UNITED STATES TAX COURT
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126 T.C. No. 4
UNITED STATES TAX COURT
LOIS E. ORDLOCK, Petitioner v.
COMMISSIONER OF INTERNAL REVENUE, Respondent
Docket No. 17021-02.
Filed January 19, 2006.
P resides in a community property State. P and H
filed joint tax returns for 1982, 1983, and 1984. P
and H paid the reported tax liabilities. Additional
tax liabilities--i.e., understatements--arose that were
attributable to erroneous items of H (H’s understatements). The parties agree that P is entitled to sec.
6015(b), I.R.C., relief for the years in issue and P’s
liability for these years is zero after application of
sec. 6015(b), I.R.C.
After the years at issue until the present, R
applied numerous payments to H’s understatements. One
payment was from P’s “separate property”, as defined by
Cal. Fam. Code sec. 770(a) (West 2004). All other
payments were from P and H’s “community property”, as
defined under Cal. Fam. Code sec. 760 (West 2004). P
seeks a refund pursuant to sec. 6015(g), I.R.C., of the
payments R applied to H’s understatements made with her
separate property and with the community property. R
does not dispute that P may be entitled to a refund for
- 2 the payment made from her separate property unless sec.
6511, I.R.C., applies.
Held: P is not entitled to a refund of amounts
from community property used to pay H’s understatements.
Clayton J. Vreeland, for petitioner.
Patrick W. Lucas, for respondent.
OPINION
GOEKE, Judge:
Respondent determined that petitioner is
entitled to relief under section 6015(b).1
The issue for
decision is the amount of refund, if any, petitioner is entitled
to under section 6015(g).
Background
The parties submitted this case fully stipulated under Rule
122.
The stipulation of facts and the attached exhibits are
incorporated herein by this reference.
On July 26, 2002, respondent sent petitioner a Notice of
Determination Concerning Your Request for Relief from Joint and
Several Liability Under Section 6015 (notice of determination).
The notice of determination indicates that petitioner is entitled
to relief under section 6015(b) of $160,912 for taxable years
1
Unless otherwise indicated, all section references are to
the Internal Revenue Code as amended, and all Rule references are
to the Tax Court Rules of Practice and Procedure.
- 3 1982, 1983, and 1984, for which she and her spouse (Mr. Ordlock)
filed joint Federal income tax returns.
The following table
provides the specific adjustments for each taxable year in issue
as stated in the notice of determination:
Tax Period(s)
12/31/1982
12/31/1983
12/31/1984
Amount of relief
you requested
$314
80,081
132,606
Amount of relief
we could allow
Amount of
tax remaining
($621)
54,208
132,601
-0-0-0-
The notice of determination further specifies that “We’ve granted
your request in full, you don’t have to take any further action.”
On November 1, 2002, the date the petition was filed,
petitioner resided in Anaheim, California.2
In her petition,
petitioner, through her attorney, alleged that
The Commissioner has apparently determined to allow
Petitioner’s request in full, but the Notice [of
determination] does not expressly state that
Petitioner’s request is allowed in full, and the Notice
[of determination] contains various erroneous amounts
and calculations which misstate and miscalculate the
amounts of relief for which Petitioner is eligible
under Code Section 6015(b). The effect of these
misstatements and miscalculations is that the Notice
[of determination] does not allow Petitioner’s request
for relief in full. Therefore, this petition is
necessary in order to verify that the Commissioner
intended to allow Petitioner’s request in full and to
correctly determine and state the full amount of relief
for which Petitioner is eligible under Code Section
6015(b).
2
We note that petitioner’s petition was postmarked Oct. 24,
2002, and was therefore timely.
- 4 Given these allegations, petitioner prayed that
this Court may hear the case and determine (i) that
Petitioner is entitled to relief from all joint and
several liability on the joint returns of Petitioner
and her spouse for each of the 1982, 1983, and 1984 tax
years, in the full amount of such liability that was
unpaid as of July 22, 1998, and (ii) that Petitioner is
further entitled to relief from all joint and several
liability for interest, penalties, and other amounts
attributable to such unpaid (as of July 22, 1998)
liability, and (iii) that the Court grant such other
and further relief to which Petitioner may be entitled.
In short, petitioner’s petition took issue with the scope of the
section 6015(b) relief granted to petitioner in the notice of
determination.3
At trial, on January 5, 2004, the parties made a joint
motion for leave to submit case under Tax Court Rule 122, which
the Court granted.
The parties agree that petitioner is entitled to section
6015(b) relief from joint and several liability for the taxable
years 1982, 1983, and 1984.
The parties further agree that the
application of section 6015(b) causes petitioner to have a
Federal income tax liability (including interest, penalties, and
other amounts) of zero for those years.
3
We note that the issue of whether petitioner is entitled
to a refund was not specifically raised in the petition but was
subsequently raised and briefed by the parties.
- 5 Reported Taxes and Payments
Petitioner and Mr. Ordlock (the Ordlocks) filed joint
Federal income tax returns for the taxable years 1982, 1983, and
1984.
On their returns they reported Federal income tax owed for
each year.
Respondent made numerous assessments for penalties,
additional amounts of tax owed, and interest for the years in
issue.
The information most relevant to the refund issue
presented includes the payments and credits applied to the
Ordlocks’ 1982, 1983, and 1984 taxable years, which were made
from “community property” assets as defined in Cal. Fam. Code
sec. 760 (West 2004), unless otherwise indicated.
All of the
payments for the years in issue are shown in the appendix hereto.
The Ordlocks remained married at the time the payments on these
tax liabilities were made.
Although the parties agree that one
payment was from separate property and the rest from community
property, no effort has been made at this stage of the litigation
to trace the actual sources of the payments listed in the
appendix.
A.
1982
The Form 4340, Certificate of Assessments, Payments, and
Other Specified Matters, for the Ordlocks’ 1982 taxable year does
not list their adjusted gross income or taxable income.
However,
the Ordlocks’ 1982 tax return was filed on June 22, 1983, and
reported $23,569 of Federal income tax owed.
From April 15,
- 6 1983, through May 7, 2003, the Ordlocks made numerous payments,
and respondent applied an overpayment credit to their 1982 tax
liability.
B.
The payments and credits totaled $142,882.67.
1983
The Ordlocks received an extension of time until August 15,
1984, to file their 1983 return.
On June 6, 1984, the Ordlocks
filed their 1983 return reporting $105,571 of Federal income tax
owed.
The Form 4340 for the Ordlocks’ 1983 taxable year shows
their adjusted gross income was $544,739 and taxable income was
$400,852.
From April 15, 1984, through May 5, 1998, the Ordlocks
made numerous payments, and respondent applied overpayment
credits to the Ordlocks’ 1983 tax liability.
The payments and
credits totaled $293,626.95.
C.
1984
The Ordlocks received an extension of time to file their
1984 tax return until August 15, 1985.
The Ordlocks reported
$92,787 of Federal tax income owed for 1984 on their return,
which was filed May 5, 1985.
The Form 4340 for the Ordlocks’
1984 taxable year shows their adjusted gross income was $489,194
and taxable income was $436,822.
From April 15, 1985, through
May 9, 2002, the Ordlocks made payments and respondent applied
overpayment credits to their 1984 tax liability.
and credits totaled $95,645.31.
The payments
- 7 Discussion
Whether petitioner is entitled to a refund4 under section
6015(g) related to community property assets used to pay Mr.
Ordlock’s understatements presents an issue of first impression
for this Court.5
Relief from joint and several tax liability for
the taxable years in issue is not an issue because respondent has
conceded that petitioner is eligible for relief under section
6015(b).
I.
Is Petitioner Entitled to a Refund?
A.
The Parties’ Contentions and the Issue Presented
Petitioner contends that section 6015(g) is unambiguous and
its application entitles her to a refund of community property
assets used to pay Mr. Ordlock’s understatements.
Respondent
argues that petitioner is not entitled to a refund of community
property assets.
Respondent contends that the “relief” provided
to petitioner under section 6015(b) is relief from being held
jointly or severally liable for her and Mr. Ordlock’s 1982, 1983,
and 1984 joint tax liabilities.
Respondent further argues that
4
The parties’ filings address neither when the period of
limitations under sec. 6511 expires in this case, nor whether
petitioner has filed a refund claim within that period.
Consequently, we do not discuss these issues.
5
This is not the first instance this issue has arisen in
Federal tax litigation. See United States v. Stolle, 86 AFTR 2d
5180, 2000-1 USTC par. 50,329 (C.D. Cal. 2000).
- 8 section 6321 provides for a lien on the Ordlocks’ community
property to secure Mr. Ordlock’s liability and therefore no
refund of community property can be granted.
The crux of this dispute is the application of the last
sentence of section 6015(a) and the language of section
6015(g)(1).
The last sentence of section 6015(a) provides:
“Any
determination under this section shall be made without regard to
community property laws.”
Section 6015(g)(1) provides as
follows:
SEC. 6015(g). Credits and Refunds.-(1) In general.--Except as provided in
paragraphs (2) and (3), notwithstanding any
other law or rule of law (other than section
6511, 6512(b), 7121, or 7122), credit or
refund shall be allowed or made to the extent
attributable to the application of this
section.
The dispute turns on the meaning of the phrases “Any
determination under this section” in section 6015(a) and
“notwithstanding any other law or rule of law” in section
6015(g)(1).
Petitioner argues that “Any determination” in
section 6015(a) is comprehensive and includes the application of
section 6015(g)(1), and that State community property laws are
disregarded under the “any other law” language in section
6015(g)(1).
