Innocent Spouse | Equitable Relief – Lantz v. Commissioner: 7th CIRCUIT REVERSES TAX COURT – UPHOLDS TWO-YEAR TIME LIMIT FOR EQUITABLE RELIEF UNDER 6015(f) May 13, 2012Posted by Insight Law Firm in Income Tax, IRS, Tax.
Tags: 6015(f), Equitable Relief, Ex Owes Taxes, Innocent Spouse, IRS Equitable Relief Lawyer, Too Late To File Innocent Spouse?
When spouses file joint tax returns, each is generally joint and severally liable for any tax due in that year, including the full amount of taxes due, penalties, and interest. This means that the IRS may pursue the whole amount due from both spouses or any one of the spouses individually. However, under Section 6015(f), an “innocent spouse” who signed an erroneous return without knowing or having any reason to know of the misstatements on the return may request to be relieved of additional taxes and penalties the IRS seeks to collect as a result of these misstatements.
Unlike Section 6015(b) and (c), Section 6015(f) does not contain any time limitation by which a taxpayer must claim this type of relief. Despite this, the Department of Treasury enacted a regulation to impose this same limitation on equitable relief claims under 6015(f). When the IRS enforced this regulation against several “innocent spouses,” this regulation was challenged. The U.S. Tax Court sided with taxpayers. The Tax Court reasoned that since 6015(f) doesn’t expressly state a time limit, the Treasury lacked authority to impose the two year limit.
However, the Seventh Circuit Court of Appeals reversed this decision, holding the IRS cannot impose its two-year limitation on innocent spouse relief claims under Section 6015(f). The Court ruled that even though Section 6015(f) does not contain a time limit, Congress expressly granted the Treasury broad authority to promulgate regulations to administer Section 6015(f). Therefore, its regulation adding a two-year time limit, which appears in surrounding areas of the code, was not improper.
While this Seventh Circuit case is only binding on taxpayers in Illinois, Indiana, and Wisconsin, the IRS will continue to try to enforce its two-year time limitation in every other state as well, but the Tax Court has specifically not followed this decision outside of the 7th Circuit. This means innocent spouses wanting to fill outside this two-year time period could possibly face an uncertain battle in those states, and possibly others in the future.
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Author: Amanda Stach