This is really, really good news for Innocent Spouses.
On January 5th, 2012, the IRS took a big step towards making good on the promise made by congress 15 years ago – a promise, as President Clinton put it on July 22, 1998 (while signing the IRS Restructuring and Reform Act) to “give the American people an IRS they deserve.” The IRS did this by publishing Notice 2012-8. Last week, after reviewing the comments submitted on the proposed Revenue Procedure, the IRS made it official, and published the guidance in its final form: Revenue Procedure 2013-34.
This is really, really good news for Innocent Spouses. Normally, from a practical perspective, it wouldn’t really matter whether IRS guidance is embodied in a Revenue Procedure or a proposed Revenue Procedure (a “Notice”). That’s because the IRS will generally follow a Notice as soon as it is released. Even though the comment period is still open. In the Notice, it was clear that the IRS would start using the new factors immediately:
Because the provisions in the proposed revenue procedure expand the equitable relief analysis by providing additional considerations for taxpayers seeking relief, until the revenue procedure is finalized, the Service will apply the provisions in the proposed revenue procedure instead of Rev. Proc. 2003-61 in evaluating claims for equitable relief under section 6015(f). [Page 3]
So what’s the big deal? Does Rev. Proc. 2013-34 really change the innocent spouse landscape? Are things better for taxpayers now than they were following January 5, 2012? Yes. And the reason might surprise you.
Sure, substantial changes can be made after comments close, but Notice 2012-8 signaled such a departure from the IRS’s previous approach to innocent spouse claims filed under 6015(f), that practitioners jumped at the chance to pursue relief under the new guidance on behalf of their clients immediately. I certainly didn’t wait for the IRS to make it “official” before taking advantage of the new factors. (One of the most significant features of requesting innocent spouse relief is that while the IRS is considering a taxpayer’s request, it cannot pursue collection against that requesting spouse. So this is one of those situations where you should act sooner rather than later.) And while there were some small changes made to Rev. Proc. 2013-34, that is not what has me so excited about the fact that it has now been adopted as final.
I am excited because the Tax Court will now start applying the new Rev. Proc. to Innocent Spouse cases.
Innocent Spouse cases have always exhibited an interesting dynamic between the IRS and the Tax Court.
In 2009, the Tax Court decided both that it could conduct a de novo review of Innocent Spouse claims made under 6015(f) (Porter II) and that the an IRS regulation imposing a 2 year Statute of Limitations on claims for Equitable Relief made under 6015(f) was invalid. (Lantz v. Commissioner). Both of these decisions were taxpayer-friendly, and the IRS was not a fan and kept fighting these interpretations for two years.
But with Notice 2012-8, the IRS changed its tune. The IRS basically announced that it was giving up its fight against innocent spouses. The IRS made it clear that emotional as well as physical abuse was a factor weighing in favor of relief. The time for filing a claim under 6015(f) was made official (10+ years – or as Rev. Proc. 2013-34 properly refers to it – the CSED date).
The IRS will likely never actually concede that the Tax Court can review Innocent Spouse cases de novo. The IRS has conceded that the Tax Court can review Innocent Spouse Cases de novo. But in substance, And the new guidance under Notice 2012-8/Rev. Pro. 2013-34 represents somewhat of a “180” in how the IRS will process Innocent Spouse cases in the future.
However, before Revenue Procedure 2013-34 was published, the tax court was refusing to follow the guidance laid out in Notice 2012-8 even though both the IRS and taxpayers were urging it to follow new guidance. (See Sriram v. Commissioner). The reasoning given by the Tax Court for not following the Notice was that the guidance was not yet official.
So here we are, now it’s official. What does that mean for taxpayers pursuing innocent spouse claims under 6015(f)? It means that if an Innocent Spouse claim is denied on that administrative level, those taxpayers will have a better shot at winning when they petition the Tax Court for redetermination of liability. Now the Tax Court will finally do what the Internal Revenue Service wants it to do. And for once, that’s good news for taxpayers.
But maybe, just maybe, all of the infighting between the Tax Court and the IRS on Innocent Spouse issues should tip off Congress that it should stop letting the IRS write the tax laws in this country. 6015(f) is one sentence. Rev. Proc. 2013-34 is 27 PAGES).