Petitioner’s position does not focus on taxable income for
the taxable years at issue, but rather on the ownership of the
payments made on the joint tax liabilities over the subsequent 20
- 9 years.
Petitioner asserts that section 6015 requires this Court
to reallocate payments between petitioner and Mr. Ordlock based
on the economic sources, despite the continued existence of the
marital community.
This position has far-reaching implications
as it would cause us to read section 6015 as a statutory
exception to the well-established law that State law defines
ownership interests in property for purposes of Federal tax
collections under section 6321.
See United States v. Craft, 535
U.S. 274, 292 (2002); Aquilino v. United States, 363 U.S. 509,
513 (1960); United States v. Bess, 357 U.S. 51, 55 (1958); Morgan
v. Commissioner, 309 U.S. 78, 82 (1940).
The question here is whether Congress has given us a “clear
and unequivocal” intent to supplant community property law
regarding payments of the type made on the Ordlocks’ joint tax
liability.
B.
Powell v. Commissioner, 101 T.C. 489, 494 (1993).
Statutory Interpretation and Construction
Our analysis begins with the language of the statute.
Consumer Prod. Safety Comm. v. GTE Sylvania, Inc., 447 U.S. 102,
108 (1980).
Statutes are to be read to give effect to their
plain and ordinary meaning unless that would produce absurd or
futile results.
United States v. Am. Trucking Associations,
Inc., 310 U.S. 534, 543 (1940); see Tamarisk Country Club v.
Commissioner, 84 T.C. 756, 761 (1985).
Moreover, where the
language of a statute is clear on its face, we require
unequivocal evidence of legislative purpose before construing the
- 10 statute to override the plain meaning.
Halpern v. Commissioner,
96 T.C. 895, 899 (1991); Huntsberry v. Commissioner, 83 T.C. 742,
747-748 (1984).
1.
Section 6015
Congress enacted section 6015 in the Internal Revenue
Service Restructuring and Reform Act of 1998 (RRA 1998), Pub. L.
105-206, sec. 3201, 112 Stat. 734, as a means of expanding relief
to innocent spouses.
See H. Conf. Rept. 105-599, at 249-255
(1998), 1998-3 C.B. 747, 1003-1009; S. Rept. 105-174, at 55- 60
(1998), 1998-3 C.B. 537, 591-596; H. Rept. 105-364 (Part 1), at
60-62 (1997), 1998-3 C.B. 373, 432-434.
Section 6015 replaced
section 6013(e) for any liability for tax arising after July 22,
1998, and any liability for tax remaining unpaid as of that date.
2.
“Any determination”
We first address whether a credit or refund under section
6015(g) is a “determination” for purposes of the last sentence of
section 6015(a).
We start with the statutory use of the word
“determination” in the context of community property laws and
relief from joint liability.
Former section 6013(e) was added to
the Internal Revenue Code of 1954 by the Act of Jan. 12, 1971,
Pub. L. 91-679, sec. 1, 84 Stat. 2063.
It provided limited
relief from joint return liability in paragraph (1) and included
in paragraph (2)(A) the following “Special rules”:
- 11 (2)
Special rules.--For purposes of paragraph (1)--
(A) the determination of the spouse to
whom items of gross income (other than gross
income from property) are attributable shall
be made without regard to community property
laws * * *
This “Special rule” remained a part of section 6013(e) until it
was replaced by section 6015 in 1998.
The House version, Internal Revenue Service Restructuring
and Reform Act of 1997, H.R. 2676, 105th Cong., 1st Sess. sec.
321 (1997), of the community property laws exclusion for section
6015(a) included much the same language as former section
6013(e)(2)(A).
However, the Senate amendment, RRA 1998, H.R.
2676, 105th Cong., 2d Sess. sec. 3201 (1998), and the adopted
version of H.R. 2676 in RRA 1998, sec. 3201, eliminates the
language modifying the word “determination” and refers to “any
determination”.
The accompanying legislative history of the
Senate amendment does not indicate any intent to disturb State
law ownership interests in property for purposes of recalculating
payments in fixing refunds under section 6015.
See S. Rept. 105-
174, at 56-57 (1998), 1998-3 C.B. 537, 592-593.
The Joint Committee’s explanation of the Senate’s change is
as follows:
Items are generally allocated between spouses in the
same manner as they would have been allocated had the
spouses filed separate returns. The Secretary may
prescribe other methods of allocation by regulation.
The allocation of items is to be accomplished without
regard to community property laws.
- 12 Staff of Joint Comm. on Taxation, Comparison of Provisions of
H.R. 2676 Relating to IRS Restructuring and Reform as Passed by
the House and the Senate, at III-15 (J. Comm. Print 1998); see
Staff of Joint Comm. on Taxation, General Explanation of Tax
Legislation Enacted in 1998 (the so-called Blue Book), at 68 (J.
Comm. Print 1998).
This explanation is consistent with allowing
more flexibility for the Secretary to write regulations regarding
allocations of income items for purposes of fixing the amount of
relief from joint and several liability.
This explanation is
also consistent with “any determination” concerning relief from
joint and several tax liability for a specific taxable year, but
not consistent with an analysis of the cash or property which has
been collected on said liability.
It is also noteworthy that the Senate amendments added
equitable relief from joint and several liability.
This is
significant because equitable relief is not based on separate
income computations, which were the grist of the community
property waiver under former section 6013(e).
3.
Use of the Word “Determination” in Section 6015
After section 6015(a), the word “determine” or
“determination” appears five times in section 6015, four of which
are in subsection (e).
The four instances in subsection (e)
refer to determinations of “relief” under section 6015 and
pertain to this Court’s jurisdiction to review the Secretary’s
final determination of that relief.
The words “determination”
- 13 and “determine” do not appear in subsection (g)(1), which
provides that a “credit or refund shall be allowed or made to the
extent attributable to the application of this section.”
6015(g)(2) provides:
Section
“The exception contained in the preceding
sentence shall not apply if the court determines that the
individual participated meaningfully in such prior proceeding.”
4.
History of Section 6015(g)
In 1998, paragraph (3)(A) of section 6015(e), as amended by
a technical correction in the Omnibus Consolidated and Emergency
Supplemental Appropriations Act, 1999, Pub. L. 105-277, sec.
4002(c)(2), 112 Stat. 2681-906 (1998), provided as follows:
(3)
Applicable rules.--
(A) Allowance of credit or refund.-Except as provided in subparagraph (B),
notwithstanding any other law or rule of law
(other than section 6512(b), 7121, or 7122),
credit or refund shall be allowed or made to
the extent attributable to the application of
subsection (b) or (f).
The technical corrections in the Community Renewal Tax Relief Act
of 2000, Pub. L. 106-554, sec. 313, 114 Stat. 2763A-640, 2763A641, amended subsection (e)(3) by redesignating subsection (g) as
(h) and adding new subsection (g)(1), which provides:
SEC. 6015(g).
Credits and Refunds.--
(1) In general.--Except as provided in
paragraphs (2) and (3), notwithstanding any
other law or rule of law (other than section
6511, 6512(b), 7121, or 7122), credit or
refund shall be allowed or made to the extent
attributable to the application of this
section.
- 14 The House conference report indicates that the reason for
the 2000 technical correction was as follows:
Allowance of refunds.--The current placement in
the statute * * * may inappropriately suggest that the
provision applies only to the United States Tax Court,
whereas it was intended to apply administratively and
in all courts. The bill clarifies this by moving the
provision to its own subsection. [H. Conf. Rept. 1061033, at 1023 (2000), 2000-3 C.B. 304, 353.]
Accordingly, the original intent of section 6015(e)(3) remains
useful for our purposes.
In that regard, the House report’s
initial explanation of the refund provisions in section 6015 is
pertinent:
“The Tax Court may order refunds as appropriate where
it determines the spouse qualifies for relief and an overpayment
exists as a result of the innocent spouse qualifying for such
relief.”
H. Rept. 105-364 (Part 1), supra at 61, 1998-3 C.B. at
433.
Similar to the language modifying “determination” in the
current version of section 6015(e), this Court’s authority under
section 6015(g)(1) to refund an overpayment flows from our
“determination” of relief from joint and several tax liability.
5.
“[N]otwithstanding any other law or rule of law”
Respondent argues that pursuant to section 6321, a lien
attaches to the entire amount of the Ordlocks’ community
property, and thus, no refund of community property can be
granted.
The Federal tax lien statute does not create property
rights but merely imposes consequences, Federally defined, to
rights created under State law.
United States v. Craft, 535 U.S.
- 15 at 278; United States v. Bess, 357 U.S. at 55.
Accordingly,
whether property can be reached by application of the Federal tax
lien statute depends on what rights the taxpayer has in the
property under State law.
United States v. Craft, supra at 278.
Petitioner counters that the “notwithstanding” provision of
section 6015(g) takes precedence over all other statutes, laws,
and rules of law that would conflict with or restrict a refund or
credit.
The phrase “notwithstanding any other law or rule of law”
should not always be read literally.
Or. Natural Res. Council v.
Thomas, 92 F.3d 792, 796-797 (9th Cir. 1996); E.P. Paup Co. v.
Director, OWCP, 999 F.2d 1341, 1348 (9th Cir. 1993); Kee Leasing
Co. v. McGahan (In re Glacier Bay), 944 F.2d 577, 582 (9th Cir.
