The IRS has abandoned its controversial regulations that imposed a two-year statute of limitations period for taxpayers to request equitable innocent spouse relief under Code Sec. 6015(f). Instead, taxpayers can request relief within the applicable statute of limitations period:
- For the IRS to collect the tax — 10 years after assessment, or
- For taxpayers to request a credit or refund of tax — the later of three years after the return was filed or two years after the tax was paid.
While the statute imposed a two-year statute of limitations requirement for taxpayers to request innocent spouse relief under Code Sec. 6015(b) or (c), the statute had no statute of limitations period for requesting equitable relief under Code Sec. 6015(f). The IRS by regulation imposed a two-year statute, from the time of the first collection activity.
The Tax Court struck down the regulation as an improper denial of equitable relief; but U.S. Courts of Appeal reversed the Tax Court and upheld the regulation. In May 2011, more than 50 Congressmen wrote to the IRS that the regulation was contrary to Congressional intent. IRS Commissioner Douglas Shulman promised to review the regulation.
The IRS announced transition rules for taxpayers seeking equitable innocent spouse relief, while it modifies the regulations. Subject to the applicable statutes of limitation on collections and refunds, the IRS will do the following:
- Future requests – Taxpayers may request equitable innocent spouse relief after July 25, 2011, the date of the IRS announcement, without regard to the first collection activity.
- Pending requests – The IRS will consider a pending request without regard to the first collection activity.
- Denied requests – Taxpayers should reapply for relief. The IRS will accept the application if the initial request was timely for requesting a refund.
- Requests in litigation – The IRS will take appropriate action where it previously denied a request as untimely.
Completed litigation – The IRS generally will take no further collection action.