u•
By Bryan T. Camp
The Unhappy Marriage of Law and
Equity in Joint Return Liability
Bryan T. Camp is a professor of law at Texas Tech
University School of Law.
This column generally explores the laws and policies of tax administration to help guide readers
through the thickets of particular procedural problems
while also giving them a sense of the larger tax
administration forest.
Prof. Camp thanks Richard C.E. Beck, Paul Kohloff,
Tom Whitei and the ever-perspicacious '·'Anonymous/(
for pointing out errors and challenging ideas. Prof.
Camp accepts all blame for any remaining errors or
bad ideas and promises to do better next time.
•
Prof. Camp dedicates today's column to his wife,
Susan. Little did she know during the first six years of
their marriage what the last four would be like. Yet, he
reports, she has stayed with it.
Men must turn square corners when they deal with the
Government.
- Justice Oliver Wendell Holmes Jr.'
It is no accident that Justice Holmes penned those
words in a tax case. Of all the comers in all the laws
governing citizen interaction with goverrunent, tax laws
contain some of the squarest. Today's column discusses
what happens when Congress attempts to smooth out the
sharp corners of the tax code witl1 notions of equity, but
does so with an inadequate understanding of, or appreciation for, t11e problems of tax administration. The
statute I discuss today, section 6015, is not t11e worstwritten part of that dismal effort called the Internal
Revenue Service Restructuring and Return Act of 1998
(RRA 98), but it is darned close. I shall explain why. More
importantly, I shall offer some ideas On how to fix it, for
it is not enough to criticize if one is not prepared to offer
up ideas that can, in tum, get shot down by others.
In my last column, I showed how Congress failed to
give the Tax Court jurisdiction under 6015(e) to review
IRS denials of section 6015(f) equitable relief in nondefi-
deney cases. Today'scolumn again concerns section
6015, but today I will examine the full interplay of its
substantive provisions with tax procedure. In RRA 98,
Congress increased the scope of equitable relief from joint
and several liability. But the procedures it provided
taxpayers who seek that relief are a conceptual and
practical mess. The ironic result: In trying tq cure old
inequities, Congress created new ones. Because of RRA
98, substantive outcomes depend on choice of process.
That is not good tax administration.
In trying to cure old inequities,
Congress created new ones. Because
of RRA 98, substantive outcomes
depend on choice of process. That is
not good tax administration.
Part I of the article explains the history and theory of
joint liability, because to understand the need for equity
one needs to understand what corners of the law are too
sharp and why. Part II explains how and why the concept
of "irmocent spouse" came into tax, and how that concept
has remained the bedrock idea underlying all forms of
joint liability relief enacted since 1971. Part III looks at the
mess made by Congress in RRA 98 when it tried to cure
the problem of access to court review, but improperly
conflated~the tax determination process with t11e tax
collection process, creating gaps and traps for taxpayers,
no matter how wary they may be. Part III also offers
some ideas on what the taxwriters should or could do to
fix the mess.
r.
The Origins and Theory of Joint Liability
To understand spousal relief, one must first understand the nature and scope of spousal liability. Section
6013(a) provides that "a husband and wife may make a
single return jointly of income tax," and section
6013(d)(3) prOVides that "the liability with respect to the
tax shall be joint and several." The fact that both provisions are currently in the same code section has led many
to the erroneous conclusion that the two provisions have
a common origin. That is not the case. The provision
allOWing for joint returns has its origin in section 223 of
the Revenue Act of 1918.2 But the provision making the
liability joint and several traces back only to section 51 (b)
of the Revenue Act of 1938.' During that 20-year period
taxpayers and the IRS fought over whether joint filers
were jointly liable. While taxpayers won in court, the IRS
ultin1ately won in Congress.4
240 Stat. 1057, 1074.
'52 Stat. 447.
'Rock Island, Ark.
&
La. R.R. Co. v. United States, 254 U.S. 141,
143 (1920).
4See, e.g., Cole v. Conunissioner, 81 F.2d 485 (9th Cir. 1935) (no
joint liability on joint retum.). For a wide-ranging article on that
(Footnote continued on next page.)
TAX NOTES, September 12, 2005
1307
COMMENTARY I CAMP'S COMPENDIUM
It is also erroneous to claim that joint and several
liability is the "price" couples pay for a more favorable
rate structure than individuals, a canard repeated by the
government in its brief for the appellee in Bat/man v.
Commissionet, currently on appeal before tl1e Eighth
Circuit. 5 Such a· view is wrong for three reasons. First,
between 1913 and 1918, couples were not even permitted
to file jointly and were subject to the single rate structure,
which exempted the first $3,000 of income from tax"
Even during those five years, however, married couples
were permitted an additional $1,000 exemption for their
aggregate income when they lived together.' So couples
received the effect of a more beneficial rate structure long
before being allowed to file jointly and even longer before
being made to pay any theoretical "price" for doing so.'
The second reason tl1at joint liability is not the "price"
couples pay for favorable treatment is that Congress
made couples jointly liable in 1938 but waited 10 years to
enact the supposed benefit of a separate rate structure for
couples. The rate structure did not come until section
301(d) of the Revenue Act of 1948.9 The timing itself casts
significant doubt on any claim for causal linkage between
the two. Even more does the history of the 1948 statute.
The 1948 statute was all about putting couples in
common-law states on an equal footing with couples in
community property states, not about giving some compensation for the "price" of joint liability. The Supreme
Court had created the discrinUnation in 1930 in Poe v.
Seabom 1O and Lucas v. Earl H which held, respectively, that
the property law regin1e in community law states meant
a nonearning spouse could report half of the earning
spouses' income, whereas couples in common-law states
could not accomplish the same result "by anticipatory
arrangements and contracts however skillfully devised."12 By the time the Court decided Commissioner v.
Harmon in 1941,13 which rejected Oklal10ma's attempt to
give its citizens the benefits of Seaborn by allowing
married couples to Jlopt in" to a special state community
issue and much more, see Richard C. E. Beck, liThe hmocent
Spouse Problem: Joint and Several Liability for Income Taxes
Should Be Repealed," 43 Vand. 1. Rev. 317 (1990).
SBartman v. Commissioner (No. 04-2771), on appeal from T.e.
Memo. 2004-93, Doc 2004-7609, 2004 TNT 67-17 (Apr. 2,2004). In
its brief, the goverrunent first implies that joint filing is a
"privilege" because joint filers receive a preferential rate, citing
to section 1, and then blithely contends that "the price exacted
for this privilege is the joint and several liability." Brief of the
Appellee at 15. I deal with the main point in the text. Here I note
that joint filing is an election, a choice. It is no more a privilege
than is choosing the standard deduction over itemizing, or vice
versa. One can see hQW" th~ "!a~!y JlDiC·tlH~gryJmci.':p.Ijf~.Y9P
pay" theories are in some sense intertwined with the 1966 Tax
Court opinion: A joint income tax return has the effect, in the
vast majority of cases, of reducing the tax which would have to
be paid if separate returns were filed. The tax saving normally
accrues to the benefit of the entire family unit. Even though
petitioner in the instant case did not control the family wealth,
she nevertheless benefitted by having the additional ftmds
available to help support her and her children at a fairly
comfortable standard of living." Stanley v. Commissioner, 45 T.C.
II
555, 566 (1966). While one can make the logical connection, I
demonstrate in the text that the attribution of historic cause and
effect is simply incorrect.
6That amount is about $59,000 in today's dollars. It was a
compromise from the proposed exemption amount of $4,000.
Can you imagine having a personal exemption amount (or zero
bracket amount, call it what you will) of $59,000 today? Or can
you imagine any politician today echoing the words of Rep.
Murray: "There are those who would say that should begin at
$1000, in lieu of $4000. They forget the principle upon which this
I
I
'
I
"
II
tax is founded, and that is that every man who is making no
more than a living should not be taxed upon living earnings, but
should be taxed upon the surplus that he makes over and above
that amount necessary for good living." Edwin R. A. Seligman,
The Income Tax: A Study of the History, Theory and Practice of
Income Taxation at Home and Abroad (2d Ed. 1914) at 686. That
idea was blown away;. of course, by the revenue demands of
World War II and the expansion of the class tax to a mass tax.
?Id. at 686.
sTypical of erroneous statements to the contrary is that of
Prof. Lawrence Zelenak, in his otherwise fascinating article,
"Marriage and the Income Tax," 67 S. Cal. 1. Rev. 339,342 (1994).
r'From its inception in 1913 until 1948, the income tax treated
spouses as two separate taxpayers.")
1308
property regin1e, the resulttng discrinUnation between
community property states and common-law states had
been exacerbated by an increase in the marginal rates.l 4
Then came World War II and the broadening of the tax
base from about 7 miilion tax returns in 1940 to more than
42 miliion by 1945. 15 So to ameliorate the increasing effect
of the Supreme Court's interpretations in Seabom and
Ead, Congress allowed all couples to split their aggregate
taxable income for purposes of rate determination. 16
It is erroneous to claim that joint and
several liability is the 'price' couples
pay for a more favorable rate
structure than individuals, a canard
repeated by the government in its
brief for the appellee in Bartman.
