Innocent-spouse relief unavailable for TFRP, Tax Court holds

A taxpayer could not claim innocent-spouse relief under Sec. 6015 for a Sec. 6672 trust fund recovery penalty (TFRP) because Sec. 6015 applies only to income tax liabilities on a jointly filed return, the Tax Court held.

Facts: Angela M. Chavis was secretary of record, and her then-husband was president, of Oasys Information Systems Inc., which withheld payroll taxes from its employees’ wages but did not remit them to the government. The IRS in 2015 notified the couple of its proposed assessment of a TFRP against each of them for the unpaid payroll taxes, which totaled $146,682 over nine calendar quarters between 2011 and 2014. Chavis signed a postal form acknowledging receipt of the notice but did not appeal the assessment. In November 2015 the IRS assessed the TFRP against her.

In 2019, the IRS issued Chavis a Notice of Federal Tax Lien (NFTL) showing an unpaid balance of $126,919 on account of Oasys’s payroll tax liability. Chavis timely requested a Collection Due Process hearing and filed Form 8857, Request for Innocent Spouse Relief, claiming she was entitled to relief because she “had no dealings with Oasys.” An IRS settlement officer submitted the innocent-spouse relief request to the Cincinnati Centralized Innocent Spouse Operation, which informed Chavis she did not meet the basic eligibility requirements for Sec. 6015 relief because her request related to payroll tax liabilities rather than a jointly filed income tax return.

After considering several other issues, the IRS sustained the lien filing. Chavis petitioned the Tax Court to review the IRS’s determination to uphold the filing of the NFTL against her.

Issues: Among other issues, Chavis continued to argue in Tax Court that she was entitled to Sec. 6015 innocent-spouse relief with respect to the TFRP.

Holding: The Tax Court held that Chavis did not qualify for innocent-spouse relief from a TFRP under Sec. 6015(b), 6015(c), or 6015(f) because relief under those provisions applies only to liabilities shown on jointly filed income tax returns.

The Tax Court first considered innocent-spouse relief under Secs. 6015(b) and (c), which both by their terms only allow relief to be granted from liabilities shown or that should have been shown on a joint federal income tax return. The court found that Chavis’s TFRP liabilities were not shown on a joint federal income tax return and did not result from the filing of such a return. Instead, the court determined that her TFRP liabilities resulted from her failure, as an officer of Oasys, to ensure that the payroll taxes that the company collected from its workers were properly paid over to Treasury. Thus, Chavis was not eligible for innocent-spouse relief under Sec. 6015(b) or (c).

Having determined that Secs. 6015(b) and (c) did not apply, the Tax Court then considered Sec. 6015(f). Under this provision, the IRS may allow equitable relief to a taxpayer who does not qualify under Sec. 6015(b) or (c) if, “taking into account all the facts and circumstances, it is inequitable to hold the individual liable for any unpaid tax or any deficiency (or any portion of either).”

The Tax Court concluded that Sec. 6015(f), like Secs. 6015(b) and 6015(c), only applies to joint income tax liabilities. In Rev. Proc. 2013-34, the IRS set out the procedures governing equitable relief, which the court stated confirm that Sec. 6015(f) only applies to joint income tax liabilities. The court found further support for its position in Regs. Sec. 1.6015-1(a)(1)(iii), which states that Sec. 6015(f) only applies to “joint and several liability for Federal income tax,” and H.R. Rep’t No. 105-599, 105th Cong., 2d Sess., 254 (1998), which states that Sec. 6015(f) applies only to “any unpaid tax or deficiency arising from a joint return.” Thus, although a TFRP liability is a form of “unpaid tax,” since the liability did not arise from a joint return, the court concluded that Chavis was also not entitled to relief under Sec. 6015(f).

• Chavis, 158 T.C. No. 8 (2022)

— Paul Bonner is the JofA’s editor, tax.