Innocent Spouse Relief in Any Economy Part 3
Tax Court Review
An individual may petition the Tax Court for innocent spouse relief within 90 days of the issuance by certified or registered mail by the IRS of a notice of determination with regard to the relief available. This is usually referred to as a "stand alone" case.However, there is a trap for unwary bankruptcy lawyers. Taxpayers cannot file a petition with the Tax Court during the pendency of a bankruptcy case, as it violates the automatic stay provisions in Bankruptcy Code ß 362(a)(8) (barring any action against or concerning a debtor or the debtor's property). However the 90 day period for filing a Petition with the Tax Court does not toll during bankruptcy. Therefore a taxpayer who receives a Notice of Determination that she is not an innocent spouse during the pendency of a bankruptcy can permanently lose her right to Tax Court review. Drake v. Commissioner, 123 T.C. 320 (T.C. 2004). A bankruptcy lawyer faced with this problem should consider requesting a relief from the bankruptcy stay in order to permit the filing of a Tax Court petition. It might also be possible to litigate the innocent spouse claim in bankruptcy court. See In re Hinckley, 256 Bankr. 814 (Bankr. M.D. FL. 2000) (debtor permitted to raise IRC ß 6015 claim in objection to the Commissioner's proof of claim); French v. United States, 242 Bankr. 369 (Bankr. N.D. Ohio 1999) (debtor permitted to raise section 6015 claim in adversary proceeding brought pursuant to 11 U.S.C. ß 505(a)).
Even if no determination letter is issued by the IRS, a taxpayer may file a petition with the Tax Court at any time after six months from the filing of the election has expired, but not after 90 days after the determination letter has been issued. See Friday v. Commissioner, 124 T.C. 220 (2005). Alternatively innocent spouse relief may be raised as an affirmative defense in a Tax Court petition, or in a petition filed in response to a Notice of Final Determination following a collection due process hearing pursuant to section 6330, or 6320.
Review of denial of innocent spouse cases under section 6015(b) and (c) generally is de novo and is not limited to matters contained in the administrative record. See, e.g., Alt v. Commissioner., 119 T.C. 306 (2002), aff'd, 101 Fed. Appx. 34 (6th Cir. 2004).
The Tax Court reviews section 6015(f) equitable relief cases de novo and does not limit its review to the administrative record. Neal v. Commissioner, 557 F.3d 1262 (11th Cir. 2009), (scope of review is de novo and not limited to APA rule restricting review to administrative record), aff'g T.C. Memo 2005-201; Ewing v. Commissioner, 122 T.C. 32 (2004), overruled on other grounds, Commissioner v. Ewing, 439 F.3d 1009 (9th Cir. 2006). In Porter v. Commissioner, 130 T.C. 115 (2008) (Porter I), the Tax Court refused to reconsider its holding in Ewing, i.e., that its de novo review is not limited to evidence contained solely in the administrative record. In so holding, the court rejected the IRS's contention that pursuant to the Administrative Procedure Act (APA), it could consider only the administrative record and not additional evidence introduced at trial. In Porter v. Commissioner, 132 T.C. 203 (2009) (Porter II), the court again held that a de novo standard of review as well as a de novo scope of review is proper in section 6015(f) cases. The IRS, however, has taken the position that the scope of Tax Court review in section 6015(f) cases is limited to the issues and evidence presented to Appeals or Examination. In CC-2009-021 (6/30/09), the IRS Chief Counsel reiterated that in all section 6015(f) cases the proper standard of review is abuse of discretion, and IRS attorneys should continue to argue that, under an abuse of discretion standard of review, the scope of the Tax Court's review is limited to issues and evidence presented before Appeals or Examination.
The bankruptcy court has jurisdiction to hear an innocent spouse claim. In cases where the IRS has filed a proof of claim the taxpayer need not have exhausted his administrative remedies. Michaud v. United States, 206 B.R. 1 (D.N.H. 1997); French v. United States, 242 Bankr. 369 (Bankr. N.D. Ohio 1999) (debtor permitted to raise section 6015 claim in adversary proceeding brought pursuant to 11 U.S.C. ß 505(a)). IRS General Litigation Bulletin 200014034 (Bankruptcy Court has jurisdiction under section 6015(b) and (c), but not (f)).
Generally the IRS may not collect any tax to which the election relates until the 90 day period for petitioning the Tax Court expires, or the Tax Court decision becomes final. Section 6015(e)(1)(B).The collection statute is suspended during the period the IRS is prohibited from levying plus 60 days thereafter.
The non-filing party is to be given adequate notice, and an opportunity to intervene in the proceeding for spousal relief under sections 6015(b)and (c). Section 6015(e)(4). Corson v. Commissioner, 114 T.C. 354 (2000), as well as under section 6015(f). Van Arsdalen v. Commissioner, 123 T.C. 135 (2004). The intervener may either dispute or support the requesting spouse's claim for relief. Id. See, Tax Court Rule 325. However in stand-alone cases the non-requesting spouse does not have right to request Tax Court review of the IRS' administrative determination to grant innocent spouse status to the requesting spouse. Maier v. Commissioner, 119 T.C. 267 (2002), affd 360 F.3d 361 (2nd Cir. 2004).
The law provides a limited exception to the doctrine of res judicata. If there has been a prior proceeding in the Tax Court which has become final, that proceeding is not conclusive with respect to a request for relief unless it was in issue in the prior proceeding, or the individual requesting relief "participated meaningfully" in the prior proceeding. Section 6015(g)(2).
Find out more about Innocent Spouse Relief at the 2012 American Bar Association 29th Annual Institute on Criminal Tax Fraud and the 2nd National Institute on Tax Controversy. I will be discussing this topic as part of a panel. The conference will take place from December 6-7 at the Wynn Hotel in Las Vegas, NV.
Please register here if you are interested in attending.