Summary of the Innocent Spouse Provisions (1/19/13)

In Wilson v. Commissioner,  705 F.3d 980 (9th Cir. 2013), here, the Ninth Circuit held that the Tax Court review of the IRS's denial of innocent spouse relief under Section 6015(f), here, is de novo, so that new matters raised for the first time before the Tax Court may be considered.  The Court rejected the Government's argument that, as a review of the IRS's exercise of discretion, the review should not be de novo but for abuse of IRS's discretion on the basis of the administrative record provided to the IRS to use in the exercise of its discretion.   There is a dissent in Wilson that, properly construed, the review should be based on the administrative recorrd.

The Tax Court holds that review is de novo, and has now been sustained in that holding Wilson and the other other circuit to address the issue.  Commissioner v. Neal, 557 F.3d 1262 (11th Cir. 2009).  Wilson offers a good analysis of the statutory interpretation analysis the Court used to reach that interpretation.  I commend the decision to readers who are interested in statutory interpretation.

I blog this case principally because of its summary of the history and current status of the innocent spouse provisions (including administrative processing) currently appearing in Section 6015, here.  Here is that summary (footnotes omitted)

Thousands of citizens each year discover to their surprise that they are liable for their former spouse's tax debt. Most of them are recently divorced, separated, or widowed women. Many are victims of domestic abuse, whose ability to review or correct a joint return before it is filed is impaired. A substantial number are low-income, single parents. 

Congress has not turned a blind eye to this situation, and the legislative history of its response is important to our understanding of the Tax Court's role. 

Before 1918, each spouse was required to file a separate return. In 1918, Congress first permitted married couples to file a joint return, and in 1921 clarified that the tax on a joint return was to be computed on aggregate income. Shortly thereafter, the Internal Revenue Service ("IRS") took the position that each spouse was individually responsible for the entire tax debt. However, we rejected that joint and several liability interpretation in 1935 and held that the IRS should apportion tax liability on the basis of each spouse's respective income. Cole v. Comm'r, 81 F.2d 485, 489 (9th Cir. 1935). Congress legislatively overruled Cole in 1938, adopting the IRS theory of joint and several marital tax liability, and in 1948 created a separate tax schedule for joint returns.