Kathy A. King v. Commissioner , 115 T.C. No. 8 ( 2000 )

115 T.C. No. 8UNITED STATES TAX COURT
KATHY A. KING, Petitioner v.
COMMISSIONER OF INTERNAL REVENUE, Respondent
Docket No. 5989-97. Filed August 10, 2000.
P and H filed a joint income tax return for 1993.
P and H later divorced. R issued separate notices of
deficiency to P and H determining identical
deficiencies in tax for 1993 related entirely to the
disallowance of a claimed business loss. P filed a
petition. P’s only claim was for relief as an innocent
spouse under former sec. 6013(e), I.R.C. H did not
file a petition. R assessed a deficiency against H who
has not paid any portion of the assessment and has not
challenged the assessment in any other court.
Subsequent to the petition and trial in this case, sec.
6013(e), I.R.C., was repealed and replaced by sec.
6015, I.R.C. R filed a report with the Court, taking
the position that P was entitled to relief under new
sec. 6015(b), I.R.C., and that P’s former spouse H
should be provided with adequate notice and an
opportunity to become a party to this proceeding
pursuant to sec. 6015(e)(4), I.R.C. This Court then
ordered R to serve upon H a copy of the petition and a
copy of Interim Rule 325. H then filed a Motion For
- 2 -
Leave to File Notice of Intervention. R filed a notice
of no objection to H's motion. P did not respond.
Held: In any case where an individual petitioner
seeks relief from joint liability pursuant to sec.
6015, I.R.C., the other individual who filed the joint
return is entitled to notice and, if not already a
party in the case, an opportunity to intervene for
purposes of challenging the propriety of relieving the
petitioner of liability.
Held, further, H is entitled to intervene in order
to challenge P’s entitlement to relief under sec. 6015,
I.R.C. The record will be reopened, and the case will
be calendared for further trial solely with respect to
the issue of relief from joint liability. H's motion
will be granted.
Held, further, additional procedural requirements
in proceedings before this Court are set forth as
guidance to taxpayers and counsel.
Kathy A. King, pro se.
James R. Rich, for respondent.
OPINION
RUWE, Judge: The matter before the Court is a Motion For
Leave to File Notice of Intervention (Embodying Notice of
Intervention) by Curtis T. Freeman (Mr. Freeman) with respect to
petitioner’s claim for relief from joint liability under section
6015.1
1
Unless otherwise indicated, section references are to the
Internal Revenue Code, and Rule references are to the Tax Court
(continued...)
- 3 -
Background
Mr. Freeman was previously married to petitioner, and he and
petitioner filed a joint return for 1993, which is the year in
issue. Although Mr. Freeman is not a petitioner in this case, he
objects to petitioner’s claim for relief from joint liability.
At the time the petition was filed, petitioner was a
resident of Hartsville, South Carolina. At the time Mr. Freeman
filed his motion, he was also a resident of Hartsville, South
Carolina.
During 1993, petitioner and Mr. Freeman were married to each
other. They separated sometime during 1993 and, in May 1995,
they were divorced. Their joint Federal income tax return for
1993 included a Schedule C, Profit or Loss From Business, for a
farming activity. The reported gross income from this activity
was $802, the claimed expenses totaled $28,199, and the reported
net loss was $27,397. Respondent disallowed the $27,397 loss on
the ground that the farming activity was not engaged in for
profit. There were other adjustments to the return that flowed
from the disallowed loss. On December 23, 1996, respondent
issued separate notices of deficiency to petitioner and Mr.
Freeman. The deficiency shown in each notice was $7,781.
Petitioner filed a timely petition, but Mr. Freeman did not.
1
(...continued)
Rules of Practice and Procedure.
- 4 -
Respondent assessed the deficiency against Mr. Freeman. No
portion of the assessment has been paid by Mr. Freeman, nor has
he challenged the assessment in any other court.
Petitioner has not challenged the disallowed farming
activity loss. The only claim being made by petitioner is that
she is entitled to relief from joint liability. The case was
tried before Special Trial Judge Couvillion on January 12, 1998.
