DOJ Misinfoms District Court on IRC 6015(f) Relief Filing Deadline

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Sometimes, I am amazed at what DOJ attorneys don’t know about tax procedure.  Once, I wrote a post on how a court misapplied the amount lookback period of IRC 6511(b)(2)(A) when a refund claim was mailed before the end of the filing deadline but was received by the IRS afterward.  The DOJ in that case had misled the court by not citing the relevant case law and regulations.  I brought the error to the attention of the taxpayer’s attorney, who got the court to immediately reverse its holding and scold the DOJ for not citing the relevant authority.

Well, the DOJ has done it again:  In a collection suit brought against a husband and wife, where the wife has raised IRC 6015 innocent spouse relief as a defense, United States v. Weathers, Docket No. 5:21-cv-5012 (W.D. Arkansas, 8/10/22), not only did the DOJ get the court to follow likely-incorrect district court holdings saying that IRC 6015 relief cannot be raised in a collection suit, but the IRS persuaded the court that it would be too late for the taxpayer to now file a Form 8857 seeking such relief, citing still-current Reg. 1.6015-5(b) and the opinion in Lantz v. Commissioner, 607 F.3d 479 (7th Cir. 2010) (holding that regulation valid to the extent that it imposes a 2-year limit after collection activity has begun to seek relief under IRC 6015(f)).  While it is true that the statutes impose the 2-year rule for requesting relief under subsections (b) and (c), the regulation, as applied to relief under subsection (f) was abrogated by an amendment to section 6015(f) in 2019 that provides that a taxpayer who hasn’t paid an assessment can file a request for subsection (f) relief at any time while the statute of limitations on collection is still open.  If a collection suit is in process, then the statute of limitations on collection must still be open.

I contacted the taxpayers’ attorney to alert her to the revised statute, but she says that she already brought this information to the attention of the court.  I also suggested to her that the wife immediately file a Form 8857 because, if the wife does so, the district court suit can’t continue against the wife.  IRC 6015(e)(1)(B)(i) prohibits the IRS from levying or commencing or prosecuting a suit for collection of the liability involved in the Form 8857 while the Form 8857 is being considered, including during any subsequent Tax Court suit.  I expect that Form 8857 to be filed very shortly.

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I am not surprised that the district court held that it lacked jurisdiction to consider IRC 6015 relief in a collection suit, since as far as I am aware, all district courts to have considered the issue have held that only the Tax Court can consider IRC 6015 relief.  No appellate court has considered the issue, however, and at least one appellate court noted that the DOJ Appellate Section lawyers conceded that a refund suit could be filed in district court where a taxpayer late-filed a Tax Court IRC 6015(e)(1)(A) stand-alone suit that was dismissed for lack of jurisdiction.  The counter-argument to the district court opinions, to which Nina Olson and various tax procedure professors and former professors agree, is that under former IRC 6013(e) (the innocent spouse statute up to 1998), the courts had considered innocent spouse relief in (1) collection cases in district court, (2) refund cases in district court, (3) deficiency cases in Tax Court, and (4) cases in bankruptcy courts.  In 2000, Congress amended IRC 6015 to make clear that the provision of IRC 6015(e)(1)(A) authorizing a Tax Court stand-alone suit is “[i]n addition to any other remedy provided by law”. 

We did a post in September 2019 on the Hockin district court opinion that held that it had jurisdiction to consider IRC 6015(f) relief in a refund suit.  But, we had also done a post in May 2019 on a contrary district court opinion in Chandler.  The IRS settled Hockin, so the jurisdictional issue never went up to the Ninth Circuit, as we had hoped it would.

And, last year, we noted in a post on the Bowman case that the only two bankruptcy courts to have addressed the issue have ruled that the bankruptcy courts have jurisdiction to consider IRC 6015 relief.

I am not surprised that the DOJ cited the uniform district court rulings holding the district courts to lack jurisdiction to decide IRC 6015 relief in collection cases.  But, what really shocked me about the Weathers case is the following passage from the DOJ’s motion for summary judgment:

