ongress enacted the innocent spouse provisions to expand the relief available to certain taxpayers. The technical requirements for this relief, however, have resulted in numerous lawsuits. The Ninth Circuit Court of Appeals recently reversed the Tax Court, thus denying relief in certain situations.
Gwendolyn Ewing and Richard Wiwi married in 1995 and filed a joint tax return for the year. Because Richard had failed to pay estimated taxes on his income, a tax was due on the return; the couple included only part of this amount with the return. In 1999 Gwendolyn filed form 8857 requesting relief under the innocent spouse provisions for the remaining tax due. The IRS denied her request. She filed with the Tax Court, which ruled in her favor. The IRS appealed.
Result . For the IRS. IRC section 6015 grants innocent spouse relief in three instances. Subsection (b) grants relief if the requesting spouse was unaware of the erroneous item. Subsection (c) grants relief if the couple is divorced or separated. Subsection (f) grants relief if the taxpayer does not qualify under the other two sections and it would be inequitable not to grant relief. Gwendolyn requested relief under this third rule.
Section 6015(e) provides that the Tax Court can review a denial of relief in cases of tax deficiencies if the taxpayer claimed relief under subsection (b) or (c). Referring to the Congressional Record, the Tax Court determined its review was not limited to deficiency cases. The Ninth Circuit disagreed, saying the statutory language was clear and unambiguous. Thus, the Tax Court could not rely on the intent of Congress and had to enforce the words contained in the statute. This provision clearly states that a tax deficiency must exist in order for the Tax Court to review an IRS denial. Because there was an underpayment, not a deficiency, the court lacked the jurisdiction to overrule the IRS. The taxpayer had to pay the tax due.
The IRS did not raise one important issue: Subsection (e) says that the Tax Court can review only cases in which the taxpayer requests relief under subsections (b) and (c). Several prior courts have ruled that even if a deficiency exists, the courts cannot review relief requested under subsection (f). Since this issue was not before the court, the Ninth Circuit did not rule on this point. The fact that the circuit court referred to the prior rulings may indicate that it would follow them.
Innocent spouse relief is a very technical area. It is important to follow all procedures and rules exactly. Failure to do so usually results in a denial of relief.
Commissioner v. Gwendolyn Ewing, 439 F3d 1009 (CA-3).
Prepared by Edward J. Schnee, CPA, PhD, Hugh Culverhouse Professor of Accounting and director, MTA program, Culverhouse School of Accountancy, University of Alabama, Tuscaloosa.