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Sutherland v. Commissioner (155 T.C. No. 6)

On September 8, 2020, the Tax Court issued its opinion in Sutherland v. Commissioner, 155 T.C. No. 6. The primary issues presented in Sutherland were whether IRC § 6015(e)(7) applied to a petition filed prior to July 1, 2019, and whether remand to appeals in a standalone innocent spouse case to allow the petitioner to present additional evidence was appropriate.

Changes to Innocent Spouse Statute under Taxpayer First Act

The Taxpayer First Act (Act), 133 Stat. at 988 (2019), added IRC § 6015(e)(7) and IRC § 6015(f)(2). IRC § 6015(e)(7) addresses the scope and standard of our review in stand-alone innocent spouse cases, while IRC § 6015(f)(2) sets forth a limitation on the IRS’s authority to grant requests for equitable relief. Congress specified that the amendments effected by § 1203(b) of the Act, which addressed the innocent spouse additions, applied to petitions or requests filed or pending on or after July 1, 2019, the date of the enactment.

The Tax Court interpreted this provision to mean that IRC § 6015(e)(7) is effective for petitions filed in this Court on or after July 1, 2019, and that IRC § 6015(f)(2) is effective for requests pending with the IRS on or after that date. Because the petitioner filed her petition in the Tax Court before July 1, 2019, the Tax Court held that IRC § 6015(e)(7) did not apply to this case. Given the amendment’s inapplicability, the scope and standard of review in this case remained de novo. See Porter v. Commissioner, 132 T.C. 203, 206-210 (2009). That being so, the premise for petitioner’s request for a remand disappears, and a remand would serve no useful purpose.

Innocent Spouse Relief

After making an election to file a joint Federal income tax return pursuant to IRC § 6013(a), each spouse is jointly and severally liable for the entire tax due for that year. IRC § 6013(d)(3). In certain, limited circumstances, however, a spouse who is filed a joint return may seek relief from joint and several liability under the procedures set forth in IRC § 6015.

IRC § 6015(b) specifies general procedures for relief from liability, and IRC § 6015(c) specifies procedures to limit liability for taxpayers who are no longer married or are living separately. IRC § 6015(f)(1)(B) provides that “equitable relief” may be afforded to a taxpayer if relief is not available to such individual under IRC § 6015(b) or IRC § 6015(c). The petitioner’s claim for relief was an equitable claim under section 6015(f). Under procedures prescribed by the IRS, such relief may be available if 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). IRC § 6015(f)(1)(A); Treas. Reg. § 1.6015-4(a). The IRS has specified procedures governing equitable relief. See Rev. Proc. 2013-34. Relevant factors include (among others) the requesting spouse’s marital status, knowledge about information on the return, and mental or physical health. Id. at § 4.03(2). The mental or physical health factor is evaluated as of the time the return was filed. Id. at § 4.03(2)(g).

Scope and Standard of Review

IRC § 6015(e) permits a taxpayer who is denied innocent spouse relief to file a petition for review in this Court. Such cases are referred to as “stand alone” cases, in that they are independent of any deficiency proceeding. Davidson v. Commissioner, 144 T.C. 273, 273-274 (2015). As originally enacted IRC § 6015 did not prescribe the scope or standard of review for equitable relief claims under IRC § 6015(f). Before 2006 the Tax Court generally reviewed denial of relief for abuse of discretion. See Butler v. Commissioner, 114 T.C. 276, 291-292 (2000). However, following amendments to IRC § 6015 in 2006, the Tax Court decided that the proper scope and standard of review were de novo. See Porter, 132 T.C. at 206-210.

In 2019 Congress made two amendments to IRC § 6015, both of which concerned claims for equitable relief. The Taxpayer First Act added IRC § 6015(e)(7). Captioned “Standard and Scope of Review,” it was designed to clarify the scope and standard of review in the Tax Court, which had been the subject of differing appellate precedent. The Taxpayer First Act further added IRC § 6015(f)(2).

Effective Date

Through some rather impressive legal wrangling, the Tax Court came to the conclusion that the Taxpayer First Act applied only to petitions filed after the effective date of the act, July 1, 2019.

In all candor, this is not a terribly far stretch of the imagination, insofar as that is precisely what the freaking act said.

Nevertheless, this is a Judge Lauber opinion, and he is never one to err on the side of brevity.

(155 T.C. No. 6) Sutherland v. Commissioner

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