The third reason that joint liability is not the "price"
couples pay for more favorable tax treatment is sin1ply
that couples do not necessarily receive more favorable tax
treatment. Even the current elimination of the "marriage
962 Stat 110.
10
282 U.S. 101 (1930)
"281 U.s. 111 (1930)
12Id.
13
323 U.s. 44 (1941).
"Id. at 50 (Douglas, )., dissenting).
15See generally Carolyn C. Jones, "Class Tax to Mass Tax: The
Role of Propaganda in the Expansion of the Income Tax During
World War II," 37 Buff. 1. Rev. 685, 686 (1989) (examining each of
the Revenue Acts from 1937 through 1945).
16See Rep. No. 1013, 80th Cong., 2d Se". (1948), 1948-1 CB.
301-303,326. Congress tried to go the other way first, in 1941, by
making joint returns mandatory and, consistent with the economic unity theory, subjecting the consolidated income to the
same rates as individuals. But the idea of subjecting married
couples in community property states to a de facto rate increase
got shot down faster than you could say "marriage penalty." See
Boris I. Bittker, "Federal Income Taxation and the Family," 27
Stall. 1. Rev. 1389,1408-1411 (1975).
TAX NOTES, September 12, 2005
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COMMENTARY I CAMP'S COMPENDIUM
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penalty" for equal-earner spouses (and the concomitant
expansion of the "marriage bonus" for unequal-earner
that "a single joint return is one return of a taxable unit
and not tvvo returns of tvvo units on one sheet of paper."21
spouses) makes those previously penalized marriages
merely tax neutral and not tax favorable." So not all
couples benefit.
The Supreme Court also adopted that view of the
matter in 1940, when it rejected the IRS's attempt to limit
a charitable deduction taken on a joint return to 15
percent of the donating spouse's separate income instead
of 15 percent of the combined income. 111e IRS had
written regulations abandOning the economic unity rationale for joint filing, but the Court struck down the
regulations, holding:
The better explanation for, and
understanding of, joint liability is the
well-recognized tension in the tax
code between treating individuals as
individuals and treating them as part
of a greater economic unit: the family.
I submit that the better explanation for, and understanding of, joint liability is the well-recognized tension
in the tax code between treating individuals as individuals and treating them as part of a greater economic unit:
the family. One sees the tension in the Revenue Act of
1913, the first revenue act under the modern income tax.
Recall that the 1913 act did not permit couples to file
jointly, yet allowed them to exempt $1,000 more than
urunarried individuals. That additional exemption
amount was made in recognition that marriage created
an economic unit of more than one individual. That is,
the additional exemption for married couples was based
on the theory that"an American family of from Huee to
five children living in decent comfort, and desirous of
giving the children a college education would, it was
maintained, need all of $4,000, or in the case of a widow
certainly all of $3,000, for meeting the necessary family
t
expenses."IB From the get-go, then, the code has not been
only about taxing individuals but also about taxing
family units. 19
Further support for that idea about the origin of joint
liability comes from early rulings by the IRS. In 1921, for
example, the IRS decided that a joint return should be
viewed as a return of a Single economic unit: 111£ a single
joint return is filed it is treated as the return of a taxable
wUt. ... In cases, therefore, in which the husband or wife
has allocable deductions in excess of his or her gross
income, such excess rna)', if joint return is filed, be
deducted from the net income of the other for the
purpose of computing [tax]."20 Similarly, in 1923 the IRS
based a ruling for joint liability explicitly on the notion
17See generally Beck, supra note 4, at 317,369-377.
18Seligman, supra note 6, at 686.
19
1 would thus disagree with other commentators, such as
Prof. Zelenak, who suggests that "after 1948, tax scholars sought
a more compelling justification for joint returns than the accident of Poe v. Seaborn, and developed theories based on pooling.
At best, however, these are after-the-fact justifications for what
Congress had done, not explanations for why Congress had
done it." Zelenak, supra note 8, at 347. For the reasons 1 state in
the text, I believe Prof. Zelenak misreads the historical record in
that regard.
200p. Solicitor 90, 4 CB. 236, 238 (1921), quoted in Beck, supra
note 4, at 336.
TAX NOTES, September 12, 2005
The principle that the jOll1t return is to be treated as
the return of a taxable unit and as though it were
made by a single individual would be violated if in
making a joint return each spouse were compelled
to calculate his or her charitable contributions as if
he or she were making a separate return. 22
Today, one sees many places in the tax code in which
family members are treated as part of the same economic
unit rather than treated as separate economic actors. For
example, section 267 disallows loss deductions from sales
between related parties and the very first relationship
defined in section 267(b)(1) to be related parties is "members of a family, as defined in subsection (c)(4)." At least
63 other code sections cross-reference to section 267, 14 of
them to section 267(c)(4).23 Similarly, the whole debate
over family limited partnerships can he viewed as a
debate over the appropriateness of treating, as a separate
taxable entity, an association of individuals bound by
noneconomic ties. 24 Development of that idea is beyond
today's column, but I am confident that, as a descriptive
if not a normative matter, the justification for joint
liability recognizes that marriage and family formation
results in an economic unity often enough to make it a
social reallty that the tax code should address. To the
extent I am right, the best way to view spousal relief
provisions would be to see them as attempts to identify
when a joint liability rule is inappropriate because the
economic unity presumption underlying that rule can be
21l.T. 1575, II-I CB. 144 (1923), quoted in Beck, supra note 4, at
338.
22Tajt v. Helvering, 311 U.S. 195, 198 (1940). The Court
reinforced its view in a companion case, Helvering v. Janney, 311
U.S. 189 (1940) (interpreting statute on capital losses as allOWing
capital losses of one spouse to be deducted from capital gains of
the other, despite contrary Treasury regulation).
23That is per a quick LEXIS search within subtitle A of the
Internal Revenue Code, using the search strings: "text (267)"
and "text (267(c)(4))." Thus, a code section that might crossreference "subsection (c)(4) of section 267" was not picked up by
that search.
24See Lee A. Sheppard, "Third Circuit Embraces Recycling
Theory of Family Limited P'ships," Tax Notes, Oct. 4, 2004, p. 18.
("In family limited partnership cases ... the judge has to be
persuaded that ... the parties do not let the partnership agreement govern their actions. Personal use of partnership property
tops that list, along with phony loans. In real life, business
people do not allow their partners to make unfettered personal
use of partnership assets. Family partnerships are tolerated only
as long as family members act like business people dealing at
arm's length.") (Citations omitted.)
1309
COMMENTARY I CAMP'S COMPENDIUM
shown to be false. 25 I believe the history of the spousal
relief provisions supports that view.
II. Origins and History of Spousal Relief
Congress enacted the first spousal relief provisions in
1971 in section 6013(e), modified them in 1984, and
overhauled them in 1998. The history of those provisions
shows how tax law has taken and modified the divorce
law concept of "innocent spouse" to decide when the
assumption of economic unity underlying joint and several liability is so demonstrably false that it becomes
unfair to hold a spouse liable for a tax liability. As I shall
show, the 1998 overhaul did not displace that central
idea, but simply created a presumption that divorced or
separated spouses were not in economic unity. If the IRS
decides that presumption is false because the requesting
spouse was not lIinnocent" in the tax sense, it need not
prOVide spousal relief. Even after RRA 98, spousal relief
still turns on the truth of the presumed economic unity at
the time the joint return was filed. Only the presumptions
have been changed to protect the "innocent."
A. The Origins
Most commentators trace the impetus for innocent
spouse relief to the Supreme Court's 1961 decision in
James v. United States, in which the Court, reversing a
is-year precedent, held that embezzlement income was
indeed taxable. 26 The paradigmatic cases prompting con-
25Since I am repeatedly referring to Prof. Beck's impressive
article, I should mention that my cqn9-u:sJo~s~J.!l:_t.£-:P?iIlti n a
different direction than his. He summarizes his-views" on"p.""338:
U A married couple ... cannot literally be a taxable unit. ... A
marriage, apart from its component spouses, is not a juridical
person and therefore cannot owe anything, own anything, or
sue or be sued for taxes or anything else. It follows that this
taxable unit or unitary principle cannot explain shifting the
imposition of a tax from one spouse to another. The only
candidates for involuntary collection remain the individual
spouses, and in order to collect the tax, the 'unit' must be
divided into its components." I think Prof. Beck pushes his
reasoning too far. A marriage can own" property - in the
important sense of tenancies by the entireti~s (T by E). Until
2002 a tax lien securing the liability of one spouse could not
attach to T by E property, which was considered to be owned by
the fictional unit of the marriage. See, e,g., United States v.
JI
Hutcherson, 188 F.2d 326, 329 (8th Crr. 1951). (A tax lien against
one spouse's separate liability could not attach to property
owned as T by E, noting that "An estate by the entirety is ... one
estate vested in two individuals who are by a fiction of law
treated as one person, each being vested with the entire estate.")
