123 T.C. No. 19
UNITED STATES TAX COURT
NATALIE W. MCGEE, Petitioner v. COMMISSIONER OF INTERNAL REVENUE, Respondent
Docket No. 2884-03. Filed October 18, 2004.
By notice of determination dated Nov. 22, 2002, R denied P’s request for relief under the equitable relief provisions of sec. 6015(f), I.R.C., for the taxable year 1997 solely because P’s request was made more than 2 years after R’s first collection activity on the 1997 account. In May 1999, R withheld a $291 refund P claimed on her 1998 individual Federal income tax return to partially offset the unpaid 1997 joint liability. R’s related notice of offset did not advise P of her rights to seek relief under sec. 6015, I.R.C.
Held: The May 1999 offset was a collection action. Campbell v. Commissioner, 121 T.C. 290 (2003).
Held, further, The Commissioner is required to include with collection-related notices, such as the letter sent to P informing her of the withholding of her refund for 1998, a description of taxpayers’ rights under - 2 -
sec. 6015, I.R.C. Internal Revenue Service Restructuring and Reform Act of 1998 (RRA 1998), sec. 3501(b), Pub. L. 105-206, 112 Stat. 770.
Held, further, It is inequitable and an abuse of discretion for R to apply the 2-year limitation period of Rev. Proc. 2000-15, sec. 5, 2000-1 C.B. 447, 449, because of R’s failure to send the notice required by RRA 1998 sec. 3501(b).
Natalie W. McGee, pro se.
Marshall R. Jones, for respondent.
OPINION
GOEKE, Judge: The sole matter before the Court is whether
it was an abuse of discretion for respondent to deny petitioner’s
request for equitable relief from joint liability based on
section 6015(f)1 solely because petitioner made her request more
than 2 years after respondent’s first collection activity.
Petitioner challenges the application of the 2-year limit on
section 6015(f) requests imposed by Rev. Proc. 2000-15, sec. 5,
2000-1 C.B. 447, 449, when inadequate notice of collection
activity was sent to her, and, as a result, she did not become
aware of her section 6015 rights until after the 2-year period
expired.
1 Unless otherwise indicated, all section references are to the Internal Revenue Code currently in effect. - 3 -
Background
Petitioner timely filed a petition requesting a review of
respondent’s denial of her request for equitable relief under
section 6015(f) following respondent’s denial of such relief in a
notice of determination issued on November 22, 2002. Respondent
denied relief solely because petitioner’s Form 8857, Request for
Innocent Spouse Relief (And Separation of Liability and Equitable
Relief), was untimely. Respondent argues that the 2-year period
began with the first collection activity on May 17, 1999. At
the time the petition was filed, petitioner resided in
Birmingham, Alabama.
Petitioner and her former spouse filed a joint Federal
income tax return for 1997 (the return). The return was dated
October 14, 1998. The return showed a joint tax liability of
$11,252. The only payment made regarding this liability was the
withholding from petitioner’s earnings as a teacher in the amount
of $3,137, leaving an unpaid liability of $8,328. Petitioner’s
former spouse was a self-employed veterinarian and no estimated
tax payments were made regarding his business income. The unpaid
liability for 1997 and related additions to tax and interest are
the source of the present dispute.
On May 17, 1999, respondent withheld a $291 refund
petitioner claimed on her 1998 individual Federal income tax
return to partially offset the unpaid 1997 joint liability (the - 4 -
offset). At or about that time, respondent sent petitioner a
letter notifying her of the offset. This letter was not in
respondent’s administrative file and is not a part of the record,
but based on petitioner’s testimony and the parties’ agreement at
trial, this notice is consistent with a similar notice petitioner
received on August 13, 2001. Neither of the notices sent to
petitioner regarding the offset advised petitioner of her
potential rights to relief under section 6015. As a result,
petitioner was unaware of those rights until she hired an
attorney in late 2001 after a problem arose with her credit
rating because a notice of Federal tax lien had been filed on her
residence. On February 17, 2002, petitioner filed with
respondent an executed Form 8857 with respect to the 1997
liability.