1991); Golden Nugget, Inc. v. Am. Stock Exchange, Inc., 828 F.2d
586, 588-589 (9th Cir. 1987).
If read literally here, the phrase
could be applied to avoid all State law property ownership
provisions in both common law and community property States, thus
creating an absence of law to define the ownership of the
payments for purposes of the section 6015(g) refund jurisdiction.
Even if limited to community property provisions, petitioner’s
position leaves us with no law or resource to define the
ownership of the payments made from 1985 until 2003 on the tax
liabilities for the years at issue.
- 16 At this point, an excerpt from Powell v. Commissioner, 101
T.C. at 494, is especially apt:
Another significant ingredient is reflected in the
judicial attitude in respect of the interplay between
Federal laws and State community property laws. This
attitude is set forth in the following statement by the
Supreme Court in Mansell v. Mansell, 490 U.S. 581, 587
(1989):
Because domestic relations are preeminently
matters of state law, we have consistently
recognized that Congress, when it passes
general legislation, rarely intends to
displace state authority in this area. See,
e.g., Rose v. Rose, 481 U.S. 619, 628 (1987);
Hisquierdo v. Hisquierdo, 439 U.S. 572, 581
(1979). Thus we have held that we will not
find pre-emption absent evidence that it is
“‘positively required by direct enactment’”.
Hisquierdo, supra, at 581 (quoting Wetmore v.
Markoe, 196 U.S. 68, 77 (1904)). The instant
case, however, presents one of those rare
instances where Congress has directly and
specifically legislated in the area of
domestic relations. [Emphasis supplied.]
In light of the foregoing approach, the Supreme
Court has decreed that Federal law supplants community
property law only where the congressional intent to
accomplish such a result is clear and unequivocal.
Mansell v. Mansell, supra (military retirement pay and
veterans’ disability benefits); McCarty v. McCarty, 453
U.S. 210 (1981) (military retirement pay); Hisquierdo
v. Hisquierdo, 439 U.S. 572 (1979) (railroad retirement
benefits); Wissner v. Wissner, 338 U.S. 655 (1950)
(deceased army officer’s life insurance); In re
Marriage of Hillerman, 167 Cal. Rptr. 240 (Ct. App.
1980) (Social Security benefits). * * *
In addressing the question of whether there is “clear and
unequivocal” congressional intent to supplant established
reference to State law, the legislative history of the
predecessor of section 6015(g) and the wording of the refund
- 17 provision in section 6015(e)(3) following the 1998 technical
correction are helpful.
In 1998, the refund authority in section 6015(e)(3) was tied
specifically “to the extent attributable to the application of
subsection (b) or (f)”, or in the words of the House report, was
exercisable when the Tax Court “determines the spouse qualifies
for relief and an overpayment exists as a result of the innocent
spouse qualifying for such relief.”
H. Rept. 105-364 (Part 1),
supra at 61, 1998-3 C.B. at 433.
Given this history, we see an intent to create refund
authority tied specifically to a determination of relief from
joint and several tax liability.
However, we see no explicit
intent to supplement that relief by revisiting the nature of
prior payments under State community property laws.
Had Congress
intended courts to interpret section 6015 in the manner that
petitioner suggests, it would have provided an alternative to
State law to define property rights.
void in the collection scheme.
Otherwise, there will be a
We find no congressional intent
to create such a void, nor to have it filled by the judiciary.
II.
Other Problems and Inconsistencies That Would Result From
Petitioner’s Position
A.
Disregarding Community Property Laws in the Context of
Section 6015(g) Would Discriminate Against Married
People Who File Separately
If spouses file separate returns and only one spouse is
liable for unpaid taxes, the Internal Revenue Service can collect
- 18 out of community assets.
See McIntyre v. United States, 222 F.3d
655 (9th Cir. 2000); see also sec. 6321.
However, under
petitioner’s section 6015 argument, if married spouses filed
jointly, the Government could not collect out of community assets
without some tracing mechanism when one spouse receives section
6015 relief.
Without Congress’s explicit rationale or statement
of such an intent, we find this result to be inconsistent.
B.
Disregarding Community Property Laws in the Context of
Section 6015(g) Would Create Potential Abuse
We must avoid an interpretation of section 6015(g) that
would create a potential for abuse by allowing community property
laws to be disregarded during the collection process.
Because
section 6015 relief is often granted many years after the taxable
year at issue, the timespan offers an opportunity to change the
source of the payments that are otherwise community property.
In
an effort to avoid paying tax liabilities, married taxpayers in
community property States could structure future payments so that
ownership is attributable to the spouse requesting relief under
section 6015, while continuing a jointly financed lifestyle.
C.
Did Congress Leave Open the Question of How To Divide
Property Between Spouses for Collection Purposes?
As stated previously, another problem with petitioner’s
position is the lack of legislative direction regarding how to
divide the assets between spouses in community property States
for collection purposes.
If we adopt petitioner’s interpretation
- 19 of section 6015 and refrain from looking to State law, a question
arises as to where courts should derive such guidance.
In addition, petitioner’s approach would lead to a very
complex factual analysis to trace the acquisition of the assets
used to make over 20 years of tax payments.
It is likely that a
married couple will continue to acquire assets throughout their
relationship.
Tracing the acquisition of those assets to
ascertain what assets should be attributed to which spouse is an
administrative nightmare that would severely impede collection
and lead to layers of judicial interpretation and analysis.
We
think Congress did not intend to create such a difficult factual
issue in adopting section 6015.
III.
Concern With Denial of Effective Relief
Petitioner suggests that our holding today will frustrate
congressional intent by effectively denying section 6015 relief
to persons in community property States.
This suggestion appears
to assume that the marital community continues after the year for
which relief is sought, which is obviously not always the case.
Nevertheless, we will examine the consequences of our holding
where the spouse seeking relief remains married in a community
property State after the taxable year in question, as in the
present case.
The Ordlocks remained married in California.
They continued
to accumulate assets and make payments on their joint tax
liabilities for 1982, 1983, and 1984 for over two decades.
If
- 20 Mr. Ordlock had been personally liable to a nongovernment
creditor, the community assets would have been a potential source
of payment to that creditor.
The question is whether Congress intended to place the
Commissioner at a disadvantage concerning liabilities such as Mr.
Ordlock’s.
As we have stated, we see no evidence of such
congressional intent, nor do we see petitioner’s position as
advantageous to tax administration given the problems discussed
previously.
The nature of a marital community in California is
to generally allow the individual debts of the spouses to be
collected out of community assets.
Cal. Fam. Code sec. 910 (West
2004); McIntyre v. United States, supra; Babb v. Schmidt, 496
F.2d 957 (9th Cir. 1974); Weinberg v. Weinberg, 432 P.2d 709,
713-714 (Cal. 1967); Grolemund v. Cafferata, 111 P.2d 641 (Cal.
1941).6
The policies behind the law can be debated, but a
decision not to disrupt this rule for tax liabilities is sound.
A marital community can involve many sources of income, many
assets, and many expenses.
How these expenses are paid, how the
income is handled, and how assets are acquired are all choices of
the spouses.7
Attempts to undo these choices and determine the
6
The California Supreme Court in Grolemund v. Cafferata,
111 P.2d 641 (Cal. 1941), expressly distinguished California’s
community property law from the “community debt” and “separate
debt” positions of Washington and Arizona.
7
Community property rights are equal regardless of which
spouse acquires the property. The following describes the nature
(continued...)
- 21 sources of payments and asset acquisitions are inherently
inconsistent with the concept of a continued marital community
and obviously likely to disrupt that community.
IV.
Conclusion
“Any determination” in section 6015(a) refers to
determinations of whether an individual taxpayer is entitled to
7
(...continued)
of the equal ownership:
The equal ownership of the community property assets
and acquisitions has never been dependent upon a
calculus of labor or talent. Both man and woman
equally are partners in the marriage; both equally
share marital property, regardless of whether or not
the actual asset was earned by one or the other. For
example, if the wife is a highly paid attorney and the
husband is a school teacher or works primarily at home,
the differential in actual earnings or earning capacity
is irrelevant to the ownership rights of each. The
notion of marriage as a true legal partnership extends
to all the property earned by either partner during
marriage. In the common law states, if a husband earns
$60,000 a year and the wife's role is that of a
homemaker, whether she has the primary responsibility
of raising the couple's children or not, she will be
entitled only to a statutory fraction of her husband's
estate on his death, one-half to one-third in most
states. During the existence of the marriage she has
no direct interest in his earnings, aside from her
right to support.
In the community property system, on the other
hand, both spouses have a continuing half ownership of
the marital earnings from the beginning of the marriage
and from the time of acquisition of the property. Each
party in the law today is an equal agent of the
partnership, binding it if acting within the scope of
his or her authority and if acting for the joint
benefit of the family. The California community
property system adds to joint ownership the right of
equal management and control.
Bassett, California Community Property Law, sec. 1:18 (2005 ed.).
- 22 relief from joint and several tax liability under section 6015.
This reading is consistent with the legislative history and
statutory construction; a broader reading is not.
The phrase “notwithstanding any other law or rule of law” in
section 6015(g)(1) should not be read to ignore State law for
purposes of defining property interests subject to a Federal tax
lien under section 6321.
We do not find that Congress intended
for community property laws to be ignored under section
6015(g)(1) regarding payments made on tax liabilities.
Accordingly, petitioner is not entitled to a refund of an
overpayment attributable to payments made from community
property.
To reflect the foregoing and concessions by respondent,
Decision will be entered
under Rule 155.
