CCA 200003042: Bankruptcy court jurisdiction over joint liability relief

Plain-English summary

A debtor in bankruptcy claimed relief from joint tax liability under § 6015 without first asking the IRS for it. Chief Counsel advised that the bankruptcy court could consider the debtor's claims under § 6015(b) and (c) without a prior administrative request, subject to the election deadline and limits on review of previously adjudicated liabilities. The memorandum concluded that the court could not grant discretionary equitable relief under § 6015(f). It recommended seeking an IRS administrative determination anyway, including because the IRS could consider that equitable relief. This records the office's 1999 legal position in the cited bankruptcy matter.

Ruling snapshot

• Question: Could the bankruptcy court consider § 6015 joint liability relief without an earlier IRS request?
• Outcome: Advice: jurisdiction over subsections (b) and (c), but not equitable relief under subsection (f), in the memorandum's analysis.
• Key authorities: IRC § 6015; Bankruptcy Code § 505.

Full text (IRS public release)

                           DEPARTMENT OF THE TREASURY
                               I N T E R N AL R E V E N U E S E R V I C E
                                   WASHINGTON, D.C. 20224



Number: 200003042
Release Date: 1/21/2000                                           CC:EL:GL:Br2
October 8, 1999                                                   GL-607811-97
                                                                  UILC: 09.24.00-00
                                                                        9999.98-00

MEMORANDUM FOR DISTRICT COUNSEL, NORTH FLORIDA DISTRICT
               (JACKSONVILLE)

FROM:                    Gary D. Gray
                         Assistant Chief Counsel (General Litigation)

SUBJECT:                 Bankruptcy Court Jurisdiction over Relief from Joint and Several
                         Liability under I.R.C. § 6015

This memorandum responds to your request for advice dated October 14, 1998. This
document is not to be cited as precedent.

ISSUE: Does a bankruptcy court have jurisdiction over relief from joint and several
liability under I.R.C. § 6015?

CONCLUSION: The bankruptcy court has jurisdiction to consider relief from joint and
several liability under subsections (b) and (c) of section 6015, even if the taxpayer has
not filed an administrative request for relief with the Service. The bankruptcy court does
not have jurisdiction to consider equitable relief under subsection (f), since this is within
the sole discretion of the Service and is not reviewable by any court.

FACTS: Taxpayer, a debtor in a bankruptcy case, has asserted she is entitled to relief
from joint and several liability under section 6015. The taxpayer has not previously
raised section 6015 administratively with the Service. You have questioned whether the
bankruptcy court has jurisdiction to consider this matter. The argument can be made
that section 6015 requires that a taxpayer first request relief administratively from the
Service, and that section 6015 only permits review of Service administrative
determinations in the Tax Court or in the district court or court of claims if refund suits
are filed. Arguably, this scheme does not provide the bankruptcy court with jurisdiction
to consider relief under section 6015.

LAW AND ANALYSIS:

I. Background

A. Relief from Joint and Several Liability


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Section 3201 of the Internal Revenue Service Restructuring and Reform Act of 1998
(RRA) added section 6015, which offers individuals three options for relief from liability
for taxes for which they are jointly and severally liable under I.R.C. § 6013(d)(3).
Section 6015(b) (referred to as innocent spouse relief), which is an expanded version of
the innocent spouse relief available prior to the RRA under I.R.C. § 6013(e), permits an
individual to elect relief from liability with respect to understatements of tax on the joint
return that are attributable to the non-electing spouse. Relief is available if the
individual establishes that he or she did not know and had no reason to know of the
understatement, and it is inequitable to hold such individual liable for the deficiency
attributable to the understatement.

Section 6015(c) (referred to as allocation of liability) provides an alternative ground for
obtaining relief from joint and several liability. This provision permits an individual, if the
spouses are no longer married, are legally separated or have not lived together for the
entire 12 month-period prior to the election, to elect to have that individual’s liability for a
deficiency limited to items which would be allocable to that individual if the spouses had
filed separate returns.