Discussion
Section 6013(d)(3) provides that married individuals who
file a joint return are jointly and severally liable for the tax
arising from the return. Section 6015 provides that
notwithstanding section 6013(d)(3), an individual who filed a
joint return may seek relief from joint liability under three
specific alternatives set forth in subsections (b), (c), and (f)
of section 6015. This case only involves a request for relief
under subsection (f), which provides that the Secretary may
relieve an individual of joint liability if subsections (b) and - 5 -
(c) do not apply, and, if, based on the facts and circumstances,
it is inequitable to hold the individual liable for the joint
unpaid tax or deficiency.
Respondent argues it is not necessary to use a facts and
circumstances analysis in this case because petitioner’s request
for relief was not submitted to respondent within 2 years of the
first collection action on the 1997 joint liability. As a
result, respondent made no analysis of the facts and
circumstances in denying petitioner’s request.
Section 6015(b)(1)(E) and (c)(3)(B) provides that requests
for relief under each of these two subsections must be made not
later than 2 years after “the Secretary has begun collection
activities.” Applicable at the time of petitioner’s request for
relief, Rev. Proc. 2000-15, sec. 5, 2000-1 C.B. 447, 449,
provides that requests under section 6015(f) must also be made
within 2 years “of the first collection activity against the
requesting spouse.”2 Section 6015(f) does not impose a
limitation period. Respondent bases his position on Rev. Proc.
2000-15, sec. 5, maintaining that the offset was a “collection
activity”. However, respondent also asserts that a “collection-
2 Rev. Proc. 2000-15, 2001-1 C.B. 447, is applicable for requests for relief under sec. 6015 made before July 18, 2002. Thereafter, secs. 1.6015-0 through 1.6015-9, Income Tax Regs., are operative. Since secs. 1.6015-0 through 1.6015-9, Income Tax Regs., are not applicable to petitioner’s request for relief, we do not address the regulations here. - 6 -
related notice” was not required to be sent to petitioner because
the offset only merited an “accounting adjustment” notice. In
other words, respondent asserts the offset was a collection
activity under the revenue procedure but that the notice of the
offset is not a collection-related notice.
The 2-year limitation period applicable to section 6015(b)
and (c) was added to the Internal Revenue Code by the Internal
Revenue Service Restructuring and Reform Act of 1998 (RRA 1998),
sec. 3201(a), Pub. L. 105-206, 112 Stat. 734. RRA 1998 sec.
3501, 112 Stat. 770, required that the Commissioner change
collection-related notices to inform individuals subject to joint
liability of their rights to relief under section 6015. RRA 1998
sec. 3501(b), 112 Stat. 770.3 RRA 1998 sec. 3501 is part of the
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123 T.C. No. 19
UNITED STATES TAX COURT
NATALIE W. MCGEE, Petitioner v. COMMISSIONER OF INTERNAL REVENUE, Respondent
Docket No. 2884-03. Filed October 18, 2004.
By notice of determination dated Nov. 22, 2002, R denied P’s request for relief under the equitable relief provisions of sec. 6015(f), I.R.C., for the taxable year 1997 solely because P’s request was made more than 2 years after R’s first collection activity on the 1997 account. In May 1999, R withheld a $291 refund P claimed on her 1998 individual Federal income tax return to partially offset the unpaid 1997 joint liability. R’s related notice of offset did not advise P of her rights to seek relief under sec. 6015, I.R.C.
Held: The May 1999 offset was a collection action. Campbell v. Commissioner, 121 T.C. 290 (2003).
Held, further, The Commissioner is required to include with collection-related notices, such as the letter sent to P informing her of the withholding of her refund for 1998, a description of taxpayers’ rights under - 2 -
sec. 6015, I.R.C. Internal Revenue Service Restructuring and Reform Act of 1998 (RRA 1998), sec. 3501(b), Pub. L. 105-206, 112 Stat. 770.
Held, further, It is inequitable and an abuse of discretion for R to apply the 2-year limitation period of Rev. Proc. 2000-15, sec. 5, 2000-1 C.B. 447, 449, because of R’s failure to send the notice required by RRA 1998 sec. 3501(b).
