Chief Counsel Announces Standard of Review Under Innocent Spouse Equitable Relief Provision
Chief Counsel’s Office Announces Standard of Review for Litigating Cases Involving Innocent Spouse Relief Under Section 6015(f). (CC-2009-021)(June 30, 2009), supplementing CC-2004-26 (July 12, 2004).
The subject of "innocent spouse" relief is not new to tax practitioners and to many individuals who have had to endure the situation where signing a joint income tax return exposed the "non-liable" spouse, so to speak, with the spectre of joint and several liability. Section 6015(a) provides three avenues for a spouse filing a joint return to obtain relief. Under § 6015(b) , innocent spouse relief is available if the understatement of tax is attributable to erroneous items of one individual and the other individual did not know, or have reason to know, of the understatement and, taking into account all the facts and circumstances, it would be inequitable to hold that spouse liable. Section 6015(c) provides, for taxpayers who are no longer married, are legally separated, or not living together, for the liability of each spouse to be computed separately as if the spouses had filed separate returns for the taxable year if certain pre-requisites can be met. Finally, § 6015(f) is a general equity or "catch-all" rule that taking into account all the facts and circumstances, it would be inequitable to hold the spouse claiming innocent spouse status liable.
Chief Counsel’s Office sets forth a short history of recent case law under the general equitable relief rule, §6015(f). In Porter v. Comm’r, 130 T.C. 115 (2008) ("Porter I"), the Tax Court, following its prior opinion in Ewing, 122 T.C. 32 (2004), vacated, 439 F.3d 1009 (9th Cir. 2006), held that in determining whether the Commissioner abused his discretion in denying the petitioner relief under section 6015(f), the court conducts a trial de novo and may consider evidence introduced at trial that was not included in the administrative record developed during the administrative consideration of the claim. In Porter v. Commissioner, 132 T.C. No. 11 (April 23, 2009) ("Porter II"), the court reconsidered the standard of review in section 6015(f) cases and concluded that a de novo standard of review is proper. Thus, the Tax Court now will make its own de novo determination regarding whether a requesting spouse is entitled to relief under §6015(f) and will not be limited to evidence in the administrative record. The proper standard for review if that of "abuse of discretion". The Chief Counsel’s Advisory directs that attorneys should, therefore, 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. Attorneys should raise the scope and standard of review arguments whenever appropriate (e.g., in the pre-trial memo, at trial, and on brief), noting the Service's disagreement with the holding in the Porter I and II opinions.
To preserve the Porter issues for appeal, attorneys should continue to work with the petitioner to stipulate to the administrative record and should continue to raise a continuing evidentiary objection if the petitioner attempts to testify or otherwise enter evidence into the record that was not made available to the Service's examiner or Appeals Officer. If the court denies the evidentiary motion, additional evidence outside of the administrative record that may strengthen the Commissioner's case should be introduced into evidence . Other information and guidance is set forth in the Advisory.
