When a taxpayer requests spousal reduction underneath §6015, the IRS should determine whether or not to grant it.  If the IRS denies reduction, the taxpayer can petition the Tax Courtroom. §6015(e).  In 2019 Congress created a modified administrative document rule for the way the Tax Courtroom is meant to conduct that overview.  Taxpayer First Act, 133 Stat. 981, 988.

It’s awkward.  Congress tells the Courtroom to overview the IRS resolution de novo however, on the identical time, tells the Courtroom to do this utilizing solely a restricted info set consisting of (a) “the executive document established on the time of the dedication” and (b) “any extra newly found or beforehand unavailable proof.”  §6015(e)(7).

Sydney Ann Chaney Thomas v. Commissioner, 160 T.C. No. 4 (Feb. 13, 2023) (Decide Toro), is a reviewed opinion the place a unanimous Tax Courtroom interprets the phrase “newly found or beforehand unavailable proof” broadly fairly than narrowly, thus creating a brand new proof rule (pun meant) that robustly defending its skill to conduct the required de novo overview.  Mockingly, the choice labored towards the taxpayer on this case as a result of it was the IRS that right here wished to introduce new info (the taxpayer’s social media posts).  The taxpayer objected that these posts had been publicly out there in the course of the administrative continuing; subsequently they weren’t newly found or beforehand unavailable.  The Courtroom rejected that argument and admitted the posts as proof.

Immediately’s case can also be an illustrative distinction to the T.C. opinion I mentioned in final week’s submit.  That was a case the place the taxpayer was continuing professional se.  And there the Courtroom had no advantage of briefing from each side.  I feel the Courtroom’s opinion confirmed it.  In at present’s case, the taxpayer was (ultimately) represented by the most effective tax attorneys I do know, Megan Brackney.  Thus the Courtroom had the advantage of a well-presented taxpayer argument.  The Courtroom additionally had the advantage of a robust amicus temporary submitted collectively by the Middle for Taxpayer Rights, the Group Tax Legislation Venture, the UC-SF LITC and the Villanova LITC.  That made the Tax Courtroom’s opinion all of the extra sturdy, which is what it is going to want if and when its resolution is reviewed in flip by a Courtroom of Appeals.

Spoiler alert.  This submit is somewhat longer than regular.  Sorry, Lew.

To grasp at present’s new proof rule, it is essential to know that Tax Courtroom overview of an IRS spousal reduction rejection may come up in one among 3 ways.  Every brings with it a special mixture of ordinary and scope of overview!  So as to add to the enjoyable, the federal district courts also can get into the act if the taxpayer follows the refund route. See Hockin v. United States, 400 F. Supp. 3d 1085 (D. Or. 2019) (taxpayer used refund swimsuit to problem IRS rejection of her spousal reduction declare).  However let’s simply deal with the three paths to Tax Courtroom overview.

First, taxpayers may ask for spousal reduction as a part of contesting an NOD in Tax Courtroom.  Once they do this, the Tax Courtroom evaluations the IRS resolution underneath its §6213 deficiency jurisdiction, identical to it evaluations all different elements of a deficiency dedication.  Meaning each the usual and scope of overview are de novo.  It’s principally a “do over” for the taxpayer.  See e.g.  DelPonte v. Commissioner, 158 T.C. No. 7 (2022) at p. 7 (“Our jurisdiction to rule on these [spousal] claims is a part of our authority underneath part 6213(a) to redetermine a taxpayer’s deficiency when she’s obtained a discover of deficiency.”)

