What Counts as Evidence in an Innocent Spouse Lawsuit?

US Tax Forms.Tax forms background. The concept of tax settlement.

Can the IRS present new evidence in support of its administrative innocent spouse determinations? A recent Tax Court decision on a motion to strike provides new insight on what counts as evidence in an innocent spouse lawsuit. While the party presenting evidence in Thomas v. Commissioner was the IRS, the same reasoning can be used by an innocent spouse, allowing them to present additional evidence to the Trial Court after the IRS denies their administrative application.

Domestic Abuse Victims Can File for Innocent Spouse Relief from the IRS

When married spouses file their tax returns as “married filing jointly” they report the aggregate income for both spouses and pay a single tax liability based on that aggregate amount. However, when taxes are due, the spouses are both jointly and severally liable for those tax liabilities. That means the IRS has the authority to collect unpaid taxes from either spouse, no matter whose income triggered them.

But sometimes, one spouse may reasonably be unaware of the financial actions of the other spouse. For example, when one spouse engages in a pattern of domestic and financial abuse toward their husband or wife, the domestic abuse victim may qualify for innocent spouse relief.

That was the case in Thomas v Commissioner, a recent opinion issued by the United States Tax Court. Mr. and Mrs. Thomas filed joint tax returns for 2012, 2013, and 2014. But Mrs. Thomas asserted that Mr. Thomas had controlled her life, financially and through domestic abuse. As a result, she did not realize that Mr. Thomas had not paid the taxes owed on those statements. After his death in 2016, the IRS tried to collect the unpaid taxes from Mrs. Thomas. She then sought innocent spouse relief based on his abuse, but the IRS denied her request. Mrs. Thomas then filed a lawsuit in the United States Tax Court appealing that denial.

How Does an Innocent Spouse Prove They are Entitled to Relief?

When a would-be innocent spouse files a request for relief with the IRS, the innocent spouse can provide evidence of all the relevant facts including:

  • Marital status
  • Economic hardship caused by the tax obligation
  • That the spouse did not receive significant benefit from the wrongfully withheld tax payments
  • Subsequent compliance with federal tax law by the innocent spouse
  • The non-innocent spouse’s legal obligation to pay the tax amount (such as under a divorce judgment or contract)
  • The innocent spouse’s reasonable expectation that the non-innocent spouse would pay the tax liability
  • The innocent spouse’s poor physical or mental health
  • Other relevant circumstances

The petition and supporting facts are weighed by the Cincinnati Centralized Innocent Spouse Operation (CCISO). However, the CCISO’s determination is generally issued using stock language. It won’t explain what aspects of the innocent spouse application were deficient. Instead, the would-be innocent spouse can file a lawsuit for the federal courts to review the IRS’s denial of the innocent spouse application.

What Counts as Evidence in an Innocent Spouse Lawsuit?

In 2019, the United States Congress passed the Taxpayer First Act. That law adjusted the way the federal courts review IRS administrative decisions on requests for innocent spouse relief. The amendment to Section 6015 says:

Any review of a determination made under this section shall be reviewed de novo by the Tax Court and shall be based upon—

  1. the administrative record established at the time of the determination, and
  2. any additional newly discovered or previously unavailable evidence.

But in the last few years it has not been clear how broadly the Tax Court would apply the “newly discovered” evidence exception. Thomas v Commissioner was the first time the issue came before the Court.

IRS Tried to Expand the Record in Tax Court

In Thomas, the IRS sought to present new evidence to the Tax Court: excerpts from Mrs. Thomas’s personal blog, showing her assets, lifestyle, business, and relationship with Mr. Thomas. The IRS intended to show that she had enjoyed substantial benefit from her husband’s unpaid tax liability. These blog posts had been posted between November 2, 2016 through January 5, 2022. But the CCISO’s had denied her request on September 8, 2020. So the question for the Tax Court was whether the blog posts that were posted before the CCISO determination were “newly discovered” and could be used at trial.

Mrs. Thomas argued that the blog posts should not be admissible because similar language in the federal rules of civil procedure (FRCP) says “newly discovered evidence that, with reasonable diligence, could not have been discovered in time to move for a new trial.” Mrs. Thomas argued that her blog posts were publicly accessible before the CCISO issued its determination, and all the IRS needed to do was do an internet search for her name.

The Tax Court said that Section 6015 did not have the same limiting language as the FRCP. Since the IRS is a decision-maker, not a party, at the innocent spouse determination stage, it had no obligation to investigate or present evidence at that time. The Court said it didn’t make sense to prevent the IRS from expanding the record when it had no duty to present evidence in the first stage of the case.

The Tax Court also considered an amicus brief filed by the Center for Taxpayer Rights, the Community Tax Law Project, the UC Hastings Low-Income Taxpayer Clinic, and the Villanova Federal Tax Clinic in favor of a broader definition of newly admitted evidence. The Tax Court acknowledged that it is supposed to review innocent spouse determinations “de novo” – or from scratch – rather than determining if the IRS abused its discretion in reaching its decision. The IRS’s “skeletal administrative procedures” do not include extensive testimony or allow the taxpayer to subpoena witnesses or documents. Further, the form-decisions issued by the CCISO may prevent the taxpayer from knowing why their request was denied prior to filing their lawsuit, so a broader evidentiary standard allows the taxpayer to supplement the record after the reason for the denial becomes clear.

The Tax Court recognized that “the potential influence of domestic violence in innocent spouse cases warrants special consideration in applying the reasonable diligence standard.” In other words, domestic violence victims need to be able to respond to their abusers’ allegations against them, which they may not receive during the administrative process. So the Tax Court’s decision makes it possible for the requesting spouse to submit newly discovered evidence during the innocent spouse lawsuit.

In Mrs. Thomas’s case, it was the IRS seeking to admit newly discovered evidence that was not presented during the administrative stage. But in other cases, the innocent spouse may need to supplement the record with information not available to them – or that they did not realize they needed to present – at the administrative stage. This broader definition of “newly discovered evidence” will make it easier for requesting spouses to fully develop their case in an innocent spouse lawsuit, even after the IRS has denied their request.

Attorney Joseph R. Viola is a tax attorney in Philadelphia, Pennsylvania with over 30 years experience. If you have questions about Innocent Spouse Relief, contact Joe Viola to schedule a consultation.

Categories: Tax / IRS Penalties