Senators Request Withdrawal of Equitable Innocent Spouse Relief Limitations Period

As you know, Congress substantially overhauled the "innocent spouse" rules of the Internal Revenue Code as part of the Internal Revenue Service (IRS) Restructuring and Reform Act of 1998. In revising these 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. The IRS Restructuring and Reform Act 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 (Treas. Reg § 1.6015-5) and IRS published guidance (Revenue Procedures 2000-15 and 2003-61) 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. Each year, thousands of innocent spouses who would otherwise qualify for equitable relief are denied relief because of the regulatory two-year limitation. In many cases, the two-year limitation serves to deny equitable relief to the very taxpayers the law was designed to reach, such as innocent spouses unaware of IRS collection activities because of intimidation or deception on the part of the joint filer.

We recognize that the two-year rule was not promulgated under your leadership, but we are writing to ask you to conduct a thorough review of the regulation and guidance imposing the two-year rule on equitable relief under § 6015(f) and § 66 of the Internal Revenue 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. 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.