IRS Removes Two-Year Limit for Filing Innocent Spouse Claims

Sep 13, 2011   
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The Internal Revenue Service has announced that it has eliminated the two-year limit for filing innocent spouse claims under IRC §6015(f), giving spouses of those accused of tax evasion more time to file their claims. 

The innocent spouse rule allows spouses who signed joint returns with their partners to avoid sharing the responsibility of paying taxes and penalties as a result of their partners wrongful actions.  Under Treas. Reg. §1.6015-5(b)(1), the IRS required innocent spouse claims to be filed within two years after the first attempt to collect.  About 50,000 innocent spouse requests are filed per year and about 2,000 are automatically rejected by the IRS because of the two-year rule.  Nina Olson, an Ombudsman at the IRS, said that the two-year rule did not work because, in many cases, taxpayers were unaware that the collection process had started.  Also, many taxpayers may have had legitimate reasons for missing the two-year deadline “ including domestic abuse, divorce, fraud, and death.  (See blog entry Relaxed Restrictions for Tough “Innocent Spouse Relief” Rules, July 1, 2011).  However, despite legitimate reasons for taxpayers missing the deadline, the IRS has been unyielding in a number of especially sensitive situations.  Commissioner Douglas Shulman stated that the rule was too restrictive and not “flexible and compassionate” in its treatment of innocent spouses. 

The strictly-enforced deadline triggered an outcry of criticism from lawmakers and legal aid attorneys.  Whether Treas. Reg. §1.6015-5(b)(1) was a valid exercise of the IRSs rulemaking authority has been challenged and several courts of appeal have upheld the validity of the two-year deadline (see, e.g., Lantz v. Commr., 607 F.3d 479 (7th Cir. 2010); Mannella v. Commr., 631 F.3d 115 (3d Cir. 2011); Jones v. Commr., 642 F.3d 459 (4th Cir. 2011)).  While the IRS has been defending the validity of the two-year rule in court, members of Congress have been urging the IRS to reconsider it.  Representatives Jim McDermott and Pete Stark, senior members of the House Ways and Means Committee, wrote a letter to Commissioner Shulman stating that Congress had not specifically included a statute of limitations for filing innocent spouse claims under IRC § 6015.  Regarding the new rule, McDermott says that the new rule makes the IRS rules consistent with congressional intent.  Representative Michele Bachman, a former IRS attorney, introduced a bill in April preventing the IRS from imposing a time limit on filing innocent spouse claims.

The new rule is effective immediately and will apply to certain cases pending before the IRS or in Tax Court.  Notice 2011-70 provides guidance regarding the new rule and several transitional rules pending formal modification of the regulations removing the two-year time limit. 

Future Requests.  Individuals may request equitable relief under IRC §6015(f) without regard to when the first collection activity occurred. The request must be filed within 10 years of the IRSs assessment under IRC §6502.

Requests Pending with the IRS.  Innocent spouse requests that have already been submitted under IRC §6015(f) and are currently under consideration by the IRS will be honored, even if they were submitted more than two years after the first collection activity occurred.  They will be honored as long as the applicable period of limitation under IRC §6502 or IRC §6511 was open when the request was filed.

Requests that were Denied Solely for Untimeliness and not Ligitated.  Individuals whose IRC §6015(f) requests were denied solely because they were untimely and were not litigated may reapply for IRC §6015(f) relief by filing a new Form 8857, Request for Innocent Spouse Relief

Requests in Litigation.  For cases currently in litigation, the IRS will take appropriate action with regard to the timeliness issue and no reapplication for relief is required.

Requests that were in Litigation and the Case is now Final.  The IRS will take no further collection activity with respect to an individual who sought equitable relief under IRC §6015(f) in a judicial proceeding in which the validity of the two-year deadline was at issue and the decision in the case is final.  The collection relief provided under Notice 2011-70 applies only to those liabilities for which equitable relief would have been granted under IRC §6015(f).

Notice 2011-70 may be relied upon until final regulations modifying the two-year rule are published in the Federal Register or other published guidance is issued.  

The attorneys at Fuerst Ittleman are experienced in making and defending innocent spouse claims.  If you have any questions regarding the innocent spouse rule or any other provision of the Internal Revenue Code, please contact us at