by Frances D. Sheehy
In 1998, Congress enacted legislation to make it easier to obtain relief under the innocent spouse provisions of the Internal Revenue Code (IRC).1 As part of that legislation, the “nonrequesting spouse” was granted certain procedural rights, including the right to participate and be heard in any Tax Court proceeding on the issue of innocent spouse.2 This article will discuss a brief background of the innocent spouse statute, the procedures for participation of the nonrequesting spouse, and the limits of intervention under the innocent spouse provisions of the IRC, as defined by the 11th Circuit.
Innocent Spouse Relief Generally
Married couples may choose to file either joint or separate federal income tax returns. 3 The joint return option has not always been available. Congress enacted the joint return legislation in 1948 in an effort to provide the same federal tax treatment to similarly situated married couples regardless of whether they were domiciled in a community property or common law state.4 In nearly every situation, a married couple will have a lower total tax liability if they choose to file jointly than if they choose to file separately.5 Indeed, the joint return legislation was supported in part because it worked a significant reduction in federal taxes.6
When a married couple chooses to file a joint return, each spouse is jointly and severally liable for the taxes.7 Because Congress has not defined joint and several liability by statute, common law rules apply.8 Accordingly, even when the couple files joint returns, the tax liability of each spouse may be determined independently of the other; the tax liability of each spouse “is a controversy between [him or] herself and the [g]overnment.”9
Because joint filing offers financial advantages to both spouses, joint and several liability is “an important adjunct to the privilege of filing joint returns.”10 The normal rule of joint and several liability can cause injustices in certain circumstances, however, such as when a husband, without the wife’s knowledge, embezzles funds and disappears with them, leaving her to face the tax liability alone.11 Though state law generally provides some type of relief from marital liabilities for individuals who find themselves in such harsh circumstances, the relevant state law provisions have no effect when the creditor is the federal government and collection is pursuant to federal law.12 To provide such relief, Congress enacted former IRC §6013(e), providing relief from joint and several liability to married joint filers who met certain conditions.13 This relief, and relief under the successor statute, IRC §6015, is commonly known as “innocent spouse relief”; the party seeking relief is commonly referred to as the “requesting” or “electing” spouse and the other signor of the joint return is commonly referred to as the “nonrequesting” or “nonelecting” spouse.
IRC §6013(e), as amended, controlled innocent spouse relief until its repeal (and the enactment of IRC §6015) pursuant to RRA 1998. During that time, the Tax Court had jurisdiction to hear a claim for innocent spouse relief only when the claim was raised as an affirmative defense in a case brought pursuant to the court’s deficiency jurisdiction (now generally called a “deficiency proceeding”).14 Where both spouses were parties to the same deficiency case, and one spouse requested innocent spouse relief, the Tax Court had a practice of allowing the requesting spouse and the commissioner to settle based on the claim of innocent spouse relief, even over the objection of the nonrequesting spouse.15
Limitations to the Participation of the Nonrequesting Spouse
• Pre-1998. Estate of Ravetti v. United States, 37 F.3d 1393, 1394 (9th Cir. 1994): No Standing to Appeal the Tax Court Grant of Innocent Spouse Relief — In a case in which the spouses filed separate Tax Court petitions and, therefore, were not parties to each others’ deficiency cases, the Tax Court approved a settlement between the ex-wife and the commissioner based on her claim for innocent spouse relief, without first providing the estate of the ex-husband with notice or the opportunity to be heard. The estate’s efforts to raise the issue in its own deficiency case were rebuffed.16 On review, the Ninth Circuit did not reach the due process argument, instead dismissing for lack of jurisdiction on the ground that “[a] taxpayer...lacks standing to challenge the ‘innocent spouse’ relief granted to his or her spouse.”17
In holding that a taxpayer lacks standing to challenge the grant of innocent spouse relief to his or her spouse or former spouse, the court relied principally upon the observation that the nonrequesting spouse “would owe the same amount of money regardless.”18 As the court in Ravetti explained, because the estate was jointly and severally liable for the deficiency,19 “the IRS could take all the money owed from Silvio [the decedent], whether Martha [his ex-wife] was an ‘innocent spouse’ or not. Even if Martha owed the money jointly and severally, Silvio’s estate would not be entitled to a refund.”20 Indeed, this is what the word “several” in the phrase “joint and several liability” means.
