Chief Counsel Office Revises Guidance on How to Proceed in Equitable Relief Innocent Spouse Cases Following Victory at Seventh Circuit

Less than two weeks after the Seventh Circuit in Lantz v. Commissioner reversed the Tax Court’s holding that the requirement that equitable innocent spouse relief under §6015(f) must be requested within two years of first contact was an invalid regulation, the IRS Chief Counsel’s office has issued revised guidance (CCN CC-2010-011, 6/18/10) to its attorneys on how to proceed on such cases.  The guidance notes that the IRS has appeals pending in the Second and Third Circuit Courts of Appeal, and is considering filing appeals in other circuits.  This guidance supersedes Chief Counsel Notice CC-2010-005 issued in March of 2010 prior to the IRS victory at the Seventh Circuit.

The guidance indicates that the IRS will object to an attempt to have a case with this issue move forward as a Small Tax Court case, as the results of such cases cannot be appealed.  The IRS attorneys are directed to move to remove these cases from the Small Tax Court case designation.  Should the Tax Court turn down that request, in Circuits where an appeal is pending, the attorney should request that the case be held in abeyance pending the resolution of that appeal.

Attorneys are also directed that they should raise the two year deadline rule in every case and that the Chief Counsel will not settle or concede the two year issue in any docketed case.

The guidance notes that nearly half the cases where this matter is at issue are Small Tax Court cases.  A number of such cases were already decided as Small Tax Court cases prior to the Seventh Circuit’s decisions in Lantz and clearly the IRS now wants to take steps to insure that such cases are not decided in that venue before either the IRS can get a ruling in its favor from the applicable Court of Appeal or the Tax Court reverses its position in the light of appellate court rulings.

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