Furthermore, as explained above, to qualify for relief under § 6015, a taxpayer must first present an administrative claim to the IRS within two years of the date on which the IRS first began collection activity against the taxpayer claiming innocent spouse relief. 26 U.S.C. § 6015(b)(1)(E), (c)(3)(B) and 26 C.F.R. § 1.6015-5(b) (setting a two-year statute of limitations for 26 U.S.C. § 6015(f)); Lantz v. Comm’r, 607 F.3d 479 (7th Cir. 2010) (upholding the two-year statute of limitations for relief under § 6015(f)); Jones v. Comm’r, 642 F.3d 459, 465 (4th Cir. 2011) (same). The regulations define collection activity as including a Section 6330 notice, which is a statutory notice of intent to levy. 26 C.F.R. § 1.6015-5 (b)(2)(ii). Melissa Weathers received notification of a levy as early as August 12, 2019, more than two years ago. (Statement of Facts “S.O.F.” ¶ 13; Exhibit 107, Final Notice of Intent Levy attached to Beatriz Saiz Declaration (“Saiz Dec.”); see also Exhibits 101-106, certified Forms 4340 attached to Castor Dec. 1). Therefore, not only does this Court lack subject matter jurisdiction of her purported innocent spouse defense, but she is precluded from seeking innocent spouse relief before the IRS.

PT readers of a certain age will remember the huge uproar that the Lantz and Jones opinions generated in Congress and the IRS’ July 2011 capitulation in Notice 2011-70 that it would no longer enforce the 2-year filing deadline contained in the regulation as applied to IRC 6015(f) relief.  In July 2019, Congress also amended IRC 6015(f) to provide a new paragraph (2) conforming to the Notice and reading:

A request for equitable relief under this subsection may be made with respect to any portion of any liability that—

(A) has not been paid, provided that such request is made before the expiration of the applicable period of limitation under section 6502, or

(B) has been paid, provided that such request is made during the period in which the individual could submit a timely claim for refund or credit of such payment.

How could the DOJ attorneys not know that the Lantz and Jones cases and the regulation were all legislatively overruled?  The attorney for the wife in Weathers says she pointed this out in her papers (though I haven’t looked through her papers).  Yet the court, borrowing from the DOJ motion, wrote:

Finally, as to Melissa’s request that these proceedings be stayed to permit her time to file an administrative claim with the IRS, such a stay would be exceedingly inefficient. Moreover, Melissa has yet to pursue the defense before the IRS, and it appears that the time to raise the defense has passed. See C.F.R. § 1.6015-5(b) (noting that to request innocent spouse relief under the provisions of § 6015(b), (c), and (f), “a requesting spouse must first file Form 8857 or other similar statement with the Internal Revenue Service no later than two years from the date of the first collection activity against the requesting spouse . . ., with respect to the joint tax liability”) (emphasis added); Lantz v. C.I.R., 607 F.3d 479, 482-83 (7th Cir. 2010) (rejecting argument that equitable relief under § 6015(f) carries with it a ten-year limitations period, as opposed to a two-year period).

To avoid this misreading, it would certainly have helped if the IRS had finalized its August 12, 2013 proposed regulations under IRC 6015 (REG-132251-11, 78 FR 49242) that mimicked Notice 2011-70 and the later Congressional amendment.  Keith blogged on those proposed regulations here.  The IRS proposed more regulations under IRC 6015 on November 20, 2015 (REG-134219-08, 80 FR 72649), which I blogged about here and here.  I recall that Keith and I submitted comments to at least one set of those proposed regulations (perhaps both).  Considering the tens of thousands of taxpayers who seek IRC 6015 relief each year, I think it a scandal that the Treasury hasn’t yet finalized either of those proposed regulations.  I think it no excuse that the proposed regulations would need to be modified to reflect statutory changes from 2019.  It’s been more than 3 years since those statutory changes, and I don’t think the IRS has proposed any regulations to reflect the 2019 statute.

We will follow developments in the Weathers case.  I have pointed out to the wife’s attorney that in a prior district court case, Dew, where a magistrate originally held that the court lacked IRC 6015 jurisdiction and the taxpayer responded by filing a Form 8857 before the district court considered the magistrate’s holding, the DOJ had to concede that, under the collection suspension filing provision at IRC 6015(e)(1)(B)(i), the case against the taxpayer now could not go forward.  I attach the DOJ filing in Dew, making that concession.

Carlton Smith About Carlton Smith

Carlton M. Smith worked (as an associate and partner) at Roberts & Holland LLP in Manhattan from 1983-1999. From 2003 to 2013, he was the Director of the Cardozo School of Law tax clinic. In his retirement, he volunteers with the tax clinic at Harvard, where he was Acting Director from January to June 2019.

Comments

  1. Robert Kantowitz says

    In a large bureaucracy, if the consequences of malfeasance fall on the bureaucracy generally, they fall on nobody and they never get corrected. The court in Harrison in 2020 should have found a way to award attorney’s fees to the plaintiffs on the basis of a failure to cite authority that plausibly went beyond negligence, and should have directed the government to require the responsible individual to bear the cost. Same here. The court needs to require the government to identify the lawyers who wrote the offending brief and publicly discipline them to try to make sure that it stops.