Similarly, the Ninth Circuit observed that there is no “provision for reducing a taxpayer’s liability because of the joint and several obligation of his or her spouse.”21 Accordingly, even if the IRS erred in granting innocent spouse liability to the wife, “such an error would not affect Silvio’s estate’s tax liability.”22 If such an error was made, the court pointed out, “[t]he only harm would be to the IRS in depriving it of an additional source from which to recover.”23
In Ravetti, the court also rejected other possible arguments in favor of standing. Consistent with the general principle that “[a] taxpayer generally has no standing to challenge the tax liability determination of another taxpayer,” the Ninth Circuit observed that federal tax law makes no provision for contribution between spouses; because no such right exists, no such right could be compromised by the grant of innocent spouse relief to one spouse.24 On the other hand, the court observed, the estate might be entitled to contribution under state law.25 Although the estate contended that the grant of innocent spouse relief would “control the result in state court under the Supremacy Clause and by res judicata,” the court disagreed, observing that “[t]he question whether, under federal law, Martha escapes additional taxes which Silvio’s estate must pay to the IRS, does not control the state law determination of whether, as an equitable matter, Martha should have to contribute anything to Silvio,” and further observed that “[r]es judicata will not apply because Silvio’s estate was not a party nor in privity with Martha or the IRS in her innocent spouse adjudication.”26
• Changes to the Innocent Spouse Relief Statute After Ravetti — In 1998, Congress repealed IRC §6013(e) and enacted a new innocent spouse provision, IRC §6015, which liberalizes the availability of innocent spouse relief and adopts new procedural requirements.27 When one spouse makes an administrative election for relief under IRC §6015(b) or (c), the IRS is now required to provide the other signor of the joint return (i.e., the nonrequesting spouse) with “notice of, and an opportunity to participate in, any administrative proceeding.”28 IRC §6015 also grants the Tax Court jurisdiction to review the administrative denial of a request for relief under IRC §6015(b) or (c), if a deficiency has been asserted.29 When one spouse files a Tax Court petition seeking review of an administrative denial of relief, the commissioner must notify the nonrequesting spouse of the action and the opportunity to become a party to the case.30 Under Tax Court procedures, the nonrequesting spouse may intervene simply by filing a “notice of intervention,”31 because, the Tax Court has held, IRC §6015(e)(4) “confers...an unconditional statutory right to intervene within the meaning of [R]ule 24(a)(1) of the Federal Rules of Civil Procedure.”32
A case over which the Tax Court exercises jurisdiction pursuant to IRC §6015(e) is called a “stand-alone” proceeding.33 The Tax Court also retains its jurisdiction to consider innocent spouse relief as an affirmative defense in a deficiency proceeding.34 Although the statute does not explicitly require that notice and the opportunity to participate be provided to nonrequesting spouses when the innocent spouse issue arises in a deficiency proceeding, the Tax Court has extended these rights to that situation.35 In so doing, the Tax Court observed that because of the structure of the statute, before innocent spouse relief could be granted either administratively or in a stand-alone proceeding in the Tax Court, the nonrequesting spouse would have the right to participate.36 The Tax Court believed it would be unfair “if the rights of the non-electing spouse were to differ according to the procedural posture in which the issue of relief under [§]6015 is brought before the Court. Identical issues before a single tribunal should receive similar treatment.”37
While the Corson decision means that nonrequesting spouses in the two procedural settings have the same rights once they reach the Tax Court, significant differences remain regarding the invocation of Tax Court jurisdiction. Even though both spouses may participate in the administrative proceeding,38 in a stand-alone proceeding, the Tax Court’s jurisdiction is limited to review of a petition from the requesting spouse.39 Put differently, the nonrequesting spouse only has the right to participate in the Tax Court “should the matter move from an administrative to a judicial forum,”40 i.e., if the commissioner denies the request for innocent spouse relief, and the requesting spouse appeals the administrative decision.
