Only Tax Court Petitions Filed After July 1, 2019 Are Subject to TFA’s Restricted Scope of Review

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In the en banc opinion Sutherland v. Commissioner, the Tax Court held that spousal relief cases petitioned before 7/1/19 are not subject to the Taxpayer First Act’s narrowed scope of review under new subparagraph 6015(e)(7). At this conclusion many practitioners with pending cases breathed a sigh of relief. However, the thorny issues raised by 6015(e)(7) remain to be litigated another day. We have written about these issues on PT several times, both as the Taxpayer First Act (TFA) was pending (here and here), and after it became law (here, here, here, and here).

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It’s worth noting the procedural posture of the Sutherland case, as it involves one of those thorny to-be-litigated issues. Last year Carl Smith wrote a post arguing that, in light of the new subparagraph (e)(7), the Tax Court should revisit its holding in Friday v. Commissioner that it lacks the power to remand standalone 6015(e) cases. In an email to the PT team, Carl explains that in his October 2019 post

I suggested that someone move for remand in a 6015 case.  Only weeks later, on Nov. 11 (three weeks  before a trial set for Boston), the taxpayer’s lawyers in Sutherland moved to remand the case, apparently arguing that Friday needed to be revisited — at least in a case like Sutherland, where the lawyers were counting on a de novo standard of review and standard for introducing evidence in the Tax Court.  The motion was argued at the calendar call, where Judge Lauber struck the case from the calendar and retained jurisdiction to rule on the motion.  Today’s unanimous opinion holds that the effective date of 6015(e)(7) is ambiguous, and the best construction is that it does not apply to this case. 

The Effective Date of TFA § 1203

For a review of the changes made by TFA section 1203 to IRC section 6015(e), see Steve Milgrom’s post from July 9, 2019. Relevant to the Sutherland case, the TFA appears to restrict the Tax Court’s scope of review in standalone spousal relief cases, so that it is now based primarily on the administrative record. In previous posts we have mused about what exactly that might mean.

Starting in July 2019, several judges began to issue orders asking the parties to address the impact of section 6015(e)(7) generally. Later in the fall, other judges issued orders specifically asking the parties to identify the administrative record, any disputes as to its contents, and state whether any newly discovered or previously unavailable evidence would be offered at trial.

In Sutherland, the court takes a step back and considers what the effective date provision really means, rendering many of those pretrial orders moot.

Donna Sutherland’s case is an example of previously sound strategy that no longer works under the Taxpayer First Act. Unlike most spouses requesting relief, Ms. Sutherland was represented in the administrative proceedings. Her counsel thought that the IRS Appeals Officer was misapplying the equitable relief factors and that further submissions would not be productive. So, counsel made a tactical decision to stop trying to persuade the AO and instead move the case to Tax Court. The petition was filed in February 2018.

When the statute changed over a year later, shifting the Tax Court from a de novo scope of review to the administrative record, Ms. Sutherland was left in an unhappy situation. At the time she filed her petition, she had no reason to suspect that her case would not receive a full trial de novo under the Court’s holding in Porter v. Comm’r, 132 T.C. 203 (2009).

Ms. Sutherland’s counsel filed a motion asking the court to remand the case to the IRS for fuller development of the administrative record. But rather than reconsider its ability to remand standalone innocent spouse cases, the court instead scrutinized the effective date provision in the Taxpayer First Act.

Taxpayer First Act section 1203(b) reads:

Effective Date. The amendments made by this section shall apply to petitions or requests filed or pending on or after the date of the enactment of this Act.

The structure of this sentence renders the provision ambiguous from the outset. The Court explains,

“[P]etitions or requests filed or pending” could mean “petitions filed or pending, or requests filed or pending.” Alternatively, it could mean “petitions filed or requests pending.” If the former reading is adopted, so that “pending” modifies both “petitions” and “requests,” subsection (e)(7) likely would apply here because this case was pending in this Court when the amendment was enacted. If the latter meaning is adopted, so that “pending” modifies only “requests” and “filed” modifies only “petitions,” subsection (e)(7) would not apply. Petitioner’s request for innocent spouse relief had been resolved by the IRS, and hence was not “pending,” on or after July 1, 2019. And her petition to this Court was filed before that date.

Judge Lauber gives two hypotheticals illustrating how such compound sentences can be interpreted:

For example, assume a municipal ordinance that is effective for “cars or boats parked or docked” at a city marina after a specified date. This provision would logically be interpreted to refer to “cars parked or boats docked.” That is because each adjective comfortably modifies only one noun.

