By Kelly Hanley, Esq., Chicago Tax Attorney
As a Chicago tax attorney with 25 years’ experience, I can tell you that tax law is complex. Certain areas within tax law can be downright confusing. Innocent spouse relief is one such area, as it presents a complex and evolving landscape. This complexity is rooted in the IRS Restructuring and Reform Act of 1998, which introduced current innocent spouse provisions. These provisions offer taxpayers several avenues to contest the IRS’s rejection of their request for relief from joint and several liability. This intricate tangle of legal pathways includes the Tax Court, which can review such requests in various contexts, including deficiency cases, collection due process cases, or as standalone requests. However, the jurisdiction of district courts in these matters remains a contentious issue, particularly outside the Tax Court’s purview.
The case of Wright v. Commissioner, T.C. Memo. 2023-153, exemplifies these complexities. This blog post delves into the nuances of the case, highlighting the multifaceted process taxpayers undergo in seeking court review of an IRS decision to deny innocent spouse relief.
Case Study: The Wrights’ Tax Ordeal
The Wright case offers a clear, yet intricate narrative. Willie and Fannie Wright, a butcher and a licensed practical nurse respectively, encountered tax issues for the years 2013 to 2015. The crux of their problem was the omission of Fannie’s disability income in their joint tax returns for 2013 and 2014, resulting in IRS-issued notices of deficiency. While the couple acknowledged the deficiency for 2013, they did not respond to the 2014 notice, leading to an automatic assessment by the IRS. For 2015, their return included the disability income but showed an unpaid tax balance.
In January 2017, Fannie Wright sought innocent spouse relief for these years, citing sections 6015(b), (c), and (f) of the tax code. After initial rejection and subsequent appeal, the IRS sustained its decision, attributing the liability to Fannie. She then petitioned the Tax Court, which is authorized to handle standalone innocent spouse cases.
Fannie’s primary argument was that she neither intended nor authorized joint returns for the years in question, asserting that her deceased husband filed these returns without her knowledge. This claim, however, underscores a unique aspect of standalone innocent spouse cases.
Jurisdictional and Procedural Nuances in Innocent Spouse Cases
The Tax Court’s jurisdiction in standalone innocent spouse cases hinges on certain criteria:
1. a claim by the taxpayer,
2. a final determination by the IRS, and
3. a timely petition.
However, its jurisdiction is limited to determining the entitlement to relief under section 6015, not the correctness of the underlying tax liability.
The Wright case also references Gormeley v. Commissioner, T.C. Memo. 2009-252, a pivotal case underscoring jurisdictional nuances. In Gormeley, the debate centered around whether the filing deadline for petitions is jurisdictional and subject to equitable tolling, and whether the Tax Court could rule on the validity of the joint return.
The Significance of the Path Chosen
The Wright case illuminates the differences between deficiency cases and standalone innocent spouse cases. In deficiency cases, the Tax Court can dismiss cases based on an invalid return or assessment. However, in standalone cases like Wright, the court is limited to addressing the innocent spouse relief claim without delving into the validity of the underlying assessments. This distinction becomes crucial when considering options like collection due process (CDP) cases, where taxpayers can challenge self-reported liabilities and raise spousal defenses.
In Wright’s scenario, the liabilities for two of the years stemmed from deficiency notices, allowing for a potential challenge to the amount or existence of the liability in a CDP case. Furthermore, section 6330(c)(2)(A)(i) might offer an avenue for considering spousal defenses, including disputes over joint return filings and entitlement to section 6015 relief.
The Wright case concludes with the Tax Court addressing Fannie’s alternative argument for innocent spouse relief on its merits. Unfortunately, her claim was weakened by the fact that the liabilities were primarily attributable to her disability income, a significant barrier to obtaining relief.
This case highlights the intricate and often challenging journey taxpayers face in seeking innocent spouse relief. Each case’s path – whether through deficiency proceedings, standalone innocent spouse cases, or CDP cases – significantly influences the available legal arguments and potential outcomes.
For taxpayers in the Chicago area navigating these complexities, consulting with a knowledgeable Chicago Tax Attorney can provide crucial guidance and representation in these intricate legal matters. Call me today for a free experienced tax attorney consultation at 312-345-440.