Today’s post is written by Professor Kathryn Sedo of the University of Minnesota Law School and Frank DiPietro. Frank is a Teaching Fellow Center for New Americans / University of Minnesota Tax Clinic and recipient of the ABA Tax Section Christine A. Brunswick Public Service Fellowship for 2015-17. In Tax Court, as a student attorney, Frank tried Ibrahim v Commissioner under Professor Sedo’s supervision, and he argued the case on appeal before the 8th Circuit. Frank and Kathryn wrote about the Tax Court case here, and Carl Smith weighed in on the oral argument here. Last week, the 8th Circuit Court of Appeals issued its decision. The post explains the decision and discusses how the issue is not yet resolved, with the ball now in the IRS and DOJ’s court. Frank and Kathryn’s efforts demonstrate the importance of legal representation and show how clinics can ensure that taxpayers without resources to afford legal representation can get a fair day in court. Kudos to Kathryn and Frank for an exceptional job. Les
The question before the 8th Circuit in Isaak Ibrahim v. Commissioner was whether the term “separate return” as used in section 6013(b) is defined as return with the filing status “married, filing separately” or a tax return with any other filing status other than “married, filing jointly.” The Tax Court, following its precedent, ruled that “separate return” is defined as any filing status other than “married, filing jointly.” Ibrahim v. Comm’r, 107 T.C.M. (2014). However, the 8th Circuit held that the term “separate return” in section 6013(b) meant “married, filing separately”. This ruling is in accord with the decision in Glaze v. United States, 641 F.2d 339, 344 (5th Cir. 1981). The 8th Circuit reversed and remanded the case back to Tax Court in a 2-1 decision.
The reason why this mattered was that section 6013(b)(2)(B) prevents a taxpayer from changing the election to file a “separate return” to a joint return once the taxpayer has received notice of deficiency and filed a petition in Tax Court. Mr. Ibrahim, who was unrepresented at the time, filed as head of household (an erroneous filing status), was audited, received a notice of deficiency and filed in Tax Court. Mr. Ibrahim found himself in Appeals as a docketed case and it was then he came to the University of Minnesota Tax Clinic for assistance. If Mr. Ibrahim filed as “married, filing separately” as the IRS and (ultimately) the Tax Court insisted, he would lose the ability to claim the earned income credit for his children. Thus, after losing in Tax Court, the U of MN clinic appealed the case to the 8th Circuit.read more...
The Ibrahim opinion states that because the term “separate return” when viewed alone is ambiguous, the Court must consider the Code as a whole and the legislative history of section 6013 to determine its meaning. In reviewing where “separate return” appears throughout the code, the Court focused on section 7703 and how it interplays with other sections of the Code including sections 1, 2, 36 and 6654. This was not surprising as during oral argument, Judge Benton (who wrote the opinion for the court) asked numerous questions to both parties concerning section 7703’s use of the term and how it related to section 6013. Section 7703 provides for a determination of a person’s marital status and the Court stated that section 7703(b) “creates a special rule: an abandoned spouse ‘who is married,’ ‘files a separate return,’ and supports a child is considered not married.” Following this logic, the Court reasoned that “separate return” in section 7703(b) “refers to a married-filing separately return made by a taxpayer who is considered married. Conversely, head-of-household taxpayers, considered “not married,” may not make joint or separate returns.” Furthermore, the court reviewed and found in the Internal Revenue Manual as well as 28 other Code sections that the term “separate return” is defined as a taxpayer who has filed a tax return with the filing status of “married, filing separately” return.
The Court also looked at the legislative history of section 6013 as found in the Congressional Reports concerning its enactment in 1951, the Glaze court’s view of why the statute was created, and the usage of the term “separate return” by the IRS in its publications prior to its enactment as well as immediately after. The Tax Clinic strongly argued in its briefs this line of review and felt it comprised some of its strongest arguments. The 8th Circuit determined that section 6013 was created to help taxpayers avoid adverse financial consequences due to the complexity of the Code by preserving the “election” of a married taxpayer to choose the filing “married, filing jointly” after the filing of their original return with the status of “married, filing separate”. Prior to the enactment of section 6013, a taxpayer could not change their election. Consequently, the Court found that the legislative history supported the claim that “separate return” could only apply to those taxpayers who had originally filed “married, filing separately.” Furthermore, the Court referenced IRS instructions on preparing individual tax returns “in 1952 showing that ’separate return’ did not apply to those filing as “head of household.”
