Tax Court In Brief: When The Court Has Jurisdiction To Determine Appropriate Relief Even When Previously Denied

Tax Court In Brief: When The Court Has Jurisdiction To Determine Appropriate Relief Even When Previously Denied

Vera v. Comm’r, 157 T.C. No. 6 | August 23, 2021 | Buch, J. | Dkt. No. 9921-19

Short Summary

  • For 2010 and 2013, the years at issue, Petitioner Vera filed joint returns with her (then) spouse. For 2010, the Commissioner determined a deficiency that was assessed as a joint liability. For 2013, the tax shown on the return was not paid in full, resulting in an underpayment of tax. The Commissioner assessed the tax liability and associated penalties.
  • In early 2015, Petitioner filed a request for innocent spouse relief relating solely to the 2013 underpayment. She submitted Form 8857, Request for Innocent Spouse Relief, setting forth her grounds for relief. In March 2016, the Commissioner issued a final determination denying relief to Petitioner, writing that she did not meet the requirements for relief.
  • Petitioner challenged the Commissioner’s determination in Court, and that determination was ultimately dismissed for lack of jurisdiction.
  • Several months later, Petitioner submitted a request for relief for 2010, but in that request, she also re-raised her 2013 liability. The Commissioner denied the request for relief in a Final Appeals Determination Letter (dated March 14, 2019). The header of that letter specified only 2010 as the tax year, but the substance of the letter denied the request for relief as to both the 2010 and 2013 tax years. It read:
    • For tax year 2010, the information we have shows that you didn’t meet the requirements for relief.
    • For tax year 2010, you didn’t have a reasonable expectation that the person you filed the joint return with would or could pay the tax.
    • For tax year 2013, you didn’t comply with all income tax laws for the tax years that followed the years that are the subject of your claim.
  • Petitioner filed a timely petition challenging the Commissioner’s determination. She used the Tax Court’s petition form (T.C. Form 2 as revised in November 2018). Line 3 of the form requests: “Provide the year(s) or period(s) for which the NOTICE(S) was/were issued.” Petitioner wrote “Tax Year 2010, Tax Year 2013.”
  • Petitioner included in her petition a copy of the Commissioner’s notice, as well as a statement of facts that also mentioned both 2010 and 2013.
  • The Commissioner filed a motion to dismiss for lack of jurisdiction as to tax year 2013. He averred the following in his motion:
    • that the March 14, 2019, determination is not a second determination for 2013,
    • that a second request for innocent spouse relief is available only when seeking to allocate a deficiency, and
    • that because the 2013 liability is an underpayment, it cannot be subject to a second election for relief

Key Issue:

  • Whether the Court has jurisdiction to determine the appropriate relief available to a Petitioner who has received the Commissioner’s final determination denying innocent spouse relief on the merits.

Primary Holding

When the Commissioner issues a final determination denying innocent spouse relief on the merits, the Tax Court has jurisdiction to determine the appropriate relief available, even if the Commissioner had previously denied relief. The Court’s jurisdiction extends to both the 2010 and 2013 tax years, as the substance of the Commissioner’s final determination unambiguously denied innocent spouse relief as to both years.

Key Points of Law:

  • R.C. § 6015(e) grants tax courts the jurisdiction to determine the appropriate relief with regard to a taxpayer’s petition for innocent spouse relief.
  • Final determination letters issued under § 6015 are not subject to any statutory or regulatory form or content requirements.
  • A predicate to the Court’s jurisdiction pursuant to § 6015(e) is the mailing of a final determination.
  • Although § 6015(e)(1)(A)(i)(I) refers to a final determination, nothing in that provision prohibits the Commissioner from issuing more than one final determination as to a given tax year.
  • The regulations clarifying § 6015 limit claimants to a single qualified request for a given year. Income Tax Regs § 1.6015-1(a)(2) , (h)(5).
    • A qualified request is defined as the “first timely claim for relief.” para. (h)(5).
    • Moreover, the “requesting spouse is entitled to only one final administrative determination of relief.” Income Tax Regs § 1.6015-5 (c)(1).
  • But these regulations leave open the possibility for the Commissioner to issue a second final determination. See Income Tax Regs Secs. 1.6015-1(h)(5) , 1.6015-5(c)(1) , 1.6015-3 (stating that if a requesting spouse changes marital status, the regulations permit a second claim, resulting in a second final determination); see also Internal Revenue Manual (IRM) pt. 25.15.17.7(1) (Mar. 5, 2019) (allowing for a second claim when a “delay or error” imposes an “unfair burden” on the requesting spouse and the Commissioner exercises his discretion to issue a second final determination).
  • The Internal Revenue Manual provides following instructions with respect to final determinations:
    • A second determination issued under these limited circumstances grants the requesting spouse the right to petition the Tax Court. I.R.M. 25.15.17.7.
    • Upon request, the Commissioner also may reconsider previous requests. pt. 25.15.17.5(1).
    • If he determines relief is appropriate, the Commissioner may change his final determination as to the previous requests. pt. 25.15.17.5(3). However, I.R.M. pt. 25.15.17.5 specifically cautions agents that reconsideration decisions should not be issued through final determination letters.
    • While the I.R.M. does not carry the force of law, but courts have considered it when understanding the Commissioner’s procedures
    • The I.R.M. instructs the Commissioner to issue a Letter 3657C (No Consideration Innocent Spouse) to taxpayer petitioners when taxpayers submit a second request for relief concerning the same tax year. IRM pt. 25.15.17.4(4) (Mar. 5, 2019).
  • However, where, as here, the Commissioner issues a second final determination as to any tax year, then the requesting spouse has the right to petition the Tax Court for a determination of relief. See IRM pt. 25.15.17.7.
    • This is all the more true when the Final Determination Letter unambiguously relates solely to the merits of relief for the prior tax years, and does not describe a rejection on the basis of an improper second request.
  • Moreover, courts have jurisdiction to review final determinations issued in error. This rule applies in the context of final determination letters pertaining to: (1) innocent spouse relief, (2) whistleblower awards, (3) deficiencies, and (4) collections.
  • If the Petitioner taxpayer timely files a petition and the notice of final determination serves as the predicate for the court’s jurisdiction, then the court will first look to the face of the notice. Courts will only look beyond the face of the notice if it is ambiguous or inconsistent.

Insight:

  • When a taxpayer submits a second request for innocent spouse relief concerning the same tax year, the I.R.M. instructs the Commissioner to issue a Letter 3657C (No Consideration Innocent Spouse).
  • If instead, the Commissioner issues a second final determination as to any tax year, then the requesting spouse has the right to petition the Tax Court, and the Tax Court has jurisdiction to determine, the appropriate relief.

Have a question? Contact Jason Freeman, Freeman Law, Texas.

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Mr. Freeman is the founding and managing member of Freeman Law, PLLC. He is a dual-credentialed attorney-CPA, author, law professor, and trial attorney. Mr. Freeman has been recognized multiple times by D Magazine, a D Magazine Partner service, as one of the Best Lawyers in Dallas, and as a Super Lawyer by Super Lawyers, a Thomson Reuters service.
He was honored by the American Bar Association, receiving its “On the Rise – Top 40 Young Lawyers” in America award, and recognized as a Top 100 Up-And-Coming Attorney in Texas. He was also named the “Leading Tax Controversy Litigation Attorney of the Year” for the State of Texas” by AI.

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