Tax Court can consider innocent-spouse underpayment relief in a deficiency case

Plain-English summary

Chief Counsel advised that the Tax Court can consider innocent-spouse relief for an underpayment when the case is already before it through a petition challenging a statutory notice of deficiency. Sections 6213 and 6214 give the court broad authority over the entire deficiency proceeding, including affirmative defenses. Although a memorandum opinion had found no jurisdiction under Section 6015(e), it did not consider the court's broader deficiency jurisdiction. The advice recommended coordinating future cases so the IRS could argue that the court has jurisdiction and distinguish that memorandum opinion.

Ruling snapshot

• Question: Can the Tax Court decide innocent-spouse relief for an underpayment within a statutory-notice deficiency case?
• Outcome: Advice given that the court has jurisdiction under Sections 6213 and 6214.
• Key authorities: IRC §§ 6015(e), 6015(f), 6213, 6214; Naftel v. Commissioner; Butler v. Commissioner; Sykes v. Commissioner

Full text (IRS public release)

ID: CCA_2018061514140021
UILC: 6015.00-00

Number: 201826011
Release Date: 6/29/2018
From:
Sent: Friday, June 15, 2018 2:14:00 PM
To:
Cc:
Bcc:
Subject: FW: Tax Court Jurisdiction in SNOD cases

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When I was in Procedure & Administration we looked into this question and determined
that the Tax Court would have jurisdiction to consider innocent spouse relief for an
underpayment in a case that was before the court on a petition from a SNOD pursuant
to the court's broad authority in sections 6213 and 6214. In addition, the Tax Court has
always given itself wide authority over defenses raised in a deficiency proceeding. In
Naftel v. Commissioner, 85 T.C. 527, 533 (1985), the court held that where a taxpayer
files a petition for a redetermination of a deficiency, the court has jurisdiction over the
entire tax liability, not just the items determined to be erroneous in the notice of
deficiency. Consequently, where a taxpayer raises an affirmative defense to a
deficiency determination, the court needs no additional basis for the authority to render
an opinion on such issues because the affirmative defense is part of the deficiency
proceeding over which the court has jurisdiction. Applying this thinking to innocent
spouse, the Tax Court in Butler v. Commissioner, 114 T.C. 276, 287-288 (2000), held
that when a taxpayer raised her request for relief under section 6015(f) in a petition for
redetermination filed with the Tax Court pursuant to section 6213(a), it had jurisdiction
to review the Commissioner's (f) determination. The Tax Court reasoned that because
affirmative defenses to a deficiency are within the Tax Court's general jurisdiction,
denials of equitable relief under section 6015(f) should be as well.

However, in Sykes v. Commissioner, T.C. Memo. 2009-197, the court brought a similar
issue up on their own, looking to see whether the court had jurisdiction over innocent
spouse relief for the underpayment pursuant to section 6015(e) as the case was before
the court pursuant to a petition from a SNOD. The court correctly concluded that it did
not have jurisdiction under section 6015(e) based on the facts of the case. The court,
however, never considered whether it would have jurisdiction under sections 6213 and
6214. We did not brief this issue because we did not think it was an issue and the court
never asked for the parties input, instead raising this issue in the opinion.

Other practicalities also lead to a conclusion that innocent spouse relief for the
underpayment be considered in the deficiency case. If the underpayment isn't
considered, then the RS would have to file an administrative claim and wait at least six
months or until a final determination letter was issued to file another petition. At that
point it might be too late to join the deficiency case, or the deficiency case could be
over. This is very burdensome to the RS and doesn't promote judicial economy. Further,
a subsequent innocent spouse case for the underpayment might result in collateral
estoppel issues.

As Sykes is only a memorandum opinion and doesn't completely address the issue as it
did not consider the breadth of sections 6213 and 6214 instead only focusing on section
6015(e), it should not be controlling. We should be on the lookout for another case that
presents this issue so that we could argue that the court has jurisdiction, distinguishing
Sykes. As such, as we discussed, I agree that we should put something out that this
issue should be coordinated with this group.

If anyone has any questions or wishes to discuss this further please give me a call.