Mannella v. Comm'r of Internal Revenue

• Decision Date: 19 January 2011
• Docket Number: No. 10–1308.,10–1308.
• Citation: 631 F.3d 115
• Court: U.S. Court of Appeals — Third Circuit
• Parties: Denise MANNELLAv.COMMISSIONER OF INTERNAL REVENUE, Appellant.

631 F.3d 115

107 A.F.T.R.2d 2011-519

2011-1 USTC P 50,159

Denise MANNELLA

v.COMMISSIONER OF INTERNAL REVENUE, Appellant.

No. 10–1308.

United States Court of Appeals, Third Circuit.

Argued Nov. 17, 2010.Filed: Jan. 19, 2011.

Derek P. Dissinger (argued), Russell, Krafft & Gruber, Lancaster, PA, Alice L. Stewart, Duquesne University School of Law, Raymond C. Vogliano, Eckert, Seamans, Cherin & Mellott, Pittsburgh, PA, for Appellee.John A. DiCicco, Acting Assistant Attorney General, Teresa E. McLaughlin (argued), Steven W. Parks, Attorneys Tax Division, United States Department of Justice, William J. Wilkins, Internal Revenue Service, Washington, DC, for Appellant.Carlton M. Smith, Director, Benjamin N. Cardozo School of Law Tax Clinic, New York, NY, Pro Se as Amicus Curiae.Before: AMBRO, FISHER and GREENBERG, Circuit Judges.

OPINION OF THE COURT

GREENBERG, Circuit Judge.

I. INTRODUCTION

This matter comes on before the Court on the Commissioner of Internal Revenue's appeal from a decision of the United States Tax Court entered on November 5, 2009, in accordance with a Tax Court opinion dated April 13, 2009, and a stipulation of the parties dated October 28, 2009, that together provided that Appellee Denise Mannella did not owe any income taxes, interest, or penalties for the taxable years 1996 through 2000. In its opinion leading to its decision, the Tax Court invalidated a Treasury Department regulation, 26 C.F.R. § 1.6015–5(b)(1), that sets a two-year deadline to file a claim for equitable “innocent spouse” relief under 26 U.S.C. § 6015(f) from liability resulting from a jointly filed federal income tax return. We now hold that the regulation is neither contrary to nor an impermissible implementation of section 6015, and, therefore, inasmuch as Denise filed her claim for innocent spouse relief beyond the regulation's two-year deadline for seeking such relief, we will reverse the decision of the Tax Court. See Chevron U.S.A., Inc. v. Natural Res. Def. Council, Inc., 467 U.S. 837, 104 S.Ct. 2778, 81 L.Ed.2d 694 (1984). We, however, will remand the case to that Court to consider an equitable tolling contention that Denise advances on this appeal with respect to the running of the two-year period.¹

II. BACKGROUND

A. Statutory and Regulatory Framework

Before addressing the facts of this case, we first quote the Court of Appeals for the Seventh Circuit's thorough explanation of the relevant portions of the Internal Revenue Code and the related Treasury Department regulation at issue:

Taxpayers filing a joint return are jointly and severally liable for the entire tax liability shown or that should have been shown on their return. 26 U.S.C. § 6013(d)(3). But section 6015 of the Internal Revenue Code sets forth grounds—‘innocent spouse’ rules first added to the Code in 1971 and liberalized since ...—for relieving the signer of a joint return of his or her joint and several liability for understatement or nonpayment of income tax due.

Section 6015(f), captioned ‘equitable relief,’ provides that ‘under procedures prescribed by the [Secretary of Treasury], if (1) taking into account all the facts and circumstances, it is inequitable to hold the individual liable for any unpaid tax or any deficiency ...; and (2) relief is not available to such individual under subsection (b) or (c) [of section 6015], the [Secretary] may relieve such individual of such liability.’ By regulation the Treasury has fixed a deadline for filing claims under subsection (f) of two years from the IRS's first action to collect the tax by (for example) issuing a notice of intent to levy on the taxpayer's property. 26 C.F.R. § 1.6015–5(b)(1); see also IRS Rev. Proc.2003–61 § 4.01(3); 26 U.S.C. § 6630(a).

Lantz v. Commissioner, 607 F.3d 479, 480 (7th Cir.2010) (internal citations omitted) (alterations in original). As the foregoing passage indicates, the two-year deadline for seeking relief under section 6015(f) does not arise from section 6015 but rather comes from the Treasury regulation implementing subsection 6015(f).

