Knowledge Leaves Another Innocent Spouse Petitioner Standing at the Altar

Goode v. Commissioner, T.C. Summ. Op. 2021-34 finds another spouse seeking relief from liability under IRC 6015 failing because of the knowledge element and the lack of economic hardship.  As we discussed in the recent post entitled “Is Economic Hardship the Antidote for Knowledge in an Innocent Spouse Case?” the Tax Court has created an unmistakable pattern of finding against spouses who have knowledge of the item giving rise to the liability and do not prove economic hardship.  The Goode case is another case where the petitioner had three positive factors and only one negative factor, knowledge.  Despite the numerical advantage of the positive factors, the knowledge factor continues to enjoy the status of a superfactor unless the taxpayer seeking relief can successfully raise the antidote of economic hardship.

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Revenue Procedure 2013-34 purports to drop the superfactor status of knowledge and the Tax Court generally purports to follow the Revenue Procedure but on this issue, the outcome appears quite predictable to the PT writers but we note that our non-computer based analysis may be at odds with the computer Blue J Legal, Inc which finds economic hardship a relatively unimportant factor and abuse the key to success. 

The folks at Blue J follow several issues and model the decisional law in order to predict outcomes in future cases.  They have presented at the ABA Tax Section meeting and a couple years ago provided Les and me a private demonstration.  If you are working with one of the issues they model, their work could be helpful in assisting you with how to set up your case or whether to settle.  On September 27, 2021 an article concerning their product appeared in Tax Notes.  I realize it is behind a paywall and may not be available to all readers but if you are interested, I am sure the company would be glad to talk to you.

On IRC 6015(f) the article talks about the recent 7th Circuit decision in Rogers and provides:

We consider abuse and economic hardship to determine their relative importance in the court’s equitable relief analysis. We begin with our baseline prediction with greater than 95 percent confidence that equitable relief is unavailable, adopting the facts as found by the Tax Court and affirmed by the Seventh Circuit.

We next test the importance of the abuse factor. Contrary to what the Tax Court found, we alter the scenario by accepting Frances’s argument that her husband abused and controlled her to prevent her from knowing about or addressing the tax liability and that she feared retaliatory abuse. If that abuse were present, Blue J’s prediction reverses. Blue J’s machine learning technology predicts with 94 percent confidence that Frances would be granted equitable relief.

Once again beginning with our baseline prediction, we then test out the likely effect of accepting Frances’s argument that she would be unable to meet reasonable basic living expenses if she were forced to pay the tax liability. Blue J predicts that equitable relief would be unavailable, and the confidence in that prediction remains greater than 95 percent.

Therefore, the abuse factor is determinative, whereas the economic hardship factor is somewhat insignificant in this particular set of facts and circumstances. If Frances were able to convince the court of abuse, equity would be on Frances’s side.

The IRS guidance on IRC 6015 has evolved since the law passed in 1998, making it hard to lump together all 6015 cases.  It seems clear, however, that the Tax Court has not evolved with the IRS with respect to actual knowledge and failure to prove financial hardship.  In many ways, I can hardly say with a straight face that the IRS has evolved, since getting a successful determination from the innocent spouse reviewers in Covington seems impossible.  I can only imagine how dispiriting it must be to review hard luck stories day after day but I find the reviewers a bit jaded.  They have made amazingly inappropriate statements to our clinic regarding abused clients.  I wonder if a rotation out of a steady diet of innocent spouse cases might be healthy for those working in this unit.

Back to Ms. Goode and her problems with their 2010 return; let’s look at her facts.  As is typical in small tax caseS, she handled her case pro se, probably never looking at the data produced by Blue J or the blogs produced here.  She and her husband, who intervened, both worked for the Department of Defense.  He became ill in 2010 which caused both of them to resign from their positions and move to Florida to be nearer to his family.  She and her husband borrowed money from their retirement plans to tide them over while they looked for jobs in Florida.  They did not find work that paid as much as their DOD jobs and defaulted on the loans from the retirement accounts.  The defaulted loans triggered Forms 1099.  They filed a joint return for 2010, properly reporting the liability but not fully paying the $64,000 federal tax bill triggered by the loan defaults.

As often happens in cases of financial strife, petitioner and her husband separated and eventually divorced.  She moved to Texas with the children, went through several years of low wages, but eventually obtained another job with DOD which greatly improved her finances.  Had she filed for relief during the low income years, her outcome might have been different, but she may have been in currently not collectible during that period and not as focused on paying the liability. 

In her petition, she alleged spousal abuse and attached a copy of a protective order to her innocent spouse submission.  She did not qualify for streamlined relief under the Revenue Procedure because she did not qualify based on her income at the time of her request.  The court cites Rev. Proc. 2013-34 extensively and works its way through the factors listed in it.  She received positive factors for being divorced, for significant benefit (that is to say, she did not receive a significant benefit from the underpayment of the tax) and for compliance with tax laws.  The economic benefit factor was neutral as was health.  She knew at the time she filed the return that the tax triggered by the money both she and her husband pulled from their retirement accounts was not being paid so she failed the knowledge test.

The court made the following finding:

After evaluating the factors, we find that three of the seven factors weigh in favor of relief, one factor weighs against relief, and the remaining factors are neutral. In section 6015(f) cases, however, we do not simply count factors. We evaluate all of the relevant facts and circumstances to reach a conclusion. See Pullins v. Commissioner, 136 T.C. at 448; Rev. Proc. 2013-34, secs. 3.05, 4.03(2), 2013-43 I.R.B. at 398, 400.

In evaluating the relevant factors we conclude that the knowledge factor weighs too heavily against relief for petitioner. The 2010 tax liability attributable to intervenor partially arose from defaulted TSP loans to which petitioner had consented. She knew the liability would not be paid when she signed the return. Given these facts, we find that it would not be inequitable to hold her responsible for the underpayment for 2010.

