Tax Court Strikes Blow to Part of Equitable Relief Factors in Rev Proc 2013-34

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Today we are again fortunate to have Carl Smith as a guest blogger.  Carl played a key role in coordinating the litigation in the Tax Court and the Circuit courts following the Lantz decision striking down the regulations creating a statute of limitations for requesting equitable innocent spouse relief of two years after the beginning of collection activity.  In the blog post last Friday by Jamie Andree, we highlighted the continuing issues presented by the proposed innocent spouse regulations one of which is the definition of collection activity. 

In July 2011, when the IRS made the announcement that it was pulling back the regulation creating the statute of limitations under IRC 6015(f), it also set in motion an effort to work with the community of practitioners that represent individuals with innocent spouse issues.  This effort by the IRS was extraordinary and a great way to go about approaching new regulations not only on the statute of limitations issue for equitable but also for innocent spouse issues on the whole.  Les has written about the regulatory process and how the government in the past has relied too heavily on those with money and an obvious stake in the regulations to make comments without making the effort to reach out to groups with a stake in certain regulations but without the funds or natural processes for making comments. The IRS efforts in the innocent spouse area provide a model of good government behavior to get a regulation right even if it required the IRS to do some outreach that it was not required to do.

Les and I and 10 others were invited in May 2012 to the IRS national office to meet with then Deputy Commission Steve Miller and National Taxpayer Advocate Nina Olson and others to discuss the issues that should shape the reissuance of the innocent spouse regulations.  See Vo. 31, No. 4, Summer 2012 of ABA Tax Section NewsQuarterly (ABA membership required) at page 16.  That meeting followed a March 2012 meeting with the Deputy Commissioner and National Taxpayer Advocate attended by me and other low income taxpayer clinicians.  Carl and I were so impressed with Deputy Commissioner Steve Miller that we wrote a letter to the editor of Tax Notes when Mr. Miller was sacrificed as part of last year’s scandal involving IRC 501(c)(4). 

As part of revamping the innocent spouse area, the IRS has issued some interim guidance pending the publication of the new regulations currently being written.  Courts are beginning to grapple with the guidance as it applies to specific situations.  Carl writes below about one of the first cases applying that guidance.  I am sure it will not be the last.  The struggle to figure out the right balance of factors to apply in the innocent spouse situation has existed since the creation of the statute in 1971 and really since the creation of joint returns.  I am encouraged that the IRS has shown such a capacity to work with the community on this issue.  As Carl discusses, the IRS did not adopt all of the suggestions offered.  In this instance, the Court does find one of the suggestions to have merit as it determines the individual deserves the benefits of the innocent spouse provisions.  Keith


This week in a summary opinion, Howerter v. Commissioner, T.C. Summary Op. 2014-15, Judge Kerrigan gave the first blow to the recent Rev. Proc. 2013-34 — the one that sets out the rules that the IRS follows in deciding eligibility for equitable innocent spouse relief under section 6015(f).  You may recall that in Notice 2012-8, the IRS proposed to revise Rev. Proc. 2003-61, which led eventually to Rev Proc. 2013-34.  One of the sentences in Notice 2012-8 to which I personally objected to then Deputy Commissioner Steven Miller at a meeting in Washington in March 2012 was a sentence at proposed section 4.03(2)(e) in the factor on significant benefit reading:  “If the amount of unpaid tax or understated tax was small such that neither spouse received a significant benefit, then this factor is neutral.”  I pointed out that the Tax Court already had rejected a previous IRS attempt to find that lack of significant benefit was a neutral factor.  In Rev. Proc. 2000-15, the IRS had held that significant benefit to the taxpayer was a negative factor towards relief, but implied that the absence of significant benefit was a neutral factor.  The Tax Court rejected this aspect of Rev. Proc. 2000-15 in Ewing v. Commissioner, 122 T.C. 2, 45 (2004) (footnote omitted) stating:

Rev. Proc. 2000-15, supra, implies that the Commissioner will generally not consider the absence of facts (1), (2), (3), or (4) in determining whether to grant relief under section 6015(f). However, based on caselaw deciding whether it was equitable to relieve a taxpayer from joint liability under former section 6013(e)(1)(D), we consider the fact that a taxpayer did not significantly benefit from the unpaid liability or item giving rise to the deficiency as a factor in favor of granting relief to that taxpayer. Ferrarese v. Commissioner, T.C. Memo. 2002-249 (citing Belk v. Commissioner, 93 T.C. 434, 440-441 (1989); Foley v. Commissioner, T.C. Memo. 1995-16; Robinson v. Commissioner, T.C. Memo. 1994-557; Klimenko v. Commissioner, T.C. Memo. 1993-340; Hillman v. Commissioner, T.C. Memo. 1993-151).