On the other hand, when the innocent spouse claim is not resolved at the administrative level prior to the Tax Court petition where it is raised as an affirmative defense to a proposed deficiency, the Tax Court has broad jurisdiction. In a deficiency proceeding, the Tax Court’s jurisdiction rests not on the denial of the administrative claim,41 but on the statutory notice of deficiency.42 Because an administrative proceeding is not a prerequisite to the Tax Court’s deficiency jurisdiction, it may happen that the commissioner first reviews the request for relief after it is raised in court. As mentioned above, prior to the enactment of IRC §6015, if the commissioner wanted to concede the innocent spouse issue, the Tax Court would grant a motion for entry of decision between the requesting spouse and the commissioner, regardless of any objection raised by the nonrequesting spouse.43 But under IRC §6015, the Tax Court will not grant a motion for entry of decision over the objection of the nonrequesting spouse. Instead, exercising its discretion to review “[all concessions, including stipulated settlement agreements,”44 the Tax Court will allow the nonrequesting spouse his or her “day in court” even though the commissioner has already agreed to grant innocent spouse relief to the requesting spouse.45
• Post-1998. Baranowicz v. Commissioner, 432 F.3d 972 (9th Cir. 2005): No Standing to Appeal the Tax Court Grant of Innocent Spouse Relief — Even post 1998, Mr. Baranowicz’ appeal of a Tax Court decision which determined his ex-wife to be entitled to “innocent spouse” relief was dismissed for lack of standing.46 The Ninth Circuit, relying on Ravetti, in part, found that even after the enactment of IRC §6015(e)(4), the nonrequesting spouse lacked standing to appeal the favorable innocent spouse decision of the Tax Court because Baranowicz failed to show any redressable injury.47
• Eleventh Circuit. Cross v. Commissioner, 2012 U.S. App. LEXIS 24274 (11th Cir. 2012): No Right of Intervention Without IRC §6015 — In a recent unpublished decision, the 11th Circuit did not follow the Ravetti and Baranowicz courts by dismissing the intervenor’s appeal for lack of standing. Instead, the court affirmed the Tax Court’s dismissal of an intervenor-husband after his wife withdrew her claim for relief under the innocent spouse provisions of the Internal Revenue Code.48 The case involved a Tax Court petition alleging that the joint return filed by the husband was invalid, and in the alternative that the taxpayer-wife was entitled to innocent spouse relief. After intervention by the husband, the wife and the commissioner stipulated that the return was not a valid joint return, then filed a motion to dismiss the intervenor. The Tax Court granted the motion to dismiss the intervenor, finding that a request for relief under IRC §6015 was a “condition precedent for intervention.”49 The 11th Circuit agreed, finding that the purpose of intervention is to “ensure that innocent spouse relief is granted on the merits after taking into account all relevant evidence.”50 Intervention under IRC §6015 does not include any right to present evidence as to the validity of the joint tax return.51
It is well-established that, in general, a taxpayer may not litigate the tax liability of another taxpayer.52 All the exceptions to this rule permit one taxpayer to litigate on behalf of another whose tax he or she has paid (e.g., a transferee may litigate the tax liability of his or her transferor); no exception allows a taxpayer to litigate against another on behalf of the federal government.53 Justice Stewart observed in a concurring opinion in Simon v. Eastern Ky. Welfare Rights Org., 426 U.S. 26, 46 (1976), that he could not “imagine a case, at least outside the First Amendment area, where a person whose own tax liability was not affected ever could have standing to litigate the federal tax liability of someone else.”54
The court dismissed for lack of jurisdiction the claim of any right to intervene under Fed. R. Civ. P. 24 because no motion for such intervention was filed in the Tax Court.55 Whether such a right to intervene exists, absent the unqualified right granted in IRC §§6015(e)(4) and (h)(2), was not decided in this case. Generally, in Tax Court cases, the prohibition of litigating the tax liability of another taxpayer precludes such intervention, except in extreme cases.56
Historically, under the prior IRC §6013 innocent spouse provisions, the nonrequesting spouse had no standing to object to the granting of innocent spouse relief.57 After IRC §6015 was enacted, an intervenor’s rights in innocent spouse cases have become more clearly defined. Based on the prior discussion, there are still limitations for intervention under IRC §6015. They include the following: 1) When IRC §6015 relief has been requested, the nonrequesting spouse has the right to participate at the administrative level only until either the IRS has granted relief, or the IRS has denied relief and the requesting spouse does not file a Tax Court petition;58 2) once a Tax Court petition is filed and IRC §6015 relief is at issue, the intervenor has the right to limited participation in the Tax Court case,59 but only as to the IRC §6015 issue and not as to the underlying liability;60 3) the intervention never extends to participation in the underlying liability issues;61 4) the intervenor never has the right to appeal the Tax Court decision on the IRC §6015 issue;62 and 5) the intervenor’s rights of intervention disappear if the affirmative defense of innocent spouse is withdrawn, although there is jurisdiction to appeal that issue.63