Reviewed by the Court.
GERBER, COHEN, HALPERN, CHIECHI, THORNTON, HAINES, WHERRY,
KROUPA, and HOLMES, JJ., agree with this majority opinion.
LARO, J., dissents.
- 23 APPENDIX
Payments applied to the Ordlocks’ 1982 tax liability:
Date
04/15/1983
Explanation
Amount
Withholding & excess
FICA
$55,535.00
08/07/1996
Miscellaneous payment
99.00
09/06/1996
Miscellaneous payment
99.00
10/08/1996
Miscellaneous payment
99.00
11/07/1996
Miscellaneous payment
99.00
12/09/1996
Miscellaneous payment
99.00
01/08/1997
Miscellaneous payment
99.00
02/05/1997
Miscellaneous payment
99.00
03/05/1997
Miscellaneous payment
99.00
04/07/1997
Miscellaneous payment
99.00
04/15/1997
Overpayment credit
applied
7,558.91
05/05/1997
Miscellaneous payment
99.00
06/11/1997
Miscellaneous payment
99.00
07/01/1997
Miscellaneous payment
99.00
08/04/1997
Miscellaneous payment
99.00
09/04/1997
Miscellaneous payment
99.00
10/07/1997
Miscellaneous payment
99.00
10/30/1997
Miscellaneous payment
99.00
12/09/1997
Miscellaneous payment
99.00
01/08/1998
Miscellaneous payment
99.00
02/12/1998
Payment
99.00
02/26/1998
Subsequent paymentlevy
1,500.09
Subsequent paymentlevy
7,865.46
Subsequent miscellaneous payment
198.00
Subsequent paymentlevy1
2,485.97
03/03/1998
03/06/1998
03/11/1998
- 24 03/16/1998
Subsequent paymentlevy
3,577.06
Subsequent paymentlevy
8,695.83
Subsequent paymentlevy
1,905.46
03/19/1998
Subsequent payment
77.36
03/23/1998
Subsequent paymentlevy
15.00
Subsequent miscellaneous payment
99.00
Subsequent paymentlevy
44,567.80
Subsequent miscellaneous payment
99.00
Subsequent miscellaneous payment
99.00
Subsequent miscellaneous payment
99.00
Subsequent miscellaneous payment
601.98
Subsequent miscellaneous payment
99.00
Subsequent miscellaneous payment
99.00
Subsequent miscellaneous payment
99.00
Subsequent miscellaneous payment
99.00
Subsequent miscellaneous payment
99.00
Subsequent miscellaneous payment
99.00
Subsequent miscellaneous payment
99.00
Subsequent miscellaneous payment
99.00
Subsequent miscellaneous payment
99.00
Subsequent miscellaneous payment
99.00
03/16/1998
03/16/1998
04/08/1998
04/14/1998
05/05/1998
06/04/1998
07/07/1998
08/06/1998
08/06/1998
09/10/1998
10/06/1998
11/04/1998
12/04/1998
01/07/1999
02/03/1999
03/03/1999
05/06/1999
06/08/1999
- 25 07/08/1999
08/06/1999
09/08/1999
11/04/1999
12/06/1999
01/05/2000
02/09/2000
03/03/2000
04/04/2000
05/04/2000
06/06/2000
07/07/2000
08/08/2000
08/08/2000
09/06/2000
10/06/2000
11/08/2000
12/04/2000
01/04/2001
02/02/2001
03/05/2001
Subsequent miscellaneous payment
99.00
Subsequent miscellaneous payment
99.00
Subsequent miscellaneous payment
99.00
Subsequent miscellaneous payment
99.00
Subsequent miscellaneous payment
99.00
Subsequent miscellaneous payment
99.00
Subsequent miscellaneous payment
99.00
Subsequent miscellaneous payment
99.00
Subsequent miscellaneous payment
99.00
Subsequent miscellaneous payment
99.00
Subsequent miscellaneous payment
99.00
Subsequent miscellaneous payment
99.00
Subsequent miscellaneous payment
273.00
Subsequent miscellaneous payment
99.00
Subsequent miscellaneous payment
99.00
Subsequent miscellaneous payment
99.00
Subsequent miscellaneous payment
99.00
Subsequent miscellaneous payment
99.00
Subsequent miscellaneous payment
99.00
Subsequent miscellaneous payment
99.00
Subsequent miscellaneous payment
99.00
- 26 04/04/2001
05/04/2001
06/05/2001
07/06/2001
08/03/2001
08/06/2001
09/06/2001
10/05/2001
11/06/2001
12/05/2001
01/02/2002
02/04/2002
03/01/2002
04/05/2002
05/03/2002
06/05/2002
07/02/2002
08/02/2002
09/03/2002
10/02/2002
11/__/20022
Subsequent miscellaneous payment
99.00
Subsequent miscellaneous payment
99.00
Subsequent miscellaneous payment
99.00
Subsequent miscellaneous payment
99.00
Subsequent miscellaneous payment
99.00
Subsequent miscellaneous payment
204.75
Subsequent miscellaneous payment
99.00
Subsequent miscellaneous payment
99.00
Subsequent miscellaneous payment
99.00
Subsequent miscellaneous payment
99.00
Subsequent miscellaneous payment
99.00
Subsequent miscellaneous payment
99.00
Subsequent miscellaneous payment
99.00
Subsequent miscellaneous payment
99.00
Subsequent miscellaneous payment
99.00
Subsequent miscellaneous payment
99.00
Subsequent miscellaneous payment
99.00
Subsequent miscellaneous payment
99.00
Subsequent miscellaneous payment
99.00
Subsequent miscellaneous payment
99.00
Subsequent miscellaneous payment
99.00
- 27 12/11/2002
01/10/2003
02/07/2003
03/06/2003
04/04/2003
05/07/2003
Subsequent miscellaneous payment
99.00
Subsequent miscellaneous payment
99.00
Subsequent miscellaneous payment
99.00
Subsequent miscellaneous payment
99.00
Subsequent miscellaneous payment
99.00
Subsequent miscellaneous payment
99.00
Total
142,882.67
1
The parties agree that the Mar. 11, 1998, $2,485.97
payment in the form of levy was made from the petitioner’s
separate property”, as defined in Cal. Family Code sec.
770(a) (West 2004) (separate property).
2
The exact day was illegible.
Payments applied to the Ordlocks’ 1983 tax liability:
Date
04/15/1991
04/15/1984
06/06/1984
04/15/1992
06/16/1995
08/07/1995
07/06/1995
08/10/1995
09/06/1995
Explanation
Amount
Overpayment credit
applied
$4,228.00
Withholding and excess
FICA
67,463.00
Return filed and tax
paid
35,958.45
Overpayment credit
applied
4,921.00
Subsequent miscellaneous payment
98.00
Subsequent miscellaneous payment
250.00
Subsequent miscellaneous payment
98.00
Subsequent miscellaneous payment
98.00
Subsequent miscellaneous payment
99.00
- 28 10/10/1995
11/08/1995
12/06/1995
01/09/1996
02/06/1996
03/04/1996
04/09/1996
05/03/1996
06/05/1996
06/13/1996
07/08/1996
03/03/1998
05/05/1998
Subsequent miscellaneous payment
99.00
Subsequent miscellaneous payment
99.00
Subsequent miscellaneous payment
99.00
Subsequent miscellaneous payment
99.00
Subsequent miscellaneous payment
99.00
Subsequent miscellaneous payment
99.00
Subsequent miscellaneous payment
99.00
Subsequent miscellaneous payment
99.00
Subsequent miscellaneous payment
99.00
Subsequent paymentFederal tax lien
78,177.66
Subsequent miscellaneous payment
99.00
Subsequent miscellaneous payment
100,488.28
Subsequent miscellaneous payment
757.56
Total
293,626.95
Payments applied to the Ordlocks’ 1984 tax liability:
Date
04/15/1985
Explanation
Amount
Withholding & excess
FICA
$52,351.00
04/15/1985
Subsequent payment
20,000.00
05/22/1985
Payment with return
22,594.00
10/07/1998
Subsequent miscellaneous payment
99.00
- 29 09/03/2001
Overpaid credit applied
600.00
05/09/2002
Overpaid credit applied
1.31
Total
95,645.31
- 30 THORNTON, J., concurring:
I agree with the majority opinion
and write to append additional views in support of it.
“[D]omestic relations are preeminently matters of state
law”.
Mansell v. Mansell, 490 U.S. 581, 587 (1989).
Accordingly, “the Supreme Court has decreed that Federal law
supplants community property law only where the congressional
intent to accomplish such a result is clear and unequivocal.”
Powell v. Commissioner, 101 T.C. 489, 494 (1993) (citing Supreme
Court precedents).
There is no question or dispute that section
6015(a) supplants community property law for purposes of
determining eligibility for relief from joint and several
liability.
But as the majority opinion concludes, there is no
“clear and unequivocal” indication that Congress intended to go
further (as urged by petitioner and the dissenters) and supplant
community property law that would otherwise permit a creditor
(here, the Internal Revenue Service) to reach community assets
and apply them to a debt owed by one spouse alone (here, Mr.
Ordlock).
Rather, the legislative history strongly suggests that
Congress did not intend to supplant community property law in
this manner.
The predecessor of section 6015 was section 6013(e), enacted
in the Act of Jan. 12, 1971, Pub. L. 91-679, sec. 1, 84 Stat.
2063.
