Regs. limiting period for filing innocent spouse claim held valid.

• Author: Beavers, James A.

Reversing the Tax Court, the Seventh Circuit held that the two-year limitation period for filing an equitable innocent spouse claim under Sec. 6015(f) in Regs. Sec. 1.6015-5(b)(1) was valid.

Background

Cathy Lantz filed a joint return for 1999 with her husband, Dr. Richard M. Chentnik. The IRS assessed a large deficiency against the couple based on Medicare fraud committed by Chentnik, of which Lantz was totally unaware. Although the couple had separated after Chentnik was jailed for the fraud, Lantz relied on him to resolve the issue with the IRS and took no independent action to address it. However, Chentnik did not resolve the issue before his death in 2004, and the IRS applied Lantz's 2005 income tax refund against the outstanding liability for 1999.

In response, Lantz filed for equitable innocent spouse relief in 2006 under Sec. 6015(f), which allows for relief when it would be inequitable to hold the spouse liable and relief is not available under Sees. 6015(b) or (c). The IRS denied her request because she had filed her claim more than two years after the first collection action the IRS took against her, as required by Regs. Sec. 1.6015-5(b)(1). Lantz subsequently filed a petition in Tax Court challenging the IRS's determination, arguing that Regs. Sec. 1.6015-5(b)(1) was invalid.

The Tax Court's Opinion

The Tax Court held that Regs. Sec. 1.6015-5(b)(1) was invalid because the two-year limitation period violated Congress's intent for Sec. 6015(f), and the IRS had therefore abused its discretion in denying Lantz innocent spouse relief (Lantz, 132 T.C. No. 8 (2009)). Although Sec. 6015(f) does not address a limitation period for claims for equitable relief, the Tax Court found that Congress's intent was that there be no limitation period. According to the Tax Court, "by explicitly creating a 2-year limitation in subsections (b) and (c) but not subsection (f), Congress has 'spoken' by its audible silence." The Tax Court explained that this was consistent with a grant of equitable relief, which by its nature would be broader than the specific relief granted in Sees. 6015(b) and (c).

The Seventh Circuit's Opinion

The Seventh Circuit reversed the Tax Court and held that Regs. Sec. 1.6015-5(b)(1) was valid and that the IRS had not abused its discretion in Lantz's case. The court found that the Tax Court had improperly interpreted what the omission of a limitation period from a statute meant and that under the delegation of rulemaking...