King v. Comm'r of Internal Revenue, 5989–97.

• Decision Date: 10 August 2000
• Docket Number: No. 5989–97.,5989–97.
• Citation: 115 T.C. No. 8,115 T.C. 118
• Parties: Kathy A. KING, Petitioner v. COMMISSIONER OF INTERNAL REVENUE, Respondent
• Court: U.S. Tax Court

115 T.C. 118

115 T.C. No. 8

Kathy A. KING, Petitioner

v.COMMISSIONER OF INTERNAL REVENUE, Respondent

No. 5989–97.

United States Tax Court.

Aug. 10, 2000.

Taxpayer, former-wife, filed petition seeking innocent spouse relief from assessed deficiency. Following notification by IRS, former-husband filed Motion for Leave to File Notice of Intervention in case. In matter of first impression, the Tax Court, Ruwe, J., held that: (1) where an individual taxpayer sought relief from joint liability, individual who filed joint return with taxpayer was entitled to notice and, if not already a party in action, an opportunity to intervene for purposes of challenging propriety of relieving taxpayer of liability, and (2) former-husband was entitled to intervene to challenge taxpayer's entitlement to innocent spouse relief.

Motion granted.

IRS acquiesced in decision, 2000 WL 33910967.

See also, 2001 WL 356124.

Kathy A. King, for Petitioner, pro se.

James R. Rich, for respondent.

OPINION

RUWE, J.

P and H filed a joint income tax return for 1993. P and H later divorced. R issued separate notices of deficiency to P and H determining identical deficiencies in tax for 1993 related entirely to the disallowance of a claimed business loss. P filed a petition. P's only claim was for relief as an innocent spouse under former sec. 6013(e), I.R.C. H did not file a petition. R assessed a deficiency against H who has not paid any portion of the assessment and has not challenged the assessment in any other court. Subsequent to the petition and trial in this case, sec. 6013(e), I.R.C., was repealed and replaced by sec. 6015, I.R.C. R filed a report with the Court, taking the position that P was entitled to relief under new sec. 6015(b), I.R.C., and that P's former spouse H should be provided with adequate notice and an opportunity to become a party to this proceeding pursuant to sec. 6015(e)(4), I.R.C. This Court then ordered R to serve upon H a copy of the petition and a copy of Interim Rule 325. H then filed a Motion For Leave to File Notice of Intervention. R filed a notice of no objection to H's motion. P did not respond.

Held: In any case where an individual petitioner seeks relief from joint liability pursuant to sec. 6015, I.R.C., the other individual who filed the joint return is entitled to notice and, if not already a party in the case, an opportunity to intervene for purposes of challenging the propriety of relieving the petitioner of liability.

Held, further, H is entitled to intervene in order to challenge P's entitlement to relief under sec. 6015, I.R.C. The record will be reopened, and the case will be calendared for further trial solely with respect to the issue of relief from joint liability. H's motion will be granted.

Held, further, additional procedural requirements in proceedings before this Court are set forth as guidance to taxpayers and counsel.

The matter before the Court is a Motion For Leave to File Notice of Intervention (Embodying Notice of Intervention) by Curtis T. Freeman (Mr. Freeman) with respect to petitioner's claim for relief from joint liability under section 6015.¹

Background

Mr. Freeman was previously married to petitioner, and he and petitioner filed a joint return for 1993, which is the year in issue. Although Mr. Freeman is not a petitioner in this case, he objects to petitioner's claim for relief from joint liability.

At the time the petition was filed, petitioner was a resident of Hartsville, South Carolina. At the time Mr. Freeman filed his motion, he was also a resident of Hartsville, South Carolina.

During 1993, petitioner and Mr. Freeman were married to each other. They separated sometime during 1993 and, in May 1995, they were divorced. Their joint Federal income tax return for 1993 included a Schedule C, Profit or Loss From Business, for a farming activity. The reported gross income from this activity was $802, the claimed expenses totaled $28,199, and the reported net loss was $27,397. Respondent disallowed the $27,397 loss on the ground that the farming activity was not engaged in for profit. There were other adjustments to the return that flowed from the disallowed loss. On December 23, 1996, respondent issued separate notices of deficiency to petitioner and Mr. Freeman. The deficiency shown in each notice was $7,781. Petitioner filed a timely petition, but Mr. Freeman did not. Respondent assessed the deficiency against Mr. Freeman. No portion of the assessment has been paid by Mr. Freeman, nor has he challenged the assessment in any other court.