Under section 6013(e), in certain circumstances a
requesting spouse could be eligible for relief from tax liability
with respect to erroneously omitted gross income attributable to
- 31 the other spouse.
Section 6013(e)(2)(A) provided that for this
purpose, “the determination of the spouse to whom items of gross
income (other than gross income from property) are attributable
shall be made without regard to community property laws”.
The
legislative history makes clear that the intended effect of this
provision was to disregard community property for purposes of
determining the requesting spouse’s eligibility for relief.1
In 1997, in expanding the relief available under former
section 6013(e), the House bill retained language substantially
identical to the just-quoted language:
“For purposes of this
subsection, the determination of the spouse to whom items of
gross income (other than gross income from property) are
attributable shall be made without regard to community property
laws.”
H.R. 2676, 105th Cong., 1st Sess. sec. 321 (1997); H.
Rept. 105-364 (Part 1), at 19 (1997), 1998-3 C.B. 373, 391.
1
The House and Senate reports on the 1971 legislation state
identically:
The bill provides that the determination of the spouse
to whom items of gross income, other than gross income
from property, are attributable is to be made without
regard to community property laws. Thus, the rules of
community property are not followed with respect to
earned income or income from theft or embezzlement.
Income earned by a husband, for example, and omitted
from a joint return, is to be attributed to the
husband, even though it may constitute community
property, in determining whether the wife is entitled
to relief from the tax liability under this provision.
* * * [H. Rept. 91-1734, at 4 (1971); S. Rept. 911537, at 4 (1971), 1971-1 C.B. 606, 608.]
- 32 The first appearance of what is now the flush language of
section 6015(a) (the disputed language) occurred in 1998, in the
Senate amendment to the just-described House bill.
Whereas the
House had agreed to liberalize the type of relief available under
former section 6013(e), the Senate agreed to a different type of
relief:
in the case of a deficiency arising from a joint return,
the Senate amendment would have permitted the spouse to elect to
be liable only to the extent that items giving rise to the
deficiency were allocable to the spouse.2
For this purpose, under
the Senate amendment, as under current section 6015(c), items
were generally allocated between spouses in the same manner as
they would have been allocated if the spouses had filed separate
returns.
The Senate amendment, like the disputed language of
current section 6015(a), states that “Any determination under
this section shall be made without regard to community property
laws.”
H.R. 2676, sec. 3201(a), as amended and passed by the
Senate on May 7, 1998.
The report of the Senate Finance
Committee explains this provision as follows:
“The allocation of
items is to be accomplished without regard to community property
laws.”
2
S. Rept. 105-174, at 56 (1998), 1998-3 C.B. 537, 592.
The Senate amendment also provided additional relief in
situations where tax was shown on a return but not paid with the
return. This type of relief was not included in the conference
agreement. See H. Rept. 105-599, at 254 (1998), 1998-3 C.B. 747,
1008. The Senate amendment also contained provision for
“equitable relief”, a version of which is now found in sec.
6015(f).
- 33 Rather than choose between them, the conference agreement
incorporated both the House version of expanded relief from joint
and several liability (currently in section 6015(b)) and, for
certain limited circumstances, the Senate version of allocable
relief (currently in section 6015(c) and (d)).
The conference
agreement also included the Senate version of the language
supplanting community property law (what is currently the flush
language of section 6015(a)).
Describing this provision of the
Senate amendment, the conference report repeats verbatim the
explanation from the Senate Finance Committee:
“The allocation
of items is to be accomplished without regard to community
property laws.”
H. Rept. 105-599, at 250 (1998), 1998-3 C.B.
747, 1004.
As previously noted, this stated purpose was consistent
with the longstanding provision of section 6013(e) for
supplanting community property law, which had been adopted
verbatim in the House bill.
In fact, the conference report does
not even acknowledge any difference between the House and Senate
bills in this regard, or between the conference agreement and
prior law.
Instead, the conference report states that the
conference agreement “follows the Senate amendment” with respect
to deficiencies for taxpayers who are no longer married, or who
are legally separated or not living together; and “also includes
the provision in the House bill expanding the circumstances in
which innocent spouse relief is available.”
Id. at 251, 1998-3
- 34 C.B. at 1005.
The conference report further states that it
“follows the House bill and the Senate amendment with respect to
procedural rules”.
Id. at 255, 1998-3 C.B. at 1009.
In sum, the legislative history lends strong support to the
view that in enacting section 6015, Congress intended to supplant
community property law only for purposes of making the necessary
allocations to determine eligibility for relief from joint and
several liability, just as had been the case for over a quarter
of a century under former section 6013(e).
There is not the
slightest indication that Congress intended to expand the
preemption of State law in the manner urged by petitioner and the
dissenters.
The question arises whether section 6015(a) is so clear and
unequivocal as to require preemption of State community property
law in the manner urged by petitioner and the dissenters,
notwithstanding legislative history to the contrary.
I agree
with the majority opinion that the statute is ambiguous in this
regard and accordingly fails to provide the “clear and
unequivocal” expression of congressional intent that the Supreme
Court requires for supplanting community property law.
Commissioner, 101 T.C. at 494.
Powell v.
In the first instance, for
reasons described in the majority opinion, there is considerable
doubt as to whether allowing (or disallowing) a refund or credit
constitutes a “determination” within the meaning of section
- 35 6015(a).
But no less fundamentally, in my view, for the reasons
discussed below, even if such an action were considered a
“determination”, it would not be a determination “under” section
6015, within the meaning of section 6015(a).
Before a taxpayer may be allowed a refund or credit, there
must be a determination that the taxpayer has made an
overpayment.
See secs. 6401 and 6402.
The term “overpayment” is
not statutorily defined but is construed to mean “any payment in
excess of that which is properly due.”
Jones v. Liberty Glass
Co., 332 U.S. 524, 531 (1947).
Under this definition, an
overpayment has two elements:
“(1) the correct tax for the year
and (2) the amounts paid as tax.”
Saltzman, IRS Practice and
Procedure, par. 11.02, at 11-10 (rev. 2d ed. 2002).
Section 6015
addresses only the first element; i.e., the extent to which the
individual should be relieved of joint and several liability for
the year.3
Before the individual may be entitled to a refund,
however, there must also be a determination of the second
element; i.e., the amount of tax the individual has paid.
This
determination implicates a host of factual and legal issues
(including the issue of how to source payments from community
property assets), none of which arise under or can be resolved
3
A determination of relief under sec. 6015 would not
necessarily be dispositive of the individual’s correct tax for
the year, inasmuch as the individual might have income taxes or
other Federal taxes due unrelated to the amounts subject to
relief under sec. 6015.
- 36 under section 6015.4
Moreover, even if it is determined that the
individual has an overpayment, the amount of any refund or credit
to which the individual is entitled may depend upon other issues
arising outside the scope of section 6015, such as whether the
overpayment should be reduced by various offsets that the
Secretary is authorized to make under section 6402.
Accordingly, inasmuch as there can be no determination as to
whether an individual is entitled to a refund or credit unless
there is first a determination whether the individual has an
overpayment, and inasmuch as it cannot be determined “under”
section 6015 whether the individual has an overpayment or to what
4
The following discussion illustrates some of the types of
issues that arise in determining the amount of tax payments for
purposes of determining whether there is an overpayment:
Before an overpayment can exist, a taxpayer must have
“paid” the amount as tax. Not all remittances are
treated as payments of tax when they are received by
the Service. For example, remittances of withholding
tax and estimated tax made by taxpayers before the due
date of the return for the year are not considered
“paid” until the due date of payment; that is, the date
the return for the year is due without regard to any
extension for filing the return. Section 6401(c)
indicates that despite the fact that no return is yet
due or filed nor an assessment of tax made, a taxpayer
may nevertheless be considered to have made an
overpayment. Although the Service treats an amount a
taxpayer remits before the sending of a notice of
deficiency as a deposit in the nature of a cash bond,
not as a payment, the issue of whether a remittance is
considered a payment or cash bond has provoked much
litigation. [Saltzman, IRS Practice and Procedure, par.
11.02[2], at 11-16 and 11-17 (rev. 2d ed. 2002); fn.
ref. omitted.]
- 37 extent the Secretary is authorized to reduce the overpayment in
making any refund or credit, there can be no determination
“under” section 6015 whether the individual is entitled to a
refund or credit.5
Because this is not a determination “under”
section 6015, it follows that section 6015(a) does not supplant
community property law in the making of any such “determination”.
This conclusion is consistent with the proposed regulations,
which had been published when petitioner applied for relief, and
the final regulations.6
The proposed and the final regulations
5
Of course, a determination that an individual qualifies
for relief from joint and several liability under sec. 6015 will
affect the amount of the refund or credit that is “attributable
to the application of this section” and thus authorized to be
made under sec. 6015(g). It is telling that in describing the
allowance of credits or refunds, sec. 6015(g) uses this very
precise language rather than repeating the sec. 6015(a) language,
“determination under this section”. Under well-established
principles of statutory construction, we presume the variation in
statutory phrasing to have been purposeful. Cf. Elec. Arts, Inc.
v. Commissioner, 118 T.C. 226, 258 (2002) (“Ordinarily, in
statutes and other legal documents, it is presumed that if the
drafter * * * varies the terminology, then the drafter intends
that the meaning also vary.”).
6
The final regulations under sec. 6015 apply to elections
or requests for relief filed on or after July 18, 2002. Sec.