Subsections (b) and (c) of section 6015 also provide avenues of relief for innocent spouses, but, in contrast to subsection (f), both contain two-year filing deadlines for seeking such relief. Subsection (b) provides:

Under procedures prescribed by the Secretary [of Treasury], if—

(A) a joint return has been made for a taxable year;

(B) on such return there is an understatement of tax attributable to erroneous items of one individual filing the joint return;

(C) the other individual filing the joint return establishes that in signing the return he or she did not know, and had no reason to know, that there was such understatement;

(D) taking into account all the facts and circumstances, it is inequitable to hold the other individual liable for the deficiency in tax for such taxable year attributable to such understatement; and

(E) the other individual elects (in such form as the Secretary may prescribe) the benefits of this subsection not later than the date which is 2 years after the date the Secretary has begun collection activities with respect to the individual making the election,

then the other individual shall be relieved of liability for tax (including interest, penalties, and other amounts) for such taxable year to the extent such liability is attributable to such understatement.

26 U.S.C. § 6015(b)(1) (emphasis added). Subsection (c) provides for an allocation of liability if the signer of a joint return is divorced, legally separated, or no longer living in the same household as the individual with whom the signer filed the joint return. In a provision paralleling subsection (b)(1)(E), subsection (c) provides that a taxpayer seeking relief under (c) must elect such relief “not later than 2 years after the date on which the [Secretary] has begun collection activities with respect to the individual making the election.” 26 U.S.C. § 6015(c)(3)(B).

B. Facts

Denise ² and her husband Anthony Mannella filed joint federal income tax returns for the years 1996 through 2000. The Mannellas agreed to the assessment of a deficiency for the year 1996. For the years 1997, 1998, 1999, and 2000, the Mannellas did not pay fully the taxes their returns showed as due. Consequently, the Commissioner on June 4, 2004, initiated collection procedures to recover the back taxes that they owed by sending the Mannellas separate notices of his intent to levy. The notices indicated, however, that the Mannellas each had the right to a collection-due-process hearing before such levy.

The notices instructed the Mannellas how to obtain innocent spouse relief under section 6015 by including an IRS publication titled “What You Should Know About [t]he IRS Collection Process,” which contained the following provision:

Help for an innocent spouse—In some cases, you may not be responsible for taxes, interest, and penalties on a joint income tax return. Contact your local IRS office for more information. For information about your rights as an innocent spouse, see Publication 971, Innocent Spouse Relief. For information on three ways to get help with the amount you owe, see Form 8857, Request for Innocent Spouse Relief (And Separation of Liability and Equitable Relief).

2 App. at 39, 42. The notices also included IRS Form 12153, which states that “[i]f you believe that your spouse or former spouse should be responsible for all or a portion of the tax liability from your tax return, check here [___] and attach Form 8857, Request for Innocent Spouse Relief, to this request.” 2 App. at 51.

The IRS sent the notices to the Mannellas' correct address by certified mail return receipt requested. IRS records indicate that it received signed return receipts dated June 17, 2004, for both notices at an IRS Service Center. Denise asserts, however, that her husband signed her name on the return receipt and did not inform her that the notice had arrived until more than two years after its arrival and the Commissioner does not challenge this assertion. On November 1, 2006, after learning of the notice of intent to levy and speaking with an attorney, Denise filed two Form 8857 applications under section 6015, subsections (b), (c), and (f), for innocent spouse relief from joint and several liability on the Mannellas' joint returns filed for the years 1996–2000. The Commissioner, however, issued Denise a notice of determination dated May 3, 2007, denying her relief under section 6015 because she had not filed her claim within two years of June 4, 2004, the date that the Commissioner took his first collection action against her by mailing her notice of the intent to levy. Denise does not contend that the Commissioner misapplied the statutory and regulatory two-year deadline periods, as written, as she does not assert that she filed her applications within the two-year statutory and regulatory deadlines period allowed for such applications.

C. Procedural History

In response to the Commissioner's rejection of her applications, Denise, acting pro se, filed a petition for relief with the Tax Court, contending in part:

My claim for relief was denied because it was filed 4 1/2 months to[o] late. When the collection process was started against me [on] June 4, 2004[,] it was immediately stopped. I was informed by my husband that everything was handled and that I was not liable for his tax obligation. The IRS stopped collection activity against me so I thought it was taken care of. I was not aware of any other problems and never received any other papers from the IRS concerning my liability for his taxes or anything concerning my rights as an innocent spouse. I never received any benefits from my husband not paying his taxes.... Denying my claim because it was filed late when I was never informed that a time limit existed is wrong.

2 App. at 4. Denise's husband was informed of his right to intervene in the Tax Court proceedings, but did not do so.

The Commissioner moved for...