Mr. Freeman was not called to testify and made no appearance
until the instant motion. At the time of the trial, section 6013
contained the provisions governing relief from joint liability or
what has come to be known as “innocent spouse” relief.
Approximately 6 months after the trial, section 6013(e) was
repealed and replaced with section 6015. See Internal Revenue
Service Restructuring and Reform Act of 1998 (RRA 1998), Pub. L.
105-206, sec. 3201, 112 Stat. 685, 734. The RRA 1998 generally
revised and expanded the relief available to joint filers.
Moreover, the RRA 1998 gave section 6015 retroactive effect in
that it was made applicable to any liability for tax arising
after July 22, 1998, and to any liability for tax arising on or
before such date that remained unpaid as of July 22, 1998. See
RRA 1998, sec. 3201(g)(1), 112 Stat. 740; Corson v. Commissioner,
114 T.C. 354, 359 (2000).
- 5 -
Following the change in the applicable law, respondent was
ordered to file a written report on respondent's position with
respect to petitioner's claim for relief under the new law. In
respondent’s report, he stated: "In light of the aforementioned
change in the law, it appears to respondent that petitioner
qualifies for innocent spouse relief under the provisions of
section 6015(b)." Respondent further stated that petitioner's
former spouse, Mr. Freeman, objected to such relief and that Mr.
Freeman "should be provided with adequate notice and an
opportunity to become a party to this proceeding" and cited
section 6015(e)(4). The Court then directed respondent to serve
Mr. Freeman with a copy of the petition and a copy of Interim
Rule 325.2 Thereafter, within the time prescribed in Interim
Rule 325, Mr. Freeman submitted to the Court a document that was
filed as a Motion For Leave to File Notice of Intervention
2
Interim Rule 325 provides:
(a) Notice: The Commissioner shall serve notice
of the filing of the petition on the other individual
filing the joint return.
(b) Intervention: If the other individual filing
the joint return desires to intervene, then such
individual shall file a notice of intervention with the
Court not later than 60 days after service of the
notice by the Commissioner of the filing of the
petition, unless the Court directs otherwise, and
attach to the notice of intervention a copy of such
notice of filing. All new matters of claim or defense
in a notice of intervention shall be deemed denied.
- 6 -
(Embodying Notice of Intervention) (the motion). The motion was
served on the parties. Respondent filed a notice of no
objection, and petitioner has not responded.
Discussion
We have recently issued several opinions involving claims
for relief from joint liability in which we noted significant
differences between section 6015 and the repealed section
6013(e). See Corson v. Commissioner, supra; Charlton v.
Commissioner, 114 T.C. 333 (2000); Fernandez v. Commissioner, 114
T.C. 324 (2000); Butler v. Commissioner, 114 T.C. 276 (2000).
For example, in Corson v. Commissioner, supra, we observed:
Whereas section 6013(e) had offered only a single
avenue of relief, based on a spouse's lack of knowledge
or reason to know of a substantial understatement,
section 6015 authorizes three types of relief.
Subsection (b) provides a form of relief available to
all joint filers and similar to, but less restrictive
than, that previously afforded by section 6013(e).
Subsection (c) permits a taxpayer who has divorced or
separated to elect to have his or her tax liability
calculated as if separate returns had been filed.
Subsection (f) confers discretion upon the Commissioner
to grant equitable relief, based on all facts and
circumstances, in cases where relief is unavailable
under subsection (b) or (c).
Subsections (a), (e), and (g) of section 6015
address general and procedural aspects relating to the
operation of the section and the role therein to be
played by this Court and by the Commissioner. * * *
[Id. at 359-360.]
- 7 -
When this case was tried, section 6013(e) was still in
effect. Section 6013(e) was subsequently repealed and replaced
by section 6015. Section 6013(e) is no longer applicable in this
case. Under these circumstances, the Court will treat
petitioner's claim for relief from joint liability as a claim
under section 6015.3 See Corson v. Commissioner, supra at 364;
Charlton v. Commissioner, supra at 339; Butler v. Commissioner,
supra at 281-282.
