Deficiency Notice Required for Innocent Spouse Tax Court Petition

E and R were married in September 1995. On their joint return for 1995, they reported an underpayment of tax because R had made no estimated tax payments. In 1999, E filed Form 8857, Request for Innocent Spouse Relief under Sec. 6015(f), seeking relief from the unpaid 1995 tax liability. The IRS sent a notice of determination denying her relief. The Tax Court granted her subsequent petition for review, and the IRS appealed that review to the Ninth Circuit.

Analysis

Generally, marital partners who file a joint return are jointly and severally liable for its accuracy and any assessments due. However, a spouse may apply for innocent spouse relief from joint and several liability under Sec. 6015(b), (c) or (f). Sec. 6015(e) states the requirements for a petition for review by the Tax Court:

In the case of an individual against whom a deficiency has been asserted and who elects to have subsection (b) or (c) apply—

(A) In general.—In addition to any other remedy provided by law, the individual may petition the Tax Court (and the Tax Court shall have jurisdiction) to determine the appropriate relief available to the individual under this section....

The plain language of the statute clearly indicates that the Tax Court has jurisdiction over a petition when a deficiency has been asserted and the taxpayer has elected relief under Sec. 6015(b) or (c). Here, however, no deficiency had been asserted and E elected relief only under Sec. 6015(f) (i.e., not under subsection (b) or (c)).

If a statute is ambiguous or silent, the court may then look to legislative history to determine Congressional intent; see Cmty. Bank v. G.V.M. Trust, 366 F3d 982 (9th Cir. 2004). As initially enacted, Sec. 6015(e) did not contain the language, “against whom a deficiency has been asserted.” However, Congress amended the statute in December 2000, and added that phrase.

The Tax Court concluded that the statute was ambiguous because Sec. 6015(e)(1)(A) still contains the language that grants the Tax Court jurisdiction to determine the relief available to a petitioner “under this section”; see Sec. 6015(e)(1)(A) (stating the Tax Court has jurisdiction “to determine the appropriate relief available to the individual under this section” if the petitioner meets the requirements of the statute). Prior to this amendment, the court had interpreted the phrase, “under this section,” to give it jurisdiction over the entire statute; see Gwendolyn Ewing, 118 TC 494 (2002). It reasoned the IRS did not need to issue a deficiency notice to assess the tax, “[b]ecause the tax was reported on the return,” and both parties were aware of the unpaid tax liability, thus vitiating Congress’s concern that taxpayers would submit premature requests for relief before the Service had asserted that additional taxes were owed.

However, the Ninth Circuit applied the basic principle of statutory construction that “a statute ought, upon the whole, to be so construed that, if it can be prevented, no clause, sentence, or word shall be superfluous, void, or insignificant,” Planned Parenthood of Idaho, Inc., 376 F3d 908 (9th Cir. 2004). Thus, because no deficiency had been asserted, the Ninth Circuit held that the Tax Court did not have jurisdiction over E’s petition.

Gwendolyn Ewing, 9th Cir. (2/28/06)

Reflections: In John Maier III, 360 F3d 361 (2d Cir. 2004), the court determined that the Tax Court did not have jurisdiction over the petition of the nonelecting spouse (i.e., the spouse not seeking equitable relief). It did not rule on jurisdiction over the petition of an electing spouse, but noted the issue is not free from doubt, citing Kathyryn Chesire, 282 F3d 326 (5th Cir. 2002), and Herbert L. Mitchell, 292 F3d 800 (DC Cir. 2002).