In one of the best parts of the opinion, the Court found that the Commissioner was incorrect when he claimed that the “head of household” status did not exist when section 6013(b)(2)(B) was enacted. In fact, the “head of household” status was first enacted at the same time that section 6013(b) was enacted.
Based on its review of the legislative history and the term’s usage in the Code as a whole, the Court held that the “separate return” as used in section 6013(b) only applies to taxpayers who have filed a tax return with the filing status of “married, filing separately.” Because Mr. Ibrahim filed his 2012 income tax return with the filing status of Head of Household, the limitations of section 6013(b)(2)(B) do not apply and he may amend his return with his correct filing status and receive the Earned Income Tax Credit.
Surprisingly, there was a strong dissenting opinion by Judge Bye in this case. Judge Bye argued that Congress created with sections 6013 and 6511 a two-step process to request a refund; “-step one is to amend to a joint return under § 6013(b)(1) and step two is then to use that joint return as the operative return to seek a credit or refund under section 6511.” Based on this logic, if section 6013(b)(1) does not apply to Head of Household taxpayers, then Ibrahim does not have the right to amend his return in compliance with section 6511. The dissenting opinion goes further in arguing that if “separate return” only applies to those with the filing status of “married, filing separately,” then the purpose of section 6013 as explained by the Glaze court is frustrated because it prevents taxpayers with the filings status “single” and “head of household” amending their returns to the filing status of “married, filing jointly.” The majority references this logic in its opinion and discounts it.
Granted, section 6013 expressly provides the married taxpayer a right to go from “married, filing separately” to “married, filing jointly.” However, the majority states that section 6013 is not required for a taxpayer to amend his returns because “section 6511(and IRS regulations) satisfy this ‘first step’ by allowing taxpayers to correct their filing status through Form 1040X.” The tax clinic agrees, but also contends that while the dissenting opinion states the reasoning for the creation of section 6013, it does not illustrate its purpose. Section 6013 was created because prior to 1951 a taxpayer with the filing status of “married, filing separately” could not amend his/her return to the filing status of “married, filing jointly.” The enactment of section 6013 allowed them to do so. As a taxpayer with the “single” or “head of household” filing status is considered non-married by the IRS, they were never prevented from amending their tax returns. Thus, there is no problem for Section 6013 to solve and it benefits and/or limitations should not apply.
The Department of Justice and the Internal Revenue Service currently have five options after this opinion. First, the IRS Office of Chief Counsel could concede the issue in the 8th circuit as it is has done in 5th and 11th circuits while maintaining its position elsewhere. Second, the IRS could concede the issue nationally so that the application of section 6013 is consistent throughout the country. Third, the Department of Justice could request an en banc review before the entire 8th Circuit which we feel is unlikely to be granted due to the persuasiveness of Judge Benton’s opinion. Fourth, the Department of Justice could request certiorari before the US Supreme Court. However, this request will most likely also not be granted as the only Federal Circuit Courts of Appeals that have ruled on this issue are in agreement despite the contrary opinions of the Tax Court. Lastly, the IRS could follow the recommendations of National Taxpayer Advocate, Nina Olson, who in her most recent annual report to Congress recommended that section 6013(b)(2)(B) be amended, and propose legislation to that effect.
We think it is unlikely that this issue has been put to rest and urge clinics in other circuits to raise the issue in appropriate cases. The Office of Chief Counsel stated in 2006 (25 years after Glaze was decided) that “We continue to disagree with the rationale and holding of Glaze, which holding is inconsistent with Tax Court cases” and “Chief Counsel attorneys with cases appealable to other circuits should look for appropriate cases to litigate that challenge Glaze.” see I.R.S. Chief Counsel Notice CC-2006-010. Regardless, we are extremely happy with the result in this case and look forward to an impoverished immigrant receiving thousands of dollars in income tax refunds.