Knowledge continues to rule the day.  If you don’t have the antidote, be prepared for a sad outcome.  As we have mentioned before, and as the tax clinic at Harvard knows from personal experience discussed here and here, no petitioner has successfully appealed a Tax Court denial of innocent spouse relief since the change in the law in 1998.  Of course, Ms. Goode, having filed a small Tax Court case, will not be changing that result.  There will be an oral argument before the 9th Circuit, probably in January 2022, in the case of Jones v. Commissioner, 9th Cir. Case No. 20-70013, Tax Court Docket No. 7493-18, where another attempt will occur.

A Second Bite at the Innocent Spouse Apple

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.

Is Economic Hardship the Antidote for Knowledge in an Innocent Spouse Case?

A pair of innocent spouse cases just came out, one granting relief, Grady v. Commissioner, T.C. Summ. Op. 2021-29, and one denying relief, Rogers v. Commissioner, No. 20-2789 (7th Cir. 2021).  Neither case reaches a surprising result but the cases do continue trends.  In this post I hope to not only provide some background on these two cases but to also explore the trends that have emerged in innocent spouse cases.

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In the Grady case, a case tried under the small tax case procedures, the Tax Court details a litany of issues that the non-requesting spouse (the ex-husband) caused during the marriage.  In the end, the Tax Court finds that the petitioner knew that the tax liability was not being paid so the knowledge factor is negative but essentially all other factors were positive, including economic hardship.  The Court states that:

While her knowledge when she signed the 2007, 2009, 2010, and 2011 joint Federal income tax returns that the tax due would not be paid weighs against her entitlement to section 6015(f) relief, generally knowledge is only one of the factors and knowledge alone is not determinative of the Court’s decision. See Minton v. Commissioner, T.C. Memo. 2018-15 (granting relief despite the taxpayer’s admitting to knowledge of a balance owed); Demeter v. Commissioner, T.C. Memo. 2014-238 (granting relief despite finding that the taxpayer knew or had reason to know that her ex-husband would have difficulty paying the tax liabilities). Therefore, in considering Ms. Gans’ entitlement to relief under section 6015(f), her knowledge is only one factor among many to be taken into account. As the Court has noted, no one factor, in and of itself, is determinative. See Stolkin v. Commissioner, T.C. Memo. 2008-211; Beatty v. Commissioner, T.C. Memo. 2007-167; Banderas v. Commissioner, T.C. Memo. 2007-129.

As regular readers of this blog know, we believe, and have discussed here and here, that the Tax Court treats knowledge as a super factor in many cases.  Knowledge alone did cause Mr. Jacobsen and Ms. Sleeth to lose their innocent spouse cases despite four (Jacobsen) and three (Sleeth) positive factors. The fact that, even in this case where knowledge is the only negative factor, the Court spends a paragraph explaining that knowledge alone is not determinative, provides insight into the power of the knowledge factor.

The Rogers case continues the unbroken string of losses for taxpayers appealing IRC 6015 cases.  Since the change in the law in 1998 placing the innocent spouse provisions in IRC 6015, no taxpayer has won an appeal from an adverse Tax Court decision.

In Rogers, the 7th Circuit affirms the Tax Court’s holding that the wife of a shelter promoter isn’t entitled to innocent spouse relief.  The court noted that this was not the first visit to the 7th Circuit by one or both members of the marital unit:

Married since 1967, John and Frances Rogers filed joint federal income tax returns for many years. They underreported their tax obligations many times over, and the misreporting was the product of a fraudulent tax scheme designed by John, a Harvard‐trained tax attorney. The fraud did not elude the Internal Revenue Service, though, and the many subsequent collection and enforcement proceedings in the U.S. Tax Court have not gone well for the Rogerses. Our court has affirmed the Tax Court’s rulings every time.

Before us now is another appeal by Frances challenging two Tax Court decisions denying her requests for what the Tax Code calls innocent spouse relief. Our review of the record shows that the Tax Court took considerable care assessing Frances’s pleas for relief, in the end denying them largely on the basis that she was aware of too many facts and too many warning signs during the relevant tax years to escape financial responsibility for the clear fraud perpetrated on the U.S. Treasury. While the tragedy of what Frances has endured over the years is in no way lost on us, we are left to affirm, for the Tax Court got it right.

In one respect, the 7th Cir. disagrees with the Tax Court as to a factor — the substantial benefit factor does not weigh against relief in this case.  But, interestingly, the 7th Cir. never cites or discusses the Rev. Proc. factors.  It limits its discussion to how the Rogers facts compare to a prior 7th Cir. opinion from 1996, Reser, which, of course, involved 6013(e).  The most the 7th Cir. will do is cite a reg. under 6015 concerning significant benefit for purposes of (b), 1.6015-2, that actually derives from language in the Committee reports from 1971 for enacting 6013(e).  The committee reports can be found at H.R. Rep. No. 91-1734, at 2 (1970), and S. Rep. No. 91-1537, at 2 (1970), 1971-1 C.B. 608. The 7th Cir. focuses entirely on the knowledge issue (both for purposes of (b) and (f) relief) as grounds for denying relief.  If there were no other factors negative for relief, though some positive or neutral factors, this would make Rogers a case similar to the Jacobsen case decided by the 7th Cir. two years ago.

Interestingly, the Grady case presented only one negative factor, knowledge, and multiple positive factors, but the Tax Court granted relief.  That’s the exact same situation as in Jacobsen, but the case leads to a different result.  Carl Smith has done a fair amount of research and thinking on this issue.  He concludes that the reason why Grady won while Jacobsen didn’t is that, although Jacobsen had four positive factors for relief, he did not put in the evidence to establish financial hardship, which Grady did.  Research of innocent spouse cases shows that proving financial hardship serves as the only way to guarantee that the taxpayer wins an innocent spouse case where knowledge is a negative factor.  Lack of significant benefit, marital status, and compliance with return filing obligations are not enough to outweigh knowledge in some Tax Court opinions.  Note that, in Sleeth (from the 11th Cir. this year), Ms. Sleeth was also said not to have proved financial hardship, and her case also involved only one negative factor (knowledge), and three positive factors (the ones in the prior sentence). Jacobsen’s positive factors included those from Sleeth, as well as an additional fourth positive factor — for his bad health.

