This is another lower court case not particularly significant as precedent but having some interesting aspects and leaning value.

The District Court granted theU.S.’s Motion for Summary Judgment in its suit to obtain a judgment against defendant Mary Miles’ in the amount of an outstanding federal tax assessment against her of $262,050. The tax liability arose from a 1995 joint return she had filed with her former husband. The facts pertinent to this discussion are:

• The tax was assessed on August 31, 1998 and the suit to reduce the assessment to judgment was filed on May 28, 2010 and for the sale of taxpayer.
• Ms. Miles asserted affirmative defenses which she argued created genuine issues of fact that required trial, and, therefore, summary judgment should not be granted.  She asserted:
  •   The suit was time barred because the statute of limitations on collection, generally ten years from assessment, had run.
  • She signed the return under duress and consequently the return is not a joint return.
  • She was an innocent spouse and should be relieved from joint and several liability under Sec. 6015(f) (equitable relief). She alleged:
    • She was asked by her former husband to sign the joint return in 1998.
    • “He threatened to tear the family apart,” and complicate the divorce settlement if she refused to sign.
    • She had been subjected to severe emotional and verbal abuse throughout the marriage.
    • Former husband had dominated and controlled all financial affairs not allowing her to become familiar with their financial condition.
    • She was on a strict budget for household expenses throughout the marriage.
    • At the time, she was under the influence of pain medication and struggling financially.
    • Ultimately she signed because, she assumed he would pay the tax liability as he had the means to pay.
    • Her income on the joint return comprised less than 5% of the total income reported in the return.
    • The spouses had been separated since 1986 although they did not divorce until 1996.
  • Her daughter had an interest in the property under Californialaw greater than that reflected on the legal ownership record.

The court noted the standard for review of a summary judgment motion, whether there  no “genuine disputed issues of material fact remained,” and viewing the evidence most favorably to Ms. Miles, whether theU.S.was clearly entitled to prevail as a matter of law.   Generally, theU.S.would bear the burden of showing that there is no material factual dispute.  Notwithstanding, the court reject all but one of Ms. Miles defenses.

Innocent Spouse Relief claim dismissed
The court summarily disposed of her defense of equitable relief under Sec. 6015(f), by holding that a taxpayer must first File Form 8857 with IRS pursuant to Reg. 1.6015-(5); and, that the U.S. District Court has no jurisdiction to consider the innocent spouse defense when the taxpayer has not first sought such relief with the IRS.  At least two other District Courts have so held,U.S.vBoynton,S.D.Cal(2007 WL 737725)and U.S. V. Robert Haag and Kathleen Haag, D.C. Mass.  (2005 WL 2650274).  In Haag, the court found that the spouse asserting the defense, “never submitted an election with the IRS as required by statute and administrative regulations and that the time for doing so has elapsed.”  Clearly, the defense must be timely raised.  In Haag it was not.  It is not clear that the defense was untimely in Miles, however.

The IRS has changed is position on when equitable relief must be asserted from 2 years following commencement of collection activity to before expiration of the collection statute of limitations.  Yet, even under the two-year position, collection activity does not commence until proper mailing of a Sec. 6330 Notice (due process rights) or commencement by theU.S.of suit to collect the tax. (see Reg. Sec. 1.6015-5(b)(4) Example 4).  Thus, Ms. Miles under the Regulation would have two years from the date of commencement of a suit to collect by IRS to seek equitable relief.  Under the new IRS rule, she could seek relief up to the expiration date of the collection statute of limitations which in this case creates an interesting paradox.

The court held that she must file Form 8857 but the regulation permits the spouse to seek relief without filing Form 8857, if he or she will, “submit a written statement containing the same information.” (Reg. 1.6015-5(a)).  Thus, it would seem not only compliant but logical to permit the spouse to assert the affirmative innocent spouse defense in a suit to collect the tax (first collection action if not Sec. 6330 Notice had been provided).  The decision does not mention whether the taxpayer had received a collection due process notice. Recording of the FTL is not deemed collection activity under Reg. 1.6015-5(b)(2)(i).  The court had the case at issue and the innocent spouse claim for that year had not been litigated in the Tax Court.  Thus, no res judicata proscription was present.

Duress claim rejected
The court found that Ms. Miles, having been separated for 12 years from her abusive spouse, and stating that she thought he would pay the tax liability, was not “unable to resist demands” that she sign.  The court found that she did in fact made a choice rather than having “no choice” because she thought he would pay.  I can only speculate that it was more a case of her weighing the disturbance the difficult man would cause in their divorce settlement and with family members, as he’d threatened, against the likelihood of his no honoring his promise to take care of the tax, if she would sign.  She was not compelled but pressured.  IRS Notice 2012-8 proposing a new unnumbered Revenue Procedure elevates abuse and financial control in its consideration. Still, I believe long-standing abuse can make it impossible for a spouse to resist demands to sign and amounts to duress.  In this case, the 12 year separation militated against the court accepting the duress claim.

Claim that suit is untimely
The court denied Ms. Miles defense that theU.S.suit was untimely because the statute of limitations on collection had run.  TheU.S.submitted a certificate of assessment and payments to establish the dates and amounts of taxes due, the assessment and notice and demand.  The court held that the certificate creates a presumption that the tax liability is correct which must be rebutted by Ms. Miles.  That may be so, as to the amount of the liability, date of assessment and payment, but on its face theU.S.suit appears untimely.  The assessment was made on August 31, 1998 and the suit commenced on May 28, 2010, more than 10 years after the date of assessment.  Normally, pleading that a deficiency notice was issue after running of the statute shifts the burden of proof the IRS to introduce evidence that shows the statute had been extended or tolled. With regard to suits to collect, IRM Sec. 5.17.4.4 (3) states: “If …commencement of the collection suit after the normal period for such action ahs expired, the burden is upon the Government to show that (an) exception applies.  Failure to carry this burden will generally result in a dismissal of the proceedings.”  While IRM instructions are not authority, they may be correct.  In this instance, it would appear so.  For, what the court suggests is that Ms. Miles had to plead that there are no exceptions to the normal 10 year statute and that there were no tolling events.  This seems to put the shoe on the wrong foot.  TheU.S.should be required to show that its claim is timely or the court would not obtain jurisdiction.

Ownership Issues
The court denied summary judgment on the ownership issues finding that there were issues of fact to be decided regarding division of the proceeds on sale of the property for which theU.S.sought an order for sale.

Lessons from this case

• Ms. Miles should have raised the innocent spouse claim earlier. Choice of forum should be tactical not defensive.
• The case was poorly developed and argued before the District Court.  There is no mention in the decision of transcripts having been ordered, of whether there was a due process notice.
• Innocent spouse issues are complex questions of fact and law.

© 2012 by Robert S. Steinberg, Esquire
All rights reserved