Section 6015(f) (referred to as equitable relief) permits the Secretary to relieve an
individual of liability for any unpaid tax or any deficiency, pursuant to procedures
prescribed by the Secretary, if relief is not available under subsections (b) or (c) and it is
inequitable to hold the individual liable. Subsection (f) is the only provision of section
6015 which permits relief in the case of an underpayment of tax which is not a
deficiency (e.g., the correct amount is reported on the return, but the tax is not fully
paid). The Service has issued interim guidance for equitable relief under subsection (f)
effective December 7, 1998. Notice 98-61, 1998-51 I.R.B. 13. Section 3.01 contains
the threshold conditions for equitable relief, which includes the condition that relief is
not available to the individual under sections 6015(b) or (c). Section 3.02 lists the
circumstances under which equitable relief will ordinarily be granted. These
circumstances include an unpaid liability on a joint return, the individual is no longer
married, is legally separated, or has not lived with the other spouse for 12 months, the
individual did not know and had no reason to know that the tax would not be paid, and
the individual would suffer undue hardship if relief were not granted. Section 3.03
applies to individuals who meet the threshold conditions of section 3.01 but who do not
qualify for relief under section 3.02. These individuals may qualify for relief if taking into
account all facts and circumstances, it is inequitable to hold the individual liable for the
unpaid liability or deficiency. Section 3.03 contains a non-exhaustive list of factors to
be considered in granting relief under section 3.03. 1/


        1/ Factors weighing in favor of relief include: (1) the individual requesting relief is
separated, (2) the individual will suffer hardship if relief is not granted, (3) the individual
was abused by the other spouse, and (4) the other spouse has a legal obligation to pay
the liability pursuant to a divorce decree or agreement. Factors weighing against relief
include that (1) the liability is attributable to the individual, (2) the individual had


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Relief from liability under subsections (b) and (c) is only available if an individual makes
an election not later than two years after the commencement of collection activities
occurring after July 22, 1998, with respect to the individual making the election. I.R.C.
§§ 6015(b)(1)(E), 6015(c)(3)(B); RRA 3201(g)(2). Section 6015 does not specify any
period for filing for equitable relief under subsection (f). However, the Service has
imposed a two-year time limitation for filing requests for equitable relief under section
6015(f). See Notice 98-61.

Section 3201(c) of the RRA requires the Secretary to develop a separate form for
applying for relief under section 6015. The Service has developed Form 8857 which
permits the taxpayer to elect relief under each of the three subsections of section 6015.
Announcement 98-95.

Section 6015(e) provides for Tax Court review of requests for relief under subsections
(b) or (c), if the electing spouse files a petition during the 90-day period beginning on
the date that the Secretary mails by certified or registered mail a notice to the electing
spouse of the Secretary’s determination. If a notice of determination is not mailed
within 6 months after the election is filed, the spouse may file a Tax Court petition at
any time after the 6-month period and before the close of the 90-day period. If the
taxpayer brings a suit for refund, 2/ the Tax Court loses jurisdiction to the extent the
District Court or Court of Federal Claims acquires jurisdiction over the taxable years,
and the District Court or Court of Federal Claims acquires jurisdiction over the innocent
spouse issues. I.R.C. § 6015(e)(3)(C).

Section 6015 does not provide for any Tax Court review of the Service’s determinations
as to equitable relief under section 6015(f).

B. Bankruptcy Court Jurisdiction

Section 505 of the Bankruptcy Code gives a bankruptcy court jurisdiction to determine
the amount and validity of a debtor’s taxes. See Baker v. IRS, 74 F.3d 906 (9th Cir.
1996), cert. denied, 517 U.S. 1192 (1996); Michigan Employment Sec. Comm. v.
Wolverine Radio Co., 930 F.2d 1132, 1138-40 (6th Cir. 1991); Quattrone Accountants,
Inc. v. IRS, 895 F.2d 921, 924-25 (3d Cir. 1990). Section 505(a)(1) states:


knowledge or had reason to know of the liability, (3) the individual has significantly
benefitted from the unpaid liability beyond normal support, and (4) the individual has a
legal obligation pursuant to a divorce decree or agreement to pay the liability. Id. at
3.03.