As mentioned above, the Rogers 7th Cir. opinion did not cite or discuss the Rev. Proc. that was applicable.  That seems significant, since the Tax Court almost always discusses each of the Rev. Proc. factors.  In 2011, Carl Smith wrote a Special Report for Tax Notes entitled “Innocent Spouse:  Let’s Bury that Inequitable Revenue Procedure“.  In the article, he called for the courts to return to deciding the equitable factor under common law — using opinions involving 6013(e) and 6015, not the Rev. Proc. factors.  While using the factors of the Rev. Proc. seems appropriate for the IRS in administratively evaluating cases, it seems less appropriate for courts which need not be bound by the IRS’ views of appropriate equitable factors.

In some ways the courts, particularly the Tax Court, seem to apply their own thinking, yet cloak the decisions in the factors of the Rev. Proc.  While the Rev. Proc. may say that knowledge is no longer a super factor and while the Tax Court may say it is applying the Rev. Proc., the outcomes suggest that the court has its own equitable barometer which still places significant weight on knowledge.  If the Tax Court weighs knowledge more heavily, then taxpayers must look for something to countervail knowledge or potentially lose even where they have many positive factors. In cases where knowledge is the only negative factor and there are three or more positive factors (one of which is lack of significant benefit), the taxpayer usually wins, but the taxpayer always wins if one of the positive factors is also financial hardship.  You can find the list of cases where knowledge was the only negative factor in the Jacobsen brief filed by the Harvard Tax Clinic in the appeal to the 7th Circuit.

Jurisdiction of Bankruptcy Courts to Hear Innocent Spouse Cases

The case of In re Bowman, No. 20-11512 (E.D. La. 2021) denies debtor’s motion for summary judgement that Ms. Bowman deserves innocent spouse relief.  On its own, the court reviews the issue of its jurisdiction to hear an innocent spouse issue as part of her chapter 13 bankruptcy case and decides that it has jurisdiction to make such a decision.  The parties did not raise the jurisdiction issue, which is not surprising from the perspective of the plaintiff but may signal a shift in the government’s position since it had previously opposed the jurisdiction of courts, other than the Tax Court, to hear innocent spouse cases.

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The court addresses the issue of its jurisdiction at the outset of the opinion.  It first cites 28 U.S.C. § 1334 and the Order of Reference from the district court before stating that this is a core proceeding.  This part of the opinion addresses the basic issue of bankruptcy courts’ jurisdiction in all issues, stemming from the litigation in the Marathon Oil case from 40 years ago (challenging the basic authority of bankruptcy courts under the then-newly-created bankruptcy code).

Moving past the bankruptcy court’s basic basis for jurisdiction, the court hones in on its ability to hear an innocent spouse case.  It first states:

Although it is true that “Section 6015(f) does not allow a bankruptcy court to exercise initial subject matter jurisdiction over an innocent spouse defense because only the Secretary [of the IRS] receives the equitable power to grant innocent spouse relief under that Section,” here, it is undisputed that the Debtor sought such relief from the Secretary in July 2019 and the Secretary denied the request.  

This aspect of jurisdiction would apply to any court hearing an innocent spouse case.  In essence, the statute requires a taxpayer claiming this relief to exhaust their administrative remedies before seeking to have a court determine relief.

Next, the court turns to its specific ability to hear an innocent spouse case and cites heavily from an earlier case from Texas:

Section 6015(e)(1) states that, in a case where an individual requests equitable relief under Section 6015(f), “[i]n addition to any other remedy by law, the individual may petition the Tax Court to determine the appropriate relief available to the individual under this section . . . .” 26 U.S.C. § 6015(e)(1)(A). It is unambiguous that a Tax Court—and not just the Secretary—may grant relief to an individual. Moreover, the remedy available in the Tax Court is “[i]n addition to any other remedy provided by law.” 26 U.S.C. § 6015(e)(1)(A).

11 U.S.C. § 505 is another “remedy provided by law.” Section 505(a)(1) specifically provides bankruptcy courts with remedial power over tax liabilities and penalties . . . . This statutory language provides a bankruptcy court with the power to determine the legality of taxes and tax penalties.

Pendergraft v. United States Dep’t of the Treasury IRS (In re Pendergraft), 119 A.F.T.R.2d (RIA) 2017-1229 (Bankr. S.D. Tex. Mar. 22, 2017)

Because it determines that the tax liability directly impacts the administration of the bankruptcy case and because the IRS has filed a proof of claim seeking to have Ms. Bowman pay the liability for which she seeks relief, the court finds that it has jurisdiction while also noting that the IRS has not objected to its jurisdiction.

The opinion is important for being only the second court to deal with the issue of whether a bankruptcy court has jurisdiction to decide § 6015 relief.  The court says that it does have such jurisdiction because 6015(e)(1)(A) (giving the Tax Court jurisdiction) is only “in addition to any other remedy provided by law” and that the bankruptcy court is another such remedy.  The court cites the Pendergraft case, which is the only other opinion from a bankruptcy court on this matter.  The court conveniently doesn’t mention all the district court opinions holding that 6015 relief jurisdiction does not exist in collection suits or (in one opinion) in refund suits, but resides only in the Tax Court.

