Good news for innocent spouses

The Internal Revenue Service (“Service”) has announced that it will not contest the application of a case that went against it: the case of Wilson v. Comm., 111 AFTR 2d 2013-522 (9^th Cir. 2013) which had affirmed TC Memo 2010-134.  The Service did this in a pronouncement called an Action on Decision - AOD 2013-007, 06/04/2013.  This AOD means that the Service will no longer argue in innocent spouse equitable relief cases either that the Tax Court's review is limited to determining whether the Service abused its discretion, or that the court's review is otherwise limited by the administrative record developed before trial.

By way of background, Sec. 6015 of the Internal Revenue Code affords relief from joint and several liability on a joint return to certain spouses, including equitable relief under Sec. 6015(f) where other relief provided by Sec. 6015 is not available. Sec. 6015(e)(1) provides that the United State Tax Court has jurisdiction to “determine the relief available” to one who files a proper and timely Petition requesting equitable relief.  The Service had previously argued in these cases that the scope of the Tax Court's review was limited to determining whether the Service had abused its discretion in denying equitable relief, and should be confined to matters contained in the administrative record.   Based upon the AOD, it will no longer argue either of those positions in the Tax Court.

The Tax Court had been rejecting the Service’s position in previous cases such as Porter v Comm., 130 TC 115 (2008) and Porter v. Comm., 143 TC 203 (2009), and then Wilson.  The Tax Court in Porter I, Porter II and Wilson and then the 9^th Circuit in Wilson all ruled against the Service and determined that the Tax Court review of the case was de novo and not confined to the administrative record.  So the Courts have stated, and the Service has now conceded, that the Tax Court is not limited to evidence developed in the administrative record and may look to other facts and the Tax Court's ability to grant relief is not dependent on a finding that the IRS abused its discretion in denying relief.

So now if the Service denies innocent spouse relief, instead of having to prove that the Service abused its discretion, a taxpayer must now only show she is entitled to such relief and if facts were not presented to the Service earlier, they may be presented for the first time in the Tax Court.  This is a significant victory for innocent spouses who are stonewalled by the Service and may even make the Service kinder and gentler knowing that the Tax Court will take a fresh look at the case.