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Tax Litigation:  The Week of May 2nd, 2022, through May 6th, 2022

• Mighty v. Comm’r, TC Memo. 2022-44| May 4, 2022 | Lauber, J. | Dkt. No. 19064-21L
• Mazzei v. Comm’r, T.C. Memo 2022-43 | May 2, 2022 | Thornton, J. | Dkt. No. 16702-09.
• Podlucky v. Commissioner, TC Memo. 2022-45| May 5, 2022 | Lauber, J. | Dkt. No. 453-17
• Wolfson v. Comm’r, T.C. Memo. 2022-46 | May 5, 2022 | Lauber, Judge | Docket No. 21343-21L

DelPonte v. Comm’r, 158 T.C. No. 7 | May 5, 2022 | Holmes, J. | Dkt. Nos. 1144-05, 1334-06, 20679-09, 20680-09, 20681-09

Opinion

Short Summary:  Michelle Goddard (now DelPonte) filed joint income tax returns with her then-husband, William Goddard, a tax attorney.  For several years, William filed the couple’s joint income tax returns and used aggressive tax-avoidance strategies.  The IRS examined the returns and issued notices of deficiency against William and Michelle.  William and Michelle timely filed petitions with the Tax Court contesting the deficiencies.  In her petition, Michelle asserted innocent spouse relief.

IRS Chief Counsel referred Michelle’s claim for innocent-spouse relief to the IRS’s Cincinnati Centralized Innocent Spouse Operation (CCISO) to help determine whether Michelle qualified for relief.  In the referral letter, IRS Chief Counsel requested CCISO not issue a determination letter but instead provide its analysis directly to IRS Chief Counsel.  CCISO later concluded that Michelle qualified for innocent spouse relief.  Although CCISO concluded that Michelle qualified for relief, IRS Chief Counsel disagreed and requested additional information from Michelle.  Michelle refused to provide it and made a motion with the Tax Court for an entry of decision.

Key Issue:  Whether IRS Chief Counsel can override CCISO’s administrative conclusion that a taxpayer is entitled to innocent spouse relief under I.R.C. § 6015.

Primary Holdings: 

• If a taxpayer raises innocent-spouse relief as an affirmative defense for the first time in a petition that invokes the Tax Court’s deficiency jurisdiction, IRS Chief Counsel has final authority to concede or settle the issue with the taxpayer.

Key Points of Law:

• Under section 6015, requesting spouses can seek three types of relief. The first requires:  (1) an understatement of tax on the joint return that is attributable to erroneous items of the other spouse; (2) that the requesting spouse did not know or have reason to know of the understatement when she signed the return; (3) that, taking into account the facts and circumstances, it would be inequitable to hold the spouse liable for the deficiency attributable to such understatement; and (4) that the requesting spouse seek relief no later than 2 years after the IRS began collection activities.  I.R.C. § 6015(b).
• The second type of relief under section 6015 requires the requesting spouse to: (1) be legally separated or divorced from the nonrequesting spouse at the time of the election; and (2) have no actual knowledge of any items giving rise to a deficiency at the time she signed the return.   I.R.C. § 6015(c).
• The third type of relief—a catchall—requires proof only that, taking into account all the fact and circumstances, it would be inequitable to hold the requesting spouse liable for any unpaid tax or any deficiency and the requesting spouse is not eligible for relief under section 6015(b) or section 6015(c). I.R.C. § 6015(f).
• Innocent spouse claims can be raised through: (1) a taxpayer raising relief as an affirmative defense in a petition; (2) in an action to review the IRS’s determination in a CDP case; or (3) in a “stand alone” action in which the Tax Court reviews the IRS’s administrative determinations made in response to a request for relief filed by a spouse directly with the IRS.
• If a taxpayer “participated meaningfully” in a court proceeding and chose not to raise a request for relief, the taxpayer is barred from requesting innocent spouse relief thereafter. See I.R.C. § 6015(g)(2).
• Section 7803 creates the position of Commissioner of Internal Revenue, to whom are given broad powers to “administer, manage, conduct, direct, and supervise the execution and application of the internal revenue laws or related statutes,” as well as any other “such duties and powers as the Secretary may prescribe.” I.R.C. § 7803(a)(2).
• The Treasury Secretary has delegated to the Commissioner the responsibility of administering and enforcing the internal revenue laws. R.S. Treas. Order 150-10 (Apr. 22, 1982), which includes making determinations about whether a taxpayer is entitled to innocent-spouse relief under section 6015.  In turn, the Commissioner has redelegated the responsibility for processing most requests for innocent-spouse relief to CCISO.  IRM pt. 25.15.7.1 (Sept. 1, 2006).
• Section 7803 also created the position of Chief Counsel, and authorizes him to “perform such duties as may be prescribed by the Secretary, including the duty . . . to represent the Commissioner in cases before the Tax Court.” I.R.C. § 7803(b)(2)(D).  General Counsel Order No. 4 delegates to the Chief Counsel authority “in cases pending in the Tax Court . . . to decide whether and in what manner to defend, or to prosecute a claim, or to settle, or to abandon a claim or defense therein.”  See IRM pt. 30.2.2-.6 (Aug. 11, 2004).  This order also gives the Chief Counsel authority to redelegate any of his authority to “any officer or employee in the Office of the Chief Counsel, and to authorize further redelegation of such authority.”  Id.

Insight:  As shown in DelPonte, innocent spouse relief claims can be some of the more difficult claims in federal tax law.  To the extent that a taxpayer has a valid innocent spouse claim, careful consideration should be made as to the proper avenue to raise it.  In many cases, taxpayers may find it better strategically to raise the claim administratively as opposed to waiting to raise it as an affirmative defense in a Tax Court petition.  This strategy can potentially eliminate IRS Chief Counsel’s role in the innocent spouse determination.

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