1.6015-9, Income Tax Regs. Because petitioner’s request for
relief was filed before July 18, 2002, the final regulations are
inapplicable. Although proposed regulations are given no greater
weight than a position advanced by the Commissioner on brief,
proposed regulations “can be useful as guidelines where they
closely follow the legislative history of the act”, Van Wyk v.
Commissioner, 113 T.C. 440, 444 (1999), as they do here.
Moreover, as pertinent here, the proposed and the final
regulations are identical. In these circumstances, we could
scarcely repudiate the proposed regulations without also casting
doubt on the validity of the final regulations, to which we owe
(continued...)
- 38 state:
“In determining whether relief is available” under
section 6015, “items of income, credits, and deductions are
generally allocated to the spouses without regard to the
operation of community property laws.”
Sec. 1.6015-1(f),
Proposed Income Tax Regs., 66 Fed. Reg. 3894 (Jan. 17, 2001);
sec. 1.6015-1(f), Income Tax Regs.
The proposed and the final
regulations specifically state that “a requesting spouse who is
relieved of joint and several liability under § 1.6015-2,
§ 1.6015-3, or § 1.6015-4 may nevertheless remain liable for the
unpaid tax (including additions to tax, penalties and interest)
to the extent provided by Federal or state transferee liability
or property laws.”
Sec. 1.6015-1(h)(1), Proposed Income Tax
Regs., 66 Fed. Reg. 3894 (Jan. 17, 2001); sec. 1.6015-1(j),
Income Tax Regs.
The preamble accompanying the issuance of the final
regulations under section 6015 indicates that in finalizing the
proposed regulations, the Internal Revenue Service received and
rejected a suggestion to alter the just-quoted provision to
achieve the result that petitioner and the dissenters now
advocate.7
T.D. 9003, 2002-2 C.B. 294, 297.
As support for
6
(...continued)
considerable deference. See Natl. Muffler Dealers Association,
Inc. v. United States, 440 U.S. 472, 477 (1979).
7
The preamble to the final regulations under sec. 6015
states:
(continued...)
- 39 rejecting this suggestion, the preamble cited, inter alia, United
States v. Stolle, 86 AFTR 2d 5180, 2000-1 USTC par. 50,329 (C.D.
Cal. 2000).
In Stolle, the District Court held that under
California community property law, “community property tax is
available to satisfy a debt from either spouse, even if the other
spouse is not responsible for the debt.”
USTC par. 50,329, at 83,981.
Id. at 5186, 2000-1
Accordingly, the court reasoned,
for purposes of determining the validity of a tax lien against
spouses’ community property, it was “irrelevant” whether the wife
was an innocent spouse under section 6015(b).
Id.
The court
7
(...continued)
One commentator suggested that the regulations adopt a
rule that the IRS would not look to community property
as a collection source when a requesting spouse with an
interest in such community property is granted relief
under section 6015. A federal tax lien arising under
section 6321 attaches to all property and rights to
property of the taxpayer. Whether a taxpayer has an
interest in property to which the lien can attach is
determined by state law. Aquilino v. United States,
363 U.S. 509 (1960). Once that property interest is
defined, federal law alone determines the consequences
resulting from the attachment of the federal lien on
the property. United States v. Drye, 528 U.S. 49
(1999). If under the law of the community property
state in which the spouses reside, the IRS can look to
community property to collect a liability of one of the
spouses, the determination that the other spouse is
entitled to relief under section 6015 does not affect
the Service’s ability to collect the nonrequesting
spouse’s liability from the community property. See,
e.g., United States v. Stolle, 2000-1 U.S.T.C. ¶ 50,329
(C.D. Cal. 2000); Hegg v. IRS, 28 P.3d 1004 (Idaho
2001). The final regulations do not adopt this
recommendation because it goes beyond the scope of the
statute. [T.D. 9003, 2002-2 C.B. 294, 297.]
- 40 stated:
“Nothing in the language or the case law suggests that
the ‘innocent spouse’ provisions of the Internal Revenue Code
prevents the government from collecting against community
property in accordance with state law.”
Id.; see also McIntyre
v. United States, 222 F.3d 655 (9th Cir. 2000) (holding that the
Internal Revenue Service may levy upon ERISA-regulated pension
benefits to satisfy a husband’s tax debt notwithstanding the
wife’s claim that she had a vested interest in half of those
benefits under community property laws).
GERBER, COHEN, HALPERN, CHIECHI, HAINES, WHERRY, and KROUPA,
JJ., agree with this concurring opinion.
- 41 VASQUEZ, J., dissenting:
I respectfully disagree with the
majority opinion’s holdings primarily because I believe they are
contrary to the controlling statute and legislative intent.
I.
Whether Petitioner Entitled to a Refund
A.
Statutory Interpretation and Construction
In interpreting section 6015, the Court should give effect
to congressional intent.
Ewing v. Commissioner, 118 T.C. 494,
503 (2002); Fernandez v. Commissioner, 114 T.C. 324, 329 (2000).
Congress enacted section 6015 in the Internal Revenue Service
Restructuring and Reform Act of 1998 (RRA 1998), Pub. L. 105-206,
sec. 3201, 112 Stat. 734, as a means of expanding relief to
innocent spouses.
See Hopkins v. Commissioner, 120 T.C. 451,
458-459 (2003) (“section 6015 was enacted to provide spouses with
broader access to relief from joint and several tax
liabilities”); Washington v. Commissioner, 120 T.C. 137, 159-160
(2003) (“We believe that Congress wanted to grant the broadest
relief, while providing certainty in the settlement of tax refund
claims”); H. Conf. Rept. 105-599, at 249-255 (1998), 1998-3 C.B.
747, 1003-1009; S. Rept. 105-174, at 65, 68 (1998), 1998-3 C.B.
537, 601, 604; H. Rept. 105-364 (Part 1), at 60-62 (1998), 1998-3
C.B. 373, 432-434.
“Moreover, we are mindful that section 6015
was designed ‘to correct perceived deficiencies and inequities’,
and it is well settled law that ‘curative legislation should be
liberally construed to effectuate its remedial purpose.’”
- 42 Washington v. Commissioner, supra at 155-156; see also Tcherepnin
v. Knight, 389 U.S. 332, 336 (1967) (remedial legislation should
be construed broadly to effectuate its purposes); Piedmont & N.
Ry. Co. v. ICC, 286 U.S. 299, 311 (1932) (remedial legislation
should be given a liberal interpretation).
B.
“Application of this section”
Section 6015(g)(1) provides that “credit or refund shall be
allowed or made to the extent attributable to the application of
this section.”
In Fernandez v. Commissioner, supra at 331, in
determining whether the Court has jurisdiction to review a
request for relief under section 6015(f), we stated:
“It is our
view that Congress intended the term ‘under this section’ to
include all subsections of 6015 in their entirety.”
See Butler
v. Commissioner, 114 T.C. 276, 290 (2000); see also Woodral v.
Commissioner, 112 T.C. 19, 22-23 (1999).
Accordingly, the Court
must apply all subsections of section 6015, including subsection
(a), to determine the amount of a taxpayer’s refund pursuant to
subsection (g).
C.
Section 6015(a)
1.
The Flush Language
The flush language at the end of section 6015(a) provides:
“Any determination under this section shall be made without
regard to community property laws.”
The majority invents a
- 43 narrow definition of “determination” despite strong indications
to the contrary in the statute.
A section 6015 “determination” is not merely that a spouse
is entitled to relief from joint and several liability.
majority op. p. 22.
Contra
The amount that the Commissioner determines
the electing spouse must pay towards the tax liability
attributable to the nonelecting spouse1 and the amount of any
refund are part of the determination.
Sec. 6015(e)(1)(A) (“the
individual may petition the Tax Court * * * to determine the
appropriate relief available to the individual under this
section”); Washington v. Commissioner, supra at 145 (holding we
have jurisdiction under section 6015(e)(1) to review all relief
afforded by section 6015); Rooks v. Commissioner, T.C. Memo.
2004-127 (analyzing the Commissioner’s determination and deciding
whether taxpayer was entitled to a refund pursuant to section
6015(g)).
Thus, the flush language of section 6015(a) requires that
community property laws be disregarded in determining the amount
of a taxpayer’s refund pursuant to section 6015(g).
See Estate
of Capehart v. Commissioner, 125 T.C. ___ (Nov. 14, 2005)
1
I note that in the notice of determination respondent
determined the amount of relief petitioner was entitled pursuant
to sec. 6015(b), not just that petitioner was entitled to relief,
and that respondent clarified his determination by stipulating
the amount of petitioner’s liability for the years in issue after
application of sec. 6015(b).
- 44 (accepting and applying the parties stipulations which
disregarded Nevada community property law for purposes of
allocating the liability pursuant to section 6015(d)).
2.
Section 6013 Compared With Section 6015
Contrary to the view of the majority, the evolution of
former section 6013(e) into section 6015 shows that Congress
intended to disregard community property laws with respect to all
of section 6015 and not to limit disregarding community property
laws to determining whether an electing spouse is entitled to
relief pursuant to section 6015(b), (c), or (f).
Former section
6013(e)(5)--before its repeal by RRA 1998, sec. 3201(e), 112
Stat. 740--provided:
“For purposes of this subsection, the
determination of the spouse to whom items of gross income (other
than gross income from property) are attributable shall be made
without regard to community property laws.”
In contrast, section
6015(a) is broader than former section 6013(e)(5), providing:
“Any determination under this section shall be made without
regard to community property laws.”