(Citations omitted.) In 2002 the Supreme Court decided that tax
liens could attach to T by E property as a matter of federal law,
regardless of state law. United States v. Craft, 122 S.C!. 1414
(2002). Craft is a fascinating continuation of the Supreme Court's
probably unintended assault on states' rights by creating a
federal common law of property. But that is for another day. For
now I would simply argue that Prof. Beck's view rests too much
on a supposition about collection of joint liabilities that does not
square with the case law on collection at that time: The IRS
could collect joint liabilities but not separate liabilities from T by
E property.
26
366 U.S. 213 (1961), overruling Commissioner v. Wilcox, 327
U.s. 404 (1946). See Beck, supra note 4, at 348; Note, "The Bonds
gressional action to modify the strict rule of joint liability
seemed to be cases, like James, in which a husband
embezzled or otherwise concealed income from his wife,
got caught, and the IRS asserted a deficiency based on the
omitted income. That, at least, is what the 1971 Senate
Finance Committee report says.27
Even after RRA 98, spousal relief still
turns on the truth of the presumed
economic unity at the time the joint
return was filed. Only the
presumptions have been changed to
protect the 'innocent.'
In many of the paradigmatic post-James cases in which
the taxpayers raised an issue about the liability of the
nonembezzling spouse, the husband and wife had already divorced. So it should come as no surprise that the
three key cases immediately preceding the 1971 legislation involved divorced couples. 28 I believe the fact that so
many of the cases involved divorce is Significant in
understanding the origin and scope of the innocent
spouse provisions.29
Marriage, of course, is a form of contract, and before
the advent of no-fault divorce laws in the 1970s and
1980s, courts granted divorces only when one spouse
of Joint Tax Liability Should Not Be Stronger Than Marriage:
Congressional Intent Behind Section 6015(c) Separation of Liability Relief," 78 Wash L Rev. 831 (2003); Note, "Do You,
Elizabeth, Promise to Pay John's Taxes? I Do: A Review of the
Innocent Spouse Provisions and a Proposal for Change," 1996
Utah L Rev. 1065; Note, "Innocent Spouses' Liability for Fraudulent Understatement of Taxable Income on Joint Returns," 56 Va.
L. Rev. 1269 (1970).
27S. Rep. No. 91-1537, 91st Congo 2d Sess., at2 reprinted in
1970 USCCAN (vol. 5) at 6089, 6090. ("Atypical situation is one
in which a husband embezzles funds ... and omits the proceeds
from gross income.")
2Sfhe three key cases all arose in the Sixth Circuit. Generally,
I found only three reported cases challenging spousal liability in
which the spouses were probably not divorced: Moore v. United
States, 360 F.2d 353 (4th Cir. 1965) (married); Spanos V. United
States, 323 F.2d 108 (4th Or. 1963) (widowed); Davenport V.
Commissioner, 48 T.C. 921 (1967) (no mention either way). In
contrast, I found six reported cases challenging spousal liability
in which the spouses were divorced. ShaJ'well v. Commissioner,
419 F.2d 1057 (6th Cir. 1969); Huelsman v. Commissioner, 416 F.2d
477 (6th Crr. 1969); Scudder V. Commissioner, 405 F.2d 222 (6th Crr.
1968) cert. denied, 396 U.S. 886 (1969); Sunbrock V. Commissioner,
48 T.e. 55 (1967); Stanley V. Commissioner, 45 T.e. 555 (1966);
Wenker v. Commissioner, T.C. Memo. 1966-240. Note that three of
the latter were Sixth Circuit opinions. More about that in the text
below.
29Yet another egregious divorce case out of Texas - Ramos v.
Commissioner, T.e. Memo. 1969-157, rev'd, 429 F.2d 487 (5th Crr.
1970) - prompted Jack Townsend, the Department of Justice
Tax Division appellate attorney handling the case, to propose
statutory relief. Jack tells me that his memo, backed and blessed
by Tax Division management, helped persuade the IRS to offer
a watered-do'WTI version of the proposal to Congress.
(Footnote continued in next column.)
1310
TAX NOTES, September 12, 2005
fJi
COMMENTARY I CAMP'S COMPENDIUM
breached the contract. 30 The spouse seeking divorce
would thus seek to prove that the other spouse breached
the marriage covenant through some sort of bad behavior. State statutes helpfully supplied the contract terms by
listing what bad behaviors justified divorce. But divorce
law required that the complaining spouse be innocent of
that behavior. If both spouses were at fault, neither could
be innocent and courts would not grant a divorce.
Likewise, if both spouses were innocent, courts would not
grant divorce. One had to be guilty and the other had to
be innocent. TIlat requirement was often justified by
social policy: "It is one device for expressing the policy of
the law against family disintegration and dissolution."31
And the doctrinal expression of that policy had long roots
in chancery courts that developed divorce doctrines by
analogy (not surprisingly) to contract."
The first tax case in which a court
applied the divorce law concept of
'innocent spouse' was the 1958
opinion of the Ninth Circuit in Furnish
v. Commissioner.
The divorce law notions of "fault" and "innocencelf
•
seemed particularly applicable to the kinds of tax cases in
which one spouse concealed income not only from the
government but also from the family unit, including the
innocent spouse, who was equally defrauded and enjoyed no benefit. The first tax case in which a court
applied the divorce law concept of "innocent spouse"
was the 1958 opinion of the Ninth Circuit in Furnish v.
Commissione,.." There,lheculpablehusband.signJiic<Ultly.
underreported income from his medical practice over the
30See generally Jane Rutherford, "Duty in Divorce: Shared
Income as a Path to Equality," 58 Fordham 1. Rev. 539,539-543
(1990) (arguing that marriages are complex, dynamic arrangements the subtleties of which a static contract model- whether
no-fault or fault - imperfectly captures).
31John S. Bradway, "The Myth of the Innocent Spouse," 11
Tulane 1. Rev. 377, 278 (1937). Commentators had long exposed
the folly of the fault rules and the perverse incentives created by
them. Prof. Bradway's article, for example, is a 19308 polemic
against the divorce law doctrine of recrimination. Thirty years
later, however, one finds commentators making almost all the
same points. See Walter J. Wadlington, "Divorce Without Fault
Without Perjury," 52 Va. 1. Rev. 32 (1966) (arguing the absurdity
of recrimination docrrine). No doubt oile could find commentators from the 17005 arguing against the absurdity of the
recrimination doctrine!
"See, e.g., Johnson v. Johnson, 14 Wend. 637 (N.Y. C.C.E. 1835)
(opinions analogizing the doctrine of condonation to contra~);
Bradway, supra note 31, at 379 (citing to English cases that
supported the doctrine of recrimination by analogy to contract).
While there are other ways to view the institution of marriage,
viewing it as a contract is the most descriptively accurate view
of how marriage was treated in the law.
33262 F.2d at 733. Judge Laro's' dissent in Ewing correctly
identifies Spanos v. United States, 212 F. Supp. 861 (D. Md. 1963),
as the first case in which the terl11 "innocent spouse" was
apparently used in connection with a taxpayer attempting to
escape joint liability based on an innocent spouse theory. Courts
(Footnote continued in next column.)
TAX NOTES, September 12, 2005
10-year period at issue, and through use of nominees
siphoned money from his practice into real estate holdings of which his wife knew nothing. She had divorced
him after the fourth of those 10 years, but that did not
stop the IRS from coming after her - 19 years later - to
collect from her for the four years for whicll she had
signed joint returns. The Tax Court rejected her argument
that she had signed blank tax forms under duress but the
Ninth Circuit remanded with instructions that if she
could prove she had signed the blank forms "as an
automaton, there could well have been no exercise of her
free will."3' The Ninth Circuit concluded its opinion with
that rhetorical flourish, which is remarkable for how it
contains the key ingredients of what was to be codified 13
years later in section 6013:
We agree with appellant Emilie Furnish Funk that
the Tax Court here holds liable an innocent party
for the fraudulent activities of a former spo1ISe,
when in fact said innocent party had no knowledge
of, had not concurred in, nor received benefit, direct
or indirect, from said fraud. 35
And so in Furnish the divorce law idea of "innocent
spouse" was imported into tax law and became the
underpinning of the statutory relief Congress enacted in
1971. The 1971 Senate Finance Committee's report explains its reasons for the law in terms that strongly ecllo
the rationale of Furnish:
.
Numerous cases have arisen in which the imposi-
tion of joint liability upon an innocent spouse has
resulted in the committee's opinion, in grave injus,,:"
tice.... TIlis liability may be imposed upon the
sp?use even though she had no knowledge of her
hiisoand';;"acnVities"and the resulting omission
from income, and even though she did not benefit
in any way from the use of the funds. Several cases
of this type have involved situations in which the
innocent spouse has been deserted by her husband
and the funds gained by embezzlement or theft
have been squandered and spent by the wrongdoer.36
Although divorce was not a prerequisite for relief,
note how the Finance Committee used the divorce term
did use the term "mnocent spouse" before then - the first use
I found was in 1951 - but the context of the term, in cases
before James, was simply as part of a court's analysis of local
divorce law to decide, for example, whether the facts constituted a divorce under local law for purposes of deciding an
alimony tax issue. See, e.g., Reighley v. Commissioner, 17 T.e. 344
(1951) (the earliest use of the term, analyzing German law);
Commissioner v. Evans, 211 F.2d 378, 380 (10th Cir. 1954) (analyzing Colorado law); Gilmore v. United States, 154 CI. Ct. 365, 373
(1961) (analyzing Califomia law).