The last district court case to render an opinion on this issue was Hockin v. United States, 400 F. Supp. 3d 1085 (D. Or. 2019).  We blogged on the Hockin case here.  In Hockin, the district court rejected earlier district court opinions and found it had jurisdiction to hear an innocent spouse case.  The case never went to trial because the parties settled.  The issue highlighted differences in the Tax Division of the Department of Justice where the trial sections argued that the district courts lacked jurisdiction while the appellate section simultaneously argued that they had jurisdiction and used that argument as a basis for dismissing innocent spouse cases filed late in the Tax Court as having missed a jurisdictional deadline.  The Tax Clinic at Harvard filed an amicus brief in Hockin pointing out the dissonance in the positions taken within DOJ, and the court noted the conflicting positions.

Perhaps the failure to raise jurisdiction as an issue in Bowman means that DOJ has abandoned the issue that only the Tax Court has jurisdiction to hear innocent spouse cases, or perhaps a split now exists within the trial sections at DOJ.  Another possibility is that DOJ distinguishes between district court and bankruptcy court cases raising this issue.  In its motion to dismiss in the Hockin case, DOJ stated:

The language of Section 6015(e)(3) explicitly strips the Tax Court of jurisdiction once a refund suit is filed in district court, which avoids parallel proceedings. But another court explicitly rejected Boynton. In re Pendergraft, 16-33506, 2017 WL 1091935, at *3 (S.D. Tex. B.R. Mar. 22, 2017). That court held that it could consider an innocent spouse defense as part of a bankruptcy court’s powers to determine the amount or legality of a tax under 11 U.S.C. § 505. The court was unconcerned with the possibility of inconsistent judgments, finding that jurisdiction cannot be “based on a hypothetical possibility that concurrent proceedings could produce inconsistent results. That issue, if it ever exists, should be left to Congress.” Id.

Pendergraft is an outlier decision, and it ignores Boynton’s most convincing point: if Congress intended to provide two equally accessible lanes for a taxpayer to seek review of an innocent spouse determination, why does Section 6015(e)(3) treat the process as a one-way street? The Tax Court is clearly divested of jurisdiction when a refund suit is filed in district court, yet the statute is silent on the reverse scenario. Section 6015 sets out a clear, detailed process for funneling review of innocent spouse determinations to the Tax Court. That statute provides no such scheme for the district courts.

DOJ did not try to distinguish Pendergraft because bankruptcy is different.  In Pendergraft, the DOJ argued that the availability of a Tax Court 6015 action precluded 6015 relief under BC 505. The Pendergraft opinion provides a lengthy response disagreeing with the DOJ and its citations — but one that does, in part, rely on the purpose of BC 505.  Section 505 grants jurisdiction to bankruptcy courts to resolve tax merits issues.  The Pendergraft court says that BC 505 is a remedy encompassed by the “in addition to any other remedy provided by law” clause in 6015(e)(1)(A).

Going past the jurisdictional issue, the court in Bowman declined petitioner’s invitation to grant her relief based on summary judgment.  Here is her motion and here is the DOJ response.  She sought relief under 6015(f) but did not submit an affidavit or much other information related to the factors that the IRS has established as required for relief in Rev. Proc. 2013-34.  The court found that insufficient evidence was presented to allow it to grant relief at this stage.  Of course, she can still succeed if she puts on adequate evidence at trial.  At least, based on the court’s finding of jurisdiction, she will have that opportunity.

Significant Changes in New Draft Form 8857

We welcome as her second visit to the blog my colleague in the tax clinic at the Legal Services Center of Harvard Law School, Audrey Patten.  Audrey has developed a significant docket of innocent spouse cases and is currently working with Christine to write the third edition of A Practitioner’s Guide to Innocent Spouse Relief.  Look for their book in the coming year.  She also worked with clinic student Madeleine DeMeules on the oral and written comments to Form 8857 discussed here. As Audrey discusses below, their comments led to some changes to the newly revised form.  With the new emphasis on the administrative record, the request for relief from joint liability takes on a high level of importance from the first submission.  Keith

Submitting Internal Revenue Form 8857 to the IRS is the starting point for seeking administrative relief from joint and several liability under IRC §6015, generally called “innocent spouse relief.” The current version of Form 8857 dates to 2014 and has come under scrutiny for being difficult to understand, especially for pro se taxpayers, and unclear as to what relevant information and documentation a taxpayer should submit. With the Taxpayer First Act’s new requirement in IRC §6015(e)(7) that the Tax Court must limit its review of innocent spouse cases to the administrative record, Form 8857, and its use in eliciting relevant taxpayer information, is now crucial to setting up a strong Tax Court case.

The IRS has released a draft update to Form 8857, with a revision date of June 2021. The new form has several improvements. These include various changes that the Low Income Taxpayer Clinic at Harvard suggested in a written comments submitted to the IRS last year and that have been advocated by other LITCs and the ABA. The draft form’s layout and presentation, however, will still be challenging to many taxpayers, especially those with limited resources, education, or writing skills. Practitioners must therefore continue to be mindful about preparing well-crafted narrative statements for clients that track the equitable relief factors in Rev. Proc. 2013-34 and that synthesize relevant facts and documentation to ensure a complete administrative record.

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Use of Form 8857

For those unfamiliar with innocent spouse practice, the most common pathway to relief begins by sending Form 8857 directly to the IRS unit dedicated to §6015 relief in Covington, KY. The unit consists of examiners and appeals officers trained in handling innocent spouse cases. While there are three types of innocent spouse relief available to taxpayers (located in IRC §6015(b), (c), and (f)) the taxpayer only submits one copy of Form 8857. Form 8857 does not ask taxpayers what type of §6015 relief they are seeking. Rather the IRS uses that one form to automatically review the application for all three types of relief. It is therefore important that taxpayers are able to present a full picture of their circumstances. The best practice is to ensure that the information on the form and accompanying attachments can support the factors used to weigh “equitable relief” under §6015(f) so that the provision can be properly evaluated if the taxpayer is denied (b) or (c) relief. These factors are found in Rev. Proc. 2013-34 §4.03 and allow for the most comprehensive evaluation of the taxpayer’s circumstances.