This proper to hunt spousal reduction throughout a deficiency continuing causes a complication for making an attempt to hunt spousal reduction later.  That’s as a result of, usually, the correct to boost a declare in a single previous bars assertion of that very same declare in a later continuing.  That authorized doctrine is known as “declare preclusion.”  Utilized usually, it could imply that taxpayers might by no means increase spousal reduction claims once they had an earlier deficiency continuing earlier than the Tax Courtroom.  Nevertheless, Congress has modified the traditional guidelines to permit a requesting partner to make a later request (in a CDP or stand-alone continuing), even when they had been a named occasion to a deficiency case, as long as (1) spousal reduction was not truly raised within the deficiency continuing and (2) they didn’t meaningfully take part within the deficiency continuing.  See §6015(g)(2).  The killer right here is that if a partner did particulate in a previous Tax Courtroom case, the declare preclusion doctrine applies.  See  Kechijian v. Commissioner, T.C. Memo. 2022-127 (taxpayer’s participation in prior deficiency continuing barred subsequent spousal reduction request although taxpayer didn’t truly request reduction within the deficiency continuing).

Second, taxpayers can request spousal reduction as a set various in the course of the CDP course of.  The Tax Courtroom has jurisdiction to overview these selections underneath §6330.  See e.g. Francel v. Commissioner, T.C. Memo. 2019-35.  That is in all probability the worst path for taxpayers as a result of if the spousal reduction resolution had been thought of a part of the CDP dedication, then, at greatest, the Tax Courtroom evaluations the choice for abuse of discretion, though it does so utilizing a de novo document.  Robinette v. Commissioner, 123 T.C. 85 (2004).  But when the circumstances is appealable to the First, Eighth, and Ninth Circuits, then the Tax Courtroom would use an abuse of discretion customary and confine its scope to the executive document.  See Keller v. Commissioner, 568 F.3d 710 (ninth Cir. 2009); Murphy v. Commissioner, 469 F.3d 27 (1st Cir. 2006); and Robinette v. Commissioner, 439 F.3d 455 (eighth Cir. 2006).

Third, taxpayers can request spousal reduction immediately from the IRS, individually from another continuing.  The Tax Courtroom has jurisdiction to overview these “stand alone” selections underneath §6015(e)(1).  Earlier than 2009, the Tax Courtroom reviewed IRS rejections of spousal reduction requests utilizing an abuse of discretion customary.  Jonson v. Commissioner, 118 T.C. 108 (2002). The fundamental rationale was that Congress had given the IRS the choice whether or not to grant equitable reduction, subsequently the Tax Courtroom ought to overview such selections for abuse of the granted discretion.

In 2009 the Courtroom modified its tune.  It began utilizing as a substitute a de novo customary, paired with a de novo document rule, which allowed the taxpayer to introduce new proof to the Tax Courtroom.  Porter v. Commissioner, 132 T.C. 203 (2009) (abrogating Jonson).  The fundamental rationale hinged on new statutory language Congress had added in 2006.  As modified, §6015(e) stated the Tax Courtroom’s job was “to find out the suitable reduction out there to the person underneath this part.”  The Tax Courtroom believed the phrase “to find out” meant de novo overview, identical to in deficiency circumstances the place the Tax Courtroom’s job was to “redetermine” a proposed deficiency.  This interpretation was blessed by the one Circuit Courtroom to overview it.  Wilson v. Commissioner, 705 F.3d 980 (ninth Cir. 2013), and the IRS conceded the difficulty.  See Motion on Resolution (June 17, 2013), IRB 2013-25.

The Courtroom’s pairing of de novo customary of overview with de novo scope of overview was each internally constant and in keeping with the Tax Courtroom deficiency circumstances.  The thought was that the IRS resolution obtained a presumption of correctness however the taxpayer nonetheless was allowed a do-over in Tax Courtroom.  In reality, even when a taxpayer requested spousal reduction as a part of a CDP listening to, the Tax Courtroom would typically deal with the next petition for Tax Courtroom overview as triggering its §6015(e) jurisdiction and thus the taxpayer obtained the de novo/de novo pairing fairly than the awkward abuse-of-discretion customary paired with de novo scope.  See e.g. Fracel, supra, at p. 36, discussing circumstances.

Then in 2019 Congress created the present awkward pairing: a de novo scope of overview with a modified administrative document rule.  Bear in mind, the modification is that the Tax Courtroom might think about “any extra newly found or beforehand unavailable proof.”  The ABA Tax Part objected to this modification, suggesting that the language  “might result in burdensome litigation over whether or not proof that the taxpayer seeks to introduce qualifies as “newly found” or “beforehand unavailable.” Letter from ABA Tax Part, printed in 72 Tax Legislation. 122 (2017).