34262 F.2d at 733. The duress argument is still a viable
alternative to spousal relief. Treas. reg. section 1.6013-1(d); see
Melvyn Frumkes, "Duress Diverts Dual Liability for Joint
Returns," 19 J. Am. Acad. Matrimonial Law. 1 (2004) (collecting
cases).
35[d.
36
5. Rep. No. 91-1537, reprinted
6089,6090.
ill
1970 USCCAN (vol. 5) at
1311
COMMENTARY I CAMP'S COMPENDIUM
lJinnocent spouse" and used a divorce-like scenario ("deserted") in which the money is spent outside the family
unit to explain its rationale. Further, the Finance Committee report specifically cited to one of the most notorious post-James cases, Scudder v. Commissioner, in which
the Sixth Circuit's adopted the Furnish duress rationale to
reverse the Tax Court. 37 Scudder was the first of three joint
liability cases decided in quick succession by the Sixth
Circuit in 1968 and 1969. All three involved divorced
innocent spouses. And all three panels (a total of seven
different judges) unanimously reversed each Tax Court
judgment imposing liability on a divorced innocent
spouse, with increasingly strong language. Check this
out:
We are not convinced, as we were not convinced in
Scudder, that the statute is so inflexible that an
innocent wife who has been victimized by a dishonest husband must be subjected to an additional
appallingly harsh penalty by the United States
Government. We are not prepared to admit that the
Executive branch of our Government is so impotent
or the Judiciary so ineffectual that relief may not be
granted to such a victim. 38
The relief prOVided by section 6013(e) bore a remarkable resemblance to the reasons why the Furnish court in
1958 thought it ineqUitable to hold an innocent ex-spouse
liable for the tax on her husband's substantial ill-gotten
gains and fit perfectly into the three Sixth Circuit scenarios. Basically, section 6013(e) proVided for relief from
the liability attributable to an omission of income for any
spouse who could prove three elements:
(A) a joint return has been made under that section
for a tax year and on such retum4here was--omitteafrom gross income an amount properly includable
therein which is attributable to one spouse and
which is in excess of 25% of the amount of gross
income stated in the return;
(B) the other spouse establishes that in signing the
return he or she did not know of, and had no reason
to know of, such omission; and
(C) taking into account whether or not the other
spouse Significantly benefitted directly or indirectly
from the items omitted from gross income and
taking into account all other facts and circumstances, it is inequitable to hold the other spouse
liable for the deficiency in tax for that tax year
attributable to such omission."
ill application, section 6013(e) transformed the term
lJinnocent spouse" from a divorce term to a tax term. In
divorce law, a spouse had to be "innocent" of culpable
conduct. But in tax law the spouse had to be "innocent"
of something more. Echoing the marital unity rationale
for joint liability, the Second Circuit noted:
Irtnocent people pay taxes; the obligation to pay
taxes rests on liability, not guilt. An innocent spouse
within the meaning of tlus statute is innocent
vis-a.-vis a guilty spouse whose 'income is concealed
from the innocent and spent outside tlte family.4o
Thus "innocence" for tax law purposes meant (a)
innocence of knowledge of the facts of the omission and
(b) ilmocence of benefit from tl1e income. Notic~ how that
rationale for the exception to joint liability assumes the
economic unity of the family. Note further how courts
early on held that the spouse had to be ignorant of the
very transaction giving rise to the omitted income. 41 For
if ignorance of the legal tax consequence of a transaction
(as opposed to the transaction itself) were sufficient to
establish grounds for relief from joint liability then, as in
divorce, the courts could be stuck with haVing to place
the financial liability on one of two innocent spouses,
since both spouses may have been ignorant of the tax
consequences. 42 In that way tax law mirrored divorce
law.
B. The 1984 and 1998 Modifications
The 1971 attempt to ameliorate tl1e harsh contours of
joint and several liability with the equitable notions of
"innocent spouse" covered only situations in which one
spouse received and used income from concealed economic activity (usually embezzlement) tl1at was clearly
not part of the economic unity of marriage. The 1984
expansion covered other situations in which a spouse
who had ,;igned a joint return had been fooled, just like
the government, by the other spouse, into signing a
return that understated taxable income and had not
benefited from the understatement.43 But, here too, the
emphasis was on whether the spouse claiming relief from
joint liability was "innocent" in both the senses I describe
above. One sees that in the judiciary's struggle to decide
just what lfinnocent meant in erroneous deduction scenarios: How could courts grant relief without granting
relief for mere ignorance of the laW?44 One also sees it in
the restriction of relief to relief from deficiencies. Apart
lf
40Bliss v. Commissioner, 59 F.3d 374, 380 n.3, Doc 95-7277, 95
TNT 145-14 (2d Cir. 1995) (emphasis supplied).
41McCoy v. Commissioner, 57 T.C. 732 (1972). See generally
Note, liDo You, Elizabeth, Promise to Pay John's Taxes? I Do: A
Review of the Innocent Spouse Provisions and a Proposal for
Change," 1996 Utah L. Rev. 1065, 1078-1082. Prof. Beck points
out that "ignorant sp(;mse would have been a more exact term
for the tax parallel. And it would have focused attention on
what the problem is." E-mail to author, on file with author.
court itself pulled the creative "duress" approach right from
42Id.
43Deficit Reduction Act of 1984, P.L. 98-369, 98 Stat. 494.
"See, e.g., Price v. Commissioner, 887 F.2d 959 (9th Cir. 1989)
Furnislt. 405 F.2d at 225.
38HueIsman, 416 F.2d at 480. That was the second of the three
cases. See note 41 infra.
"Section 6013(e), quoted in Kirtley v. United States, 488 F.2d
768 (10th Cir. 1973) (holding that section 6013 provided no
(discussing tension). For a good history of the case law development on that point, see Cheshire v. Commissioner, 282 F.3d 326,
Doc 2002-35S9, 2002 TNT 29-12 (5th Cir. 2002). For a good
criticism of Price, see Richard c.B. Beck, "Looking for the Perfect
Woman: TIle Innocent Spouse in the Tax Court:' 15 The Review
independent grounds for jurisdiction).
of Taxation of Individuals at 3 (Wmder 1991).
37While most commentators trace the ideas in the 1971 bill to
Scudder v. Commissioner, 405 F.2d 222 (6th Cir. 1969), the Scudder
1312
TAX NOTES, September 12, 2005
tJ,
COMMENTARY I CAMP'S COMPENDIUM
"
Ii
./
•
from arguments of duress, the agreement of both spouses
to a liability reported on a return was conclusive of the
economic unity that justified imposition of joint liability
on the self-reported tax. Allowing relief from underpayments of self-reported tax just did not fit easily with the
concept of innocence.
Section 6013(e) transformed the term
'innocent spouse' from a divorce term
to a tax term. In divorce law, a spouse
had to be 'innocent' of cUlpable
conduct. In tax law the spouse had to
be 'innocent' of something more.
••
The 1984 reforms left many unhappy, so much so that
in 1996 Congress asked the General Accounting Office
(now the Government Accountability Office) and Treasury to study whether Congress should adopt a proportionate liability system or repeal Poe v. Seabom.' 5 Some
advocated retaining joint liability but modifying the
innocent spouse rules to allow mOTe taxpayers to be
eligible for relief.'" Some suggested "proportionate liability" reforms akin to "no-fauItH divorce, under which
spouses could first elect to file jointly and then either
later undo, or "opt out" of joint liability, at which point
someone would have to decide how to split up the
liability.'7 Others proposed allowing couples to elect
proportionate liability on their returns and report both
what portion of the total liability each spouse agreed to
be liable for as well as a separate election for any future
deficiency.4S And still others thought the whole notion of
taxing an economic 'unit shoiIldoetfiIbwnoiIfinfavoro6f
a separate liability regime:"
In the RRA 98 legislative process, the House and
Senate differed considerably in their proposals for re-
45pub. L. 104-168,401, 110 Stat. 14S2, 1459 (1996). The IRS
took the lead in conducting the Treasury study and solicited
comments in Notice 96-19,1996-14 IRB 4, Doc 96-8598, 96 TNT
57-19.
46Not surprisingly, that was the position of Treasury and the
GAO. See "Tax Policy: Information on the Joint and Several
LiabiIityStandard," GAO/GGD-097-34, Mar. 12, 1997); Report to
the Congress on Joint Liability and Innocent Spouse Issues (Feb. 8,
1998), presented to the House Ways and Means Committee in
testimony of Donald C. Lubick, Doc 98-7199. 98 TNT 37-30.