Major Changes on the June 2021 Draft Form 8857

1. The “Important Things You Should Know” box at the top of the form has added key important provisions to its bullet point list:

           i. It now directs taxpayers to consult Publication 971 “for help in completing this form and for a description of the factors the IRS takes into account in deciding whether to grant innocent spouse relief.” That citation was a specific recommendation the Harvard clinic included in our comments because, without such a reference, Form 8857 leaves taxpayers completely in the dark as to whether a balancing test of factors even exists. Taxpayers unfamiliar with Rev. Proc. 2013-34 may not understand why certain information is being requested on the form and therefore have a harder time interpreting the questions. That being said this addition has its limitations. Publication 971 lists out the equitable relief factors in a section entitled “Equitable Relief,” (in reference to §6015(f) relief) which is separate from the Publication 971 section called “Innocent Spouse Relief” (in reference to §6015(b) relief). Someone unaware that equitable relief is indeed a form of innocent spouse relief to be considered on Form 8857 might be quite confused and potentially skip that section of the Publication 971 altogether.

            ii. Another bullet point is added that notes the new administrative record rule, warning that the Tax Court may only be able to review information the taxpayer, or their spouse, submits or that is in the IRS file. This is also reinforced by yet another new bullet point asking the taxpayer to attach documentation to Form 8857 and by more frequent reminders throughout the form that additional pages can be attached to lengthen written answers.

2. The draft form adopts another of our clinic recommendations by asking the taxpayer to indicate if English is their primary or preferred language. This is a welcome question because, not only does it assist in picturing the overall life situation of the individual tax payer, it also allows for the collection of aggregate data on the languages needs of potential innocent spouses. This will in turn open the possibility to direct resources to identify language groups that may be considered frequently encountered and help develop language access resources for the innocent spouse unit at the IRS.

3. The draft form includes a new check box asking if the taxpayer consents to receiving voicemails from the examiner. This addition will be of great benefit to those taxpayers who may work jobs that do not allow them to readily answer the phone during business hours. Strict adherence to working hours and restrictions on calls are disproportionately a feature of many service industry, manufacturing, caretaker, and manual labor jobs that are held by lower income taxpayers. By allowing flexibility in communications, it is more likely that taxpayers using Form 8857 may be able to stay in contact with the IRS examiner and lead to a successful resolution of their case.

4. The draft form also adopts a change the ABA has suggested for many years. That is the adjustment to ask whether the taxpayer intended to file a joint return as opposed to whether they did sign a joint return. This language adjustment can account for scenarios where someone signed under duress. Conversely, it also covers taxpayers who did not physically sign or file the return but did expect a joint return would be filed.

5. Part III of the Form 8857 deals with taxpayer’s involvement with the couples’ finances. Under the current version, the questions are structured with mandatory check box answer lists for taxpayers to rate their level of knowledge for each question followed by an open-ended direction to explain the checked answer in more detail. This format raised concerns in the past that taxpayers were being required, under pains and penalties of perjury, to check off a rating of knowledge that could not capture any nuance. The new draft form eliminates those check boxes and replaces them with a series of open ended questions. It should be noted however that the new questions are almost paragraph length and the sheer volume of words in the questions may drive away some taxpayers with limited education or writing skills.

Areas of Continued Concern

Like the existing version, the new draft form does not explicitly guide taxpayers through the potential factors that the IRS will consider. It also does not give equal weight to the information it collects. For example, there is only one question devoted to mental or physical health (Question 9). Meanwhile, the draft form devotes at least 8 separate open-ended questions that appear directed at the knowledge factor (Questions 12-19). The unwary taxpayer, who may not realize that all factors are subject to a balancing test, with no one factor automatically weighing more than the others, may be under the impression that the mental or physical health question is of comparatively minimal importance and not devote enough time to thoroughly answering it.

Another example is the one question on the form that seems to speak to the significant benefit factor as well as the knowledge factor (Question 18). Question 18 asks if, during the year at issue, the taxpayer or the non-requesting spouse “incur[red] any large purchases or expenses?” It is followed by Question 19 which asks about transferred assets. But neither of these questions asks the taxpayer to describe whether they actually were able to use, enjoy, or benefit from such purchases, expense, or assets. Practitioners should advise their clients that affirmative answers to those questions can be supplemented with a statement describing whether they actually received a significant benefit.

Part V of the draft form is the section asking about domestic violence and abuse. It has been revised to remove the 10 check boxes that described potential types of abuse and leaves the original open ended question (Question 23b) asking the taxpayer to describe the abuse they experienced. While check boxes to evaluate abuse may seem inappropriate, they do serve an important function on the existing form in that they flag types of behavior that count as abuse, including things that may not seem obvious to a taxpayer unfamiliar with the broad definition of abuse found in Rev. Proc 2013-34. For example, the list includes asking whether the non-requesting spouse did things like “withholding money for food, clothing, or other basic needs,” “criticize, insult or frequently put you down,” or “Abuse alcohol or drugs.”

These descriptive examples of different kinds of abuse are useful because the IRS’ definitions of abuse in Rev. Proc 2013-34 is far more expansive than many state law definitions of abuse that a taxpayer may be more familiar with. The IRS definition is not limited to physical abuse and includes emotional abuse, financial control, and substance abuse. The ten examples in the current version can guide taxpayers as they prepare their open ended answer. The new draft form, however, provides no examples before that question as to what types of scenarios can be considered abuse. Moreover, the open ended question is immediately followed by an invitation to attach documents normally related to physical abuse, such as court documents, medical records, police reports, and injury photos. This set-up easily leaves the impression that only physical abuse is truly relevant. Question 23a, which asks if abuse was present, does have a note in parenthesis that says abuse may be “physical, psychological, sexual, emotion, or financial abuse, and can include the abuser making you afraid to disagree with him or her or causing you to fear for your safety.” However, the note is easily missed. It also leaves out substance abuse. Removing the requirement to check the ten boxes but, still leaving the list of behaviors in place as illustrative examples, would be a better approach.