Yup.  That’s what now we have right here at present of us: a Lesson From The Tax Courtroom on the which means of the phrase ”any extra newly found or beforehand unavailable proof.”  And it certainly is not going to be the final case the place the Courtroom is required to have interaction with the weirdness of this Congressional directive.

Let’s have a look.

Information
Ms. Thomas filed a stand-alone request for equitable spousal reduction, the type the IRS is permitted to grant underneath §6015(f).  The IRS denied her request in September 2020 and he or she well timed petitioned the Tax Courtroom to overview that call.  The Courtroom held in-person trial in April 2022.  At the moment Ms. Thomas was representing herself.

On the trial “each events wished the Courtroom to contemplate testimony and different proof that was not a part of the executive document.”  Op. at 3.  The Tax Courtroom obliged.

First, it permitted Ms. Thomas to testify.  Decide Holmes has, in a few Orders, permitted taxpayer testimony, reasoning that such testimony in Courtroom constitutes “beforehand unavailable proof” as a result of testimony in Courtroom is given underneath oath and topic to cross-examination.  See Lesson From The Tax Courtroom: The Affect Of De Novo Assessment In Spousal Reduction Circumstances, TaxProf Weblog (Nov. 7, 2022).  Because the IRS didn’t object to Ms. Thomas’s testimony, there was no event for Decide Toro right here to rule on its admissibility.  So whereas now we have no formal precedent, we will probably predict this observe will proceed.

Second, the Courtroom permitted the IRS to introduce “a sequence of posts from Ms. Thomas’s private weblog” operating from 2016 to 2022.  Ms. Thomas was not snug with that and Decide Toro generously interpreted her expression of discomfort at trial as an objection to admitting the weblog posts.  He then issued an order that he wished post-trial briefing on whether or not the Courtroom might even have a look at weblog posts that had been written in the course of the administrative continuing, and he gently instructed that Ms. Thomas receive counsel.  Megan Brackney agreed to do the illustration professional bono.

Regardless of Ms. Brackney’s efforts, the Courtroom unanimously determined that Ms. Thomas’s weblog posts could possibly be admitted into proof as a result of they had been “newly found.”  Let’s see why.

Lesson: Data Could Be “Newly Found” Even If It Beforehand Existed
In Tax Courtroom Ms. Thomas argued for a “might have been found” interpretation of the statute.  Her concern was that the IRS mustn’t now be allowed to make use of info towards her now that it might have put into the executive document then.  The weblog posts existed on the time of the executive listening to and the IRS might have simply found them throughout its consideration of her spousal reduction request if it had bothered to search for them.  She factors to an identical provision within the Federal Guidelines of Civil Process that allows using newly found proof solely when “with cheap diligence couldn’t have been found” in the course of the related continuing.  FRCP Rule 60(b)(2).

Decide Toro disagrees, counting on statutory construction and administrative context.  He first notes the phrase “any” within the statute (“any extra newly found or beforehand unavailable proof.” ) precludes the Courtroom from studying a due diligence limitation into the phrase.  He then notes that an expansive studying of what info the Tax Courtroom can think about is extra in keeping with the Congressional directive for a de novo customary of overview in the exact same statute.  Lastly, he agrees with the federal government: imposing a “might have” requirement would blow up the executive listening to.  As a substitute of counting on info contained in current information and data offered by taxpayers, the IRS staff would now have to make impartial inquiries and investigations.  Should you don’t like Workplace of Appeals delays now, simply suppose what would occur if the IRS had an obligation to find all of the related details.

Thus, the Tax Courtroom creates what I name an “truly found” rule. Data which could exist in the course of the administrative part however was not truly found by the occasion till afterwards constitutes newly found proof throughout the which means of the modified administrative document rule.  Importantly, Decide Toro notes that this “truly found” rule applies equally to taxpayers and the IRS.  Op. at 12, observe 5.