Natalie W. McGee, pro se.
Marshall R. Jones, for respondent.
OPINION
GOEKE, Judge: The sole matter before the Court is whether
it was an abuse of discretion for respondent to deny petitioner’s
request for equitable relief from joint liability based on
section 6015(f)1 solely because petitioner made her request more
than 2 years after respondent’s first collection activity.
Petitioner challenges the application of the 2-year limit on
section 6015(f) requests imposed by Rev. Proc. 2000-15, sec. 5,
2000-1 C.B. 447, 449, when inadequate notice of collection
activity was sent to her, and, as a result, she did not become
aware of her section 6015 rights until after the 2-year period
expired.
1 Unless otherwise indicated, all section references are to the Internal Revenue Code currently in effect. - 3 -
Background
Petitioner timely filed a petition requesting a review of
respondent’s denial of her request for equitable relief under
section 6015(f) following respondent’s denial of such relief in a
notice of determination issued on November 22, 2002. Respondent
denied relief solely because petitioner’s Form 8857, Request for
Innocent Spouse Relief (And Separation of Liability and Equitable
Relief), was untimely. Respondent argues that the 2-year period
began with the first collection activity on May 17, 1999. At
the time the petition was filed, petitioner resided in
Birmingham, Alabama.
Petitioner and her former spouse filed a joint Federal
income tax return for 1997 (the return). The return was dated
October 14, 1998. The return showed a joint tax liability of
$11,252. The only payment made regarding this liability was the
withholding from petitioner’s earnings as a teacher in the amount
of $3,137, leaving an unpaid liability of $8,328. Petitioner’s
former spouse was a self-employed veterinarian and no estimated
tax payments were made regarding his business income. The unpaid
liability for 1997 and related additions to tax and interest are
the source of the present dispute.
On May 17, 1999, respondent withheld a $291 refund
petitioner claimed on her 1998 individual Federal income tax
return to partially offset the unpaid 1997 joint liability (the - 4 -
offset). At or about that time, respondent sent petitioner a
letter notifying her of the offset. This letter was not in
respondent’s administrative file and is not a part of the record,
but based on petitioner’s testimony and the parties’ agreement at
trial, this notice is consistent with a similar notice petitioner
received on August 13, 2001. Neither of the notices sent to
petitioner regarding the offset advised petitioner of her
potential rights to relief under section 6015. As a result,
petitioner was unaware of those rights until she hired an
attorney in late 2001 after a problem arose with her credit
rating because a notice of Federal tax lien had been filed on her
residence. On February 17, 2002, petitioner filed with
respondent an executed Form 8857 with respect to the 1997
liability.
Discussion
Section 6013(d)(3) provides that married individuals who
file a joint return are jointly and severally liable for the tax
arising from the return. Section 6015 provides that
notwithstanding section 6013(d)(3), an individual who filed a
joint return may seek relief from joint liability under three
specific alternatives set forth in subsections (b), (c), and (f)
of section 6015. This case only involves a request for relief
under subsection (f), which provides that the Secretary may
relieve an individual of joint liability if subsections (b) and - 5 -
(c) do not apply, and, if, based on the facts and circumstances,
it is inequitable to hold the individual liable for the joint
unpaid tax or deficiency.
Respondent argues it is not necessary to use a facts and
circumstances analysis in this case because petitioner’s request
for relief was not submitted to respondent within 2 years of the
first collection action on the 1997 joint liability. As a
result, respondent made no analysis of the facts and
circumstances in denying petitioner’s request.
Section 6015(b)(1)(E) and (c)(3)(B) provides that requests
for relief under each of these two subsections must be made not
later than 2 years after “the Secretary has begun collection
activities.” Applicable at the time of petitioner’s request for
relief, Rev. Proc. 2000-15, sec. 5, 2000-1 C.B. 447, 449,
provides that requests under section 6015(f) must also be made
within 2 years “of the first collection activity against the
requesting spouse.”2 Section 6015(f) does not impose a
limitation period. Respondent bases his position on Rev. Proc.