In sum, while there have been some welcome adjustments to Form 8857, the new draft version will still be quite challenging for the average pro se taxpayer unfamiliar with the factors the IRS weighs in these cases and with the types of documentation needed to bolster their case. Although IRS employees in the innocent spouse unit are able to elicit more information based on answers to the form if they call the taxpayer, that is not a reliable fallback. The new administrative record rule means that if the taxpayer ends up taking the case to Tax Court, it will be their loss if facts did not make it on the record. Practitioners will therefore need to be vigilant about ensuring that narratives are able to track the factors in Rev. Proc. 2013-34 and are supported with clearly labeled documentation. Failure to do so will result in limitations in the ability to present the case in the Tax Court should the IRS not grant administrative relief.

The Fatty Rule for Post TFA Innocent Spouse Cases? An Early Look at the Otherwise Unavailable Evidence Exception

The Taxpayer First Act changed the scope of review in innocent spouse cases. Rather than allow parties to introduce evidence at trial, as we have discussed (see for example Christine’s post Taxpayer First Act Update: Innocent Spouse Tangles Begin) the TFA restricts the parties to the administrative record. TFA contains two exceptions: when there is evidence that is newly discovered or was otherwise unavailable.  There is considerable uncertainty surrounding this new rule, as well as how the Tax Court will define and apply the newly discovered and otherwise unavailable exceptions.

This past March in Fatty v Commissioner, Judge Holmes issued a bench opinion in an S case that gives an early nonprecedential look at the otherwise unavailable exception. 

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The case itself is a fairly straightforward application of the equitable relief factors arising from an approximately $7,000 reported liability attributable to the withdrawal of funds from Mrs. Fatty’s retirement account. At the time the then-married Mr. and Mrs. Fatty used the money to pay for expenses associated with the purchase a house. They later divorced, and pursuant to the divorce agreement Mrs. Fatty, who retained ownership of the home, was responsible for the tax liability. 

Despite Mr. and Mrs. Fatty entering into and complying with an installment agreement (with Mrs. Fatty paying the monthly amounts) Mr. Fatty sought relief from the joint and several liability. Mrs. Fatty intervened and the case went to trial. 

In normal deficiency cases, and in innocent spouse cases prior to the TFA changes, at trial, Mr. Fatty would have the opportunity to testify and introduce other evidence. In setting up the opinion, Judge Holmes summarized the TFA changes:

Until recently, the scope of review in a Tax Court case involving a request for innocent spouse relief is also de novo. People would come, they’d introduce evidence, and I as a judge would look at it with fresh eyes. Congress has more recently changed that scope of review. Now I am supposed to look at what is called the administrative record. The administrative record consists of all the documents and the evidence that the IRS looked at when Mr. Fatty first applied for relief.

Judge Holmes also explained the two exceptions to the TFA record rule:

I am supposed to look only at the administrative record, with two exceptions. And those two exceptions are evidence that is newly discovered or evidence that was previously unavailable. This is a change in the law, and the Fattys are one of the first cases to come after this change in the law.

Here is where the opinion gets interesting. As I mentioned, the TFA does little to expand upon what either exception means.  As a practical matter, these exceptions will likely be important, especially with pro se taxpayers who may fail to develop a case before the centralized and correspondence based IRS innocent spouse unit.

In Fatty, Judge Holmes takes a very generous view of  the meaning of otherwise unavailable, offering one approach that takes into account the absence of trial like procedures in IS administrative determinations:

However, in this particular case, I just assumed that testimony given under oath and subject to cross-examination, like the testimony given by both Mr. and Mrs. Fatty, is this newly available evidence, because when Mr. Fatty applied for innocent spouse relief, he wasn’t able to give sworn testimony and neither he nor his wife were subject to cross-examination

This approach, if adopted in other cases, leaves open the possibility for witness testimony, given the absence of sworn testimony and the right of cross examination in administrative IS determinations.  

To be sure, it is hard to read too much into this: this is just a bench opinion in an S case and the language discussing the exception is a bit garbled. Judge Holmes notes the limits: “As I said, I’m not deciding this for all cases in the future. This is an S case.” Yet for practitioners this is an important early development. It provides a convincing approach to allow parties to testify despite the TFA record rule limiting the scope to the record below. We will see if the Tax Court adopts it, or whether other Tax Court judges apply it in future nonprecedential opinions. 

What about the Fattys’ case? As with many Judge Holmes opinions he transparently discusses his approach, which is refreshing in a case implicating a multi-factor balancing test.

What I look at, and what I think is the appropriate fulcrum, is the extent to which the economic immunity of a household that files a joint return has been broken down by the actions of the non-requesting spouse in a way that didn’t allow the requesting spouse’s reasonable exit from having joint returns and a joint liability.

The opinion notes that the parties equally enjoyed the benefits of the income and explains that the IRS is not bound by the parties’ divorce agreement. After walking through the factors and emphasizing that Mr. Fatty had remedies under state law if Mrs. Fatty failed to pay on the agreement and the IRS collected from him, Judge Holmes held that Mr. Fatty was not entitled to relief. 

Innocent Spouse Updates

The 11th Circuit upheld the decision of the Tax Court in Sleeth v. Commissioner, — F.3d — 2021 WL 1049815 (11th Cir. 2021), holding that Ms. Sleeth was not an innocent spouse.  The Sleeth case continues the run of unsuccessful taxpayer appeals of innocent spouse cases following the major structural changes to the law in 1998.  Another taxpayer is trying to break the string by appealing the Tax Court decision in Jones v. Commissioner, TC Memo 2019-139 to the 9th Circuit.  I will discuss both cases below.

