Hunton & Williams LLP Litigation in Pro Bono Tax Case Leads IRS To Lift Statute of Limitations for Certain Innocent Spouse Claims

Washington — August 25, 2011 — Hunton & Williams LLP's Timothy L. Jacobs, Washington, successfully litigated a pro bono tax case, helping to lead the Internal Revenue Service to reverse itself and to lift a statute of limitations requirement for requests by innocent spouses seeking equitable relief.

"The case is being watched closely by tax groups around the country and is extremely important to low-income taxpayers, particularly to victims of domestic violence," said Wally Martinez, Hunton & Williams' managing partner. "We are very proud of Tim and his team and their work lives up to our pro bono tradition of helping to create legal change to improve lives."

The case involves a client of the Community Tax Law Project, a Richmond, Va.-based organization that helps low-income taxpayers in cases before the IRS. The taxpayer, now a single mother, was married to an abusive man whom she divorced in 2001. After her divorce, she learned that he had not paid the federal income taxes on his self-employment income and that, because they had filed as "married filing jointly," she was responsible for paying those taxes. When the IRS contacted her to collect the tax, she requested equitable relief, as an "innocent spouse," alleging that it is unfair for her to be held responsible under their specific circumstances. The IRS determined that she had waited too long — more than two years after the IRS' deadline — to ask for innocent spouse relief, and denied her request.

The taxpayer then came to CTLP for assistance. Jacobs litigated the case in the United States Tax Court and prevailed. The Tax Court granted the taxpayer relief and, consistent with an earlier decision, invalidated the IRS’ two-year rule. As part of a national policy, the IRS appealed the Tax Court's ruling to the U.S. Court of Appeals for the Fourth Circuit. Following oral argument in May, the Fourth Circuit agreed with the IRS and upheld the IRS's two-year deadline in this case. Two other circuit courts had previously upheld the IRS’ rule, reversing the Tax Court.

Nevertheless, the taxpayer victories in the Tax Court, including Jacobs' victory, and pressure brought to bear by the IRS National Taxpayer Advocate and numerous members of Congress, in chorus with this litigation, forced the IRS to reconsider its two-year rule. On July 25, 2011, the IRS announced a dramatic step in its policy, eliminating the two-year time limit on certain new and existing innocent spouse relief requests.

Jacobs, who dedicated more than 300 pro bono hours to this case and was CTLP's 2007 Pro Bono Volunteer of the Year, was pleased. "It is gratifying to know that victims of domestic violence who may be facing a lengthy process of extricating themselves from abusive relationships, will not have an onerous deadline by which to seek IRS relief."

Pro Bono Leader

Hunton & Williams continues to lead the way in community service in the United States and its tradition of pro bono service is well recognized. During the firm’s last two fiscal years, 100 percent of its U.S. lawyers have participated in pro bono matters. Hunton & Williams received a National Law Journal 2011 Pro Bono Award for its work for Haiti immigration relief with Catholic Charities Immigration Legal Services; the Florida Supreme Court’s 2010 Chief Justice’s Law Firm Commendation Award for the firm’s commitment to provide access to the courts for all Floridians; the 2010 Beacon of Justice Award from the National Legal Aid & Defender Association for immigration work; and the Pro Bono Institute's 2009 Pickering Award.

About Hunton & Williams LLP

Hunton & Williams LLP provides legal services to corporations, financial institutions, governments and individuals, as well as to a broad array of other entities. Since our establishment more than a century ago, Hunton & Williams has grown to more than 900 lawyers serving clients in 100 countries from 19 offices around the world. While our practice has a strong industry focus on energy, financial services and life sciences, the depth and breadth of our experience extends to more than 100 separate practice areas, including bankruptcy and creditors rights, commercial litigation, corporate transactions and securities law, intellectual property, international and government relations, regulatory law, products liability, and privacy and information management.