Limitation period for equitable innocent spouse relief held invalid.

• Author: Beavers, James

[ILLUSTRATION OMITTED]

In a decision of the full court, the Tax Court held that Regs. Sec. 1.6015-5(b) (1), which imposes a two-year limitation period for requesting equitable innocent spouse relief, is an invalid interpretation of Sec. 6015(f).

Background

During 1999, Cathy Lantz was married to Dr. Richard M. Chentnik, a dentist. Lantz and Chentnik timely filed a joint return for the tax year 1999. Chentnik was charged in June 2000 with Medicare fraud and was convicted and sentenced to federal prison. He remained incarcerated through 2003 and was released from prison to a halfway house in August 2004.

As a result of Chentnik's Medicare fraud, the IRS determined that the couple's joint income tax liability for 1999 was understated, and it issued a notice of deficiency. In May 2003, the IRS sent separate letters to Lantz and Chentnik at Lantz's home address, advising them that the IRS was proposing a levy action to collect their joint income tax liability for 1999. Although Chentnik was in prison, he advised Lantz that he would communicate with the IRS about these notices. As a result of Chentnik's communications with the IRS, in February 2004 the IRS issued two notices of determination solely to Chentnik. In these notices, the IRS determined that it should move the joint account of Lantz and Chentnik into currently noncollectible status because serving a levy on them at that time would cause undue hardship due to their financial condition. In his correspondence with the IRS, Chentnik advised that the IRS should communicate with him directly and requested a form to seek relief for Lantz. In this correspondence, he characterized Lantz as "the innocent spouse." Chentnik died in a halfway house in October 2004.

Lantz relied on Chentnik to resolve the 1999 income tax issue and took no independent action regarding collection letters from the IRS until it applied her income tax overpayment for 2005 against the 1999 tax liability. After communicating with the IRS, Lantz filed a request for innocent spouse relief in June 2006. In July 2006, the IRS issued a preliminary determination denying her relief for 1999 because she had filed her claim more than two years after the first collection action the IRS took against her, in violation of Regs. Sec. 1.6015-5(b)(1). Lantz protested this determination with the IRS. An IRS Appeals officer determined that Lantz was not entitled to relief because of the limitation period. Lantz subsequently filed a petition...