IRS Clarifies Innocent Spouse Statute of Limitations

In a previous blog article, we addressed the courts invalidating the Internal Revenue Service’s (IRS’s) two-year statute of limitations for claiming innocent spouse relief pursuant to IRC Section 6015(f). Subsequently, the IRS issued interim guidance and stopped enforcing the two-statute of limitations for these claims. On August 12, 2013, the IRS issued proposed Treasury Regulations to clarify all of the statute of limitations rules for all innocent spouse relief claims.

The highlights of the proposed Treasury Regulations are:

1. The statute of limitations for requesting innocent spouse relief pursuant to IRC Section 6015(b) and 6015(c) will remain consistent with the statute. Requests pursuant to these sections must be made within two years of the date of the first IRS “collection” activity.

2. According to the proposed regulations, “collection activity” can include: the IRS mailing an IRC Section 6330 notice, which is a Notice of Intent to Levy giving the taxpayer the right to request a Collection Due Process Hearing; the taxpayer filing a bankruptcy petition; and, the IRS applying an overpayment against the liability. “Collection activity” does not include the IRS filing a Notice of Federal Tax Lien (NFTL), even though a taxpayer can request a Collection Due Process Hearing to address the NFTL and assert innocent spouse relief.

3. Requests for innocent spouse relief pursuant to IRC Section 6015(f) can be made at any time before the statute of limitations on collections expires. In general, the statute of limitations on collections expires ten years after the date of the tax assessment, plus extensions.

4. If a taxpayer who is requesting relief from an understatement files their request after the two-year “collection activity” statute of limitations, but before the statute of limitations on collections expires, the IRS will consider the innocent spouse relief claim under IRC Section 6015(f), even though the taxpayer would have been eligible for IRC Section 6015(b) and 6015(c) relief if they had filed a timely request.

5. Form 8857, Request for Innocent Spouse Relief, still serves as the form to assert innocent spouse relief and claim a refund for an overpayment under the innocent spouse rules. The IRS will not issue a refund unless the Form 8857 is filed within three years of when the taxpayer filed the tax return for the year in issue, or two years after the date of the payment, whichever period is later. This rule is the same as the general claim for refund rule pursuant to IRC Section 6511.

6. If the statute of limitations for a claim for refund expires after the statute of limitations on collections, and taxpayer timely files a Form 8857, the IRS will issue a refund of an overpayment of only any amounts paid prior to the expiration of the statute of limitations on collections. A taxpayer cannot recover any amounts paid to the IRS after the statute of limitations on collections expires, even if the claim for refund statute of limitations has not expired.

7. The IRS will generally only issue one innocent spouse relief final determination. However, if the taxpayer can present new facts or evidence, the IRS can reconsider an innocent spouse request.

More taxpayers who filed their tax return “Married filing jointly” status will be eligible for innocent spouse relief under the proposed regulations. Taxpayers who might not have been eligible to request for innocent spouse relief in the past should reevaluate their case under these new regulations.