        2/ A taxpayer can only bring a suit for refund with respect to relief under
subsection (b) since credits and refunds are only permitted with respect to subsections
(b) and (f), I.R.C. § 6015(e)(3)(A), and as discussed in this memorandum, relief under
(f) is not reviewable by a court.


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     Except as provided in paragraph (2) of this subsection, the court may determine
     the amount or legality of any tax, any fine or penalty relating to a tax, or any
     addition to tax, whether or not previously assessed, whether or not paid, and
     whether or not contested before and adjudicated by a judicial or administrative
     tribunal of competent jurisdiction.

B.C. § 505(a)(1). This provision is described in the legislative history as permitting a
“determination by the bankruptcy court of any unpaid tax liability of the debtor.” S. Rep.
989, 95th Cong., 2d Sess. 67, reprinted in 1978 U.S.C.C.&A.N. 5787, 5853. Section
505(a)(2), however, provides that the bankruptcy court has no jurisdiction where there
has been a prior judicial determination as to the merits of the tax liability, or, with
respect to the right of the estate to a tax refund, before the Government has the
opportunity to administratively consider a request for a tax refund. 3/ See Baker, supra,
74 F.3d at 909-910.

The automatic stay prohibits the commencement or continuation of a proceeding before
the Tax Court concerning the debtor after the filing of a bankruptcy petition. B.C.
§ 362(b)(8). The filing of a bankruptcy petition has the effect of giving the bankruptcy
court concurrent jurisdiction with the Tax Court over issues involving the debtor’s tax
liability. Because the bankruptcy court can lift the stay of Tax Court proceedings in its
discretion, the bankruptcy court has the power to decide in which court the tax issues
will be litigated. See United States v. Wilson, 974 F.2d 514 (4th Cir. 1992), cert.
denied, 507 U.S. 945 (1993).

The purpose of this broad grant of jurisdiction to the bankruptcy court is to allow the
bankruptcy court to resolve all tax disputes necessary for the efficient administration of
the estate. Stevens v. United States, 210 BR 200 (Bankr. M.D. Fla. 1997); In re
D’Alessio, 181 BR 756 (S.D. N.Y. 1995). “Congress wanted to provide a forum for the
quick resolution of disputed tax claims in order to avoid any delay in the conclusion of



       3/ This provision states:

       The court may not so determine –
             (A) the amount or legality of a tax, fine, penalty, or addition to tax if such
       amount or legality was contested before and adjudicated by a judicial or
       administrative tribunal of competent jurisdiction before the commencement of the
       case under this title; or
             (B) any right of the estate to a tax refund, before the earlier of –
                     (i) 120 days after the trustee properly requests such refund from
                     the governmental unit from which such refund is claimed; or
                     (ii) a determination by such governmental unit of such request.

B.C. § 505(a)(2).


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the administration of the estate.” Stevens, supra, 210 BR at 202; In re Diez, 45 BR
137, 139 (Bankr. S.D. Fla. 1984).

II. Legal Analysis

As previously discussed, section 6015 affords three types of relief: innocent spouse
relief under subsection (b), allocation of liability under subsection (c), and equitable
relief under subsection (f). We first discuss relief under subsections (b) and (c). If a
debtor/taxpayer is entitled to relief from liability under subsections (b) or (c), then this
will reduce the debtor’s tax liability. We, thus, conclude that a bankruptcy court’s
determination as to relief under sections 6015(b) and (c), just like any other issue
affecting the amount of the taxpayer’s tax liability, is a determination regarding the
“amount or legality of any tax” under section 505(a) and is within the bankruptcy court’s
jurisdiction.