47See ABA Section of Taxation Committee on Domestic
Relations, "Comments on Liability of Divorced Spouses for Tax
Deficiencies on Previously Filed Joint Returns," Doc 96-21543, 96
TNT 150-30 Guly 26, 1996.)
48AICPA Individual Taxation Committee and Domestic Relations Working Group's "Study of Certain Joint Return and
Community Property Issues for Divorced and Separated Tax--
payers," Doc 96-19206, 96 TNT 131-8. For analysis of those and
~ii).
"<
other proportionate liability proposals, see Martha W. Jordan,
"The Innocent Spouse Problem: Defining a Proportionate Solution," 24 Ohio N. U. 1. Rev. 517 (1998). See also Jerome Borison,
"Alice Tluough a Very Dark and Confusing Looking Glass:
Getting Equity From the Tax Court in Innocent Spouse Cases/'
30 Fam. L.Q. 123 (1996).
49Beck, supra note 4.
TAX NOTES, September 12, 2005
forming spousal relief, as I detailed in my last column. 50
The House Ways and Means Committee kept the concept
of innocence as the driving force behind spousal relief
and just liberalized the rules. Thus, the House proposal
kept the idea that spousal relief was available only in
deficiency situations and only to spouses who were
"innocent" in the classic tax sense I described above.
While the House proposal made it somewhat easier for
more spouses to demonstrate innocence in deduction
cases, it hewed to the traditional approach. 51
The Finance Committee proposal, however" subordinated the concept of innocent spouse to the concept of "a
system based on separate liabilities."" Thus, not only did
the Senate proposal extend spousal relief to underpayments of self-reported taxes, but it also allowed either
spouse (not just the "innocent" one) to unilaterally
"elect" to divvy up the existing unpaid tax liabilities (or
deficiency) between the spouses, using rules similar to
those proposed by the American Bar Association Task
Force." Essentially, the Senate proposal allowed either
member of a couple to unilaterally declare an end to
economic unity, ex post, and "opt out" of joint liability
regardless of whether economic unity had been dissolved
or not.
The conferees made two significant compromises that
brought the idea of innocent spouse back front and center
to spousal relief. First, "" I described in my last column,
the conferees rejected the Senate's attempt to allow
spouses to escape joint liability for mere underpayments
of self-reporteci taxes. Instead, tl1e conferees shoved tl1at
idea into the u\2;quitable relief" provisions of subsection
(f). It was the tail; the dog continued to be deficiencies
50Bryan T. Camp/'Between a Rock and a Hard Place," Tax
Notes, July 18, 2005, p. 359.
51See .the comrpittee's "Reasons for Change" in H. Rep.
105-364, at 61, available at hltp://thomas.loc.gov(last visited
July 18, 2005), in which the committee summarized its concerns:
"The Committee bel~eves it is inappropriate to limit innocent
spouse relief only to the most egregious· cases where the
understatement is large and the tax position taken is grossly
erroneous. The Committee also believes that partial innocent
spouse relief should be considered in appropriate circumstances; and that all taxpayers shouJdhave access to the Tax
Court in resolving disputes concerning their status as an innocent spouse. Finally, the Committee believes that taxpayers need
to be better infonned of their right to apply for irmocent spouse
relief in appropriate cases and that the IRS is the best source of
that infonnation." rd. at 61. Note the repeated use of the term
"innocent spouse." The reforms were all about innocence.
"5. Rep. 105-174, at 55.
53In so doing the Finance Committee implicitly rejected the
AICPA proposal that would have let taxpayers apportion liability on their return however they wished. One potentially
significant flaw in the AICPA proposal was it would encourage,
if not allow, taxpayers to shelter their assets from tax collection
(at least in non-community-property states) by'letting them shift
the tax liability to one spouse and the assets to the other spouse.
From my admittedly short experience working nominee lien
cases in the field, I would expect those allocations to create
significant problems for tax collection, even with favorable law,
because identifying and undoing those improper allocations
would require costly human intervention.
1313
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COMMENTARY I CAMP'S COMPENDIUM
and spousal relief was contemplated to be mainlyavailable for joint liability on deficiencies. The conference
committee report's example of underpayment relief itself
demonstrates how the issue of economic unity remained
central to the granting of spousal relief. The example
posits one spouse, unknown to the other, stealing the
money to be used to pay the joint liability for another use
outside the marriage. Thus, the example is one in which
the economic unity rationale for joint liability would be
demonstrably false in an underpayment situation. As I
explained in my last article, section 6015(f) is basically
innocent spouse relief for underpayments.
The conferees made two significant
compromises that brought the idea of
innocent spouse back front and
center to spousal relief.
The second significant compromise made by the conferees was to carefully limit the "opt out" provision to a
spouse "who is no longer married to, is legally separated
from, or has been living apart for at least 12 months from
the person with whom the [spouse] originally filed the
joint retum."s' As with the first compromise, that one
also kept the economic unity rationale as the central issue
in spousal relief. It rejected the concept of "a system of
separate liability" and instead retained the general rule of
joint liability: But it refined the exceptions to that rule by
using divorce (or something like it) as a surrogate, or
marker, of disunity. It did not change the basic inquiry,
but only changed the presumption about unity or disunity.
The tension between law and equity is inherent in the
idea of "innocent spouse" because the idea represents an
equitable exception to a legal rule of joint liability. Of
course, if. Congress were to eliminate the square legal
rules creating that inequity in the first place, there would
b" no need to resort to equitable concepts to sand them
down. Abolishing joint liability, abandoning the idea of
taxing the economic unit, and legislatively overriding
state law concepts of community property for federal tax
purposes - which the Supreme Court refused to do
judicially in Poe v. Seaborn - fully resolves the tension.
The Senate's proposal in RRA 98 was a step in that
direction, but was emphatically rejected by the conferees.
As a result, the substance of spousal relief prdvisions
since 1971 has remained the same: Spousal relief is
available only to ..the ~xtent that the assumption of
economic unity underlying the joint liability rule can be
shown to be false. in the legislation's current incarnation
as sectio" 6015, a taxpayer seeking relief can elect either
or both section 6015(b) and section6015(c), The former is
a liberalized version of the earlier innocent spouse rules,
and basicaily places the burden of disprOVing economic
unity (by proving innocence of both knowledge and
benefit) on the taxpayer. The latter simply reverses the
presumption of economic unity as to sufficiently sepa-
MH. Coni. Rep. 105-599, at 251.
1314
rated couples, but the IRS can stili deny relief if it shows
that the taxpayer claiming relief is not, in fact, uinnocent"
in the tax sense. I suggest that difference is more form
than substance and has a fairly minlmal effect on outcomes, at least if Cheshire v. Commissioner is any indication." Finally, as I demonstrated in my last column, if
neither the (b) nor (c) elections are available, the taxpayer
can seek "eqUitable relief" under section 6015(f), and the
inquiry there is the same as with a subsection (b) election:
Will the taxpayer, who signed a return agreeing to be
jointly liable for the reported tax, be held to ,that signature? Or will the taxpayer be relieved of liability because
equity demands that the liability be treated as that of the
other spouse alone and not the marital unit?
( \
",;
III. The RRA 98 Mismatch of Substance to Process
Although in RRA 98 Congress mandated that equity
drive the substance of the spousal relief inquiry and so
sand the square corners of joint liability, Congress failed
to make the necessary changes to the procedural provisions. As a result, the sharp comers of tax procedure cut
against the equity that Congress sought to infuse in
spousal relief provisions. Taxpayers seeking substantive
equity are denied by procedural rigidity. This part examines why that is so and how Congress could act to match
the substantive equity with procedural fleXibility.
A. The Original Procedural Problem
The substantive relief prOVided by both the 1971 and
1984 legislation was available only when taxpayers were
caught up in the deficiency process. As I demonstrated in
my last column, both the 1971 and 1984 provisions dealt
only with deficiencies. They did not ailow any escape
from joint and several liabilities for mere underpayments
of self-reported tax. A spouse still was on the hook for
whatever liability the spouse had agreed to by signing
the retum. Accordingly, the procedure to obtain the
substantive spouse relief was the same as with any
deficiency: A spouse could ask for the relief during the
examination or through the Tax Court's section 6312(a)
deficiency jurisdiction. Or else the spouse could claim a
refund - but only after fully paying the amount owed,
under the long-standing rule reinforced by the Supreme
Court in Flora v. United States. 56 Courts rejected any other
attempts to obtain judicial review. If a spouse did not
raise the innocence defense as part of the deficiency
proceedings, courts would not allow the putatively innocent spouse to stop administrative collection before full
payment, holding that section 6013(e) did not give courts
independent jurisdiction over innocent spouse claims. 57
"Cheshire v. Commissioner, 282 F.3d 326 (5th Cir. 2002) (find·
ing that the same set of facts that were not quite enough for the
taxpayer to carry her section 6015(b) burden were nonetheless
enough for the IRS to carry its section 6015(c) burden). The main
stumbling block for those seeking relief is the old "should have
known" requirement, a counterfactual element that I submit
, depends as much on the personal characteristics of the factfinder as it does on those of the taxpayer seeking relief.
