Last week, I argued on behalf of a taxpayer in the United States Court of Appeals for the Third Circuit in Philadelphia against the United States Department of Justice. I originally became involved in the appeal as a law student in the tax clinic at Duquesne University. I drafted the appellate brief that was filed in June 2010, and had the opportunity now as an attorney to argue the case before a panel comprised of Judges Fisher, Ambro, and Greenberg. The court is expected to make a decision within the next few months.
The issue in the appeal is rather complex, but the main points of the issue are as follows:
- Congress enacted a broad "innocent spouse relief" provision in 1998. Generally when a married couple files a joint tax return both spouses are liable if there is a deficiency or an underpayment of tax. The statute provides three ways a taxpayer can escape liability if the other spouse was responsible for creating the liability.
- One of the three provisions allows a taxpayer to seek relief if "taking into account all the facts and circumstances, it would be inequitable to the taxpayer liable."
- The Secretary issued a regulation that imposed a two-year statute of limitations under the section. No request for relief made after two years will be considered.
In this case, the taxpayer’s ex-husband forged her signature on the certified mail receipt of the Internal Revenue Service’s Notice of Intent to Levy. The effect was that the taxpayer did not have notice the administrative statute of limitations had begin to run. When the taxpayer was told by her ex-husband that her signature was forged, it was already too late. Her request was less than five months after the statute of limitations had passed. The Internal Revenue Service admitted that had her request been timely, she would have been entitled to receive relief.
One of the things I argued is that a statute of limitations is invalid because the IRS will not take into account all the facts and circumstances of a request. When there is a statute of limitations, only one factor is considered: time. Therefore under no circumstances, even if it is plainly inequitable to hold a taxpayer liable, will an innocent spouse be able to receive relief. The court did express concern about the harsh results of permitting the regulation. It is a complex issue that has gained national attention since the court’s decision will affect taxpayers in New Jersey, Pennsylvania, Delaware and the Virgin Islands, and the decision will likely influence other appellate courts that will have to decide the issue in the upcoming year.
It was an honor to argue before the court regarding such an important issue. The argument was attended by several law school clinics that will be arguing the same issue in the near future. This issue will have broad-reaching implications. If the court invalidates the regulation, it will be a victory for many taxpayers. It may also lead to other circuit courts likewise finding the regulation invalid. It was certainly the intent of Congress to prevent the type of inequity that a statute of limitations will create. If the court does invalidate the regulation, however, look for the issue to find its way to the Supreme Court next term.
Click here to hear the audio for the oral argument.