In response to the recent Tax Court decision in Porter, 132 TC no. 11 (2009) (Porter II), the IRS Chief Counsel’s office released a memorandum outlining IRS litigation tactics in innocent spouse cases (CC-2009-021).
In Porter II, the Tax Court held that it would apply a de novo standard of review in innocent spouse cases (that is, it would weigh the evidence anew), rather than merely reviewing IRS administrative determinations for abuse of discretion. Earlier, the Tax Court had held that it did not have to limit itself to the evidence in the IRS administrative record, but could conduct a trial de novo in innocent spouse cases (Porter, 130 TC 115 (2008) (Porter I)).
The IRS objects to the holdings in both of these cases. The Service maintains that the proper standard for review in innocent spouse cases is abuse of discretion and, therefore, that the scope of review should be limited to issues and evidence presented to the IRS examiner or Appeals officer (that is, the administrative record).
The memo instructs IRS attorneys to raise the scope and standard issues in all innocent spouse litigation and to note the Service’s disagreement with the Porter decisions. Attorneys are directed to attempt to get taxpayers to stipulate to the evidence in the administrative record and to object at trial if the taxpayer wishes to introduce evidence from outside that record.
If the court admits evidence from outside the IRS administrative record, the memo instructs IRS attorneys to make a three-part argument:
- Based solely on the administrative record, the IRS did not abuse its discretion in denying relief;
- Even considering the new evidence introduced at trial, the IRS did not abuse its discretion in denying relief;
- Even if the proper standard of review is de novo, the taxpayer has not established his or her eligibility for relief under IRC § 6015(f).
The IRS has also set up an expedited procedure for making innocent spouse relief determinations in cases in which the issue was not determined during the IRS examination (for example, where the taxpayer first raises the issue in a Tax Court petition). In such cases, the IRS attorney should ask the IRS’ Cincinnati Centralized Innocent Spouse Operations (CCISO) to make an expedited innocent spouse determination.
If the CCISO determines relief is appropriate, the IRS will concede the case. If the CCISO determines relief is not appropriate, this determination will be filed with the Tax Court. If time permits (and the taxpayer requests Appeals consideration), the case will be referred to Appeals for review.