Pending Refund Action Barred Tax Court from Hearing Innocent Spouse Claim

(Parker Tax Publishing January 2022)

The Tax Court held that, where a district court acquires jurisdiction in a suit for refund, it acquires jurisdiction over the entire liability for that tax year including the taxpayer's claim for recovery of any tax alleged to have been erroneously or illegally assessed or collected. Accordingly, the Tax Court granted the IRS's motion to dismiss for lack of jurisdiction a taxpayer's action seeking innocent spouse relief under Code Sec. 6015, but only for the years over which the district court had refund jurisdiction. Coggin v. Comm'r, 157 T.C. No. 12 (2021).

Background

Alice Coggin was married to Phillip Coggin until Phillip's death in 2011. Alice and Phillip each owned a 50 percent interest in an S corporation. During their marriage Phillip untimely filed Forms 1040, U.S. Individual Income Tax Return, for years 2001-09 (joint returns). For years 2001-07, Phillip made late payments of the tax liabilities with the tax returns but did not pay any penalties or interest. Phillip made a partial payment for 2008 and made no payments for 2009. As a result, the outstanding taxes and penalties were assessed against both spouses.

Alice first learned about the joint returns and tax liabilities arising from them only weeks before her husband's death. On the advice of her attorney, Alice subsequently filed individual Forms 1040 for tax years 2001-09 (separate returns) on which she reported her 50 percent shares of the income from the S corporation. On those returns she elected "married filing separately" status. The separate returns for years 2001-07 reported that Alice was entitled to refunds for those years. The separate returns did not claim innocent spouse status or discuss Code Sec. 6015. For years 2003, 2004, and 2007, the IRS sent Alice notices of disallowance under Code Sec. 6532(a), disallowing the claims on the separate returns.

In February 2016, Alice filed a complaint in a district court seeking tax refunds for years 2001-07. Alice's refund suit alleged that her husband had signed her name to the joint returns without her knowledge or consent, the joint returns were thus invalid, and she was entitled to refunds on the basis of the separate returns. Her pleadings did not mention innocent spouse status or refer to relief under Code Sec. 6015. The government answered with a counterclaim to reduce Alice's liabilities for 2002 through 2009 to judgment. In her answer to the counterclaim, Alice did not raise an innocent spouse defense but instead relied on her separate returns. Thus, Alice's complaint sought a tax refund for years 2001-07, while the government's counterclaim sought a judgment against her for remaining balances due for years 2002-09. The government moved for summary judgment regarding Alice's refund claims and, in a July 2018 order, the district court granted summary judgment on the government's motion. The district court discussed the jurisdictional requirements for a refund suit, held that the joint returns filed for years 2001-07 were valid, and dismissed Alice's refund claims. The district court did not enter a final appealable order or judgment as to Alice's refund claims, nor did its order address years 2008 and 2009.

After the district court's ruling on Alice's motion for summary judgment, Alice submitted to the IRS a Form 8857, Request for Innocent Spouse Relief, under Code Sec. 6015 for years 2001-09. A few days later Alice filed a motion to stay the district court proceeding until her request for innocent spouse relief was fully processed by the IRS and litigated in the Tax Court. This was Alice's first mention of innocent spouse status in the district court case. The district court granted Alice's motion for stay. Alice did not receive a notice of final determination of relief or other communication from the IRS regarding her request for innocent spouse relief. In December of 2019, Alice filed a petition with the Tax Court under Code Sec. 6015(e) asking the Tax Court to determine that she was entitled to innocent spouse relief for years 2001-09. The IRS filed a motion to dismiss Alice's Tax Court petition for lack of jurisdiction.

Code Sec. 6015(e)(1)(A) provides that, "in addition to any other remedy provided by law," a taxpayer may petition the Tax Court and the Tax Court has jurisdiction to determine the appropriate relief available under Code Sec. 6015 as long as certain statutory conditions are met. Under Code Sec. 6015(e)(1)(A), the petition is to be filed at any time after the earlier of (1) within 90 days after the IRS's mailing of a notice of its final determination of relief or (2) at any time after six months have passed since the taxpayer's request for innocent spouse relief is made with the IRS. However, Code Sec. 6015(e)(3) provides that if a suit for a refund has been filed, the Tax Court "shall lose jurisdiction" over the individual's action to whatever extent jurisdiction is acquired by the district court or the Court of Federal Claims over the tax years that are the subject of the suit for refund, and the court acquiring jurisdiction has jurisdiction over the petition for innocent spouse relief. Under Code Sec. 6015(g)(2), an exception to the general rule of res judicata is provided under which, if a decision of a court in any prior proceeding for the same tax year has become final, such decision is conclusive except with respect to the taxpayer's qualification for innocent spouse relief.

