A Second Bite at the Innocent Spouse Apple

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We regularly have clients who come into the Tax Clinic at the Legal Services Center of Harvard Law School who received a determination in the past that they did not qualify for innocent spouse relief.  These individuals may have what looks to us like a good case, but we struggle to get them a favorable result because they missed the 90-day period for filing a petition in Tax Court following the receipt of the determination letter denying relief.  The manual has a provision for seeking reconsideration of innocent spouse relief similar to that for seeking audit reconsideration.  While I applaud the IRS for giving taxpayers this second chance, it is a second chance for an administration procedure and getting the innocent spouse unit to rule favorably is hard.

So, I read with interest the case of Vera v. Commissioner, 157 T.C. No. 5 (2021) in which the Tax Court in a precedential opinion allows the taxpayer to come into the Tax Court after dismissing her first attempt to come to the Tax Court as untimely.  Why it did so and how she came to receive a second ticket to Tax Court make this an interesting case. So interesting, in fact, is this case that Bryan Camp has also recently written about it in a post which you can find linked here.

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I note that Ms. Vera represented herself in this case.  In reading the opinion I came away with the impression that Judge Buch or his law clerks did a lot of research that might have otherwise been supplied by a represented petitioner.

Ms. Vera submitted joint returns for 2010 and 2013 with her then-spouse.  The IRS adjusted the 2010 return increasing the liability.  The IRS did not adjust the 2013 return; however, the liability reported on the return was not paid in full.

In 2015, Ms. Vera requested innocent spouse relief with respect to 2013.  The IRS denied relief.  She filed a Tax Court petition on the 91st day after the notice of determination and the Tax Court dismissed the case for lack of jurisdiction.

In November of 2016, Ms. Vera requested innocent spouse relief with respect to 2010.  In doing so, she mailed to the IRS several other documents including her request for innocent spouse relief for 2013.

On March 14, 2019, the IRS denied her innocent spouse relief based on the November 2016 submission.  The header of the denial letter specifies 2010; however, the body of the determination letter addresses both 2010 and 2013, stating:

For tax year 2010, the information we have shows that you didn’t meet the requirements for relief.

For tax year 2010, you didn’t have a reasonable expectation that the person you filed the joint return with would or could pay the tax.

For tax year 2013, you didn’t comply with all income tax laws for the tax years that followed the years that are the subject of your claim.

In response to this determination letter, she timely filed a Tax Court petition listing both 2010 and 2013.  She addressed both years in her statement of facts.  In response, the IRS filed a motion to dismiss as to 2013, taking the position that the determination letter is not a second determination for 2013 and that a second request for innocent spouse relief “is available only when seeking to allocate a deficiency.”  Since the 2013 year is an underpayment year, the IRS argued that she could not come to Tax Court on that year after having once received a determination letter that she did not timely petition.

The court begins its discussion of the situation by setting out what is normal in an innocent spouse case and what is unclear from the statute:

Final determinations in innocent spouse cases are typically singular, conclusive decisions. We previously made this observation in dicta in Comparini v. Commissioner, 143 T.C. 274 (2014). Our Opinion in Comparini, a case involving our whistleblower jurisdiction, noted a distinction between the provisions that give us jurisdiction in whistleblower cases and those that pertain to innocent spouse cases. Id. at 281. We observed that the whistleblower provision gives us jurisdiction over any determination, whereas a predicate to our innocent spouse jurisdiction under section 6015(e) is the mailing of a final determination. Id.

Although section 6015(e)(1)(A)(i)(I) refers to a final determination, nothing in that provision prohibits the Commissioner from issuing more than one final determination as to a given tax year. To the extent this provision might be interpreted as allowing for only one final determination, it does not specify whether it is one final determination per request for innocent spouse relief or one final determination per tax year.

The court then looks at the applicable regulation, 1.6015-1(a)(2), and finds that the IRS “believes that more than one final determination can be issued with respect to a single tax year.”  The regulation contemplates that ordinarily the IRS will only make one final determination of innocent spouse status but that it could make a second determination upon a change in marital status among other reasons.  The court points out that IRM 25.15.17.7 states that if the IRS decides to issue a second determination, the second determination does come with the right to petition the Tax Court.

The court discusses the ability of the IRS to reconsider an innocent spouse case and not issue a second determination letter.  It did so in Barnes v. Commissioner, 130 T.C. 248 (2008) and the letter it issued was determined by the Tax Court not to confer upon it jurisdiction.

The court then looks at its whistleblower jurisprudence where it has held that a successive letter purporting to be a final determination confers jurisdiction upon the court as in Comparini v. Commissioner, 143 T.C. 274 (2013).

Although the IRS argues that including mention of 2013 in the second final determination letter sent to Ms. Vega was done in error, the court finds that the notice provides an unambiguous denial of both 2010 and 2013.  The letter does not mention that she sought an improper second request for 2013.  Looking again to whistleblower law, the court notes that it has previously determined in Ringo v. Commissioner, 143 T.C. 297 (2014) that it has jurisdiction to hear a case even when the IRS issues a determination letter by mistake.  It has similar jurisprudence regarding deficiency notices as discussed in Hannan v. Commissioner, 52, T.C. 787 (1969) and in collection due process cases as discussed in Kim v. Commissioner, T.C. Memo. 2005-96.

Because of its consistent case law looking to the notice and not behind it, the court finds that the same principle applies to Ms. Vega’s petition for innocent spouse relief.  The decision does not mean that she has won her request for innocent spouse relief, but only that she will now have the opportunity to prove her case in Tax Court.  If she wants assistance on the merits of her case, I invite her to reach out to the Tax Clinic at the Legal Services Center of Harvard Law School or to her local LITC.  It would be a shame not to obtain a complete victory after her success on the jurisdictional issue.

Because of the case law in other areas of the Tax Court’s jurisdiction, I doubt that the IRS will appeal this decision.  I do not think that too many taxpayers have the good fortune to receive a second notice of determination for the same period by mistake.  My guess is that this situation occurs infrequently and fighting about it further will provide few benefits.  Notices of deficiency and notices of determination do matter.  The IRS can confer on the Tax Court jurisdiction inadvertently.  Congratulations to a pro se taxpayer who has created favorable precedent for others who may find themselves similarly situated.

Comments

  1. I don’t dispute or reject the result of Vera, but I am not sure that I agree with all of its reasoning. Judge Buch analogizes innocent spouse cases to deficiency, Collection Due Process, and whistleblower award cases, but there is a big difference between jurisdiction under the latter and jurisdiction under the innocent spouse provisions. In deficiency, Collection Due Process, and whistleblower awards cases, the Tax Court only has jurisdiction if the IRS first issues a “ticket” to the Tax Court. Judge Buch misstates the law as to innocent spouse where he writes: “a predicate to our innocent spouse jurisdiction under section 6015(e) is the mailing of a final determination.” In fact, the Tax Court has innocent spouse jurisdiction if the taxpayer has filed with the IRS a From 8857 requesting relief and 6 months has elapsed. The only purpose of an innocent spouse notice of determination is to cut off the ability for a Tax Court suit 90 days after the IRS mails the notice. I am not sure that, conceptually, the notice should be treated as a “ticket” to the Tax Court.

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