
As a Finance Committee member, Baucus helped to make it easier for innocent spouses to obtain relief from joint tax liability as part of the IRS Restructuring and Reform Act of 1998, which allows innocent spouses to request equitable relief from liability for a joint deficiency or unpaid tax arising from a joint return at any time during the 10-year collection statute of limitations.
However, a Treasury regulation and IRS published guidance have fixed a deadline for filing for equitable relief claims of two years from the date of the IRS’s first collection activity.
“In many cases, either because of intimidation or deception on the part of the joint filer, an innocent spouse is left holding the bag,” Harkin said. “Allowing the truly innocent spouse the right to file for protection without an arbitrary deadline is crucial since, in many cases, they simply do not know what was done until the IRS informs them.”
“A change in the Innocent Spouse Rule of the Tax Code would ensure that victims of domestic violence and others are not further penalized and victimized,” said Brown. “This is about equitable relief and protecting responsible taxpayers from irresponsible ones.”
In the letter, the senators reminded Shulman that Congress had overhauled the innocent spouse rules in 1998. In revising the provisions, Congress sought to make it easier for innocent spouses to obtain relief from joint tax liability. In addition to granting relief under two specific circumstances, the new innocent spouse rules allowed the IRS to grant “equitable relief” if, considering all the facts and circumstances, it would be inequitable to hold a spouse liable for a joint deficiency or unpaid tax arising from a joint return, they noted.
The IRS Restructuring and Reform Act of 1998 did not set a time limit within which taxpayers must request equitable relief, thereby implying that taxpayers may request equitable relief at any time during the 10-year collection statute of limitations. However, Treasury Regulation 1.6015-5 and IRS Revenue Procedures 2000-15 and 2003-61 that were issued a decade ago fixed a deadline for filing for equitable relief claims of two years from the date of IRS’s first collection activity.
“The two-year limitation on claims for equitable relief prevents innocent spouses from receiving the relief they deserve,” the senators wrote. “Each year, thousands of innocent spouses who would otherwise qualify for equitable relief are denied relief because of the regulatory two-year limitation.”
The senators acknowledged that the two-year rule was not promulgated under Shulman’s leadership at the IRS, but they asked him to conduct a thorough review of the regulations and guidance imposing the two-year rule on equitable relief under Sections 6015(f) and 66 of the Tax Code.
“In the time since the regulation and guidance were originally issued, it appears that the two-year rule has been running counter to the spirit of the equitable relief provision as a ‘safety valve’ for innocent spouses that takes into account all the facts and circumstances of each case,” they wrote. “While we understand litigation on the issue is pending, we urge you to make appropriate changes as soon as possible to resolve uncertainty in the law and ensure taxpayers are receiving fair and equitable treatment.”
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