I also pointed out that there was no indication in the proposed Rev. Proc. of what a “small” benefit meant.  Was it $1,000, $10,000, $50,000? I don’t recall whether my comments went into the ABA Tax Section’s later submission of comments on Notice 2012-8.  When Rev. Proc. 2013-34 was issued, it addressed only my latter point on what is a “small” benefit.  Section 4.03(2)(e) thereof now states, in relevant part:

If the amount of unpaid tax or understatement was small such that neither spouse received a significant benefit, then this factor is neutral. Whether the amount of unpaid tax or understatement is small such that neither spouse received a significant benefit will vary depending on the facts and circumstances of each case.

Thus, the IRS added the second sentence, again refusing to identify exactly a “small” amount — thereby still leaving the issue open.

Yesterday, in Howerter, Judge Kerrigan had an innocent spouse case that came down to equitable relief under section 6015(f).  The judge found one factor against relief (knowledge) and two factors favoring relief (marital status and compliance with tax laws in later years).  All the other factors were neutral, save for what the court said about “significant benefit”.  The court wrote:

A significant benefit might be found where, for example, the requesting spouse enjoyed the benefits of a lavish lifestyle, such as owning luxury assets and taking expensive vacations. Rev. Proc. 2013-34, sec.4.03(e), 2013-43 I.R.B. at 402. If the amount of unpaid tax or the understatement was small such that neither spouse received a significant benefit, then this factor is neutral. Id. Whether the amount of unpaid tax or the understatement is small such that neither spouse received a significant benefit will vary depending on the facts and circumstances of each case. Id. Respondent determined a deficiency of $2,901arising from the unreported income listed in the Notice CP2000. Split evenly, petitioner’s share of this burden would be $1,450. The amount of the unpaid tax was too small to allow either spouse to enjoy a significant benefit. Although Rev.Proc. 2013-34, sec. 4.03(e), suggests that we treat this factor as neutral because the amount of the unpaid tax was too small to allow either spouse to enjoy a significant benefit, we decline to do so. In previous cases in which we reviewed requests for section 6015(f) relief under Rev. Proc. 2003-61, supra, the predecessor to Rev. Proc. 2013-34, supra, we held that the lack of a significant benefit should weigh infavor of granting relief. See, e.g., DeMattos v. Commissioner, T.C. Memo. 2010-10; Butner v. Commissioner, T.C. Memo. 2007-136. We hold similarly that under Rev. Proc. 2013-34, supra, the lack of a significant benefit should weigh in favor of granting relief to petitioner. [*18-*19]

Adding the lack of significant benefit to the other two positive factors for relief, the court found the three positive factors outweighed the one negative factor, and so the court granted relief.  It would have been a much closer case had there only been two positive factors.

I don’t mean to be smug in saying, “I told you so” to the IRS.  But, I did warn the IRS that this would happen.  They could have prevented this. Now, will someone tell all the employees at the Cincinnati Centralized Innocent Spouse Office to ignore the two sentences in Rev. Proc. 2013-34 rejected today?  I hope so.



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.


  1. I don’t want to leave the impression that I am opposed to all of the new Rev. Proc. I think much of it is great. Indeed, I have been told anecdotally that since Notice 2012-8 was issued, the percentages of spouses being granted relief by CCISO (which receive about 50,000 request in the typical year) have spiked up dramatically. And there are many fewer 6015 cases being litigated in the Tax Court. I just went back to the tables in Nina Olson’s last two annual reports. For the period June 1, 2011 to May 31, 2012, looking only to Tax Court 6015 cases litigated to opinion, there were 32 cases. For the period June 1, 2012 to May 31, 2013, there were only 21 such cases. In the last eight months since June 1, 2013, there have only been 9 cases. Notice 2012-8 and Rev. Proc. 2013-34 clearly have dramatically reduced litigation in this area by allowing more spouses to get relief.

  2. Not sure I would call it a “blow.” The Tax Court in a non-precedential opinion has stated it will continue to follow its own previous precedent, and it does so in a way which is favorable to requesting spouses.

    Of course since our firm has also represented non-requesting spouses opposing what they viewed as “illegitimate” requests I am not sure that every liberalization of the rules is “equitable.”

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