Decide Toro helps this broad studying by consulting dictionaries to conclude that newly found proof is just proof that’s “lately…obtained for the primary time.”  Op. at 11.  He then applies the rule this fashion:“[t]right here isn’t any proof that the Commissioner obtained the weblog posts any sooner [than the petition date]” and subsequently he finds that the Tax Courtroom might think about the weblog posts together with the executive as newly found proof throughout the which means of §6015(e)(7).

Backside line: although the weblog posts truly existed in the course of the taxpayer’s administrative listening to, because the IRS didn’t truly uncover the weblog posts till after the executive document was closed, they could possibly be offered to the Tax Courtroom as newly found proof to assist the Tax Courtroom correctly overview the IRS resolution denying spousal reduction.

Remark 1: Discovering Steadiness
I feel this resolution does a superb job in balancing the stress Congress created by its awkward pairing of a modified administrative document rule with a de novo customary of overview.  And that awkward pairing, in flip, makes an attempt to stability the inherent stress in all the idea of §6015(f) equitable reduction.

Begin with the inherent stress in 6015(f).  Included within the thought of equitable reduction is a dynamic understanding of life: a taxpayer’s circumstances might change in the course of the 10 yr assortment interval such that it turns into inequitable to gather an unpaid joint legal responsibility from them.  The strain is available in the truth that the requesting partner will get just one shot at equitable reduction.

I consider it as video v. snapshot.  That’s, the concept that in some unspecified time in the future in the course of the 10-year assortment interval it might change into unfair to gather is sort of a 10-year video throughout which a taxpayer’s circumstances can change.  You don’t have most cancers one yr however you do the following.  You don’t lose your home to a hurricane one yr however you do the following.  Tons can occur over 10 years.  However Congress permits taxpayers just one shot to persuade the IRS and/or Tax Courtroom that assortment is unfair.  That’s the snapshot.  So as soon as a requesting partner clicks the digicam, that’s the snapshot the IRS will have a look at and that’s the snapshot the Tax Courtroom will have a look at, even when life’s video modifications afterwards.

The IRS acknowledges this stress and has created reconsideration procedures to search out stability.  Bear in mind the statute provides taxpayers just one journey to the Tax Courtroom and that’s to contest a “Remaining Willpower” denying the requested reduction.  There isn’t any additional statutory alternative to acquire reduction after that ultimate dedication.  However the statute doesn’t forbid the IRS from reconsidering a previous resolution.  And the IRS jumped on that silence to create a reconsideration process in IRM 25.15.17.1.1.  It permits taxpayers who had been denied reduction to submit “info not beforehand thought of (new info or info that the IRS did not beforehand think about).”  The reconsideration is only administrative and thus “any reconsideration of the ultimate dedication, and any discover or letter issued to the RS because of the reconsideration, will not be a Remaining Willpower for functions of IRC 6015(e) and isn’t topic to overview by the Tax Courtroom underneath IRC 6015(e).”  Id.

In Spencer (at present’s case, keep in mind?) the Tax Courtroom finds an identical stability.  The standard justification for a pure administrative document rule is an information-forcing.  It forces the occasion searching for reduction from an administrative company to place all their playing cards on the desk on the administrative stage.  It prevents them from sandbagging the company.  On the identical time it additionally forces the company to clarify the rational foundation for its dedication.  The company can not merely deny the requested reduction and hope there isn’t any judicial overview or, if there may be later judicial overview, wait till then to scramble to justify the choice.

That’s all nicely and good when a courtroom is just reviewing whether or not the company has made an inexpensive resolution.  However the directive for de novo overview is a directive to assist the taxpayer and the IRS get to the proper resolution based mostly on essentially the most present info set doable.  Thus, permitting both the IRS or taxpayers to point out the Tax Courtroom info that will have existed however was not moderately out there to them balances the necessity to defend the administration course of and the necessity to get to the correct resolution.