Petitioner has not challenged the disallowed farming activity loss. The only claim being made by petitioner is that she is entitled to relief from joint liability. The case was tried before Special Trial Judge Couvillion on January 12, 1998. Mr. Freeman was not called to testify and made no appearance until the instant motion. At the time of the trial, section 6013 contained the provisions governing relief from joint liability or what has come to be known as “innocent spouse” relief. Approximately 6 months after the trial, section 6013(e) was repealed and replaced with section 6015. See Internal Revenue Service Restructuring and Reform Act of 1998 (RRA 1998), Pub.L. 105–206, sec. 3201, 112 Stat. 685, 734. The RRA 1998 generally revised and expanded the relief available to joint filers. Moreover, the RRA 1998 gave section 6015 retroactive effect in that it was made applicable to any liability for tax arising after July 22, 1998, and to any liability for tax arising on or before such date that remained unpaid as of July 22, 1998. See RRA 1998, sec. 3201(g)(1), 112 Stat. 740; Corson v. Commissioner, 114 T.C. 354, 359, (2000).

Following the change in the applicable law, respondent was ordered to file a written report on respondent's position with respect to petitioner's claim for relief under the new law. In respondent's report, he stated: “In light of the aforementioned change in the law, it appears to respondent that petitioner qualifies for innocent spouse relief under the provisions of section 6015(b).” Respondent further stated that petitioner's former spouse, Mr. Freeman, objected to such relief and that Mr. Freeman “should be provided with adequate notice and an opportunity to become a party to this proceeding” and cited section 6015(e)(4). The Court then directed respondent to serve Mr. Freeman with a copy of the petition and a copy of Interim Rule 325.² Thereafter, within the time prescribed in Interim Rule 325, Mr. Freeman submitted to the Court a document that was filed as a Motion For Leave to File Notice of Intervention (Embodying Notice of Intervention) (the motion). The motion was served on the parties. Respondent filed a notice of no objection, and petitioner has not responded.

Discussion

We have recently issued several opinions involving claims for relief from joint liability in which we noted significant differences between section 6015 and the repealed section 6013(e). See Corson v. Commissioner, supra; Charlton v. Commissioner, 114 T.C. 333, (2000); Fernandez v. Commissioner, 114 T.C. 324, (2000); Butler v. Commissioner, 114 T.C. 276, 2000 WL 502841 (2000). For example, in Corson v. Commissioner, supra, we observed:

Whereas section 6013(e) had offered only a single avenue of relief, based on a spouse's lack of knowledge or reason to know of a substantial understatement, section 6015 authorizes three types of relief. Subsection (b) provides a form of relief available to all joint filers and similar to, but less restrictive than, that previously afforded by section 6013(e). Subsection (c) permits a taxpayer who has divorced or separated to elect to have his or her tax liability calculated as if separate returns had been filed. Subsection (f) confers discretion upon the Commissioner to grant equitable relief, based on all facts and circumstances, in cases where relief is unavailable under subsection (b) or (c).

Subsections (a), (e), and (g) of section 6015 address general and procedural aspects relating to the operation of the section and the role therein to be played by this Court and by the Commissioner. * * * [ Id. at 359–360.]

When this case was tried, section 6013(e) was still in effect. Section 6013(e) was subsequently repealed and replaced by section 6015. Section 6013(e) is no longer applicable in this case. Under these circumstances, the Court will treat petitioner's claim for relief from joint liability as a claim under section 6015.³ See Corson v. Commissioner, supra at 364; Charlton v. Commissioner, supra at 339; Butler v. Commissioner, supra at 281–282.

There are several jurisdictional bases upon which this Court may review a claim for relief from joint liability under section 6015. One basis, which survives section 6013(e), is the traditional petition based on a notice of deficiency where the petition includes a claim by one or both spouses for relief from joint liability. Relief claimed in this context has traditionally been characterized as an affirmative defense, and the enactment of section 6015 has not negated this Court's authority to consider a claim for such relief in a “deficiency proceeding”. See Corson v. Commissioner, supra at 363; Charlton v. Commissioner, supra at 338–339. The instant case is a deficiency proceeding.

Another situation in which this Court has jurisdiction to review a claim for relief from joint liability involves the collection due-process procedures of sections 6320 and 6330. Among the issues that can be considered under sections 6320 and 6330 are “the underlying tax liability” and “appropriate spousal defenses”. Sec. 6330(c)(2).

Section 6015(e)(1)(A) also provides this Court with jurisdiction to consider a claim for relief from joint liability by specifically allowing a spouse who elects relief under section 6015 to petition this Court for review of the Commissioner's determination regarding an administrative claim for relief. Unlike a deficiency proceeding or a...