This is another lower court case not precedential, but having some interesting aspects and leaning value.
The District Court granted the U.S.’s Motion for Partial Summary Judgment in its suit to obtain a judgment against the named defendants and Charles Lebeau’s former law practice for federal income and employment tax assessments covering various years, plus penalty and interest assessments. The joint return income tax assessments totaled $1,068,362 as of April 1, 2010 while the payroll tax assessments solely against Charles Lebeau and his law practice totaled $344,820. The tax years of the assessments being argued on Summary Judgment Motions dated from 1992 to 1999 and payroll taxes for quarters during the years 1994 through 2001. The court granted the United States’ motions on its complaint and also granted its motion on the defendant’s counterclaim based on the statute of limitations and innocent spouse defenses asserted. What is noteworthy is as follows:
- Form 4340, Certificate of Assessments and Payments establishes the correctness of the assessments in the absence of contrary evidence.
- The 10 year collection statute of limitations would have run but for the defendants having taken actions that at various times tolled the running of the statute, including:
- Filing four bankruptcies (statute tolled during pendency and for 6 months thereafter under Code Sec. 6502(a).
- Filing a Request for Collection Due Process Hearing which tolls the statute during the pendency of the proceedings (Code Sec. 6330(e) (1).
- Due to these various tolled periods, the suit by theU.S.was found to be timely.
- The court ruled that it lacked jurisdiction to consider Ms. Lebeau’s innocent spouse affirmative defense. Although she had requested innocent spouse relief from IRS and was denied, she did not appeal to the U.S. Tax Court. The District Court stated:
- “Under 26 U.S.C. Sec. 6015, a taxpayer seeking to file an election under the innocent spouse statue must do so in the first instance with the secretary of the IRS and then may appeal to the Tax Court. The Court of Appeals has exclusive jurisdiction to review the decisions of the Tax Court. 26 U.S.C. Sec. 6015(e) (1) (A). The district court has jurisdiction to decide an innocent spouse issue only when the taxpayer files a refund suit in the district court while a Sec. 6015 petition is pending with the Tax Court (citations omitted). Otherwise, the district court has no jurisdiction to decide to decide an innocent spouse claim.”
- The court held that the government’s failure to follow certain procedural statements in the IRM did not establish a right to bring a private action and is not a basis for dismissing the government’s suit. IRM 22.214.171.124.1-5 explains Executive Order 12778 on Civil Justice Reform which requires in referring a civil action to the DOJ, that either the Office of Chief Counsel or the DOJ make a reasonable effort to notify all parties to the dispute and achieve a settlement.
- The court held that the government is not required to first pursue less drastic measures before bringing a suit to reduce a tax assessment to judgment; and, statements in the IRM suggesting that such suits are a last resort after all collection measures have failed or when the collection statute of limitations is about to expire are not binding on the government.
- Issues as to the government’s claim against separate property of Ms. Lebeau were held not relevant as the government was not seeking to foreclose on its lien against such property but only to reduce its assessment to judgment.
- Filing a joint tax return renders both spouses jointly and severally liable regardless of provisions in a marital settlement agreement (MSA) that the spouses were to file separately or claims of preparer mistake.
- A joint return, once filed, cannot be amended to married filing separate returns, once the filing deadline for the year in question has passed.
- The court lacked jurisdiction to rule on the defendants’ request for injunctive relief (Anti-Injunction Act – court’s reasoning not summarized) and for damages from their allegations that the IRS filed unlawful tax liens on Ms. Lebeau’s separate property. Damages for unauthorized levies under Code Sec. 7432 and Sec. 7433 are not awardable unless the plaintiff has exhausted all administrative remedies available within the IRS by making claim in writing the Area Director, ATTN: Compliance Technical Support Manager” of the area in which the taxpayer currently resides. Reg. Sec. 301.7433-1 (e) (1). Suit may not be filed until the IRS has issued a decision or failed to act on the claim within 6 months of the date of filing. Reg. Sec. 301.7433-1(d).
Lessons from this case
- Don’t sign a joint return to save your former spouse few dollars in tax, even if you receive a share of the tax savings; and, never sign a joint return when you have agreed in an MSA to file separately. The agreement is not binding on IRS if you sign the return.
- If you intend to pursue innocent spouse relief in District Court, nonetheless consider appealing to Tax Court the IRS Final Determination denying your innocent spouse request. Ms. Lebeau did not pay the tax and sue for refund in this case; but, the court states as dicta that she must appeal to the Tax Court for the district court to obtain jurisdiction. If a taxpayer intends to pay the tax and sue for refund it seems pointless to require that they first file a petition with the Tax Court, however.
- Careful thought should precede filing a bankruptcy for tax purposes or requesting a Collection Due Process Hearing. Weigh the likelihood of obtaining release against the tolling of the collection statute of limitations. If the statute is near expiring, wait, unless IRS irreparable damage is imminent and unavoidable by any other means.
- Don’t rely on arguing as an escape door that IRS did not follow every word in its manual to the letter.
© 2012 by Robert S. Steinberg, Esquire
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