1 I.R.C. §6015. All references are to the Internal Revenue Code of 1986, as amended, unless otherwise indicated.
2 I.R.C. §§6015(e)(4) and 6015(h)(2); Tax Ct. R. 325, and Treas. Reg. §1.6015-6(a)(1).
3 I.R.C. §6013(a).
4 Revenue Act of 1948, Ch. 168, §§301-305, 62 Stat. 110,114. See generally Boris I. Bittker, Federal Income Taxation and the Family, 27 Stan. L. Rev. 1389, 1412-1414 (1975).
5 Whether a given married couple will owe the least amount of tax if they file jointly or if they divorce and file as unmarried individuals depends upon their particular financial situation.
6 Bittker, Federal Income Taxation and the Family, 27 Stan. L. Rev. 1389.
7 I.R.C. §6013(d)(3).
8 Dolan v. Commissioner, 44 T.C. 420, 426 (1965) (reviewed opinion); see United States v. Wainer, 211 F.2d 669, 673 (7th Cir. 1954).
9 Richmond v. United States, 456 F.2d 458, 463 (3d Cir. 1972). See also Kroh v. Commissioner, 98 T.C. 383, 396-97 (1992) (reviewed opinion); Dolan, 44 T.C. at 431.
10 Sonnenborn v. Commissioner, 57 T.C. 373, 381 (1971).
11 S. Rep. No. 91-1537 at 2 (1970), reprinted in 1971-1 C.B. 606,607; see also United States v. Mitchell, 403 U.S. 190, 205 (1971) (detailing other “exceedingly unfortunate” circumstances).
12 Mitchell, 403 U.S. at 204.
13 Pub. L. No. 91-679, 84 Stat. 2063 (1971) (enacting I.R.C. §6013(e)): see also Mitchell, 403 U.S. at 206 (approving the legislative remedy).
14 Butler v. Commissioner, 114 T.C. 276, 287-289 (2000).
15 See Garvey v. Commissioner, T.C. Memo. 1993-354, 66 T.C.M. (CCH) 355 (1993); Himmelwright v. Commissioner, T.C. Memo. 1988-114, 55 T.C.M. (CCH) 403 (1988).
16 Estate of Ravetti v. United States, 37 F.3d 1393, 1394 (9th Cir. 1994).
17 Id. at 1395.
18 Id. at 1394.
19 I.R.C. §6013(d)(3).
20 Ravetti, 37 F.3d at 1394.
21 Id. at 1395.
26 Id. at 1395-96.
27 RRA 1998, §3201.
28 I.R.C. §6015(h)(2).
29 I.R.C. §6015(e)(1)(A).
30 I.R.C. §6015(e)(4); Tax Ct. R. 325.
31 Tax Ct. R. 325.
32 Van Arsdalen v. Commissioner, 123 T.C. 135 (2004).
33 Id.; Fernandez v. Commissioner, 114 T.C. 324, 329 (2000).
34 Van Arsdalen, 123 T.C. 135; Butler v. Commissioner, 114 T.C. at 287-89.
35 Corson, 114 T.C. at 365; Tax Ct. R. 325. See also King v. Commissioner, 115 T.C. 118 (2000) (act., 2000-41 I.R.C. 323).