There are several jurisdictional bases upon which this Court
may review a claim for relief from joint liability under section
6015. One basis, which survives section 6013(e), is the
traditional petition based on a notice of deficiency where the
petition includes a claim by one or both spouses for relief from
joint liability. Relief claimed in this context has
traditionally been characterized as an affirmative defense, and
the enactment of section 6015 has not negated this Court's
authority to consider a claim for such relief in a "deficiency
proceeding". See Corson v. Commissioner, supra at 363; Charlton
v. Commissioner, supra at 338-339. The instant case is a
deficiency proceeding.
Another situation in which this Court has jurisdiction to
review a claim for relief from joint liability involves the
3
Neither petitioner nor respondent requested a new trial for
the presentation of the case under sec. 6015.
- 8 -
collection due-process procedures of sections 6320 and 6330.
Among the issues that can be considered under sections 6320 and
6330 are “the underlying tax liability” and “appropriate spousal
defenses”. Sec. 6330(c)(2).
Section 6015(e)(1)(A) also provides this Court with
jurisdiction to consider a claim for relief from joint liability
by specifically allowing a spouse who elects relief under section
6015 to petition this Court for review of the Commissioner’s
determination regarding an administrative claim for relief.
Unlike a deficiency proceeding or a collection due-process
proceeding, a proceeding under section 6015(e)(1)(A) is
restricted to the issue of relief from joint liability for the
individual electing such relief. A proceeding under section
6015(e)(1)(A) has been referred to as a "stand alone” proceeding.
Corson v. Commissioner, supra at 363; Fernandez v. Commissioner,
supra at 329. In a stand-alone proceeding, the nonelecting
spouse is statutorily entitled to “adequate notice” and "an
opportunity to become a party" to the proceeding. Sec.
- 9 -
6015(e)(4);4 Interim Rules 324 and 325; Corson v. Commissioner,
supra.
The issue we must decide for the first time is whether a
spouse (or former spouse), who is not a petitioner, may intervene
and become a party in a deficiency case where the other spouse
(or former spouse) is a petitioner who is claiming relief from
joint liability pursuant to section 6015. While we have not
previously addressed this specific issue, we have previously
allowed one spouse to challenge the other spouse’s claim for
relief under section 6015 where both spouses were before the
Court as petitioners in the same deficiency case. See Corson v.
Commissioner, supra.
Corson v. Commissioner, supra, was a deficiency proceeding
in which both spouses filed a joint petition with this Court
pursuant to a notice of deficiency. In Corson, the taxpayers
separated and divorced after their joint return was filed. The
former wife filed an amended petition claiming relief from joint
4
Sec. 6015(e)(4) provides:
(e) Petition for Review by Tax Court.--
* * * * * * *
(4) Notice to other spouse.--The Tax Court
shall establish rules which provide the individual
filing a joint return but not making the election
under subsection (b) or (c) with adequate notice
and an opportunity to become a party to a
proceeding under either such subsection.
- 10 -
liability. Respondent separately negotiated settlements with the
parties that included, for the former wife, relief from joint
liability. The granting of this relief was not previously
disclosed to her former husband. When the former husband became
aware of this concession, he refused to agree to the negotiated
settlement, whereupon respondent filed a motion for entry of
decision. In Corson, we noted that, in the context of a stand-
alone proceeding under section 6015(e)(1)(A), the other spouse is
entitled to notice and the opportunity to participate in the
consideration of the claim for relief by the electing spouse at
both the administrative level and in any subsequent judicial
proceeding before this Court. See section 6015(e)(4), (g)(2).
Even though Corson did not arise as a stand-alone proceeding, we
held that, pursuant to section 6015, the husband was entitled to
be heard on the question of his former wife’s claim for relief
from joint liability.
