John and Judith Maier were divorced in 1995. At the time of their divorce they owed both federal and state income taxes, for which the divorce decree provided they would remain jointly liable. In spite of the decree, Judith requested and was granted relief from the federal tax liability by the IRS under the innocent spouse provisions. The IRS notified John of her request and permitted him to provide information relevant to the decision; he pointed out the terms of the divorce decree but the IRS granted the relief anyway. John petitioned the Tax Court to overrule the IRS. It rejected the petition on the grounds it lacked jurisdiction. The taxpayer appealed.
Result. For the IRS. The rules concerning innocent spouse requests are contained in IRC section 6015. Under section 6015(e)(1)(A), the Tax Court has jurisdiction to review a petition from an electing taxpayer to determine the appropriate relief in cases where the IRS had denied the request. Section 6015(e)(4) says a nonelecting spouse shall receive notice and have the opportunity to become a party to any proceeding the electing spouse brings. Section 6015(h)(2) provides that the Treasury Department issue regulations that provide notice and give the nonelecting spouse an opportunity to participate in any administrative hearing. None of these provisions or any other subsection of 6015 provides for a court petition solely by the nonelecting spouse for review of a grant of relief to an electing spouse.
The Second Circuit Court of Appeals rejected the cases John Maier cited as authority for reviewing his case. In each one the Tax Court already had jurisdiction to review a deficiency. Therefore it had jurisdiction to review the innocent spouse issue. In this instance there was no existing deficiency case. The court acknowledged that a Tax Court statement in Carson v. Commissioner could be read to imply the Tax Court felt nonelecting spouses should have the same rights as electing spouses to petition for a judicial hearing. However, this was not binding on the appeals court.
The Second Circuit noted that commentators previously had pointed out this inequality and agreed it was not fair. However, it is up to Congress to change the law. The courts do not have the authority to rewrite tax sections they think are deficient.
Nonelecting spouses must take full advantage of their right to participate in the administrative determination of an innocent spouse request. They will not be able to challenge the grant of relief in the courts unless a deficiency already is being contested. Provisions in a divorce decree that maintain continued joint liability may not be effective in preventing the IRS from imposing liability on only one spouse.
John Maier, III v. Commissioner, CA-2.
Prepared by Edward J. Schnee, CPA, PhD, Hugh Culverhouse Professor of Accounting and director, MTA program, Culverhouse School of Accountancy, University of Alabama, Tuscaloosa.