The argument has been made, however, that because section 6015 specifically gives
the Tax Court jurisdiction over section 6015(b) and (c) relief, but does not confer similar
jurisdiction on the bankruptcy courts, this precludes bankruptcy courts from obtaining
jurisdiction. This argument, however, ignores the fact that section 505 is a general
grant of jurisdiction to bankruptcy courts of jurisdiction over all matters concerning the
amount or legality of the debtor's tax liability. See, e.g., Wilson, supra; United States v.
Huckabee Auto Co., 783 F.2d 1546 (11th Cir. 1986). Bankruptcy court jurisdiction is
not dependent on a specific grant of jurisdiction in the Internal Revenue Code. In
contrast, the Tax Court is a court of limited jurisdiction, and it can exercise its
jurisdiction only to the extent authorized by Congress. Halpern v. Comm., 96 T.C. 895
(1991); Naftel v. Comm., 85 T.C. 527 (1985). 4/

In order to deprive a bankruptcy court of jurisdiction, section 6015 would have to be
interpreted as an implied partial repeal of section 505(a). However, it is a general rule
of statutory construction that repeals by implication are not favored unless the intent to
repeal is clear and express. Rodriguez v. United States, 480 U.S. 522, 524 (1987); 73
Am. Jur. 2d Statutes §§ 396, 397 (2d ed. 1974). There is no indication in section 6015
that Congress intended to withdraw jurisdiction from bankruptcy courts over relief from
joint and several liability. The general rule of concurrent bankruptcy court and Tax
Court jurisdiction over tax matters should apply with respect to section 6015 to the
same extent as it would with any other Internal Revenue Code provision.



        4/ For example, the Tax Court only acquires jurisdiction to determine the
taxpayer’s deficiency upon the filing of a proper Tax Court petition by the taxpayer after
the Service issues a notice of deficiency, I.R.C. § 6213(a), and only acquires jurisdiction
to review the Service’s determination as to whether the taxpayer is entitled to section
6015 relief when the taxpayer files a proper petition from such determination under
section 6015(e)(1)(A).


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As previously discussed, the purpose of the broad grant of jurisdiction to bankruptcy
courts is to permit bankruptcy courts to efficiently resolve all matters affecting the
estate. Consistent with this purpose, if the debtor contests the Service’s tax claim on
the ground that she is entitled to relief pursuant to sections 6015(b) and (c), it is critical
that the bankruptcy court have jurisdiction over subsections (b) and (c) in order to
resolve all of the issues involving the debtor’s tax liability. We, thus, cannot argue that
the lack of an express grant of authority in section 6015 precludes the bankruptcy court
from having jurisdiction over section 6015(b) and (c) relief.

The argument has also been made that section 6015 requires that the taxpayer exhaust
administrative remedies within the Service before the bankruptcy court can have
jurisdiction over any matter concerning section 6015 relief. While it is true that
exhaustion of administrative remedies is a jurisdictional prerequisite to obtain Tax Court
review of the Service’s final determination as to relief under section 6015(e), see Tax
Court Rule 320, this is merely a restriction on Tax Court review of the Service’s final
determination and does not affect bankruptcy court jurisdiction. 5/

In any case, our position is that the administrative request and issuance by the Service
of a final determination under section 6015 (or failure to rule thereon) are not
jurisdictional prerequisites for the Tax Court to consider relief from joint and several
liability in a proceeding commenced in response to a notice of deficiency pursuant to
I.R.C. § 6213. As was possible with pre-RRA innocent spouse issues raised under
I.R.C. § 6013(e), a petitioner can raise section 6015 in a deficiency case. A petitioner
can raise section 6015 in a deficiency case even if such case was filed before the
enactment date, July 22, 1998, since section 6015 applies to unpaid liabilities for taxes
arising on or before the date of enactment. While section 6015(b) and (c) require an
“election” to be made, this can take any number of forms, including Tax Court pleadings
or other writings, not necessarily a Form 8857. We conclude that a taxpayer can raise
section 6015 relief in bankruptcy court without following the administrative procedures
in section 6015 just as a taxpayer can raise section 6015 relief in a Tax Court deficiency



