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Innocent Spouse Proposed Regulations Issued for Timing of Making Request under Section 6015(f)—Work still needs to be done.

Posted on Aug. 15, 2013

On Monday Aug. 12, the Service issued Proposed Regulations under Section 6015(f) modifying the time frame under which a spouse may request innocent spouse relief from joint tax liabilities.  The Proposed Regulations extend the timing for making the request from two years under the prior Regulations to ten years.  The Proposed Regulations largely reflects a codification of the Service’s change in position originally published in Notice 2011-70.  We have written extensively about Section 6015(f), the original regulations, the litigation surrounding those regulations, and Notice 2011-70 in Chapter 7C of Saltzman and Chapter 19 of Effectively Representing Your Client Before the IRS, and will provide additional blog posts on these Regulations and innocent spouse in the near future.

The Service deserves much credit for changing its position and issuing Notice 2011-70 at a point when it had succeeded in their defense in three circuits.  It also deserves credit for reaching out to the low income taxpayer clinic community during the process of reevaluating its position.  See ABA Section of Taxation NewsQuarterly, Vol. 31, No. 4, Page 16 and Letter to the Editor of Tax Notes, Tax Notes, May 20, 2013, p. 953; 139 Tax Notes 953 (May 20, 2013).  Despite changing its position on the two year rule and listening to impacted parties, the proposed regulation falls short of fixing all of the problems with the prior version.  Several issues remain which deserve attention prior to making the regulation final.

Carl Smith, one of the champions in the low income taxpayer community in fighting the application of the two year rule on collection to 6015(f), and I made brief comments to Tax Notes on the new regulations and, without coordination of our thoughts, expressed primary concern about the CDP letter as a trigger.  See Proposed Regs Follow Through on Equitable Innocent Spouse Relief by Matthew Dalton and Andrew Velarde, Tax Notes Today, Tuesday, August 13, 2013.   I list four concerns below:

1)     The proposed regulation continues past practice and determines that one of the IRS acts of collection is the sending of the CDP notice.  Having the sending of the CDP notice serve as an act of collection, and a trigger of the two year period within which to request relief under Section 6015(b) and (c), creates problems some of which are the very problems CDP was originally designed to fix.  Many taxpayers, especially low income taxpayers, never receive the notices that the IRS sends because they move or they just have bad mail service for some reason.  When Congress created the CDP process, one of the main reasons for doing so was the concern that many taxpayers ended up in the collection process without ever having the opportunity to contest the underlying tax because of the failure to receive IRS correspondence.  So, the CDP process allows a taxpayer who did not receive the statutory notice of deficiency to contest the underlying liability.  How ironic that the CDP notice, whether received or not, becomes a collection trigger and how doubly ironic that the Service cites to the Manella case, where the taxpayer did not receive the CDP notice because of her abusive husband, serves as the citation in support of this position. The CDP letter itself should not signal the start.  In many, if not most cases, the sending of the CDP letter does not trigger levy action.  Why use the sending of that letter as a collection action when the actual filing of the notice of federal tax lien, a far more intrusive and public act of collection, is not considered an act to collect?  The Service should reconsider its position that sending a CDP notice triggers the two year period for filing an innocent spouse request under Section 6015(b) and (c).

2)     Perhaps, I am looking for too much in a regulation but I am concerned that the refund provisions do not give a head’s up to taxpayers to consider financial disability which may often accompany the circumstances surrounding innocent spouse.  Mentioning the ability to extend the time frame for seeking a refund when financial disability exists in the regulation and in the materials its issues concerning innocent spouse requests might alert individuals seeking such relief to the possibility of an extended time period within which a refund could be requested.

3)     The proposed regulation cites to the Manella case which was a clear case of domestic abuse in which the abuse prevented the wife from learning of the CDP notice.  Rather than embracing the bad facts of Manella as a basis for putting the screws to victims of domestic violence, the proposed regulation should seek to give them a break.  The Service should use this regulation as an opportunity to acknowledge the extraordinarily difficult circumstances caused by domestic violence and use it as a means for providing additional relief to those victims.

4)     The description of the submission of an innocent spouse claim in a CDP case at page 18 of the document implies that the innocent spouse request should be submitted with the CDP request.  The 30 day window for making the CDP request puts the claimant in a very tight spot if the Form 8857 must accompany the submission of the CDP request itself.  The proposed regulation should make clear that the CDP request should signal innocent spouse concerns but that the submission of the completed form could follow at a later time.

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