The IRS argued that the Tax Court lacked jurisdiction to consider Alice's claim for innocent spouse relief because the district court previously acquired jurisdiction over the same years at issue and there was no statute authorizing the Tax Court to acquire jurisdiction from the district court or for the two courts to hold concurrent jurisdiction over Alice's claim for relief under Code Sec. 6015. Alice responded that the Tax Court had jurisdiction under Code Sec. 6015(e)(1)(A) since she waited six months after the IRS took no action with respect to her Form 8857. She contended that Code Sec. 6015 is a curative statute and that the Tax Court should construe it liberally to effect its remedial purpose. She further reasoned that the district court stayed the action specifically so that the IRS and, if necessary, the Tax Court could make a determination regarding her innocent spouse relief request.

Analysis

The Tax Court dismissed Alice's petition for lack of jurisdiction with respect to years 2001-07. The court found that under Code Sec. 6015(e)(3), the Tax Court "shall lose jurisdiction" if a suit for refund is begun. The court noted that the text of the statute is not explicit about the timing or sequence requirement (if any) as to a refund suit and filing of an innocent spouse relief claim in the Tax Court. Thus, Code Sec. 6015(e)(3) could be read to mean that the Tax Court's jurisdictional limitation applies only when a petition is filed before a refund claim. However, the court did not interpret the statute as having such a requirement or as compelling it to give any weight to the sequence of Alice's actions with respect to her claims.

The Tax Court held that where, as here, a district court acquires jurisdiction in a suit for refund, it acquires jurisdiction over the entire liability for that tax year including the taxpayer's claim for recovery of any internal revenue tax alleged to have been erroneously or illegally assessed or collected. The court found that in its July 2018 order, the district court found no jurisdictional defects and retained jurisdiction over Alice's claim for innocent spouse relief under Code Sec. 6015. Although the district court dismissed Alice's refund claims for years 2001-07 after ruling on their merits, the Tax Court observed that the district court had not ruled on her claim for innocent spouse relief, and it had stayed the case pending administrative review of her request for innocent spouse relief. The court found that when Alice filed a Form 8857 with the IRS requesting relief from joint liability for years 2001-09, waited six months, and filed with the Tax Court a petition seeking that relief, she met the prerequisites for invoking the Tax Court's jurisdiction for years 2001-09. However, because her refund action pending in the district court overlapped with some of the tax years before the Tax Court - namely years 2001-07 - the Tax Court concluded that it lost jurisdiction and the district court acquired jurisdiction over Alice's petition under Code Sec. 6015(e)(3) for those same years.

However, the Tax Court clarified that, under Code Sec. 6015(e)(3), it loses jurisdiction only to the extent that the district court acquires jurisdiction in a suit for a refund. The district court did not hold that it acquired jurisdiction as to Alice's refund claims for 2008 and 2009, and the Tax Court said it seemed clear that the district court could not acquire jurisdiction since full payment of the tax liability had not been made. Since it was clear the district court did not have, and did not claim to have, refund jurisdiction for 2008 and 2009, the Tax Court held that it did not lose jurisdiction with respect to those two years. The Tax Court noted that Code Sec. 6015(e)(3) does not address this overlap in jurisdiction and therefore the court had to consult principles of comity to decide whether both courts should go forward on these common issues or, if not, which one should proceed. The Tax Court found that in an order issued in May of 2020, the district court anticipated that the Tax Court would proceed in considering Alice's innocent spouse relief claim to the extent of its jurisdiction, and consequently the Tax Court said that it would do so. The Tax Court therefore denied the IRS's motion in part with respect to Alice's claims for years 2008 and 2009.

For a discussion of filing a request for innocent spouse relief in the Tax Court, see Parker Tax ¶260,560. For a discussion of filing a claim for a refund of a tax overpayment, see Parker Tax ¶261,110.

Disclaimer: This publication does not, and is not intended to, provide legal, tax or accounting advice, and readers should consult their tax advisors concerning the application of tax laws to their particular situations. This analysis is not tax advice and is not intended or written to be used, and cannot be used, for purposes of avoiding tax penalties that may be imposed on any taxpayer. The information contained herein is general in nature and based on authorities that are subject to change. Parker Tax Publishing guarantees neither the accuracy nor completeness of any information and is not responsible for any errors or omissions, or for results obtained by others as a result of reliance upon such information. Parker Tax Publishing assumes no obligation to inform the reader of any changes in tax laws or other factors that could affect information contained herein.

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