Members of Congress also have been urging the IRS to reconsider the two-year rule. In an April 18 letter to Shulman, Representatives Jim McDermott and Pete Stark, both senior members of the tax-writing House Ways and Means Committee, wrote that Congress specifically didn't include a statute of limitations in that portion of the tax code. Senators, including Finance Committee Chairman Max Baucus, a Montana Democrat, also called for the change.
'Flexible and Compassionate'
Shulman had responded to the members' letter in April by saying he was seeking a review of the rules. He said in the interview today that upon examination, the rule was too restrictive and didn't fit the agency's goal of being "flexible and compassionate" with taxpayers in difficult situations.
Representative Michele Bachmann of Minnesota, a Republican presidential candidate and former IRS attorney, introduced a bill in April that would prevent the IRS from imposing a time limit.
McDermott, a Democrat from Washington state, said in a statement today that the change makes the IRS rules consistent with congressional intent.
"Today's decision is a victory for fairness and will provide innocent taxpayers with enough time to seek the relief that they deserve," he said.
Regular Time Limits
The removal of the two-year rule means that the regular time limits for responding to collection actions will apply in the affected innocent spouse cases. That period can stretch back as far as 10 years, depending on the taxpayer's circumstances.
The U.S. agency has been defending the validity of the two- year rule in court. Shulman said the announcement doesn't change the agency's position about the validity of the regulation.
"It was well within our authority to have the two-year rule," he said. "This is just something that we believe was the wrong policy call."