In re Geary is the latest in a line of cases where district and bankruptcy courts struggle to determine whether they have jurisdiction over innocent spouse cases. Geary, a bankruptcy case, concludes that bankruptcy courts do not have jurisdiction to determine whether a taxpayer qualifies for innocent spouse relief if seeking relief under § 6015(f). Presumably, this court would have determined it had jurisdiction if the debtor had sought relief under § 6015(b) or (c). This post discusses the case and the issues it presents.
The modern innocent spouse provisions have been in the Code for a few decades. From the start, there were questions about how and whether a court could review IRS determinations regarding requests for relief. Congress has stepped in on a few occasions. For example, it clarified that requests for equitable relief are subject to Tax Court review. Additionally, in the Taxpayer First Act (TFA) Congress added rules on both the evidence that courts can consider and the standard of review that courts would employ.
As Nina recently discussed in Thomas v. Commissioner: Some clarity on “newly discovered evidence” under IRC 6015(e)(7) that comes with a reality check, the Tax Court has attempted to provide some certainty on the TFA scope of review changes. As Nina noted, that attempt may leave some taxpayers out in the cold, and a legislative fix is likely needed to allow for the Tax Court to consider evidence that may be relevant to a determination.
Another area that needs a legislative fix is clarifying when courts other than the Tax Court have jurisdiction over these cases. Keith recently discussed one such issue in Jurisdiction of District Court in Innocent Spouse Case, where a federal district court found that it had jurisdiction to adjudicate a claim for equitable relief in a refund proceeding despite an argument regarding § 6015(f) essentially identical to the argument advanced by the government in the Geary case. I will not repeat all of Keith’s excellent post but suffice it to say that district courts have struggled to determine if they have jurisdiction to hear these cases in refund cases and collection suits brought by the government since 1998. The argument advanced in Geary and in the refund suit discussed in the above link appears to be a refinement of the government’s position. We have noted before that the Department of Justice has taken internally inconsistent position on the issue of the jurisdiction of district courts to hear refund cases based upon innocent spouse relief.
Similarly, bankruptcy courts have struggled to determine if Bankruptcy Code § 505 provides jurisdiction for innocent spouse cases. BC § 505(a)(1) provides that a bankruptcy court “may determine the amount or legality of any tax, any fine or penalty relating to a tax, or any addition to tax, whether or not previously assessed, whether or not paid, and whether or not contested before and adjudicated by a judicial or administrative tribunal of competent jurisdiction.”
In concluding that BC § 505(a)(1) did not grant it jurisdiction to consider a request for equitable relief, the Geary opinion looked to Section 6015(f). The language in (f) provides the following:
Under procedures prescribed by the Secretary [of the Treasury], if—(A) taking into account all the facts and circumstances, it is inequitable to hold the individual liable for any unpaid tax or any deficiency (or any portion of either), and (B) relief is not available to such individual under subsection (b) or (c), the Secretary may relieve such individual of such liability (emphasis in opinion).
From there, Geary states that “Congress granted only the Secretary of the Treasury the equitable power to grant innocent spouse relief under subsection (f). The statute is unambiguous in this regard, suggesting an end to the inquiry. (footnote omitted but citing some cases which essentially ended the inquiry there).
Geary acknowledges that other bankruptcy courts have gone further and found jurisdiction by looking to IRC 6015(e)(1)(A), which provides that “in addition to any other remedy provided by law, the individual may petition the Tax Court (and the Tax Court shall have jurisdiction) to determine the appropriate relief available to the individual under this section.” (my emphasis)
From there, Geary notes that “[e]xcept where a refund suit is commenced in the federal district court, most courts agree that this provision grants the Tax Court exclusive jurisdiction to hear appeals under subsection (f).”
But, as Keith’s post above notes, not all courts have agreed with this limiting language, especially in light of 6015(e)(1)(A)’s reference that the path to Tax Court review is “in addition to any other remedy provided by law.” And, as Geary states, in finding that they had jurisdiction some bankruptcy courts, including In re Pendergraft, have concluded that BC § 505 is another remedy provided by law and is aligned with the broad purpose of the bankruptcy law in providing for avoiding delays in administering a bankruptcy estate.
Yet, Geary declines to go down that path:
In re Pendergraft concludes that “innocent spouse” relief under I.R.C. § 6015(f) fits neatly within the bankruptcy court’s jurisdiction “to determine the legality of a tax,” but this Court is unconvinced. The relief In re Pendergraft envisioned involves: (1) reviewing the Secretary’s denial of relief; or (2) determining “appropriate relief” in the absence of a timely decision. Either way, the Debtor is not arguing that the taxes are illegal, just that they should be waived for equitable reasons. In fact, equitable relief is usually distinguished from legal remedies. And she is not asking the Court to determine the amount of the tax. The Service already did that, which is her problem. (notes omitted)
Despite Geary finding that it had no jurisdiction, the court candidly stated that it was “unsure what “other remedy provided by law” was contemplated when Congress enacted I.R.C. § 6015(e)(1)(A).”
That uncertainty was insufficient to find that it had jurisdiction:
Still, the structure of subsection (e) does not point to section 505. First, it seems peculiar for Congress to carefully limit federal jurisdiction over subsection (f) only to imply bankruptcy jurisdiction through a vague prefatory clause. After all, I.R.C. § 6015(e)(6) explicitly addresses the impact of bankruptcy cases on the time periods for seeking relief, so one might expect Congress to reference section 505 more directly. It is also telling that Congress acknowledged when a federal district court could acquire jurisdiction over “innocent spouse” relief and expressly curbed the jurisdiction of the Tax Court in those situations. Finally, In re Pendergraft perceived an ambiguity in I.R.C. § 6015(e)(1)(A) because the statutory timing procedures only apply to the Tax Court, not to “other remed[ies] provided by law.” In this Court’s view, that ambiguity reveals that section 505 is not really a “[an]other remedy” but a means to exercise the Tax Court’s jurisdiction under I.R.C. § 6015(e)(1)(A). (notes omitted)
Conclusion
It is suboptimal tax administration when courts differ as to whether they have jurisdiction to hear requests for equitable relief. The innocent spouse provisions are remedial. It is hard for me to square Congress’ statement that Tax Court review is in addition to other remedies provided by law with Geary’s view that it does not have jurisdiction. When Congress gets around to fixing the Thomas problem that Nina highlighted, it should also clarify that district courts in collection, refund and bankruptcy matters also have jurisdiction to consider requests for relief from joint and several liability.