Haag v. Shulman

Citation683 F.3d 26,110 A.F.T.R.2d 2012
Decision Date02 July 2012
Docket NumberNo. 11–1979.,11–1979.
PartiesKathleen HAAG, Petitioner, Appellant, v. Douglas SHULMAN, Commissioner of Internal Revenue Service, Respondent, Appellee.
CourtUnited States Courts of Appeals. United States Court of Appeals (1st Circuit)

OPINION TEXT STARTS HERE

Timothy J. Burke, with whom Burke & Associates, was on brief for appellant.

John Schumann, Attorney, Tax Division, with whom Tamara W. Ashford, Deputy Assistant Attorney General, and Teresa E. McLaughlin, Attorney, Tax Division, was on brief for appellee.

Before LYNCH, Chief Judge, TORRUELLA and LIPEZ, Circuit Judges.

TORRUELLA, Circuit Judge.

Taxpayer Kathleen Haag (Haag) appeals from the Tax Court's ruling that she is ineligible for “innocent spouse” relief and may not assert that defense against the government's continuing attempts to reduce to judgment certain federal income tax liabilities. Because the Tax Court correctly concluded that Haag was not entitled to renew her claim for the relief sought due to res judicata grounds, we affirm.

I. Background

The United States sued Haag and her husband, Robert Haag, (collectively, the Haags) in 2002 in the U.S. District Court for the District of Massachusetts to reduce federal income tax liabilities to judgment. These liabilities totaled $1,620,224 and were incurred during separate time periods spanning tax years 1985 through 1991 and 1993 through 2001. In the answer the couple filed with the district court, Haag raised, as an affirmative defense, her asserted entitlement to “innocent spouse” relief from joint and several liability under 26 U.S.C. § 6015(b)(1)-(2), (f).

In October 2004, while the initial action against them was still pending before the district court, the Haags brought a separate action against the United States in the same court claiming that they had been denied their statutory right to a collection due-process (“CDP”) hearing. This hearing, in which a taxpayer appears before the Internal Revenue Service (“IRS”) before she is deprived of her property, is granted as of right under 26 U.S.C. § 6320. In their filings, the Haags alleged that the IRS failed to notify them of their right to a CDP hearing. The district court then consolidated the two actions in December 2004.

In January 2006, the district court entered judgment against the Haags with regards to the government's collection action. On the issue of Haag's asserted eligibility for innocent spouse relief under § 6015, the district court found that the statutory limitations period and applicable tax regulation—specifically, the provisions found at § 6015(b)(1)(E) and at Treas. Reg. § 1.6015–5(b)(1)—required such claims to be filed with the IRS within two years after the IRS's first collection action was taken against the Haags. Because the IRS's efforts to collect on the Haags' tax liabilities commenced in 1999, the court dismissed Haag's claim for innocent spouse relief—first raised in 2002—as untimely.

Although the government first conceded that it had failed to notify the Haags of their right to a CDP hearing and allowed the Haags to appear before the IRS in a substitute hearing, it later reversed course when it discovered evidence that it had, in actuality, sent proper notice. Consequently, on August 1, 2006, the district court also ruled against the Haags as to their separate action against the United States. The Haags appealed the district court's judgment only as to their CDP claim and, on April 3, 2007, we affirmed. See Haag v. United States, 485 F.3d 1 (1st Cir.2007) (“Haag I ”).

Two more lawsuits involving the Haags are relevant to the present appeal. First, in the interval between the district court's August 1, 2006, ruling and our judgment in Haag I, the Haags filed another suit against the United States, which alleged that the government had failed to properly notify their attorney of tax liens against them. This suit was first administratively closed when Robert Haag filed for bankruptcy, then dismissed due to the district court's finding that it was barred by res judicata. Second, Haag, acting on her own, sued the United States claiming that the IRS had failed to consider a request for innocent spouse relief that she raised at her substitute CDP hearing in 2005. The district court also dismissed this claim, reasoning that the Haag I action barred it due to res judicata.

The Haags then appealed the district court's dismissal of both cases to this Court. On December 14, 2009, we affirmed the district court's judgment and endorsed its reasoning that both actions were barred due to the preclusive effect of final judgment in the Haag I action. See Haag v. United States, 589 F.3d 43 (1st Cir.2009) (“Haag II ”).