In brief, I submit that the Tax Courtroom right here strikes a superb stability.  On the identical time, it seems to create a query of what obligation the occasion searching for introduction of the brand new proof needed to uncover it in the course of the administrative listening to.  This can probably want extra litigation to search out the correct stability.

Remark 2: A One-Approach Ratchet?
Decide Buch writes an insightful concurrence the place he expresses a doubt about whether or not the truly found rule applies equally to each taxpayers and the IRS.  He worries that the rule could possibly be “a one-way road benefiting the Commissioner.” Op. at 17.  He provides an instance of a requesting partner whose social media posts help a discovering of abuse, however who fails to current these posts on the administrative stage.  That taxpayer would in all probability not be capable to present these posts to the Tax Courtroom as a result of they had been out there to that taxpayer.

He’s proper.  However that’s a function, not a bug.  It goes again to the information-forcing nature of any administrative document rule.  The requesting partner has the burden to point out why equities favor relieving them of legal responsibility.  An administrative document rule says they can’t sandbag the company by withholding info on the administrative stage solely to point out it to the courtroom.  That’s a part of the stress created by any administrative document rule.

Importantly, a big a part of Decide Buch’s concern is rightly based mostly on the widespread sense understanding that many spousal requests, just like the one in at present’s case, are performed with out illustration.  So if a pro-se taxpayer messes up on the administrative stage, they get punished by any administrative document rule.  They get punished much less, nonetheless, by the Tax Courtroom’s holding at present than by a stricter studying of the statute.

Which takes me to … 

Remark 3: The Significance of Illustration
The Tax Courtroom is at present full of textualists.  For a textualist, the textual content of a statute is the alpha and omega of interpretation.  However what is available in between that alpha and omega could make all of the distinction.  “A textual content shouldn’t be construed strictly, and it shouldn’t be construed leniently; it must be construed moderately, to comprise all that it pretty means.” So sayeth the sainted Justice Scalia in “A Matter of Interpretation: Federal Courts and The Legislation” at p. 23 (sorry, no free hyperlink).  And what is available in between, particularly in a posh statutory scheme just like the Inside Income Code, may be opaque to non-specialists.

Thus, when the Courtroom is confronted with a query of regulation, when it’s making an attempt to decipher awkward and even non-sensical statutory textual content—hi there §6751(b)(1)!—it simply is sensible to me that the Courtroom would need balanced enter from each the federal government and from taxpayers.  That isn’t solely as a result of the Courtroom needs to get it proper, additionally it is as a result of the Courtroom’s opinion might be scrutinized by a number of of the Circuit Courts of Enchantment and even perhaps the U.S. Supreme Courtroom.  So on these precedential T.C. opinions, the Courtroom naturally needs to place it’s greatest analytical foot ahead.  See Bryan Camp, The Tax Courtroom As An Wonderful Conversationalist, TaxProf Weblog (Oct. 25, 2017).

The Courtroom can all the time presume that the IRS will likely be nicely represented, though everyone knows that Chief Counsel attorneys are actually typically slammed and are unable to provide correct time and a spotlight to among the circumstances on their docket.  And typically a well-resourced taxpayer will overwhelm Chief Counsel.  However typically talking, particularly on circumstances presenting problems with statutory interpretation, Chief Counsel may be relied upon to provide the Tax Courtroom the federal government’s greatest arguments.

Professional-se taxpayers, nonetheless, aren’t dependable advocates, even when they’re attorneys and even when they’re tax attorneys.  That’s the reason the Tax Courtroom wants mates, the authorized time period for which is Amici.  Since I’m manner over my traditional size I as soon as once more merely refer readers to Keith Fogg and Caitlin Hurd, Professional Se Precedent within the U.S. Tax Courtroom: A Case for Amicus Briefs,  Houston Enterprise and Tax Legislation Journal (forthcoming 2023).

Bryan Camp is the George H. Mahon Professor of Legislation at Texas Tech College College of Legislation.  He invitations readers to return every Monday (or Tuesday if Monday is a federal vacation) to TaxProf Weblog for an additional Lesson From The Tax Courtroom.

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