56
362 U.s. 145 (1960).
57Kirtley v. United States, 488 F.2d 768 (10th Cir. 1973).
TAX NOTES, September 12, 2005
'"i, ~
~,
~.!.···.!I
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COMMENTARY I CAMP'S COMPENDIUM
•
It does not take too much imagination to see the
problem with the process under the 1971 and 1984
legislation. It parallels the problem in family law of
spouses who forgive their errant partners: A spouse who
would otherwise be entitled to spousal relief may choose
to forgo that relief during the deficiency process, perhaps
because the marriage is still intact and the culpable
spouse promises to sin no more, perhaps because the
innocent spouse does not want to rock the marital boat,
or perhaps because the innocent spouse is willing to
forgive on the understanding that the culpable spouse
will pay the tax liability The reasons are as numerous as
the ways of the human heart. Taxpayers may also be
confused by divorce decrees or separation agreements
which require the culpable spouse to pay the deficiency.
Those decrees and agreements, of course, have no effect
on the IRS's ability to collect a joint and several liability.
I suspect not many taxpayers understand that ... at least
until they lose the car, bank account, or other asset. But
while ignorance of the law is no excuse for failing to tum
the proper procedural corner, it's a hell of an explanation
for why spouses otherwise entitled to relief might forgo
claiming it at the time permitted to them in the deficiency
process. It supports legislative change, not judicial action.
B. The RRA 98 Procedural Problems
In RRA 98, Congress tried to make the necessary
legislative change to .;uTe the problem. Xl created two
additional procedures for taxpayers to obtain court review of adverse administrative decisions about spousal
relief outside of the deficiency process. But those two
procedures are inherently flawed so that they deny court
review to deserving taxpay~rs. Worse,. because each
procedural path results in a·different~scope~nf~court
review, unwary taxpayers who turn the wrong square
comer are unfairly denied appropriate court review of
adverse administrative decisions. I shall first discuss the
problem with each procedure, demonstrate their odious
interplay, then explain why it's a problem.
The substance of spousal relief
provisions since 1971 has remained
the same: Spousal relief is available
only to the extent that the assumption
of economic unity underlying the joint
liability rule can be shown to be false.
•
The first alternative procedure is the section 6015
procedure. That allows a taxpayer to petition the IRS for
spousal relief at any time and gives the Tax Court limited
jurisdiction over stand-alone petitions for spousal relief
- tlms giving taxpayers who had not contested a proposed deficiency an opportunity to have a court revie>r
an administrative decision denying tllem spousal relief
under section 6015. In my last column, I showed how and
why Congress limited that jurisdiction to the IRS decision
to deny section 6015(f) relief from an assessed deficiency of
tax. Congress failed to give the Tax Court jurisdiction to
review an IRS decision to deny section 6015(f) relief from
an underpayment of self-reported tax. In my last colunm,
I called tllat a goof. Here I just call it a flaw, but the idea
TAX NOTES, September 12, 2005
is the same: It fails to make the Tax Court's review
authority conunensurate with its review responsibility.
That denies deserving taxpayers such as Mrs. Barln1an a
day in court. 58
The second alternative procedure is the collection due
process procedure, set forth in sections 6320 and 6330.
Those provisions require that the IRS give taxpayers an
administrative hearing soon after filing the first notice of
federal tax lien (NFTL) and just before making the first
levy against a taxpayer for any unpaid tax. The hearing is
called a CDP hearing and its purpose is to determine the
appropriateness of filing the NFTL or issuing the levy. A
taxpayer who is unhappy with the result of a CDP
hearing may ask for court review. 59 As part of the CDP
hearing (and, accordingly, as part of the court review),
the taxpayer may raise, and the IRS must consider
"appropriate spousal defenses."60 That means that in a
CDP hearing, a taxpayer may ask for all the substantive
spousal relief provisions of section 6015, including the
innocent spouse relief for underpayments prOVided by
section 6015(f). The regulations proVide that spousal
defenses are "appropriate" when the IRS has not umade
a final determination regarding the issue."61
One problem with the CDP process parallels the
timing problem with the deficiency process. Because
CDP hearings are available only for the first levy or first
NFTL, it is quite possible that a taxpayer will not attempt
to raise an innocent spouse defense at that point in time.
But the gaping hole in the CDP procedure is that taxpayers cannot seek review of an IRS setoff. That is, while the
CDP provisipns allow taxpayers to force the IRS to
administratively review the appropriateness of lien and
levy actionsJ they ~ompletelyignpre theIRS's tWrd great
administrative collection tool: the setoff power under
section 6402. Because setoffs do not trigger a right to a
CDP hearing, taxpayers who seek spousal relief cannot
obtqin court review through the CDP process.
The resulting interplay of procedural provisio11S
places three hardships on those taxpayers who seek
spousal relief from underpayments, taxpayers like Mrs.
Bartman and Mrs. EWing. 62 First, those taxpayers canp.ot
obtain court review under section 6015(e) because Congress failed tp give the Tax Court jurisdiction to review
innocent spouse claims for underpayments. But neither
can those taxpayers obtain court review under the CDP
provisions when the IRS just sits back and collects the tax
58Note that she would not win on the merits anyway,
because the operation of yet another square corner .,..,...- the
section 6511100kback limitations period - would preclude her
recovery. I shall discuss section 6511 and its nasty thicket of
procedural rules in my next column.
59See generally Leslie Book, "The Collection Due Process
Rights: AMisstep or a Step in the Right Direction?" 41 Hous. 1.
Rev. 114S (2004); Danshera Cords, "How Much Process Is Due?:
I.R.c. Sections 6320 and 6330 Collection Due Process Hearings,"
29 Vt. 1. Rev. 51 (2004).
6OSection 6330(c)(2)(A)(I).
61Treas. reg. section 301.6330-1(e)(2).
62Bartman v. Commissioner, T.C. Memo. 2004-93, on appeal, No.
04-2771 (8th Cir.); Ewing v. Commissioner, 122 T.e. 32 (2004), on
appeai, Nos. 04-73237 and 04-73699 (9th Cir.).
1315
COMMENTARY I CAMP'S COMPENDIUM
through setoff, as happened to Mrs. Bartman. By creating
that hodgepodge of procedural provisions without a full
appreciation of tax collection process, it is no surprise
that Congress left gaps.
The third defect in the interplay of the
statutes is the worst. When taxpayers
seeking relief from an underpayment
liability do have a choice of
procedure, the wrong choice locks
them out of court review.
The second problem with the interplay of those provisions is how to apply the doctrines of issue and claim
preclusion. Should a taxpayer's failure to raise innocent
spouse claims in a deficiency procedure preclude that
taxpayer's ability to petition later for relief? The language
in section 6015(g) generally suggests that, yes, if a taxpayer participated meaningfuliy in the Tax Court proceeding, then the doctrine of claim preclusion prevents
the taxpayer from later seeking section 6015 relief in a
stand-alone proceeding; otherwise, only the doctrine of
issue preclusion applies. Construed strictly, that language would undo one of the chief reasons for adding the
stand-alone jurisdiction in the first place: that the deficiency process often presents an inadequate forum to
raise this specific equitable defense to liability when the
spouses may still be trying to keep marital unity A more
generous construction of the term, however, could partly
ameliorate the harshness of clain:) Ereclllsion- _"I'l1a,(,is,
courts could construe the term "participated meaning:
fully" as containing the idea of independent action,
meaning that if one spouse was acting under the direction of the other and did not have a meaningful opportunity to act independently of the other, claim preclusion
should not apply. The Tax Court seems to be leaning in
that direction, at least if the recent case of Thomas v.
Commissionet is an indication. 63 There, Judge Dean denied the government's summary judgment motion by
holding that a taxpayer has not "participated meaningfully" as a matter of law Simply because she signs
significant decision documents, including stipulations of
fact and even a settlement agreement. In that case, Judge
Dean was concerned by facts that showed the disunity of
the marriage. For example, the taxpayer seeking innocent
spouse relief had obtained a state court protective order
against her husband during the pendency of the deficiency proceeding, and she claimed her signature had
been forged on some documents (though she admitted
her signature on the settlement).
Section 6015(g) is an ill-considered provision because
it potentially works a hardship on those spouses who
could not elect subsection (c) relief in a deficiency proceeding because they were not divorced or sufficiently
"T.C. Sumrn. Op. 2005-102, Doc 2005-15563, 2005 TNT 14016.
1316
separated at that time. 64 So even though they may have
"participated meaningfully" and decided at that time to
forgo claiming innocent spouse relief, it was in the
context of a marriage that was still presumed to be
together. To then deny those spouses the opportunity for
subsection (c) relief in effect says "the presumption
created by subsection (c) cannot possibly apply to you."
I can think of no logical reason for SUcll a shift. Certainly,
notions of claim preclusion do not support it because, by
definition, tlle "claim" for subsection (c) relief was unavailable during the deficiency proceeding. But the language of the statute is pretty darn clear: the decision of
the court imposing liability "shall be conclusive." Only if
the courts limit that language as invoking standard claim
preclusion analysis would absurdity be avoided.