This appeal stems from Haag's renewed efforts to obtain innocent spouse relief from liability. As we explain further infra, Haag attempts to avail herself of an intervening change in the law that she posits is both applicable and beneficial to her. Specifically, Haag relies upon Lantz v. Commissioner, 132 T.C. 131 (2009) (“Lantz I ”), rev'd,607 F.3d 479 (7th Cir.2010), in which the Tax Court invalidated the Department of the Treasury's regulationimposing a two-year statute of limitations on § 6015(f) requests for innocent spouse relief as an improper interpretation of the statute. Haag filed administrative requests for § 6015(f) relief with the Commissioner of Internal Revenue relying on Lantz I in July 2009, which the Commissioner denied in the following year on res judicata grounds. Haag then filed the present action with the Tax Court to again assert her request for innocent spouse relief and to challenge the Commissioner's application of res judicata principles. In addition, Haag relied upon 26 U.S.C. § 6015(g)(2), which lifts the res judicata bar to allow certain taxpayers' claims for relief in some circumstances, and contended that her innocent spouse defense could proceed on those grounds as well.

The Tax Court granted the Commissioner's request for summary judgment. With regards to Lantz I and the fact that the Tax Court had eventually invalidated the statute of limitations that originally rendered Haag ineligible for relief, the Tax Court reasoned that res judicata generally does not account for changes in the law and, therefore, Haag's action remained barred. As to the statutory provisions that would grant a taxpayer relief from res judicata, the Tax Court found that Haag did not meet the requirements for such a dispensation to attach. This timely appeal of the Tax Court's judgment followed.

II. Discussion

We review the Tax Court's decision to grant summary judgment de novo. Burke v. Comm'r, 485 F.3d 171, 173 (1st Cir.2007).

Taxpayers who file joint returns are held jointly and severally liable for liabilities that flow from those submissions. See26 U.S.C. § 6013(d)(3). “Innocent spouse” relief provisions in the tax code offer a narrow exception to this arrangement. Under these, the tax code exempts a joint filer who “did not know or have reason to know that there was an understatement on the tax return” from joint and several liability. Jones v. Comm'r, 642 F.3d 459, 460 (4th Cir.2011). Section 6015(f), upon which Haag specifically relies in this action, allows the Secretary of the Treasury to relieve an innocent spouse of liability if (1) the totality of the circumstances make it inequitable for that person to be held liable and (2) relief is not otherwise available to an individual under certain related statutory provisions. 26 U.S.C. § 6015(f); see also Lantz v. Comm'r, 607 F.3d 479, 480 (7th Cir.2010) (“Lantz II ”).

The tax code authorizes the Secretary of the Treasury to prescribe rules and regulations by which to implement the code's provisions. See26 U.S.C. §§ 6015(h), 7805(a). Acting under his delegated authority, the Secretary promulgated a regulation implementing a two-year limiting period during which an individual may assert a claim for relief under § 6015(f). SeeTreas. Reg. § 1.6015–5(b)(1). Per the regulation, the two-year deadline starts to run as of the IRS's first action to collect tax liabilities, e.g., by “issuing a notice of intent to levy on the taxpayer's property.” Lantz II, 607 F.3d at 480.

As noted above, Haag's present action unfolds against a changed regulatory landscape because, in 2009, the Tax Court invalidated the two-year statute of limitations on § 6015(f) claims for relief as an improper interpretation of the tax statute. See Lantz I, 132 T.C. at 138–40. In doing so, the Tax Court looked to the other two subsections of 26 U.S.C. § 6015 that provide relief from liability— i.e.,§ 6015(b) and (c)—and noted that those provisions expressly incorporated a two-year deadline on a taxpayer's request for relief. Because § 6015(f) lacked such a deadline, the Tax Court reasoned that Congress did not intend for there to be a two-year limit on claims brought under that subsection. Id.

Our resolution of this appeal hinges on res judicata principles and the statutorily-recognized exceptions to the same found at 26 U.S.C. § 6015(g)(2). We are not called upon to pass judgment on whether the Tax Court's decision to invalidate the Secretary of the Treasury's two-year statute of limitations on innocent spouse claims brought under § 6015(f) was either proper or correct. We limit our discussion accordingly, but find it appropriate to note without saying more that the circuit courts of appeal that have considered those issues have not viewed the Tax Court's judgment kindly. See Jones, 642 F.3d at 465 (concluding two-year deadline on § 6015(f) claims “is a reasonable approach to filling the gap left in § 6015 and “conclud[ing] that it is a valid regulation”); Mannella v. Comm'r, 631 F.3d 115, 122 (3d Cir.2011) ([T]he absence of a statutory filing deadline in subsection (f) ... does not require us to conclude that the Secretary cannot impose a two-year deadline by regulation.”); Lantz II, 607 F.3d at 482 (noting “fact that Congress designated a deadline in two provisions of the...

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