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Section of Taxation

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By: Attorney Chaya Kundra

On Tuesday, February 28th, the 9th Circuit published its decision in Commissioner v. Ewing, 2006 WL 463788 (9th Cir.). Ewing deals with the denial of an innocent spouse claim where the couple was still married, and the wife believed the husband would be satisfying ‘his share’ of the self-assessed tax liability. The ruling identifies three major issues. The first is of jurisdiction; second is the method of claiming your refund; and the third touches on the administrative record.

Congressional intent in enacting the innocent spouse provisions under §6015 was to allow the IRS to grant relief where the requesting spouse “does not know, and had no reason to know, that funds intended for the payment of tax were instead taken by the other spouse for such other spouse’s benefit.” H.R. Conf. Re. No. 105-599, at 254 (1988). Congress also authorized equitable relief under §6015(f) when in “taking into account all the facts and circumstances, it is inequitable to hold an individual liable for all or part of any unpaid tax or deficiency arising from a joint return.” Id.

Because Sections 6015(b) and (c) only provide relief where a proposed or assessed deficiency has been asserted by the IRS, relief in Ewing would fall under the purview of §6015(f).

Jurisdiction. The Ewing Court held that the U.S. Tax Court (“USTC”) lacked jurisdiction to decide §6015(f) deficiency cases. In its reading of the statute, Ewing concluded that Congress limited the USTC’s jurisdiction to only deficiency matters. Because the issue before the Court dealt with an underpayment, the USTC lacked the authority to review it. Thus, reversing the USTC.

Claim for Refund. On appeal, the taxpayer also requested a claim for refund for the taxes she already paid. This was vacated based on Ewing’s finding of the USTC’s limited “scope of review” and the taxpayer’s “eligibility for relief.” Id., at 5. The Ewing Court once again pointing out the USTC’s jurisdiction concerning the underlying balance due. Second, it reasoned that the request was not properly or overtly made. Neither in the response brief to the Court, nor on the face of the Form 8857 was the request found adequate. In addition to the timing restrictions in filing a claim for refund, Ewing held that merely identifying zero liability on Form 8857 does not rise to the level of a request as found in Washington v. Commissioner, 120 T.C. 137 (2003). In Washington the taxpayer specifically claimed the refund and related interest directly on the Form 8857. Id., at 4.

Making the Record. Relative to the administrative record, U.S. Tax Court judges have dissented in written opinions as to whether what is raised during the administrative process restricts what may be brought before the Court. While current USTC opinions are based on a de novo review, Ewing does not address this issue, again citing to jurisdiction. Nonetheless, on March 8, 2006 the 8th Circuit makes its determination of limited review in Robinette v. Commissioner, 2006 WL 544798 (8th Cir.) Stay tuned as we will discuss this case and its implications in the next issue.

Thus, in asserting a claim for relief under §6015(f), be sure to also review Rev. Proc. 2003-61 for threshold requirements. When counseling your clients on relief, you will want to both address their qualification for relief and the protection of property. In attempting to secure equitable relief, you may be playing a game of chance relative to the IRS and the USTC. Therefore, you want to make sure that your administrative record clearly reflects your issues-including any claims for refund.