The third defect in the interplay of the statutes is the
worst. When taxpayers seeking relief from an underpayment liability do have a choice of procedure - that is,
they can either invoke their CDP rights or choose to file
a stand-alone petition - the wrong moice locks them out
of court review. That is what happened to Mrs. Ewing.
The critical difference between the CDP hearings and a
stand-alone spousal relief petition is tl1at CDP court
review is not limited to the IRS attempts to collect
deficiencies. CDP hearings concern the collection of any
unpaid tax, whether the unpaid liability results from a
self-reported liability or an assessed deficiency. Taxpayers who are resisting collection of an underpayment of
self-reported tax liability on a joint return cart obtain
court review of an IRS section 6015(f) decision if they file
their Form 8857 inside the CDP hearing process. But woe
to sum a taxpayer who chooses instead to simply file a
stand-alone Form 8857 outside the CDP process! The
result is no- Tax Court review of any section 6015(f)
denial."
The mUltiplicity of procedural paths to
assert a spousal relief claim results in
potentially inconsistent review
standards: one for the deficiency
context, another for CDP cases, and
another for stand-alone petitions.
The multiplicity of procedural paths to assert a claim
for spousal relief also results in potentially inconsistent
standards of court review: one standard for the deficiency context, another for CDP cases, and another for
stand-alone petitions. The Tax Court traditionally claims
that "[i]n a deficiency proceeding, we consider all the
64Note that section 6015(g) addresses only "any election
under subsection (b) or (c)" and so results in the absurdity that
a taxpayer gets two bites at the section 6015(f) apple (that is, MO
chances at court review) if the "prior proceeding" was a CDP
review, gets one bite if the "prior proceeding" was a deficiency
determination, and gets no bites if the "prior proceeding" was
review of a stand-alone section 6015 petition.
65 Although they can still obtain judicial review by paying the
tax in full and then filing a refund claim, in reality that is often
not an option because it is too difficult to fully pay the tax.
TAX NOTES, September 12, 2005
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COMMENTARY I CAMP'S COMPENDIUM
Ii
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•
facts and circumstances relevant to ascertaining the cor-
may seem a bit obvious, but it is an important point to
rect amDunt Df the deficiency, including affirmative defenses."" But in the CDP cDntext, the Tax CDurt emphasizes that it is simply reviewing a collection decisiDn and
keep in mind when one considers how spousal relief fits
into tax administration. I continue to emphatically reject
the notion that IRS collection decisions should be subjected to court review. CDP is stupid and should be
repealed. But it is precisely because court review should
not be available for collection that it is crucial for taxpay-
does so using an abuse of discretion standard of review. 67
When it CDmes tD the prDper standard Df review in a
stand-alDne petitiDn, the Tax CDurt is in disarray, hDlding
in Ewing II that it may Dpen the recDrd just like in a
deficiency prDceeding, but still sDmehDw apply an abuse
Df discretiDn standard Df review. 68 CDnducting an abuse
of discretion review 'With evidence that was never before
the person whose discretion is being reviewed is, to say
tax determination and tax collection. By the time an
unpaid account is sent to those charged with its collec-
the least, quite a trick, which at least Judges CarDlyn
Chiechi and Maurice FDley dD nDt believe the Ewing
majDrity pulled Dff.
tion, the liability issues have either been resolved, or else
I
Tax administration is divided into two
main processes: tax determination
and tax collection.
And SD substantive DutcDmes may depend Dn chDice
Df prDcess. If Mrs. Ewing had raised her SPDusai relief
request in the cDntext Df a CDP hearing, she wDuld nDt
need tD fight the jurisdictiDnal fight (which she shDuld
IDse, fDr the same reasDns that Mrs. Bartman shDuld IDse).
HDwevel; she wDuld alsD perhaps have tD fight against a
lighter standard Df review. Either way, that is nDt gDDd
•
ers to have court review of IRS tax determination decisions.
Tax administration is divided into two main processes:
tax administration.
SDme readers (thDse whD have made it this far in the
cDlumn) may wDnder why I call thDse gaps in court
review a problem. After all, I have repeatedly and
fDrcefuily advDcated·against cDurt.xeview.of C.JdP.provisions. 69 The reason is simple: Spousal relief is a tax
the taxpayer must fully pay the tax before submitting a
claim for refund, under the rule of Flata. Because the
full-pay rule essentially gives an assessment the force and
effect of a legal judgment, Congress has been especially
attentive to ensure that taxpayers have an opportunity to
contest their liability before being subjected to the IRS
collection machine. That is, the best way to prevent
collection "abuse" -
a term itself much abused during
the whole sad history of RRA 98 - is to ensure that the
liability sought tD be collected is truly owed. That is the
main reason for the deficiency procedure in the first
place. A claim for spousal relief is simply a claim that, for
reasons of equity, a taxpayer ought not to be held liable
for a particular tax. It is not a collectiDn determinstion
about whether a taxpayer can pay the tax. Decisions
about what assets to seize, when to seize them, whether
to shelve an account or accept an installment agreement,
or how much to accept for an offer in compromise, are all
decisions about how and when to collect an established
liability. The spousal relief provisions are all about establi.slililg (or dis-establishing, if you will) a tax liability.
determination decision, not a tax collection decision. TImt
"Estate of Wenner, 116 T.e. 284, 287, Doc 2001-13720, 2001
TNT 94-27 (2001) (Tax Court had jurisdiction in a taxpayer's
petition for relief bf interest under section 7436 to consider the
taxpayer's claim of spousal relief). See Butler v. Commissioner, 114
T.e. 276, 287-88, Doc 2000-12209, 2000 TNT 84,-62 (2000) (Tax
Court had jurisdiction to hear taxpayer's section 6105 claim
during a deficiency proceeding as an affirmative defense).
67See, e.g., Zacluy et aI. v. Commissioner, T.e. Stm)ffi. Op. No.
2005-55, Doc 2005-9547, 2005 TNT 87-10. In Zachry, Judge D.
Irwin Couvillion summarized the standards of review in CDP
cases this way: "[t]he Court must decide whether petitioner is
entitled to relief from joint liability in lieu of the Appeals
officer's determination. Where the underlying tax liability is
properly at issue before the Appeals officer, this Court reviews
that issue on a de novo basis. However, where the underlying
tax liability is not at issue, as in this case, this Court reviews the
determination on the basis of whether there was an abuse of
discretion by respondent. An abuse· of discretion is defined as
any action that is unreasonable, arbitrary or capricious, clearly
unlawful, or lacking sound basis in law, taking into account all
the facts and circumstances." (Internal citations omitted.)
68That is one of the disagreements between the majority and
dissent in Ewing II, 122 T.e. 32 (2004).
69Por my previous colwnns on CDp, see Bryan T. Camp,
"Replacing CDp," Tax Notes, May 23, 2005, p. 1039; "The Failure
of CDr, Part 2: Why It Adds No Value," Tax Notes, Sept. 27, 2004,
p. 1567; "Failure of Collection Due Process, Pt. 1: The Collection
(Footnote continued in next column.)
TAX NOTES, September 12, 2005
Part of the procedural problem is the
congressional confusion of treating
spousal relief as a collection decision.
That is why the Tax Court struggles
heroically with the issue of the proper
standard of review.
Part of the current procedural problem is the congressional confusion of treating spousal relief as a collection
decisiDn. That is why the Tax Court struggles heroically
with the issue of the proper standard of review. Part of
the confusion stems from dumping spousal relief into the
CDP process. Part also stems from the provision that
prevents a taxpayer from requesting subsection (c) relief
until after the IRS starts collection action. That is a
sensible limitation in and of itself - as I explai'1.ed in my
last column - but it understandably could lead to a
mistaken belief that because the determination occurs
during the collection process, it must be a collection
determination. It is not, just as preparation of a substitute
for return under section 6020 is a liability determination
Context," Tax Notes, Aug. 30, 2004, p. 969; and "The Evil That
Men Do Lives After Them ...." 111x Notes, July 26, 2004, p. 439.
1317
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COMMENTARY I CAMP'S COMPENDIUM
and not a collection determination, even though done by
a revenue officer - who is generally charged with
making collection decisions. Once one recognizes spousal
relief as a liability determination, one can apply the
taxpayers. Wiser heads than mine would need to balance
the demands of hard and squarish limitations periods
wthaith thdoselof the soflt anlid rounder equitable principles
tuner Ie spousa re e f.
& .
~
correct standard of review.
C. Correcting the Problem
In RRA 98, Congress decided that the deficiency
procedure gave innocent spouses an insufficient opportunity to obtain a prepayment review of their equitable
claims for relief from tax liabilities. The proper response
should have been to create a single uniform procedure
for taxpayers to obtain such review. Instead, Congress
created a patchwork group of provisions that overlap in
confusing ways but, even so, still do not cover the
necessary ground. Here are some ideas on how to fix the
problem.