On the other hand, assume a sales tax that is effective for “cars or trucks sold or leased” after a specified date. Unless the context suggested otherwise, this provision would likely be interpreted to refer to “cars sold or leased, or trucks sold or leased.” Both adjectives comfortably modify both nouns, and it would be odd to have different tax treatment for similar transactions involving similar vehicles.

Looking to the language of the Code, the Court concludes that TFA

sec. 1203(b) more closely resembles the first example above. We have discovered no instance in which Congress, either in the Code or in an uncodified effective date provision, has used the phrase “petition(s) pending” when referring to ongoing matters in our Court. And interpreting Act sec. 1203(b) to refer to “petitions filed [in this Court] or requests pending [with the IRS]” on or after the effective date makes logical sense in light of the statutory context.

The Court finds additional support for this conclusion in the structure of TFA section 1203 and the cannon against superfluity. Finally, the Court notes that this interpretation

also has the merit of preventing inequitable results that Congress presumably would have wished to avoid when prescribing the transition to the amended scope of review ordained by subsection (e)(7).

…[I]f subsection (e)(7) were to apply to cases such as this–where the conclusion of the administrative process and the filing of the petition both preceded July 1, 2019, but the case remained pending in this Court thereafter–a sort of “gotcha” could occur. The taxpayer would have gone through the administrative process believing that the scope of review in this Court was de novo. But she would then learn, once the time came for trial, that the scope of review was not de novo and that she could be prejudiced for not having made a more complete administrative record.

Because the Court finds that subsection 6015(e)(7) does not apply to this case, Ms. Sutherland will be free to introduce new evidence at trial.

The Remand Question Remains

In his email, Carl points out that the Sutherland opinion “goes out of its way to note the issue of Friday”:

Because we hold that section 6015(e)(7) does not apply, the scope and standard of review in this case will remain de novo, consistently with our case law predating the amendment. See Porter, 132 T.C. at 210. Petitioner will thus be free to introduce at trial any competent evidence that she desires. Because the premise for her motion to remand thus disappears, a remand (if we could order one) would serve no useful purpose. We will accordingly deny her motion for that reason. Cf. Burke v. Commissioner, 124 T.C. 189, 194 n.5 (2005) (declining to remand a collection due process case because a remand would not be productive); Whistleblower 23711-15W v. Commissioner, T.C. Memo. 2018-34, 115 T.C.M. (CCH) 1154, 1156 n.7 (declining to remand a whistleblower case because a remand would serve no useful purpose). That being so, we have no need to address her request that we reconsider our holding in Friday as applied to cases that are governed by the amended statute. 

It may not be long before another case squarely presents this issue and asks the Court to consider a remand. The opinion itself concedes, “[s]ome taxpayers might have received a determination letter shortly before July 1, 2019, with their petition to this Court due to be filed thereafter.” Under Sunderland’s interpretation of the TFA, such cases would be subject to the administrative record provision. (Note this is the result even if the requesting spouse had made the exact same strategic gambit as Ms. Sutherland. The Court’s analysis is grounded in textual interpretation, not equity.) In this situation the Court suggests that the requesting spouse could contact the AO and ask to re-open the administrative record. However, if the IRS declined to do so it is unclear what remedy a taxpayer would have, besides requesting a remand from the Court.

The broader concerns raised by Steve Milgrom and Carl Smith also apply to cases pending with the IRS as of July 1, 2019 (and for that matter new requests for relief), particularly when it comes to unrepresented individuals and victims of domestic violence. There will certainly be cases subject to the TFA in which a poor administrative record exists, even if the taxpayer technically had the opportunity to create a full record after July 1, 2019.

As pro se petitioners and practitioners in such cases consider their options, it’s helpful to remember the Tax Court’s May 29 press release which Keith described as a “significant and welcome change in the price structure of documents ordered from the Court.” As a result of that change, anyone interested in obtaining a copy of the motion to remand, response, and reply in Sutherland may obtain them by email for no more than $3 per document. The Court’s pricing change will make it feasible for those without deep pockets to closely follow this litigation and to make well-developed legal arguments in other TFA cases.

About Christine Speidel

Christine Speidel is Assistant Professor and Director of the Federal Tax Clinic at Villanova University Charles Widger School of Law. Prior to her appointment at Villanova she practiced law at Vermont Legal Aid, Inc. At Vermont Legal Aid Christine directed the Vermont Low-Income Taxpayer Clinic and was a staff attorney for Vermont Legal Aid's Office of the Health Care Advocate.

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