David C. Holtz, J.D., LL.M., Former IRS Attorney

IRS is offering to suspend the issuance of a determination letter denying untimely claims for innocent spouse relief.  The United States Tax Court in Lantz v. Commissioner, 132 T.C. No. 8 (April 7, 2009) held that the two year statute of limitations deadline was not applicable to claims innocent spouse relief on the basis of equity under IRC Section 6015(f).  The IRS is appealing this decision to the United States Court of Appeals in the 7th Circuit.  As a result, the IRS is offering to suspend the issuance of determination letters until the Court of Appeals issues its opinion.  In most cases, it is in the best interest of the taxpayer claiming relief to request that the IRS suspend the issuance of the determination.

There are generally three statutory bases for electing innocent spouse relief.

  • Relief Where Spouse had No Reason to Know about Tax Understatement.  Relief under IRC Section 6015(b) generally provides that a taxpayer who files a joint return on which the taxpayer had no reason to know that it contained an understatement of tax may obtain relief from all or a portion of the tax liability.  The deadline for electing 6015(b) relief is two years after the IRS first begins collection activities against the individual making the claim.
  • Separate Liability Relief where Divorced or Separated:  Relief under IRC Section 6015(c) generally provides where a taxpayer is divorced or legally separated or no longer living together for 12 months, the taxpayer may elect to be liable only for the income attributable to himself or herself. The deadline for electing 6015(c) relief is two years after the IRS first begins collection activities against the individual making the claim.
  • Equitable Relief:   Relief under IRC Section 6015(f) generally provides that where an individual does not qualify for relief under any of the above bases, then the IRS may relieve the taxpayer if it is inequitable to hold the individual liable for such taxes.  The statute does not contain a deadline for electing 6015(f) equitable relief.  However, the Department of the Treasury issued a Regulation and Revenue Procedures providing that the same two year deadline as in 6015(b) and (c) applies to 6015(f).  The United Tax Court in Lantz held this the two  year deadline is not applicable to equitable relief under section 6015(b).  The IRS has indicated that they disagree and are appealing this decision.

In cases where the IRS is denying innocent spouse relief on the basis the such claim for relief was filing untimely (later than two years after IRS first begins collection activities), the IRS is issuing IRS Form Letter 4581(c), PROPOSED DETERMINATION (Untimely Claim) – Offer to Suspend Case, offering to suspend the issuance of a determination letter denying the claim for innocent spouse relief until the 7th circuit renders its opinion.

In most cases it is in the taxpayer’s best interest to request that the IRS suspend the issuance of the determination letter because it increases the probability that your claim will be resolved favorably without having to petition the United States Tax Court for relief.  However, in cases where it is anticipated that important witnesses or evidence will no longer be available if the matter is delayed, then the taxpayer should request that the IRS issue a determination letter immediately.  In so doing, upon receiving a determination letter the taxpayer may file a tax court petition to litigate the matter before the U.S. Tax Court.

Author:  David C. Holtz, J.D., LL.M., Former IRS Attorney

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