36 Corson, 114 T.C. at 365 (citing I.R.C. §6015(e)(1), (e)(4), and (g)(2) (since predesignated (h)(2)).
37 Id. at 364.
38 I.R.C. §6015(h)(2).
39 I.R.C. §6015(e)(1)(A); Maier v. Commissioner, 360 F. 3d 361, 364 (2d Cir. 2004).
40 Corson, 114 T.C. at 365.
41 I.R.C. §6015(e).
42 I.R.C. §§6213, 6214.
43 See Garvey v. Commissioner, T.C. Memo. 1993-354, 66 T.C.M. (CCH) 355 (1993); Himmelwright v. Commissioner, T.C. Memo. 1988-114, 55 T.C.M. (CCH) 403 (1988).
44 Corson, 114 T.C. at 364 (quoting McGowan v. Commissioner, 67 T.C. 599, 607 (1976).
45 Id. at 365.
46 Baranowicz v. Commissioner, 432 F. 3d 972 (9th Cir. 2005).
47 Id. at 976. In the Baranowicz case, the taxpayers filed a joint petition, got divorced and Mrs. Baranowicz (Baran) requested innocent spouse relief. The underlying tax liability was agreed by stipulation of the parties. The innocent spouse relief was similarly agreed by stipulation of Baran and the commissioner, but disputed by the intervenor. After the hearing, the Tax Court found that Baran was indeed entitled to relief from the liability.
48 Cross v. Commissioner, 2012 U.S. App. LEXIS 24274 (11th Cir. 2012). The author represented Mrs. Cross before the U.S. Tax Court and the 11th Circuit Court of Appeals in this case.
50 Id., citing Corson, 114 T.C. at 365.
52 United States v. Williams, 514 U.S. 527, 539 (1995)
53 Id. See also Allen v. Wright, 468 U.S. at 757 (parents of minority students lacked standing to challenge granting of tax-exempt status to racially discriminatory private schools); Flight Attendants Against UAL Offset v. Commissioner, 165 F.3d 572, 574 (7th Cir. 1999) (“Ordinarily a person does not have standing to complain about someone else’s receipt of a tax benefit.”).
54 See also American Soc. of Travel Agents, Inc. v. Blumenthal, 566 F.2d 145, 147 (D.C. Cir. 1977).
55 Cross v. Commissioner, 2012 U.S. App. LEXIS 24274 (11th Cir. 2012).
56 Appleton v. Commissioner, 430 Fed. Appx. 135 (3d Cir. 2011). The Virgin Islands was allowed to intervene in a tax case involving the statute of limitations for a Virgin Islands resident based on Fed. R. Civ. P. 24(b)(2), which allows permissive intervention of government entities where statutes or regulations impact the government entity.
57 Ravetti, 37 F. 3d 1393; Garvey v. Commissioner, T.C. Memo. 1993-354; Himmelwright v. Commissioner, T.C. Memo 1988-114.
58 Maier v. Commissioner, 119 T.C. 267 (2002).
59 Baumann v. Commissioner, T.C. Memo. 2005-31.
60 King and Freeman v. Commissioner, 115 T.C. 118 (2000).
61 Wilson v. Commissioner, T.C. Memo. 2007-127; Kovitch v. Commissioner, 128 T.C. 108 (2007); Cross, 2012 U.S. App. LEXIS 24274 (11th Cir. 2012).
62 Ravetti, 37 F.3d 1393; Baranowicz v. Commissioner, 432 F. 3d 1972 (9th Cir. 2006).
63 Cross, 2012 U.S. App. LEXIS 24274 (11th Cir. 2012).
Frances D. Sheehy is a sole-practitioner in Coconut Creek. She is a former IRS attorney/special asst. U.S. attorney. Sheehy’s practice involves tax litigation and procedure. She is a past chair of the Tax Section, a Florida Bar certified tax lawyer, and a fellow of the American College of Tax Counsel.
This column is submitted on behalf of the Tax Law Section, Michael Allen Lampert, chair, Michael D. Miller and Benjamin Jablow, editors.