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Sleeth

The Sleeth case is the second case the Tax Clinic at the Legal Services Center of Harvard Law School appealed to a circuit court.  If you are interested in the oral argument, you can listen to it here.  Madeleine DeMeules argued on behalf of the clinic and did an excellent job but faced significant headwind from the court because of the burden that an appellant must meet to overcome a trial court decision.   

In both cases argued by the tax clinic the Tax Court found multiple positive factors and only one negative factor applying the tests of Rev. Proc. 2013-34.  Yet, despite the multitude of factors favoring relief in each case the Tax Court found that the knowledge factor was negative for the taxpayer and denied relief.  The pattern developing in these cases suggests that the Tax Court views the knowledge factor as a super factor, despite changes in IRS guidance no longer describing it as such.  In this post, Carl Smith discussed Seventh Circuit’s decision in the Jacobsen case, the first of the two cases the tax clinic took to a circuit court, and cites to all of the unsuccessful appeals of innocent spouse cases.

In Sleeth the court knocked down each of the three arguments for petitioner.  The appeal challenged the decision of the Tax Court regarding the knowledge element, the economic hardship element and the overall application of the factors.  Ms. Sleeth signed three joint returns at once, two of which were delinquent, showing liabilities totaling a few hundred thousand dollars.  She did not work, and her then-husband was a doctor who worked as a contractor rather than an employee.  In prior years he had also run significant liabilities which he had always paid off in relatively short order.  They had not filed delinquent returns before, so both the number of returns with an unpaid liability and the total amount of the liability exceeded prior circumstances.  She testified she expected he would pay off these liabilities, and he might have but he lost his job and ultimately paid in enough money to almost fully pay one of the years, but which still left a hefty balance.  The 11th Circuit found the Tax Court’s determination that she should have known he would not pay off the liabilities reasonable under the circumstances.

The size of the liability significantly exceeded her assets and her income was essentially non-existent.  The Tax Court found the economic hardship factor neutral, and the clinic argued on appeal it should be a positive factor for her, since devoting her assets to a partial payment of the liability would have left her homeless and penniless.  The 11th Circuit found that she might have had some assets other than her modest townhome, with which she could have paid a relatively small fraction of the outstanding liability. The court also foundthat she did not show she could not pay something toward the liability.  The Tax Court record regarding her assets and ability to pay was not as robust as it might have been.

Taking all factors into consideration and having agreed with the Tax Court on the two contested factors, the 11th Circuit did not find it unreasonable to deny Ms. Sleeth innocent spouse relief, even through the court had found three positive factors for relief and only one negative factor.  The case shows the importance of creating a strong record in the Tax Court and of prevailing at the Tax Court.  Overturning a primarily factual decision will never be easy.

Jones

Despite the difficulty in obtaining a reversal on an innocent spouse decision, Ms. Jones seeks to do exactly that in the 9th Circuit.  The Jones case involves not only a determination of her status as an innocent spouse but also the issue of whether she filed a joint return.  The tax clinic recently filed an amicus brief in the case on the issue of tacit consent.  We have not written much on tacit consent, but it is a regular feature in innocent spouse cases where one spouse, almost always the same spouse arguing for innocent spouse status, asserts that they did not agree to sign the joint return.  In many cases the spouse’s actual signature is not on the return, because the return was filed electronically or because the other spouse signed for both.  The Tax Court has created a body of case law deciding when the non-signing spouse intended the joint filing of a return and refers to the taxpayer’s consent in these situations as tacit consent.

Some of the factors the court relies upon in deciding whether a non-signing spouse intended to create a joint return are (1) whether the non-signing spouse objected to the filing of a joint return; (2) whether prior filing history of the couple during the marriage suggests an intent; (3) whether the non-signing spouse filed a separate return if that spouse had a filing requirement; (4) whether general reliance on one spouse for financial matters existed and (5) whether the couple had specific rules between themselves governing signing for one another.  While the issue of abuse and duress goes beyond tacit consent, it can play a role here.  If one spouse physically or emotionally intimidates or abuses the other, it could invalidate even an actual signature or could influence a court’s decision on the granting of tacit consent.

Taxpayer’s contesting a joint return liability should always look first to determine if they have an argument that no joint return exists.  Knocking out the existence of the joint return provides a surefire way of avoiding any liability stemming from the spouse’s income or other tax issues (note however that this does not hold true in a community property state, where the innocent spouse will still be required to include their share). Taxpayers can easily argue that they did not sign a joint return but face a much more difficult argument regarding their intent.  Bob Nadler wrote a post on the joint return issue several years ago in which he touched on tacit consent but the case did not focus on this issue.  Bob wrote the book on innocent spouse issues.  Christine Speidel and Audrey Patten are in the process of updating the book and the third edition should go to press later this year. 

Ms. Jones argues she did not intend to file a joint return and that if she did file a joint return, she should receive innocent spouse relief.  She is being represented by Lavar Taylor, a frequent guest blogger.  The case is still in the briefing stage and will not get argued until later this year.  Perhaps Ms. Jones can break the string of taxpayer defeats in appellate courts on the innocent spouse issue or avoid the innocent spouse issue altogether with a victory on tacit consent.  For those interested in innocent spouse issues, the case is worth following.

Offset of Rebate Recovery Credit and Some Innocent Spouse News

We have written several posts on offset over the past year and offset posts continue to be the most popular posts we write.  It might be possible to start an offset blog based on reader interest.  Some prior posts are here (injured spouse offset issues); here (CARES Act offset exceptions); and here (offset bypass rules – most heavily visited post on our site.)