       5/ As a general matter, limitations on Tax Court jurisdiction are not applicable in
Bankruptcy Court. For example, the Tax Court cannot review a tax liability until the
Service has first made an administrative determination by issuing a notice of deficiency.
I.R.C. § 6213. In contrast, the bankruptcy court is under no such restriction; it can
determine the “amount or legality of any tax” regardless of the administrative stage of
the Service’s consideration of the tax liability. The Service may estimate taxes on a
proof of claim where no returns have been filed and an audit has not been commenced.
See, e.g., United States v. Berger, 36 F.3d 996 (10th Cir. 1994). There is no question
that the bankruptcy court has jurisdiction to determine such tax liabilities if a party
objects to the proof of claim. See generally United States v. Wilson, 974 F.2d 514 (4th
Cir. 1992).


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proceeding commenced pursuant to section 6213 without following those administrative
procedures.

We also note that, as previously discussed, section 505(a)(2)(B) contains an express
exhaustion of administrative remedies requirement with respect to refunds. A similar
provision in section 505 would be necessary to deprive the bankruptcy court of
jurisdiction over section 6015 relief prior to a determination by the Service.

There are limitations to bankruptcy court jurisdiction over section 6015(b) and (c) relief.
First, the requirement of sections 6015(b)(1)(E) and (c)(3)(B) that the taxpayer must file
for relief no later than two years after the Secretary has begun collection activities with
respect to the taxpayer must apply if the issue is raised for the first time in the
bankruptcy case since the taxpayer is not entitled to section 6015 relief unless that
requirement is met. The date that the taxpayer raises the section 6015 issue in the
bankruptcy court should be considered the time the election is made for purposes of the
two-year period. Our office’s position is that collection activity does not commence for
purposes of the two-year period until the Service makes an actual levy against property
in which the electing spouse has an interest, or files a suit or a claim in a judicial
proceeding (e.g., a proof of claim) against the electing spouse.

Second, the requirements of section 505(a)(2) apply. The debtor cannot raise relief
from joint liability if the tax liability was previously contested and adjudicated pursuant to
section 505(a)(2)(A). See Baker, supra. Note, however, that section 6015(e)(3)(B)
provides that in the case of an election under subsection (b) or (c), a prior final Tax
Court decision for the same taxable year for which relief is requested shall be
conclusive except with respect to qualification for relief which was not an issue in the
prior Tax Court proceeding. This exception to res judicata for relief from joint liability
does not apply if the Tax Court determines that the individual participated meaningfully
in the prior Tax Court proceeding. Although this provision appears to have been drafted
with Tax Court jurisdiction in mind, when the bankruptcy court is considering relief from
joint liability it is acting as an alternative forum to the Tax Court, and, thus, the same res
judicata exception applicable in Tax Court should apply to the bankruptcy court. We,
thus, conclude that the section 6015(e)(3)(B) exception permits a debtor to raise relief
in bankruptcy court under subsections (b) or (c) despite a prior final Tax Court decision
unless the bankruptcy court determines that the debtor participated meaningfully in the
prior Tax Court proceeding.

While we conclude that the bankruptcy court has jurisdiction over relief under
subsections (b) and (c), we conclude that the bankruptcy court does not have
jurisdiction to consider equitable relief under subsection (f). Section 6015(f) states that
"the Secretary may relieve such individual of such liability" (emphasis added), which
indicates that equitable relief can only be granted by the Secretary. Since the word
“may” rather than “shall” is used, this also indicates that the Secretary can decide
whether or not to grant relief in the Secretary’s sole discretion. In contrast section
6015(b) states that the individual "shall be relieved of liability" and section 6015(c)(1)


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states that the individual’s liability "shall not exceed the portion of such deficiency
properly allocable to the individual under subsection (d)."