2000-15, sec. 5, maintaining that the offset was a “collection
activity”. However, respondent also asserts that a “collection-
2 Rev. Proc. 2000-15, 2001-1 C.B. 447, is applicable for requests for relief under sec. 6015 made before July 18, 2002. Thereafter, secs. 1.6015-0 through 1.6015-9, Income Tax Regs., are operative. Since secs. 1.6015-0 through 1.6015-9, Income Tax Regs., are not applicable to petitioner’s request for relief, we do not address the regulations here. - 6 -
related notice” was not required to be sent to petitioner because
the offset only merited an “accounting adjustment” notice. In
other words, respondent asserts the offset was a collection
activity under the revenue procedure but that the notice of the
offset is not a collection-related notice.
The 2-year limitation period applicable to section 6015(b)
and (c) was added to the Internal Revenue Code by the Internal
Revenue Service Restructuring and Reform Act of 1998 (RRA 1998),
sec. 3201(a), Pub. L. 105-206, 112 Stat. 734. RRA 1998 sec.
3501, 112 Stat. 770, required that the Commissioner change
collection-related notices to inform individuals subject to joint
liability of their rights to relief under section 6015. RRA 1998
sec. 3501(b), 112 Stat. 770.3 RRA 1998 sec. 3501 is part of the
3 RRA 1998 sec. 3501 provides as follows:
SEC. 3501. EXPLANATION OF JOINT AND SEVERAL LIABILITY.
(a) In General.–-The Secretary of the Treasury or the Secretary’s delegate shall, as soon as practicable, but not later than 180 days after the date of the enactment of this Act, establish procedures to clearly alert married taxpayers of their joint and several liabilities on all appropriate publications and instructions.
(b) Right to Limit Liability.–-The procedures under subsection (a) shall include requirements that notice of an individual’s right to relief under section 6015 of the Internal Revenue Code of 1986 shall be included in the statement required by section 6227 of the Omnibus Taxpayer Bill of Rights (Internal Revenue Service Publication No. 1) and in any collection- related notices. - 7 -
public law but was not codified. However, despite not being
incorporated into the Code, RRA 1998 sec. 3501, has the force of
law. See, e.g., Rochelle v. Commissioner, 116 T.C. 356, 358 n.2
(2001), affd. 293 F.3d 740 (5th Cir. 2002); Smith v.
Commissioner, 114 T.C. 489, 491 (2000), affd. 275 F.3d 912 (10th
Cir. 2001).
Respondent offers inconsistent meanings of the word
“collection” in the context of offsets as between Rev. Proc.
2000-15, sec. 5, and RRA 1998 sec. 3501(a). Respondent argues
that collection actions requiring notice only occur when the
taxpayer retains a right to prevent the actual collection action
from occurring. However, RRA 1998 sec. 3501 makes no such
distinction and requires the Commissioner to send notice
regardless of the type of collection activity that is occurring.
The notice is not intended to preempt collection action; rather,
it is intended to be informative.
Congress enacted the change to collection-related notices in
connection with the same statutory scheme that added the 2-year
period of limitations to claims made under subsections (b) and
(c) of section 6015. S. Rept. 105-174, at 59-60 (1998), 1998-3
C.B. 537, 595-596. The legislative history makes it clear that
Congress imposed the 2-year limitation period as part of a new
statutory mechanism that also requires the Commissioner to alert
taxpayers to their section 6015 rights. Id.; see also H. Conf. - 8 -
Rept. 105-599, at 251 (1998), 1998-3 C.B. 747, 1005. In
addition, RRA 1998 sec. 3501 and the legislative history reflect
Congress’s view that knowledge of the relief provisions by
married taxpayers was important to the effective application of
section 6015. Section 6015 added new options for taxpayers
seeking relief from joint liability. See King v. Commissioner,
115 T.C. 118, 120 (2000); Corson v. Commissioner, 114 T.C. 354,
359 (2000). The notice of the offset in this case (the
“accounting adjustment” notice) did not inform petitioner of her
section 6015 rights, and, as a result, petitioner was unaware of
her rights to relief under section 6015 until she hired counsel
in late 2001.
