The Tax Court has concluded that Reg. § 1.6015-5(b)(1), which provides that a spouse must request relief under Code Sec. 6015(f) no later than two years from the first collection activity against the spouse, is invalid.
Background. Each spouse is jointly and severally liable for the tax, interest, and penalties (other than the civil fraud penalty) arising from a joint return. Code Sec. 6015(f) allows relief to a requesting spouse if, among other conditions, taking into account all the facts and circumstances, it is inequitable to hold the individual liable.
Reg. § 1.6015-5(b)(1) provides that a spouse requesting relief under Code Sec. 6015(f) must file Form 8857 or a similar statement with IRS no later than two years from the date of the first collection activity against the requesting spouse for the joint tax liability.
Facts. Cathy Marie Lantz sought relief under Code Sec. 6015(f) from joint income tax liability for ’99. IRS denied relief on the basis that Lantz didn’t request relief within 2 years of IRS‘s first collection action. It did not examine the substantive issues of the claim.
Reg is invalid. The Tax Court concluded that Reg. § 1.6015-5(b)(1) is an invalid interpretation of Code Sec. 6015(f). IRS abused its discretion by failing to consider all the facts and circumstances in Lantz’s case. The Court determined that further proceedings were required to determine the validity of Lantz’s claim for relief.
To be eligible for relief under Code Sec. 6015(b) (innocent spouse relief) or Code Sec. 6015(c) (separate liability relief), the Code explicitly provides that the requesting spouse must elect relief not later than the date that is 2 years after the date that IRS has begun collection activities with respect to the individual making the election. (Code Sec. 6015(b)(1)(E), Code Sec. 6015(c)(3)(B)) However, no such limitation is imposed in Code Sec. 6015(f). The Court found that the reg, by imposing a limitation that Congress explicitly incorporated into Code Sec. 6015(b) or Code Sec. 6015(c) but omitted from Code Sec. 6015(f), failed to give effect to the unambiguously expressed intent of Congress. The Court concluded that the equitable remedy which is available under Code Sec. 6015(f) only if relief is not available to an individual under Code Sec. 6015(b) or Code Sec. 6015(c) was meant to be broader than those provisions.
The Court noted that it did not previously address the issue of whether the 2-year limitations period in Reg. § 1.6015-5(b)(1) was valid. It also reasoned that Congress’s failure to overturn the reg wasn’t a tacit approval of the 2-year limitations period.
Dissents. Two dissenting opinions reached contrary conclusions. One concluded that the reg’s 2-year limit did not necessarily impose an absolute time bar for relief because IRS could exercise its discretion to grant a reasonable extension of time under Reg. § 301.9100-3 . The other dissenting opinion concluded that the inclusion of a time limit in Code Sec. 6015(b) and Code Sec. 6015(c) but not in Code Sec. 6015(f) could be interpreted as mere Congressional ambiguity, rather than explicit intent. It noted that the former two Code Sections are mandatory ones–if a taxpayer meets their requirements, IRS has to grant relief– while the latter one, in contrast, is a permissive one–if a taxpayer follows the prescribed procedures, IRS may relieve such individual of liability.
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