Section 6015(e) does not provide for any review of the Service’s determination as to
equitable relief under subsection (f). Section 6015(e) only permits a petition to be filed
with the Tax Court in “the case of an individual who elects to have subsection (b) or (c)
apply.” We conclude that the fact that the Tax Court was not provided any jurisdiction
over subsection (f) relief reflects Congressional intent that the Service’s determination
as to equitable relief is within its sole discretion and not reviewable by any court. When
a bankruptcy court is determining the amount or legality of a tax under section 505(a), it
is acting in place of the normal judicial forum for tax controversies, e.g., Tax Court.
Since the Tax Court does not have jurisdiction over equitable relief, the bankruptcy
court should be similarly precluded from considering equitable relief.

Although we conclude that the bankruptcy court has jurisdiction over section 6015(b)
and (c) relief, to avoid unnecessary litigation and to ensure uniformity in granting relief,
any debtor requesting relief in a bankruptcy case should be urged to file an
administrative request for relief with the Service, and to agree to a postponement of any
proceedings to permit the Service sufficient time to consider the request and make a
determination. One major advantage of administrative consideration to the taxpayer is
that the Service will have the opportunity to consider equitable relief under section
6015(f), which cannot be considered by the bankruptcy court. Additionally,
administrative consideration will assist in the development of a record regarding
entitlement to relief. Thus, when section 6015 is raised in bankruptcy court the Service
should attempt to have the matter administratively resolved before the bankruptcy court
considers the issue.

In conclusion, our position is that a bankruptcy court does have jurisdiction to consider
relief under sections 6015(b) and (c), even in the absence of an administrative request
for relief, although the Service should urge debtors to file administrative requests for
relief and request bankruptcy courts to defer consideration of the issue until after the
Service makes a determination. Our position is also that the bankruptcy court has no
jurisdiction to consider equitable relief under section 6015(f) since the granting of such
relief is within the sole discretion of the Service and is not reviewable by a court.

CASE DEVELOPMENTS, HAZARDS AND OTHER CONSIDERATIONS:


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     6/




     7/


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Finally, one additional issue which may arise in a bankruptcy court case in which the
debtor raises section 6015 relief is the ability of the non-debtor spouse to participate,
and the bankruptcy court’s jurisdiction over the other spouse’s tax liability. Section
6015 provides for notice to and participation by the other spouse in administrative and
Tax Court proceedings. I.R.C. §§ 6015(e)(4), (g)(2). There is no comparable statutory
authority which would permit a non-debtor spouse to have notice of and to participate in
a bankruptcy case where the debtor seeks section 6015 relief. Arguably, unless the
non-debtor spouse is a creditor of the debtor, the non-debtor spouse has no right to
participate in the bankruptcy case.

Insofar as the bankruptcy court permits a non-debtor spouse to participate, the question
arises whether the bankruptcy court has jurisdiction to determine the non-debtor
spouse’s entitlement to section 6015 relief. Our office’s position is that a bankruptcy
court has no jurisdiction over the tax liability of a non-debtor and, thus, has no
jurisdiction to determine the entitlement of a non-debtor spouse to section 6015 relief.
See American Principals Leasing Corp. v. United States, 904 F.2d 477 (9th Cir. 1990);
In re Brandt Airflex Corp., 904 F.2d 477 (2d Cir. 1988); United States v. Huckabee Auto
Co., 783 F.2d 1546 (11th Cir. 1986).




Please contact this office at (202) 622-3620 if you have any questions or comments
concerning this memorandum.

cc: Assistant Chief Counsel (IT&A)
    Assistant Chief Counsel (Field Service)