Two Easy Fixes That Could Expand Eligibility for § 6015 Relief from Joint & Several Liability (even While Retaining Current Rigorous Qualification Vetting)
| Publication year | 2018 |
| Author | By Robert S. Horwitz & Carolyn M. Lee |
By Robert S. Horwitz & Carolyn M. Lee1
- Extend the statute of limitations for claiming innocent spouse relief for § 6015(b) and § 6015(c), making all § 6015 forms of relief co-terminus with the § 6502 collection statute.
- Clarify and codify the standard and scope of judicial review of § 6015(b), § 6015(c) and § 6015(f).
The Taxpayer First Act (HR 5444) includes many provisions benefitting taxpayers, including Section 11303 addressing IRC § 6015, governing relief from joint and several liability for qualifying requesting spouses. The bill is that rare thing: Legislation with bipartisan support. The Taxpayer First Act was passed by the House of Representatives on April 18, 2018 by a vote of 414 to 0. It currently is pending in the Senate. The moment is now to refine HR 5444 to expand eligibility for § 6015 relief, even while retaining the current rigorous qualification vetting.
Internal Revenue Code Section 6015 allows a requesting spouse who filed a joint income tax return to obtain relief from joint and several liability for a deficiency of tax when the erroneous item giving rise to the deficiency is properly attributable only to the non-requesting spouse. This paper recommends two amendments to § 6015, each enhancing fairness and increased access to the benefits Congress intended for qualifying requesting spouses.2 Neither proposal would change the stringent requirements to qualify for § 6015 relief based on the facts and circumstances of the requesting spouse.
The first amendment would extend the statute of limitations for seeking relief pursuant to § 6015(b) (traditional relief) and § 6015(c) (allocated relief) to be co-terminus with the § 6502 period for collecting an assessment. Equitable relief pursuant to § 6015(f) may be requested through the end of the § 6502 collection period; this change would make the period to request relief pursuant to § 6015 the same for all three forms of relief.
The second amendment would codify the standard and scope of Tax Court review of equitable requests for § 6015 relief. The proposed amendment would require a de novo review based on the administrative record established at the time of the determination and any additional evidence. This change would make the standard and scope of review the same for § 6015(b), § 6015(c) and § 6015(f).
A. Extending the Period to Request Relief Pursuant to § 6015(b) and § 6015(c).Internal Revenue Code Section 6015 allows a taxpayer who filed a joint income tax return to obtain relief from joint and several liability for a deficiency of tax in three situations. This relief is commonly referred to as innocent spouse relief. For two of those situations, § 6015(b) and § 6015(c), a spouse must elect relief within two years from the date Internal Revenue Service (IRS) collection efforts commence. The statute does not expressly state the period within which relief may be sought in the third situation (§ 6015(f), equitable relief); however, by Notice 2011-70, the IRS announced that the period within which relief may be elected under § 6015(f) extends to the close of the period during which the IRS may collect the tax; that is, at least ten years. A truncated period to request relief under two of the three § 6015 subsections is at odds with the character of the statute, which is to make the benefits of § 6015 relief available to taxpayers who qualify on the merits of their facts and circumstances. This proposal recommends a simple amendment to § 6015, so that the period for requesting relief is the same for § 6015(b), (c) and (f).
A person claiming relief as an innocent spouse under § 6015(b), § 6015(c) or § 6015(f) should be allowed to elect relief at any time during which the IRS has authority to collect the tax underpayment. The longer statute of limitations acknowledges the complexities of marital relations. It is consistent with the spirit of Congressional intent to provide relief from joint and several liability to all qualifying requesting spouses to whom erroneous tax items are attributed solely on the grounds of a jointly filed tax return, or for whom responsibility for a joint liability would be inequitable.