In the instant case, the claim for relief from joint
liability arises, as in Corson, in the context of a deficiency
proceeding. However, unlike Corson, in this case Mr. Freeman is
not a petitioner in this deficiency proceeding. Mr. Freeman did
not file a petition and, as a result, the deficiency was assessed
against him. In our view, this difference is not a material
distinction for purposes of deciding whether to allow Mr. Freeman
- 11 -
to intervene. As we explained in Corson v. Commissioner, supra
at 365:
Section 6015(e)(1) is structured so that
administrative consideration (or failure to rule) will
precede any court action when innocent spouse status is
raised in a stand alone petition. Section 6015(g)(2),
in turn, contemplates an opportunity for the
nonelecting spouse to participate at the administrative
level. Section 6015(e)(4) then speaks of a similar
chance for participation should the matter move from an
administrative to a judicial forum. Hence, as a
general premise, we believe that these sections, when
read together, reveal a concern on the part of the
lawmakers with fairness to the nonelecting spouse and
with providing him or her an opportunity to be heard on
innocent spouse issues. Presumably, the purpose of
affording to the nonelecting spouse an opportunity to
be heard first in administrative proceedings and then
in judicial proceedings is to ensure that innocent
spouse relief is granted on the merits after taking
into account all relevant evidence. After all, easing
the standards for obtaining relief is not equivalent to
giving relief where unwarranted.
The same rationale applies in this case. Petitioner is
seeking the same type of relief under section 6015 that would be
the issue in any stand-alone case under section 6015(e)(1)(A).
Congress believed that when a spouse (or former spouse) sought
such relief, the other spouse (or former spouse) who signed the
joint return should receive notice and an opportunity to
intervene in order to challenge the propriety of granting such
relief. In order to implement this objective, Congress directed
this Court to establish rules.5 Congress also directed the
5
See supra note 4.
- 12 -
Secretary to prescribe regulations.6 Therefore, we believe that
it is necessary to provide a spouse (or former spouse) with both
notice of, and an opportunity to be heard in, any case where the
other spouse (or former spouse) is claiming relief from joint
liability under section 6015. As we stated in Corson v.
Commissioner, supra at 364:
Principally, we believe that the interests of justice
would be ill served if the rights of the nonelecting
spouse were to differ according to the procedural
posture in which the issue of relief under section 6015
is brought before the Court. Identical issues before a
single tribunal should receive similar treatment. * * *
Accordingly, we shall grant Mr. Freeman’s motion and allow him to
intervene in order to have an opportunity to challenge
petitioner’s claim for relief. The record in this case will be
reopened, and the case will be calendared for further trial
solely with respect to petitioner's claim for relief from joint
liability.
6
Sec. 6015(g) provides:
(g) Regulations.--The Secretary shall
prescribe such regulations as are necessary to
carry out the provisions of this section,
including--
* * * * * * *
(2) regulations providing the
opportunity for an individual to have notice
of, and an opportunity to participate in, any
administrative proceeding with respect to an
election made under subsection (b) or (c) by
the other individual filing the joint return.
- 13 -
The Court has issued interim rules contained in Title XXXI
of our Rules of Practice and Procedure that set forth procedures
to be followed in stand-alone cases brought under section
6015(e)(1)(A). In deciding that Mr. Freeman may intervene in
order to object to petitioner’s claim for relief from joint
liability, we are interpreting statutory provisions that require
procedures which have not yet been completely provided for in our
Rules. We believe that it is now necessary for us to articulate
and announce the necessary procedural requirements.7
We hold that whenever, in the course of any proceeding
before the Court, a taxpayer raises a claim for relief from joint
liability under section 6015, and the other spouse (or former
spouse) is not a party to the case, the Commissioner must serve
notice of the claim on the other individual who filed the joint
return for the year(s) in issue. The notice shall advise such
other individual of his or her opportunity to file a notice of
intervention for the sole purpose of challenging the petitioning
individual’s entitlement to relief from joint liability pursuant
to section 6015. Such notice shall include a copy of Interim
Rule 325. The Commissioner shall at the same time file with the
Court a certification of such notice or, in a stand-alone case
brought under section 6015(e)(1)(A), state in the answer that
7
Specific rules regarding these matters will be promulgated
in the future.
- 14 -
such notice has been provided. See Interim Rule 324(a)(2). Any
intervention shall be made in accordance with the provisions of
Interim Rule 325(b).
These procedures are effective immediately and are
applicable to all cases, including small tax cases.
An appropriate order
will be issued.