Innocent Spouse rights narrowed

Published On: 10th June 2010

Interesting case in the Seventh Circuit on innocent spouse deadlines, Lantz v. Commissioner. The Seventh Circuit, overturning the Tax Court, ruled that regulation §1.6015-5(b)(1) establishing a two-year limitation for bringing ‘equitable’ innocent spouse claims under I.R.C. §6015(f) is valid, despite the fact that the statute imposes no deadline.

Legally, it’s hard to fault the Seventh Circuit result, given the specific grant of rulemaking authority to the Treasury in §6015(h) to enact regulations in the innocent-spouse area.

But as a practical matter, the Seventh Circuit likely overstated the danger of stale claims in this area. A taxpayer with an old claim likely faces a formidable task in establishing the facts underlying the claim, and in any event the IRS under §6015(f) “may”, but is not required to, provide ‘equitable’ relief, so a taxpayer whose claim under §6015(f) is denied by the IRS faces a nearly (although that word ‘nearly’ is here significant) impossible task in getting a court to overturn the IRS decision.

The ruling technically applies only in the Seventh Circuit (Illinois, Indiana, and Wisconsin) but it’s hard to imagine the other circuits will not follow.

Another roadblock in the tortuous path laid down years ago, when the decision was made that a joint return establishes joint liability, except … .