In response to the recent Tax Court decision in Porter, 132 T.C. No. 11 (2009), the IRS Chief Counsel’s office has released a memorandum outlining IRS litigation tactics in innocent spouse cases (CC-2009-021).
In Porter, the Tax Court held that it would apply a de novo standard of review in innocent spouse cases (i.e., would weigh the evidence anew), rather than merely reviewing IRS administrative determinations for abuse of discretion. Last year, the Tax Court held that it did not have to limit itself to the evidence in the IRS administrative record but could conduct a trial de novo in innocent spouse cases (Porter, 130 T.C. 115 (2008)). (Earlier this year, the Eleventh Circuit upheld this approach in a different innocent spouse case: Neal, No. 06-14357 (11th Cir. 2/10/09), aff’g T.C. Memo. 2005-201. For more on the Neal case, see Tax Trends, 40 The Tax Adviser 266 (April 2009).)
The Service objects to the holdings in both Porter cases. It maintains that the proper standard for review in innocent spouse cases is abuse of discretion and, because this is the proper standard, that the scope of review should be limited to issues and evidence raised in the IRS examination.
The memo instructs IRS attorneys to raise the scope and standard issues in all innocent spouse litigation and to note the Service’s disagreement with the Porter decisions. Attorneys are directed to attempt to get taxpayers to stipulate to the evidence in the administrative record and to object at trial if the taxpayer wishes to introduce evidence from outside that record.
If the court admits evidence from outside the IRS administrative record, the memo instructs IRS attorneys to make a three-part argument:
- Based solely on the administrative record, the IRS did not abuse its discretion in denying relief;
- Even considering the new evidence introduced at trial, the IRS did not abuse its discretion in denying relief;
- Even if the proper standard of review is de novo, the taxpayer has not established his or her eligibility for relief under Sec. 6015(f).
The Service has also set up an expedited procedure for making innocent spouse relief determinations in cases in which the issue was not determined during the IRS examination (for example, where the taxpayer first raises the issue in a Tax Court petition). In such cases, the IRS’s Cincinnati Centralized Innocent Spouse Operations (CCISO) will be asked to make an expedited innocent spouse determination.
If the CCISO determines that relief is appropriate, the Service will concede the case. If the CCISO determines that relief is not appropriate, the attorney in the case should file a report with the Tax Court setting forth CCISO’s determination with a copy of its written analysis attached. If time permits (and the taxpayer requests Appeals consideration), the case will be referred to Appeals for review under normal procedures.