The Court should not ignore (1) this statutory change
eliminating the language modifying and limiting the term
“determination” in former section 6013(e)(5); or (2) that this
same limitation was not enacted as part of section 6015 even
though the initial proposals to reform former section 6013
contained this same limitation.
Internal Revenue Service
- 45 Restructuring and Reform Act of 1997, H.R. 2676, 105th Cong., 1st
Sess. sec. 321 (1997); see majority op. p. 11.
does just that.
Yet the majority
The majority recognizes the statutory change,
majority op. p. 10, and the controlling nature of the statutory
language, majority op. p. 9, but then declines to give the
statutory language effect, majority op. pp. 11-12.
D.
Section 6015(g)(1)
1.
Evolution of Section 6015(g)(1)
Section 6015(g)(1) first was enacted as section
6015(e)(3)(A).
RRA 1998 sec. 3201, 112 Stat. 739.
6015(e)(3)(A) formerly provided:
Section
“Allowance of credit or
refund.--Except as provided in subparagraph (B), notwithstanding
any other law or rule of law (other than section 6512(b), 7121,
or 7122), credit or refund shall be allowed or made to the extent
attributable to the application of subsection (b) or (f).”
On December 21, 2000, Congress moved the provisions of
former 6015(e)(3)(A) to section 6015(g)(1).
Community Renewal
Tax Relief Act of 2000, Pub. L. 106-554, sec. 313(a)(2), 114
Stat. 2763A-640.
At that time, Congress added section 6511 to
the list of exceptions in the parenthetical following the phrase
“notwithstanding any other law or rule of law”.
2.
Id.
“Notwithstanding any other law or rule of law”
Section 6015(g)(1) includes the phrase “notwithstanding any
other law or rule of law”.
Accordingly, a credit or refund
- 46 pursuant to section 6015(g) takes precedence over all other laws
and rules of law that otherwise would restrict the refund or
credit.
The only exceptions to this phrase are sections 6511,
6512(b), 7121, and 7122.
Sec. 6015(g)(1).
Congress did not
include section 6321 in the list of exceptions.
Sec. 6015(g)(1);
see Washington v. Commissioner, 120 T.C. at 160 (“the only
limitations on the refund are those set forth in sections 6511,
6512(b), 7121, and 7122”).
Contrary to the analysis of the
majority, the Court should not add an exception to section
6015(g)(1) for section 6321.
Section 6015(a) and (g) clearly
requires State community property laws to be disregarded to
determine what rights the taxpayer has in the property and the
amount of an electing spouse’s refund.
The majority holds that “notwithstanding any other law or
rule of law (other than section 6511, 6512(b), 7121, or 7122)” in
section 6015(g) should not be read literally but never explains
what the phrase means.
See Majority op. pp. 15-18.
It must mean
something--a fundamental rule of statutory construction is to
give effect to all of the language of the statute.
See Hellmich
v. Hellman, 276 U.S. 233 (1928); Stanford v. Commissioner, 297
F.2d 298, 308 (9th Cir. 1961), affg. 34 T.C. 1150 (1960).
- 47 a. Caselaw
Domestic relations are preeminently matters of State law,
and the Supreme Court has consistently recognized that Congress,
rarely intends to displace State authority in this area.
Mansell
v. Mansell, 490 U.S. 581, 587 (1989) (addressing the application
of California community property law to military retirement pay).
Accordingly, the Supreme Court stated:
“we have held that we
will not find preemption absent evidence that it is positively
required by direct enactment.”
Id. (internal quotation marks
omitted).
The plain and precise language of section 6015 evidences its
preemption of State community property laws.
Sec. 6015(a), (g);
see Mansell v. Mansell, supra at 587, 590-591, 592.
Section
6015(a) and (g) contains clear and unequivocal language
expressing congressional intent to preempt State law.
Mansell v.
Mansell, supra at 587; Dunkin v. Commissioner, 124 T.C. 180, 189
(2005).
Although not discussed in detail by the majority, majority
op. pp. 7 n.5, 18, respondent relies on United States v. Stolle,
86 AFTR 2d 5180, 2000-1 USTC par. 50,329 (C.D. Cal. 2000), and
McIntyre v. United States, 222 F.3d 655 (9th Cir. 2000), for the
proposition that a Federal tax lien attaches to community
property and that section 6321 takes precedence over section
6015.
I disagree.
I believe section 6015 is clear and the
- 48 directives in section 6015(a) and (g)(1) take precedence over
section 6321.
Stolle was a District Court order that dealt with the
relationship between Federal tax liens and community property
held in a revocable trust.
United States v. Stolle, supra.
The
District Court concluded that a tax lien attached to community
property for the tax debts of an individual and that community
property held on behalf of the individual and his wife by a
revocable trust could be used to satisfy the tax debts of the
individual.
Id.
Mrs. Stolle’s entitlement to section 6015 relief was not at
issue in the case.
Id.
The District Court, however, stated
that, even assuming Mrs. Stolle was entitled to relief pursuant
to section 6015, nothing in section 6015 prevents the Government
from collecting against the community property.
Id.
I am not
persuaded by the reasoning of Stolle because (1) the issue of
Mrs. Stolle’s entitlement to section 6015 relief and a refund
pursuant to section 6015(g) was not before the District Court and
(2) the District Court did not address the plain and clear
language of section 6015(a) and (g).
Respondent relies on McIntyre v. United States, supra, for
the proposition that a Federal tax lien attaches to the entire
community property and that section 6321 takes precedence over
section 6015.
In McIntyre, the U.S. Court of Appeals for the
- 49 Ninth Circuit, to which this case is appealable, considered
whether the Commissioner may levy upon ERISA-regulated pension
benefits to satisfy a husband’s tax debt against the claim that
the wife has a vested interest in half of those benefits pursuant
to California community property laws.
Id. at 657.
The Court of
Appeals noted:
We have held before that, by granting creditors
recourse against the whole community estate on debts of
only one spouse, California law “implicitly”
establishes that spouse’s “interest” in the whole of
the community property, at least to a degree sufficient
for the IRS to impose tax liens under the Internal
Revenue Code. * * * [Id. at 658.]
Mrs. McIntyre argued that ERISA preempts California community
property law and that ERISA’s antialienation provision prevented
the IRS from levying on the benefits from any ERISA-governed
pension plan.2
Id. at 659, 660.
The court stated:
“This
argument relies on an over-exuberant interpretation of ERISA’s
anti-alienation provision” and rejected the premise that ERISA’s
antialienation provision would preclude operation of California
community property law to the extent that it would permit
2
The court also rejected Mrs. McIntyre’s argument that
California community property law gave her a vested interest in
half of her husband’s pension benefits and the IRS could not
therefore levy on this half of the pension benefits. McIntyre v.
United States, 222 F.3d 655, 658-659 (9th Cir. 2000). The court
relied on Cal. Fam. Code sec. 910(a) and the reasoning in Babb v.
Schmidt, 496 F.2d 957 (9th Cir. 1974), and held that creditors
have recourse over the whole of the community property. Id. The
issue before us, regarding the preemption of community property
laws by sec. 6015(a) and (g), and the application of sec. 6015,
however, were not at issue in McIntyre.
- 50 creditors to proceed against the pension benefits at issue.
at 659.
In rejecting this premise, the court stated:
Id.
“ERISA’s
anti-alienation provision plainly does not preempt the operation
of California law” because “ERISA itself has a saving clause that
states:
‘Nothing in this subchapter [which includes the anti-
alienation provision] shall be construed to alter, amend, modify,
invalidate, impair, or supersede any law of the United States.’”
Id. at 659, 660 (insertion in original).
McIntyre is distinguishable from this case.
deals with ERISA and not section 6015.
First, McIntyre
Second, section 6015(a)
and (g), unlike ERISA, expressly preempts community property law.
Sec. 6015(a) (section 6015 determinations are made “without
regard to community property laws”), (g) (refunds are made
“notwithstanding any other law or rule of law (other than section
6511, 6512(b), 7121, or 7122)”).
Third, section 6015 has no
saving clause like ERISA.
b. Section 6015 Was Enacted Later
Even if section 6015 and section 6321 are in conflict,
section 6015 controls because section 6015 was enacted later than
section 6321 and supersedes section 6321 insofar as the two
sections are in conflict.
See McLean Trucking Co. v. United
States, 321 U.S. 67, 79 (1944); Adkins v. Arnold, 235 U.S. 417,
421 (1914); Specking v. Commissioner, 117 T.C. 95, 116 (2001),
- 51 affd. sub nom. Haessly v. Commissioner, 68 Fed. Appx. 44 (9th
Cir. 2003).
Thus, I believe section 6015(g)(1) takes precedence over
section 6321 where the IRS or the Court determines a taxpayer is
entitled to section 6015 relief.
E.
Legislative History of Section 6015
The legislative history regarding refunds pursuant to
section 6015 is scant.
The House report states:
“The Tax Court
may order refunds as appropriate where it determines the spouse
qualifies for relief and an overpayment exists as a result of the
innocent spouse qualifying for such relief.”
H. Rept. 105-364
(Part 1), supra at 61, 1998-3 C.B. at 433.
The conference and
Senate reports state:
“The separate liability election may not
be used to create a refund, or to direct a refund to a particular
spouse.”
H. Conf. Rept. 105-599, supra at 250, 1998-3 C.B. at
1004; S. Rept. 105-174, supra at 59, 1998-3 C.B. at 595.
The legislative history of section 6015 supports calculating
the refund on the basis of the amount paid by the electing spouse
without regard to community property laws towards the
understatement or underpayment attributable to the nonelecting
spouse.