The incongruity of respondent’s position is untenable. The
offset was a collection action. Campbell v. Commissioner, 121
T.C. 290, 292 (2003). Accordingly, the notice of the offset was
a collection-related notice and should have included the
information required by RRA 1998 sec. 3501(b).
Respondent asserts that petitioner’s claim is nonetheless
barred by the 2-year limitation period reflected in Rev. Proc.
2000-15, sec. 5. Rev. Proc. 2000-15, supra, has been cited and
referenced by this Court in determining whether the Commissioner
abused his discretion in determinations regarding section
6015(f). Campbell v. Commissioner, supra at 292; Hall v.
Commissioner, T.C. Memo. 2004-170. We have not previously been - 9 -
faced with the Commissioner’s reliance on the 2-year limitation
period when the Commissioner took an inconsistent position in
failing to provide the collection-related notice required by RRA
1998 sec. 3501(a). In this case, respondent’s treatment of the
offset as a collection action, coupled with his failure to send
petitioner notice of her section 6015 rights as required by RRA
1998 sec. 3501, resulted in petitioner’s failure to seek section
6015(f) relief within 2 years after the first collection action
because she did not know of her rights. The problem here is not
with the language of the revenue procedure per se, but that the
revenue procedure has been interpreted in this case in a fashion
inconsistent with respondent’s application of the public law, and
that interpretation causes a result that is inconsistent with the
statutory scheme.
It would be inequitable if respondent could prevent review
of a request for relief under section 6015(f) by failing to
inform petitioner of her right to relief in defiance of a
congressional mandate. Such a result would be contrary to the
very purpose of section 6015(f), which is to relieve inequitable
situations involving joint liabilities. Respondent’s
administrative interpretations are given little weight when
inconsistent with a statutory scheme. United States v. Vogel
Fertilizer Co., 455 U.S. 16, 26 (1982); FEC v. Democratic
Senatorial Campaign Comm., 454 U.S. 27, 30 (1981). Rev. Proc. - 10 -
2000-15, sec. 5, should not be applied in a manner which
frustrates the legislative intent of section 6015 and the related
public law.
Accordingly, we hold that the running of the 2-year period
set forth in Rev. Proc. 2000-15, sec. 5, was not commenced by the
collection activity in May 1999. Respondent’s contrary
interpretation of Rev. Proc. 2000-15, sec. 5, is an abuse of
discretion.4
In Rochelle v. Commissioner, supra, and Smith v.
Commissioner, supra, we upheld the adequacy of notices of
deficiency despite their failure to state accurately the Tax
Court petition due date where there was no prejudice to the
taxpayers as a result of the Commissioner’s failure to follow the
public law. The petition due dates in those cases were
statutory, not provided by a revenue procedure. Regardless, we
specifically stated in Rochelle that “Simply put, this is not a
case of taxpayer prejudice which Congress intended to rectify”.
Rochelle v. Commissioner, 116 T.C. at 363. Our holding in Smith
relied on the lack of prejudice to the taxpayer, stating: “where
respondent failed to put the petition date on the notice, and
petitioners nevertheless received the notice and filed a petition
4 Petitioner also argues that it is inappropriate to have a strict limitations period on sec. 6015(f) because sec. 6015(f) is designed to address inequitable situations. Because of our analysis in this case, it is not necessary for us to reach this argument. - 11 -
in a timely manner, such notice was valid.” Smith v.
Commissioner, 114 T.C. at 492.
In the present case, respondent’s failure to follow section
3501(a) resulted in prejudice to petitioner by causing her to
fail to realize that she had rights to relief under section 6015
until more than 2 years after respondent applied her refund.
Unlike the notices of deficiency in Rochelle and Smith, which
notified the taxpayers of the 90-day period and the right to
petition the Tax Court, the notice of offset in the present case
did not give petitioner any information about her rights under
section 6015.
To reflect the foregoing,
An appropriate order will
be issued.