Procedurally speaking, the easiest way for Congress to
deal with the spousal relief issue is, of course, to overruie
Poe v. Seaborn, abolish joint return status, and put couples
in community property states and common-law states on
par by trumping state law that allows income splitting.
Politically speaking, however, that would be very difficult for. Congress to do, as the 1941 experience shows.
Given the continuation of joint and several liability,
therefore, there are two ways that Congress could create
the proper procedure to implement the laudable goal of
expanding spousal relief: It could create a special prepayment process, with review in the Tax Court, or it could
create a special exception to the Flora full-payment rule,
with review in U.S. district courts or the Court of Federal
Claims. I will discuss each in turn.
First, Congress could cre~te. a spec!aLl'rep~)'IIlent
procedure for innocent spouse claims. It started down
that road in section 6015. Its errors lay in not making
court review commensurate with substantive relief, putting the liability determination in the middle of the
collection·context, and writing a concurrent court review
process for COP. The prepayment idea would be a special
variant of the deficiency process. It would start with a
taxpayer filing what would amount to an amended
return for the period at issue for both the taxpayer and
the other spouse, thus allowing the IRS examination
function the opportunity to review the taxpayer's claim,
and allowing the other spouse to participate. in that
review. If not resolved at that level, Exam would disallow
the claim through a document that served the same
function as a notice of deficiency and would trigger the
same Office of Appeals/Tax Court process that taxpayers
follow for notices of deficiency, only limited to the
narrow issues covered by section 6015.
The first alternative procedure would have the advantage for the IRS of sticking to the general three-year
limitation period for all liability determinations. It would
also have the advantage for the taxpayer of allowing
spousal relief from underpayments of self-reported taxes.
It would have the same disadvantage as the pre-RRA 98
process did in the sense that a taxpayer's last opportunity
to seek spousal relief outside the three-year limitations
period would be during a contest of a proposed deficiency. Of course, limitations periods are unfair - as my
next column will explore with respect to section 6511 and inherently result in bad things happening to good
1318
Congress could create a special
procedure for innocent spouse claims
akin to the wrongful levy procedure in
section 7426(a).
Second, Congress could create a special procedure for
innocent spouse claims akin to the wrongful levy procedure in section 7426(a). It would start Witll the taxpayer
seeking the return of an involuntary payment of the
liability from which the taxpayer sought to be relieved,
even if the payment did not fully pay the outstanding
liability. As currently, the taxpayer would be limited to
two years to act The key here is that the payment must
be involuntary, as the result of any forced collection
(including setoff). That is to prevent those hundreds of
thousands of freshly divorced taxpayers from sending in
a dollar and invoking section 6105(c). The taxpayer
would then submit a claim akin to a wrongful levy claim,
and could seek court review of any resulting denial. The
court review here would be in a district court or tlle
Court of Federal Claims.
The second alternative process would have the advantage for taxpayers of allowing them to seek spousal relief
no matter the age of the liability sought to be collected.
That advantage to taxpayers could be somewhat of a
disadVfllltage to the IRS in that it would become increasing difficult for the IRS to meet its burden under section
6015(c). That result could be ameliorated by removing tlle
presumption of marital disunity created by divorce or
separation for tax periods older than some period perhaps two years - from the date of enforced collection
action. I personally like the second alternative approach
because it allows taxpayers to wait until the IRS actually
starts to collect from them before forcing tllem to choose
that relief. So they can stick by their spouse during the
deficiency process Witllout impairing their ability to be
relieved of a liability for which they should not, in all
fairness, be responsible.
The other disadvantage for the IRS from the second
alternative would be the dilution of the Flora full-pay
rule. That really is not such a big deal because Flora's
rationale is terribly outdated. Flora was decided in 1961
by a narrow 5-4 margin and before the IRS had fully
established its computer bulk-processing centers (now
called campuses). The Court's central concern in Flora
was that allowing taxpayers to partially pay their liabilities before claiming a refund put the fisc at risk. The
Court relied heavily on a structural analysis of tax
procedure provisions that had been in place since the first
act in 1862 and borrowed heavily from the Court's prior
analysis of that structure in the 1875 case of Cheatham v.
United States?D What the Flora Court failed to address
70
92 U.S. 85 (1875).
TAX NOTES, September 12, 2005
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COMMENTARY I CAMP'S COMPENDIUM
•
(and it is not clear the parties did either) is that the United
States had, since the 1940s, quite successfully implemented a "pay as you go" system of income tax collection
through the magical mechanism of wage withholding?'
The concept of collecting tax revenue on an ongoing basis
rather than waiting for a single payment at the end of the
tax period has always been a goal of tax administration.
In the old days, the pay-as-you-go concept was called
"stoppage-at-source."72 Today, that is mainly how taxes
are collected. A quick look at the IRS Statistics of Income so
confirms. In fiscal 2004, out of gross collections of about
$2 trillion, oniy about 2 percent (or about $40 billion)
resulted from enforced collection (and about one-third of
that was in response to a single collection notice)?' So
while collection by full payment may have been quite
important to maintain the stream of income necessary to
operate the government up to World War II, it is much
less important now. Applying the Flam rule to taxpayers
who can show that the assumption of economic unity
underlying joint liability is demonstrably false is just
petty. It's screeching for pennies.
.Judicial review of spousal relief is
important because this is a liability
decision that becomes the predicate
for administrative collection actions
that should themselves be judicially
unreviewable.
•
One might object to both of those proposals as seeking
to fit spousal relief process into some conceptual idealization. After all, if a question arises dUring the ·co-Ilection-
process as to liability, why not just interrupt the collection
process to make that determination? One might point to
the OIC process as an example: The IRS is perfectly
willing to compromise a tax liability if there is a doubt as
to the actual liability, even during the collection process.
71rn the 19305 Congress came up with the idea of withholding as a way of collecting the newly enacted Social Security tax.
See Social Security Act of 1935, p.L. 74-271, ch. 531, 49 Stat. 620
(Aug. 14, 1935). The idea was so successful that Congress
extended it to income taxes in 1943. 57 Stat. 126 (Act of June 9,
1943). Ever since, Congress has tried to apply the withholding
idea to more and more situations to help taxpayers meet the:ir
tax responsibilities quickly and painlessly (for example, gambling winnings over $600, and the infamous "backup withholding" on various types of payments).
72See Seligman, supra note 6, at 692. ("As has been frequently
pointed out, the two chief types of income tax are the personal
or lump-sum tax, where everyone is compelled to make a
return of his entire income from whatever source derived, and
the stoppage-at-source tax, theory of which is that it should be
collected from the person or agency paying the income, rather
than from the individual who receives it.")
73See http://www.irs.ustreas.gov /taxstats/compliancestats
(last visited July 23, 2005).
TAX NOTES, September 12, 2005
The first rejoinder to that objection is that my second
proposal interrupts the collection process in the same
way that a wrongful levy action interrupts the collection
process. What my proposals do not do, unlike current
law, is make a court review a mixture of collection anci
liability decisions. Tax collection decisions are qualitatively different than tax liability decisions. Tax liability
decisions involve the application of law to a past and
finite set facts. Something happened. It has a tax result.
Tax collection involves the application of law to an
ever-changing and uncertain set of facts. Something
might happen or might not happen. Taxpayer assets may
be here, may move there, mayor may not even be the
taxpayer's assets tomorrow. Separating tax liability decisions from tax collection decisions allows for cleaner and
more secure court review of those administrative actions
that are suitable for court review, and avoids dragging
the courts into working the collection caseload.
Conclusion
The central justification for imposing joint liability on
married couples is the concept of economic unity. I
personally think that is a pretty good justification, but
others may reasonably disagree. Regardless of agreement
or disagreement for that rationale, however, joint liability
is the legal rule and will continue to be unless and until
Congress overrules Seaborn.
Given the existence of the legal rule of joint liability,
Congress has (sensibly, in my view) provided for equitable exceptions in circumstances in which the underlying presumption of economic unity is demol1$trably false.
Again, reasonable minds can disagree about the contours
of that equitable exception, but it is there and the
question that most interests me (and perhaps those, like
Mrs. Ewing and Mrs. Bartman, who actually seek the
promised relief) is how to administer fairness in a system
of tax administration that is as heavily reliant as is ours
on bulk processing of accounts.
The process of doing equity inherently requires an
individualized determination of the facts and circumstances. Accordingly, the process for applying an equitable exception to the joint liability rule should involve
tl,e opportunity for the taxpayer to have an individual
IRS employee review the facts and make a decision. That
employee's decision should then be reviewable, both
administratively and judicially, and the standard of review should be the same as for any other liability
determination. Judicial review of spousal relief is impor-
tant because it is a liability decision that becomes the
predicate for administrative collection actions that
should themselves be judicially unreviewable. I tlOOk the
best procedure to accomplish the necessary review is for
Congress to take the judicial review provisions for spousal relief out of section 6015 and out of the COP provisions and instead amend section 7426 to partially overrule Flora and allow spouses to make a claim akin to a
wrongful levy claim to the IRS, with opportunity for
court review, for any amount collected from them invol-
untarily, whether by offset or otherwise.
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