Tax Court Can Look Outside Administrative Record in Determining Innocent Spouse Relief

The Eleventh Circuit has held that the Tax Court could consider evidence outside the administrative record when deciding on a taxpayer’s claim for innocent spouse relief (Neal, No. 06-14357 (11th Cir. 2/10/09)).

The taxpayer had petitioned the IRS for equitable relief under IRC section 6015(f) because, unbeknownst to her, her husband had failed to pay taxes on his income during their marriage. The IRS examining agent denied her request for innocent spouse relief, and the IRS Appeals Office upheld that determination. The taxpayer then sued in Tax Court to contest the denial of innocent spouse relief.

The IRS, at a pretrial hearing, argued that the Tax Court was limited to considering the evidence in the administrative record from the IRS proceedings. The Tax Court held that it could try the case de novo and that its review was not limited to the evidence in the administrative record. Instead, the parties would be allowed to introduce new evidence and testimony at trial. The court based this decision on a prior Tax Court case (Ewing, 122 T.C. 32 (2004)).

At trial, the Tax Court granted the taxpayer innocent spouse relief, and the IRS appealed the decision to the Eleventh Circuit. The appeals court examined the long history of Tax Court (and Board of Tax Appeals) redeterminations of IRS decisions, dating back to 1924, to conclude that the Tax Court in other situations has often gone outside the administrative record to make determinations in trials de novo. Since the innocent spouse provisions of section 6015 are within the same statutory framework as other sections in which the Tax Court reviews IRS deficiency determinations, the Eleventh Circuit held that Congress must have intended that taxpayers also have an opportunity for a de novo trial in innocent spouse cases.