No Room at the Court

Tax disputes arise in different ways. The taxing authority can challenge a position a taxpayer takes on a return or a taxpayer can file an amended return, in effect, challenging a position he or she had previously taken. If the taxing authority fails to honor the position on the amended return, the taxpayer can generally sue for a refund.

In Billings v. Commissioner, handed down by the Tax Court today, the dispute arose in a slightly different manner.

Mr. Billings learned that his wife had embezzled money in 1999. He filed an amended joint return with his wife for that year and requested innocent spouse relief from the Tax Court. The type of petition that he filed is known as a:

"nondeficiency stand-alone" petition--"nondeficiency" because the IRS accepted his amended return as filed and asserted no deficiency against him, and "stand-alone" because his claim for innocent spouse relief was made under section 6015 and not as part of a deficiency action or in response to an IRS decision to begin collecting his tax debt through liens or levies.

In a previous case, Ewing v. Commissioner, 118 T.C. 494 (2002), the Tax Court had agreed that it had jurisdiction to hear such cases. However, the decision in Ewing was reversed by the Ninth Circuit (439 F.3d 1009 (9th Cir. 2006)) and the Ninth Circuit's position has been adopted by the Eighth Circuit (Bartman v. Commissioner, 446 F.3d 785, 787 (8th Cir. 2006)).

Today, the Tax Court threw in the towel and agreed that it lacked jurisdiction. The opinion, however, was merely a plurality opinion, with a separate concurrence and three dissenting opinions. (See the summary at TaxProf.)

The irony is that the issue may ultimately be nothing more than a footnote since a bill, S. 3523, has been introduced by Senators Feinstein and Kyl. The bill would allow nondeficiency stand-alone petitions to be filed "with respect to liability for taxes which are unpaid after the date of the enactment" of the Act. In other words, the only individuals who will not be able to file nondeficiency stand-alone petitions are Billings, Ewing, Bartmann, and anyone whose nondeficiency stand-alone petition is currently pending and with respect to which a decision is rendered prior to the date of passage of the bill.

What advice to clients: Hurry up and wait (until S. 3523 passes).

Hat tip to TaxProf for the links to Ewing I, Ewing II, and Bartman.

Second Thoughts: Upon reflection, I think that the last sentence of my analysis is incorrect. It is based on the assumption that the doctrine of res judicata would bar Billings, et al., whose nondeficiency stand-alone petitions either are or would be dismissed for lack of jurisdiction prior to the passage of S. 3523, from refiling after its passage. I now believe that they could refile. After all, the first dismissal was due to a lack of jurisdiction which, by virtue of S. 3523, will be cured retroactively. Presumably, their cases would fall within the class of cases that S. 3523 would allow since their cases would be filed "with respect to liability for taxes which are unpaid."