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How Has the Tax Court Clarified the Meaning of Newly Discovered Evidence in Innocent Spouse Cases?

Innocent spouse relief is a provision of the Internal Revenue Code that allows certain taxpayers who filed a joint tax return to avoid being held liable for the unpaid tax liabilities of their spouse. The provision is designed to provide relief to spouses who would otherwise be responsible for the tax debt. In order to qualify for innocent spouse relief, a taxpayer must meet certain requirements, and the IRS may require the submission of evidence to support the request for relief. The different paths to innocent spouse relief are set forth in our innocent spouse relief flowchart.

Before the enactment of IRC Section 6015(e)(7), the scope of review for spousal relief cases in the Tax Court was not totally certain. Section 6015(e)(7) was enacted as part of the Taxpayer First Act in 2019 to make clear that the standard of review is de novo, which means that the court reviews the case as if it were new and without giving deference to the IRS's determination. Prior to the Taxpayer First Act, the court could consider evidence that was not part of the administrative record, and the review was not limited to the information that was available to the IRS at the time of the initial determination. However, the enactment of IRC 6015(e)(7) changed the law, not just by clarifying that the scope of review was de novo, but also limited the scope of review to the administrative record established at the time of the determination, subject to certain exceptions. Specifically, the provision allows the Tax Court to review determinations made under IRC 6015 de novo, based upon the administrative record established at the time of the determination, as well as any additional newly discovered or previously unavailable evidence.

Under IRC Section 6015, the IRS may require the submission of evidence to support a request for innocent spouse relief. The evidence may include documents that demonstrate the taxpayer's lack of knowledge or control over the item giving rise to the tax liability, such as financial records, correspondence, or other documentation. The taxpayer may also submit affidavits or other statements from witnesses who have knowledge of the relevant facts.

The meaning of "newly discovered" evidence was not defined in the statute. However, in a recent decision, Thomas v. Commissioner, 160 T.C. No. 4 (2023) the Tax Court provided important guidance on the meaning of "newly discovered evidence" in innocent spouse cases. This clarification, which expands the types of evidence that can be considered during a court review, has significant implications for both the requesting spouse and the Internal Revenue Service.

In Thomas, the petitioner, Ms. Thomas, sought innocent spouse relief under section 6015(f). The IRS initially denied her request, and she petitioned the Tax Court for a review. During the Tax Court proceedings, the IRS sought to introduce evidence (certain blog posts) that it claimed was "newly discovered" under section 6015(e)(7)(B). However, the Mrs. Thomas argued that the evidence in question was not newly discovered because it could have been obtained earlier with reasonable diligence.

Ms. Thomas argued that the term "newly discovered evidence" should be interpreted narrowly, similar to the Federal Rules of Civil Procedure (FRCP) 60(b)(2), which governs relief from a judgment or order on the basis of newly discovered evidence. Under FRCP 60(b)(2), a party must show that the evidence was discovered after the trial and that they exercised "reasonable diligence" in attempting to discover the evidence beforehand.

Tax Court's Analysis: The Tax Court began by defining "newly discovered" using dictionary definitions, concluding that the ordinary meaning of the term as of 2019 was "recently obtained sight or knowledge of for the first time." The Court then considered whether section 6015(e)(7)(B) should incorporate a "reasonable diligence" requirement similar to FRCP 60(b)(2), as argued by Ms. Thomas.

The Tax Court disagreed with Ms. Thomas's interpretation, noting that the language of section 6015(e)(7)(B) does not include such a requirement, and that Congress intentionally chose different language when drafting the provision. The Court also highlighted the importance of the de novo standard of review in innocent spouse cases, which allows for a fresh record and a broader scope of evidence.

The Tax Court further explained that innocent spouse cases are distinguishable from civil litigation in which the FRCP 60(b)(2) standard applies. In civil litigation, the discovery process is typically more extensive, providing parties with ample opportunity to uncover relevant evidence before trial. In contrast, the administrative process for innocent spouse relief is more limited, with the parties often lacking the same level of access to information.

Ultimately, the Tax Court held that the term "newly discovered evidence" in section 6015(e)(7)(B) should be interpreted as evidence that the litigant “recently obtained sight or knowledge for the first time” regardless of whether a party exercised reasonable diligence in discovering the evidence beforehand. As a result, the IRS was permitted to introduce its evidence in the Tax Court proceedings.

Implications of the Decision:

  1. Broader Scope of Evidence: The Tax Court's decision to interpret "newly discovered evidence" more broadly means that taxpayers and the IRS may introduce a wider range of evidence during a court review of their innocent spouse relief request. This expands the opportunity for taxpayers to present their case more effectively and may result in more favorable outcomes for deserving taxpayers.
  2. Heightened Importance of Tax Court Review: The broader interpretation of "newly discovered evidence" places even greater importance on the Tax Court's review of innocent spouse relief requests. With the de novo standard of review and the ability to introduce a wider array of evidence, the Tax Court's role as an independent arbiter becomes more critical in ensuring a fair determination of relief eligibility.
  3. Potential Impact on IRS Procedures: The Tax Court's decision may also prompt the IRS to reconsider its approach to the administrative process in innocent spouse cases. The IRS may choose to adopt more comprehensive discovery procedures to gather relevant evidence earlier in the process, potentially reducing the need for taxpayers to introduce new evidence during court review.
  4. Shift in Litigation Strategy: Both taxpayers and the IRS will need to adapt their litigation strategies to account for the broader scope of evidence now allowed in Tax Court proceedings. However, as the concurring opinion notes, taxpayers even under this relaxed standard will have difficulty proving that evidence was newly discovered. For example, taxpayers may not be able to argue their own medical records, which might support abuse in the marriage were “newly discovered.”

Conclusion: Even with the broad definition of newly discovered evidence, taxpayers need representation at the time of the administrative proceeding. In many cases, if they wait until the initial unfavorable decision by the IRS, they will have turned a winning case into a loser. Sort of alchemy in reverse. If you believe that you or your clients may be entitled to innocent spouse relief, please contact our tax litigation attorneys for a consultation.

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