Tax Court Rules No Time Limit on Innocent Spouse Claim – This is a huge win. Congratulations to University of Minnesota School of Law Professor Kathryn Sedo, attorney for taxpayer Suzanne Pullins, on a tremendous result. The Tax Court reversed a bad decision…a decision that should bother anyone who is concerned with administrative overreach and regulations that fly in the face of what Congress intended.
Here is the summary of the issue: Essentially, Congress passed a law that allows spouses who innocently become liable for their spouse's tax debt to discharge all or part of their liability. The law is located at Section 6015 of the US Tax code. There are three types of relief an "innocent spouse" may claim.
(1) full or apportioned relief
(2) proportionate relief for divorced or separated taxpayers
(3) equitable relief
The law states that items (1) & (2) have a two-year time limitation. The law includes no time limitation for item (3), "equitable relief." But the IRS felt differently. So it wrote a regulation that said there's the same two-year limitation on "equitable relief" as well.
In a previous case with similar claims, the Tax Court called shenanigans. It said that no — there can't be a two-year time limitation on equitable relief — as Congress obviously knows how to write law that includes a two-year time limitation. So, if Congress wanted such limitation, it had the ability to communicate that.
So the IRS strikes out, but it appeals. Curiously enough, the Seventh Circuit Court of Appeal overruled the Tax Court. Lantz v. Commissioner, 132 T.C. 131 (2009), revd. 607 F.3d 479 (7th Cir. 2010). The Seventh Circuit held that Congress must have meant it wanted the two-year time limitation for "equitable relief" as well (even though it didn't put it in writing and pass it into law).
So despite these odds, Profession Sedo brings the same claim on behalf of Ms. Pullins. The Tax Court thought the the Seventh Circuit didn't get it. If there is such a thing as money quotes in tax court opinions, this is it:
"The U.S. Court of Appeals for the Third Circuit has recently held the two-year deadline to be valid, see Mannella v. Commissioner, 631 F.3d 115 (3d Cir. 2011), revg. 132 T.C. 196 (2009), but for the reasons we have previously expressed, we respectfully disagree. The court to which an appeal would lie in this case–the Court of Appeals for the Eighth Circuit–has not addressed this issue, and we therefore follow our holding in Lantz and treat the IRS’s two-year deadline as invalid."
Which is really a nicer way of saying, "If the Eighth circuit stike us down so be it. But hey, Seventh Circuit, you may want to bone up on your Statutory Construction skills. Here's a pamphlet for you. Check out the sections 'Congress knows how to say,' and 'Statutory Silence' on pages 15-16."
This case is obviously going to appeal on the Eighth Circuit. So there is no final word. We shall see if the Eighth Circuit will follow the Tax Court or will chose to be wrong.
