Treasury Department Acted Within Its Authority Adopting Two-Year Filing Deadline For Innocent Spouse Relief
LANTZ v. COMMISSIONER OF INTERNAL REVENUE (June 8, 2010)
Kathy Lantz was married to a dentist with whom she filed joint federal tax returns. Unfortunately, she was also married to a dentist who was convicted of Medicare fraud and who the IRS accused of understating their joint tax liability. When she received a notice of tax levy and information from the IRS regarding innocent spouse relief, she allowed her then estranged husband to respond. Although he requested a due process hearing and application for such relief, he died before taking any other action. In 2006, the tax obligation exceeded $1 million. The IRS applied Lantz’ 2005 income tax refund of $3200 to her tax liability. Unemployed and poor, she applied for innocent spouse relief. The IRS rejected her application because she had failed to apply within two years from the notice of intent to levy. The Tax Court invalidated the two-year deadline. The Commissioner appeals.
In their opinion, Judges Posner, Flaum, and Williams reversed and remanded. Section 6015 of the Internal Revenue Code provides several avenues of relief to innocent spouses. Subsection (b) relief requires that the spouse have had no reason to know of the understatement. Subsection (c) relief requires that the spouse no longer be married to the person with whom he or she filed. Both subsections (b) and (c) contain a statutory two-year limitations period. Subsection (f), under which Lantz applied, contains no statutory limitations period. It provides that the IRS may grant innocent spouse relief when it is not available under either subsection (b) or (c) and is otherwise equitable under all the facts and circumstances. The Treasury Department, by regulation, imposed a two-year deadline on subsection (f). The Court found nothing improper with the Department's action. First of all, the fact that Congress did not include a limitations period does not mean that it intended the statute not have one. The Court noted that borrowing a statute of limitations from another statute is a common judicial practice – so common, in fact, that Congress can be assumed to endorse it. Second, the subsection does not even require the IRS to grant relief. Since it can deny relief altogether, it can decide to deny relief to late claimants. Finally, the subsection itself begins with the phrase "under procedures prescribed" by the Treasury Department. That congressional delegation of authority to the Department certainly allows it to set a deadline for an application.