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Enforcement of the two-year period for seeking relief under § 6015(b) and § 6015(c) can result in unduly harsh consequences for taxpayers who are entitled to relief but do not seek relief within the statutory two-year period. This is especially true where the spouses do not divorce or become legally separated until after the two-year period or begin living in separate households more than one year after collection activity begins. In addition, pro se taxpayers—the vast majority of taxpayers who might qualify for relief—likely find the two-year statute a trap for the unknowing and unwary. The earliest statutory versions of relief from joint and several liability for innocent spouses did not include a two-year limitation on the request period. Inexplicably, the two-year period was included with other, more beneficially expansive revisions to innocent spouse relief with the enactment of § 6015 in 1998.
Enactment of this simple statutory amendment will bring consistency and increased fairness to the foundational element of the statute; i.e., the period for requesting relief. All other existing requirements to qualify for relief remain the same. The amendment will make relief pursuant to § 6015(b) and § 6015(c) available to the taxpayers whom these separate forms of relief were intended to benefit, and whose requests are rejected because the two-year application period closed and they cannot qualify for equitable relief pursuant to § 6015(f). The change will not increase stress on the IRS or the Tax Court, which have been administering and deciding § 6015 matters for decades. Any concern about an overwhelming volume of applications for relief may be assuaged by the May 23, 2018 posting by the National Taxpayer Advocate regarding the effect of the extension of the time to request equitable relief from two years to ten+ years. In fact, the volume of requests remained stable, and even decreased slightly.
This amendment will ensure certainty pertaining to the statute of limitations, in contrast to continued use of Revenue Procedures and Notices to modify the statute's implementation. Most important, the change will allow the IRS to focus on collecting unpaid liabilities from the person whose actions created the liability and who, under § 6015, should be accountable for satisfying the liability.
B. Clarifying the Standard and Scope of Judicial Review of § 6015(b), § 6015(c) and § 6015(f).The standard and scope of judicial review of requests for relief pursuant to § 6015(b), § 6015(c) and § 6015(f) should be de novo, based on the administrative record at the time of the determination and any additional evidence. The Taxpayer First Act pending in Congress would limit the record to be considered by the courts to the administrative record at the time of the determination to deny relief plus any newly discovered evidence or evidence that was previously unavailable. In essence, this would codify the "record rule" for all § 6015 cases. The Taxpayer First Act provides the opportunity to codify a full de novo judicial review for § 6015 cases under all three forms of relief. Currently, courts apply a de novo standard to § 6015 cases.
The limitation on the scope of review would be disastrous for requesting spouses, the vast majority of whom are unrepresented. All § 6015 cases are fact-intensive. Requesting spouses have no access to discovery or any type of compulsory process prior to petitioning Tax Court or other judicial review—even if the taxpayer had the knowledge or wherewithal to develop a meaningful evidentiary record. In addition, the administrative record often is incomplete or riddled with errors. The courts have allowed a trial de novo for § 6015 cases, permitting parties to present evidence outside the administrative record. Often, requesting spouses in Tax Court receive assistance with developing evidence from Low Income Tax Clinics or Tax Court Day of the Docket pro bono attorneys—well after the IRS determination to deny relief. It would work to the material disadvantage of persons seeking innocent spouse relief to circumscribe the evidence the courts may consider when deciding § 6015 cases.
These two proposed amendments reinforce Congress's intent to make § 6015 relief from joint and several liability available for all qualifying requesting spouses. The rigorous requirements to qualify for relief pursuant to each § 6015 subsection would remain unchanged. The IRS and the courts are well-equipped to review all three avenues for relief without additional strain on resources. The IRS and the courts have two decades of experience administering and deciding § 6015 matters. Each amendment has a natural home in the Taxpayer First Act section 11303 pending before Congress.
Since the Revenue Act of 19183 married couples have had the option of filing either joint or separate income tax returns. The same rates applied to both joint and separate returns. A married couple in a community property state could split their income by filing separate returns. In non-community property states, a married couple that filed separate returns would each report his or her separate income. A married couple in a community property state thus could pay a lower tax rate on their income than a similar couple in a non-community property tax state.
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During the 1930s and 1940s, several bills were proposed in Congress to place married couples in community property states on the same footing as married couples in non-community property states. These bills focused on two alternate solutions: a) having married couples in...
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