  2. Bob Kamman says

    Contrary to my assumption, the judge in this case is a 58-year-old Obama appointee. I will continue to assume he hires a practitioner to prepare his own tax returns. He’s a graduate of the University of Arkansas School of Law — but not the Little Rock campus, which has a low-income taxpayer clinic. There’s the problem.

  3. Carl Smith says

    I was contacted today by a PT reader who questioned the initial title of this post, which read: “DOJ Misleads District Court”. The reader thought that, unless there was proof that the DOJ lawyers intended to get the court to rule incorrectly, the word “Misleads” was over-harsh, as it suggested intent. At that point, not having read anything in the case other than the original DOJ memorandum of law in support of its summary judgment motion and the court’s opinion (both of which I quote in the post), I accepted the reader’s suggestion and retitled the post: “DOJ Misinforms District Court”, which the reader suggested had less pejorative meaning.

    But, I was concerned that maybe I should investigate further the taxpayers’ attorney’s statement to me that, in her papers, she had told the court of the change in the law, to no avail. There are many parties to the Weahters case, so there were a lot of filings for me to go through, but I found the following on the docket sheet:

    On June 21, 2022, the taxpayers filed a response to the DOJ motion for summary judgment that cribbed extensively from the Harvard tax clinic’s amicus brief in Hockin wherein the clinic had argued that district courts do have jurisdiction to consider 6015 relief in both refund suits and in collection cases and where the clinic called the numerous district court opinions holding otherwise as to collection suits “ill reasoned”. We had sent the taxpayers’ attorney in Weathers a copy of that Hockin amicus brief in lieu of filing an amicus brief in Weathers. (It was Keith’s last month at the clinic when we got the amicus brief request, and we were too understaffed with students to get involved.) But, the taxpayers’ attorney, in the response, without our prompting, also wrote the following, which put the DOJ attorneys on notice that they had cited overruled cases and regulations. (The taxpayers’ attorney also attached as an exhibit a copy of Notice 2011-70.)

    First, contrary to the government’s assertion, (see Pl.’s Mem. Supp. Summ. J. 5, 7-8), an equitable claim for relief under 26 U.S.C. § 6015(f) is not time barred. The government cites to a Treasury Regulation that was later modified/abandoned by the Internal Revenue Service in 2011 to expand the time to request equitable relief under § 6015(f). See IRS Notice 2011-70 (July 26, 2011). IRS Notice 2011-70 specifically provides that the transitional rules in the notice expanding the statute of limitations apply to individuals requesting equitable relief under § 6015(f) after the date of notice. Id. Subsequently, 26 U.S.C. § 6015(f) was revised in 2019 to allow equitable relief claims to be sought “before the expiration of the applicable period of limitation under section 6502.” 26 U.S.C. § 6015(f)(2)(A). Section 6502 allows claims to be filed within ten years after the assessment of the tax. 26 U.S.C. § 6502(a). Here, the tax years at issue are from 2009 through 2014, and the assessment dates for the taxes at issue herein, as alleged by the United States, are well within the ten year limitation. See First Am. Compl. 4, ¶ 15. The cases and Treasury Regulation cited by the government in its motion for partial summary judgment predate IRS Notice 2011-70 and the amendment to § 6015(f), and are thus are superseded. Given that the period for requesting equitable relief under § 6015(f) has not expired, Mrs. Weathers is not precluded from asserting innocent spouse relief.

    On July 1, 2022, the DOJ filed a reply going to great length to defend the argument that the district court lacks jurisdiction to consider 6015 relief in the case. On page 6 of that reply, the DOJ also wrote:

    As the United States explained in its motion for partial summary judgment, Melissa Sue Weathers is precluded from seeking innocent spouse relief before the IRS because the two-year statute of limitations has passed. 26 U.S.C. § 6015(b)(1)(E), (c)(3)(B) and 26 C.F.R. § 1.6015-5(b) (setting a two-year statute of limitations for 26 U.S.C. § 6015(f)).

    So, I now consider the DOJ actions in Weathers to give rise possibly to deliberate bad faith. I had hoped to think better of the DOJ attorneys in this case. My experience with government attorneys is that 99% of them will not deliberately cite overruled law after the overruling has been pointed out to them. It is sad to find exceptions to the rule.

  4. Buck Meister says

    I think you were correct in 1st terming it [mislead]ing because that is a question of fact and why the DOJ was wrong is left to readers. Either the argument was true or false. There appears to be no dispute that it was untrue and the dilatorious effect on taxpayers is manifest. The only thing that counts (to the citizen) is that it was false and caused foreseeable loss. Enough said!

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