Some History on the Innocent Spouse Provisions (10/24/19)

I thought I would point readers to Bryan Camp's recent post Bryan Camp, 100th Lesson From The Tax Court: The Role Of Innocence In § 6015 Spousal Relief (Tax Prof Blog 10/21/19), here.

I offer the following bit of history regarding the original enactment in 1971.  This is from a footnote in my Federal Tax Procedure book:

A bit of history not essential for understanding the innocent spouse provisions.  The innocent spouse provisions were enacted in the early 1971.  Before that enactment, I was working at DOJ Tax Appellate Section and handled one of the more egregious cases in the context, involving separate property liability (Ramos v. Commissioner, T.C. Memo. 1969-157 (held spouse held liable, although “harsh”), rev’d 429 F.2d 487 (5th Cir. 1970)) and was aware of other cases in the office involving joint return liability in harsh contexts (e.g., Scudder v. Commissioner, 48 T.C. 36 (1967) (held spouse liable under joint liability provision), rev'd on other grounds, 405 F.2d 222 (6th Cir. 1968)).  From that work, I drafted proposed legislation that, if enacted, would grant innocent spouse relief.  The Assistant Attorney General for the Tax Division sent the proposal to the IRS with a recommendation that the IRS work on it and make a formal proposal to Congress.  The IRS resisted.  The AAG finally advised the IRS that, if the IRS would not make a proposal to Congress, DOJ Tax would.  At the point, the IRS worked on and made the proposal resulting in the initial innocent spouse provisions (§§ 6013(e) and 66).  The IRS proposal and resulting statute were much stricter than my proposal sent to the IRS by the AAG, but as the AAG said half a loaf is better than no loaf.  And, later, in 1998, the innocent spouse provisions were substantially liberalized.

I offer here a bit more that only real tax procedure geeks could possibly care about.

1.  When first assigned the Ramos case in DOJ Tax Appellate, I tried to get the IRS to give up the case.  There was almost no revenue involved.  But the IRS felt strongly about maintaining the integrity of the community property split even to "innocent spouses."  (Actually, in my mind, the Ramos case should have been prevented by the exercise of discretion at an earlier audit stage; by the time I was assigned the case, Tax Court Judge Featherston (a DOJ Tax alumnus) had already upheld its application to this hapless taxpayer and the IRS wanted to fiercely defend his holding; so I just had to defend the case on appeal.)

2.  On appeal, the Fifth Circuit in a per curiam opinion summarily reversed on the basis that the Ramos Tax Court holding was inconsistent with two recent decisions in  Angello v. Met. Life Ins.Co. and United States, 430 F.2d 7 (5th Cir. 1970), rev'd sub nom. Mitchell v. Commissioner, 403 US 190 ; and Mitchell v. Commissioner, 430 F.2d 1 (5th Cir. 1970), rev'd 403 US 190 .  Whether or not the reversal was compelled by the Fifth Circuit opinions in those cases is another matter.  And, the Supreme Court ultimately reversed Angello and Mitchell, but after all of the events noted below regarding legislation to fix the problem.

3.  Regardless of the technical correctness of the Fifth Circuit's Ramos decision, the result was the "right" result.

4.  Under DOJ Tax Appellate practice, I was required to write what is called a "cert recommendation," making a line attorney recommendation as to whether to seek certiorari.  Someone would then prepare and sign off on the Tax Division's recommendation to the SG.  The SG makes the final decision whether to seek certiorari in cases the Government loses in the Courts of Appeals.

5.  The SG's office was in the process of taking one or both of the two "precedents" -- Angello and Mitchell -- to the Supreme Court.

6.  A couple of days after receiving the Fifth Circuit decision in Ramos, the SG tax assistant, Matt Zinn (a wonderful lawyer), came into my office and advised me not to even write the cert recommendation memo because the SG would not approve cert in Ramos.  He said Ramos was so stinky (I think that, as was his bent, his words were more pithy than that) that he did not want the Supreme Court anywhere near Ramos.  I remember that discussion because he was directing (I think it was a direction) me not to prepare the memo required under DOJ Tax Appellate practice.  I don't remember whether I prepared one or not, but if I did it would have been pro forma only to comply with the practice.  The decision had been made.  (Although it was the SG's decision and the SG then was, I think, Dean Griswold, former dean of Harvard Law School and a tax expert, I am confident that Matt had the practical control over the SG's decision on the case.)

7.  From the Ramos case and knowing of similar inequities in the joint liability provisions (e.g., Scudder which was handled by a friend of mine in DOJ Tax Appellate), I received permission from the Assistant Attorney General to work on a draft of legislation to provide relief in inequitable cases.  This is now known as innocent spouse relief.  I had never worked on drafting legislation before and, indeed, I was a relatively new DOJ Tax attorney just starting to practice anyway.

8.  I drafted proposals dealing with the inequities in joint liability (as in Scudder) and community property liability (as in Ramos).

9.  The AAG sent the proposal to the IRS for its consideration and , hopefully, to make a proposal to Congress.

10.  The IRS resisted the proposal and basically refused to do anything, despite DOJ Tax making several pushes to get it to do so.  Dealing with the people in L&R (I won't name names here), I could never get what I thought was a sufficient reason not to do something.  It was clear that the IRS (through the L&R people I dealt with) just felt strongly about joint and community property liability as is.

11.  The AAG finally told the IRS that, if it would not make a proposal to Congress, DOJ Tax would.  That got the IRS moving.  (I don't know whether DOJ Tax had ever made independent proposals for changes in the tax law before, but I do know that that threat/suggestion was put on the table.) 

12.  At the point, the IRS finally worked up a proposal.  The IRS proposal that ultimately was enacted (I can't remember whether Congress changed the proposal in any material way) was far stricter with less opportunity for relief than my proposal offered.  But the AAG said something to the effect that half a loaf is better than none.

13.  And, of course, all practitioners observed how spare the IRS and the Courts were in conferring innocent spouse relief under this provision.  As a result, Congress expanded the relief in 1998.

14  The good guy in this drama was the AAG.  Unfortunately, I can't remember who the AAG was at the time; Johnnie Walters was the AAG when I wrote the Ramos brief but I think by the time of the key events narrated above, Johnnie was Commissioner of Internal Revenue. I think DOJ Tax then had an Acting AAG, and I think it may have been Fred Ugast.  For convenience I call the person the AAG.  I did ultimately get a letter of commendation from the AAG that I have since lost.

Note:  the Ramos case can be viewed in Google Scholar here.  The case report misspells my name -- "Townsen" instead of "Townsend."  I checked some other case reports and the same error appears, so perhaps it was in the original Federal Reporter that way.