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The issue of offset of stimulus payments took an interesting turn this past week.  As you probably remember last year, in passing the CARES Act Congress took the extraordinary step of excepting from offset all debts except for past due child support.  This meant that stimulus payments in the first and second rounds went directly into the hands of taxpayers who would ordinarily have simply received a letter notifying them that their refund was taken to satisfy some past due debt. 

It looked like individuals who did not receive their stimulus payment for the first or second round and who could claim it as a Recovery Rebate Credit (RRC) as they filed their 2020 return would have the disadvantage of having the payment subject to federal tax offset and all of the other available offsets.  A recent post by the National Taxpayer Advocate (NTA) sets out some of the history on what the IRS did as it moved into the 2020 filing season. 

The bottom line is that the IRS has now decided to exercise its discretion under 6402(a) with respect to the offset of federal tax refunds to federal tax liabilities.  The IRS will allow refunds based on RRC to pass through to taxpayers without being offset to satisfy prior federal tax debts.  Great news for persons with only federal tax debts in their portfolio of debts subject to offset under the Treasury Offset Program (TOP) but less good news for taxpayers with other outstanding obligations.  For a detailed discussion of offset and an explanation of TOP, you can read an article recently written by Michael Waalkes and me found here.

The NTA points out two problems with the otherwise good news regarding the IRS decision to forego offset of refunds based on RRC.  First, the decision happened in the middle of the filing season after many taxpayers had already filed and already had their refunds offset.  A similar offset decision occurred last year when the Department of Education decided during the middle of the filing season not to exercise its right to offset federal tax refunds (and other federal payments) against outstanding student loan debts.  Individuals who filed early (i.e., those most likely to have substantial refunds) get treated differently than those who wait.  A similar issue has occurred during this filing season with unemployment benefits that Congress decided mid filing season to exclude from income.  (Though yesterday the Commissioner in his testimony before Congress said that the IRS was working on a way to fix this for early filing taxpayers without the need for them to file a superseding or amended return.) 

Should the unfairness of the treatment of early filers versus later filers cause the IRS not to adopt a change like this in the middle of a filing season?  Should the IRS (can the IRS) reverse the offsets it has already made during this filing season and put everyone on equal footing?  The NTA says “For taxpayers who already have had their RRCs offset to repay federal tax debts, we will work with the IRS to try to identify a way to make them whole.”  So, perhaps a fix will come for early filers with RRC based refunds, similar to what will happen for early filers reporting unemployment income.  This is a lot of extra work for the IRS when it is already strained recovering from the pandemic and pushing out stimulus payments.  If it can make this happen, it will be impressive.

The NTA pointed out a second problem with the IRS decision to exercise its discretion to allow the RRC refunds to bypass the federal tax offset – the IRS does not have the ability to keep these refunds from offset through TOP.  IRC 6402(a) gives the IRS discretion to waive offset of federal tax refunds but does not give it authority to waive offset of the other offsets that occur when a taxpayer has a federal tax offset.  The NTA says “Therefore, there remains a significant disparity between the treatment of taxpayers who received advance payments and the treatment of taxpayers who did not receive advance payments and are claiming their benefits as RRCs.”

Fixing the second problem requires Congressional action and passage of a bill with language similar to the CARES Act legislation last year.  There is no indication that such legislation is coming.  When the IRS is considering offset bypass refunds (OBR) discussed in the post linked above and in the article, it does not exercise its discretion when it can see a debt indicator on the taxpayer’s account alerting the IRS that the exercise of discretion will not put the money in the taxpayer’s hands but simply send it to the Bureau of Fiscal Services to satisfy another federal or state outstanding debt.  Because of the blanket decision to exercise discretion made with respect to RRCs, the IRS will benefit other federal and state creditors in some instances rather than the taxpayer.  While not optimal, this is the most the IRS can do with the authority it has.  It also provides a model for IRS moving forward that could benefit recipients of certain types of refunds, such as those generated by the earned income tax credit or other programs designed to put money in taxpayers’ hands.

Innocent Spouse news regarding the administrative record

We received correspondence from PT reader James Everett of DeFranceschi & Klemm, PC in Boston.  Mr. Everett represents the taxpayer in Sutherland v. Commissioner which Christine blogged here and I blogged here in the year in review post because of the importance of this case.  For those who do not remember Sutherland, it involves the issue of IRC 6015(e)(7) which limits Tax Court review in innocent spouse cases to the administrative record, including cases pending at the time of enactment that had already gone through the administrative process prior to the legislation creating the limitation.  The case was originally set for trial on December 2, 2020 in Boston but continued and rescheduled for trial on St. Patrick’s Day in Phoenix.  Most Bostonian’s would welcome a trip to Phoenix during the winter.  Alas, this trip was a virtual one. 

Here is the news from Mr. Everett regarding the IRS position on the administrative record:

The national office interjected itself into the case and the IRS objected to all documents that we wanted to include with the stipulation that weren’t part of the “administrative” record (i.e. documents not provided during the administrative stage).  In other words, it looked like the IRS was setting this case up for an appeal.  There was really no way of telling what the AO or CISCO actually reviewed previously because records weren’t kept in that fashion (since it didn’t matter with a de novo review).  Judge Lauber was going to require the IRS to call the appeals officer as a witness at the trial to discuss the record.  A few days before the trial, the IRS dropped its administrative record objections.  Judge Lauber asked the respondent’s counsel if this was reflection of Service wide policy (i.e., the IRS agreed that §6015(e)(7) didn’t apply to pending cases), respondent’s counsel candidly replied that this was above his paygrade to comment on – he could only speak to the case at hand. Thought this might be helpful to the readers of your blog.  

The withdrawal of objection to the administrative record is welcome news but does not resolve the issue.  The administrative record rule presents significant problems for individuals who go through the administrative process pro se, since they often fail to develop the full record needed if litigation occurs.