Under the heading “Reasons for change”, the Senate
report states:
The Committee believes that a system based on separate
liabilities will provide better protection for innocent
spouses than the current system. The Committee
generally believes that an electing spouse’s liability
- 52 should be satisfied by the payment of the tax
attributable to that spouse’s income and that an
election to limit a spouse’s liability to that amount
is appropriate. [S. Rept. 105-174, supra at 55, 1998-3
C.B. at 591.]
The limited legislative history, however, is immaterial in the
light of the plain and precise language of the statute.
v. Mansell, 490 U.S. at 592, 594.
Mansell
“Congress is not required to
build a record in the legislative history to defend its policy
choices.”
F.
Id.
Common Law States and Community Property States
Section 6015 applies to taxpayers in common law
jurisdictions and community property jurisdictions.
Denying
petitioner a refund of community assets used to pay Mr. Ordlock’s
understatements creates an inequity between taxpayers in
community property jurisdictions and taxpayers in common law
jurisdictions.
To obtain a refund pursuant to section 6015, taxpayers in
common law jurisdictions, like the electing spouse in Washington,
must prove the amount they paid toward the underpayment or
understatement attributable to the nonelecting spouse (i.e., do
tracing).
See Washington v. Commissioner, 120 T.C. at 163; Rooks
v. Commissioner, T.C. Memo. 2004-127.
The majority prevents
taxpayers in community property States from obtaining refunds of
community property payments that can be traced to the spouse
entitled to relief.
I believe the directive in section 6015(a)
- 53 and (g) to disregard community property laws indicates Congress’s
intent to treat taxpayers in community property jurisdictions and
common law jurisdictions the same.
In Washington v. Commissioner, supra at 159, the Court noted
that “section 6015(g) is very specific with respect to the
limitations placed on a refund”.
As in Washington, petitioner’s
relief should not be limited merely to relief from joint and
several liability as respondent contends.
Accordingly, I would
conclude that community property laws are disregarded in
determining the amount of petitioner’s refund pursuant to section
6015(g).
II.
Amount of Petitioner’s Refund
If, in a community property State, an electing spouse who is
entitled to section 6015(b) or (f) relief has made payments
towards the understatement/underpayment attributable to the
nonelecting spouse, the electing spouse is entitled to a refund
of the amounts applied to the understatement or underpayment
attributable to the nonelecting spouse and paid by the electing
spouse without regard to community property laws.
This is how the refund was calculated in Washington.
In
Washington, the taxpayer was employed as a Federal purchasing
agent.
Washington v. Commissioner, supra at 139.
The taxpayer’s
spouse was a self-employed carpenter who did not pay
self-employment taxes.
Id.
The taxpayer’s wages were garnished,
- 54 and her overpayments from subsequent years (listed on returns she
filed separately from her spouse) were applied to pay her
spouse’s liability.
Id. at 140.
The Court held that the
taxpayer was entitled to a refund of the amount she paid toward
the underpayment attributable to her former spouse (i.e., the
amount it was inequitable to hold the taxpayer liable for
pursuant to section 6015(f)).
Id. at 163; see also Leissner v.
Commissioner, T.C. Memo. 2003-191 (taxpayer granted relief under
section 6015(f) was entitled to refund of moneys taken from her
individual retirement account to pay tax liabilities attributable
to her former spouse).
The record consists solely of the Forms 4340, Certificate of
Assessments, Payments and Other Specific Matters, for Bayard M.
and Lois Ordlock for 1982, 1983, and 1984, which do not show how
much petitioner paid towards Mr. Ordlock’s understatements
without regard to community property laws.
To decide whether
petitioner has made an overpayment, I would hold--as the parties
agree--that the Court needs additional evidence of the amounts
petitioner paid without regard to community property laws toward
Mr. Ordlock’s understatements.
See Washington v. Commissioner,
supra; Rooks v. Commissioner, supra; Leissner v. Commissioner,
supra.
I would conclude that petitioner is entitled to a refund
of these payments.
I would hold that petitioner bears the burden
- 55 of proof on this issue.
See Rule 142(a).3
Additionally, I would
note the applicability of the 2-year rule of section 6511, which
is not excepted by section 6015(g)(1).
Commissioner, supra at 160-163.
See Washington v.
As the Court would require
additional evidence for resolution of this case, and as the
parties agreed to leave the record open, I would hold that this
case could no longer be submitted under Rule 122.
III. Additional Problems With the Majority Opinion
A.
This Is a Section 6015 Case; Collection Is Not in Issue
The majority basically holds that disregarding community
property law, for purposes of section 6015, would create a
statutory exception to the rule that “State law defines ownership
interests in property for purposes of Federal tax collections
under section 6321.”
pp. 15, 17, 19.
Majority op. p. 9; see also majority op.
This is a section 6015 case, not a collection
(section 6330) case.
As the majority states:
“The issue for
decision is the amount of refund, if any, petitioner is entitled
to under section 6015(g).”
Majority op. p. 2.
Collection is independent from the determination of whether
a taxpayer is an “innocent spouse” and the amount of the refund a
taxpayer is entitled to upon a finding that he/she is an innocent
3
Sec. 7491(a) is inapplicable to this case as respondent’s
examination of the 1982, 1983, and 1984 tax years began before
July 22, 1998. See Higbee v. Commissioner, 116 T.C. 438, 440
(2001).
- 56 spouse.
case.
B.
Respondent’s collection rights are not at issue in this
This leads to my next point.
Legal or Statutory Voids? “General” State Property
Laws Define the Source of the Payments
The majority opines that if California community property
laws are disregarded to determine the amount of petitioner’s
refund, the Court will be left “with no law or resource to define
the [source of] ownership of the payments made” on the tax
liabilities for the years in issue.
Majority op. pp. 15, 17, 19.
If the Court disregarded community property laws when determining
the amount of section 6015(g) refunds, the Court would not be
left in a void without any guidance any more than State courts in
community property States are in a void when dealing with
nonmarried persons.
The Court could apply the “general” property
laws of California (i.e., laws regarding holding property as
joint tenants, tenants in common, etc.) to determine the source
(i.e., ownership) of the payments.
As I stated supra, the
parties could present evidence on and brief this point.
C.
Potential for Abuse
The majority concludes that if community property laws were
disregarded for purposes of section 6015(g), “married taxpayers
in community property States could structure future payments so
that [the economic source of] ownership is attributable to the
spouse requesting relief under section 6015, while continuing a
jointly financed lifestyle.”
Majority op. p. 18.
- 57 The first problem with this conclusion is the implication
that taxpayers who remain married should be denied the benefits
provided by section 6015.
Congress did not make divorce a
precondition to section 6015 relief.
Taxpayers who remain
married can be innocent spouses under section 6015(b) and (f) and
can obtain refunds under section 6015(g).
Notably, divorced or
separated taxpayers who elect and obtain section 6015(c) relief
cannot obtain refunds.
Sec. 6015(g)(3).
The second problem is that the same potential abuse is
available to taxpayers in common law States.
Taxpayers in common
law States can structure their payments so that the ownership
and/or economic source of ownership is attributable to the spouse
requesting (or who has obtained) relief under section 6015, while
continuing a jointly financed lifestyle.
If the electing spouse
in a common law State pays the liability attributable to the
nonelecting spouse with income/assets traceable to the electing
spouse, he or she is entitled to a refund of those amounts.
The third problem is that taxpayers in community property
States can structure their future payments and continue to enjoy
a jointly financed lifestyle (i.e., the majority opinion does not
prevent this abuse).
As respondent concedes, petitioner is
entitled to a refund of the amounts paid with her separate
property.
Taxpayers in community property States can pay the tax
liability attributable to the nonelecting spouse with separate
- 58 property of the electing spouse and then seek a refund of these
amounts.
D.
Complexity/Administrative Difficulty
The majority concludes that “petitioner’s approach would
lead to a very complex factual analysis to trace” the assets used
to make the payments and would lead to “an administrative
nightmare that would severely impede collection”.
Majority op.
p. 19.
The fact that tracing may be complex is not a sufficient
reason to disregard the plain language of the statute.
Contrary
to the majority’s suggestion that this would burden respondent,
my proposal, supra, is that the burden of proof would be on
petitioner as to this issue (i.e., to prove the economic source
of ownership of the payment).
IV.
Conclusion
I believe that the majority gives too little consideration
to the text of section 6015 and instead digresses into policy
matters that are better left to Congress.
Additionally, the
majority imposes limitations and distinctions not found in the
statute.
Furthermore, the majority narrowly construes the term
“determination”.
We can presume that when Congress enacted section 6015 in
1998 it knew (1) the effects of joint and several liability, (2)
the benefits available to persons who qualify for relief from
- 59 joint and several liability, and (3) the effects that the
majority finds objectionable.
See majority op. pp. 18-22.
These
policy choices are for Congress, and not the Court, to make.
Our
“task is to interpret the statute as best we can, not to secondguess the wisdom of the congressional policy choice.”
Mansell v.
Mansell, 490 U.S. at 592, 594.
I believe that section 6015(a) and (g) is unambiguous and
that community property laws are to be disregarded in determining
the amount of the section 6015(g)(1) refund.
The IRS’s ability
to collect the nonelecting spouse’s liability via section 6321 is
distinct from the relief afforded pursuant to section 6015.
See
secs. 6015 (which is part of Chapter 61, Information and Returns,
of the Code), 6321 (which is part of Chapter 64, Collection, of
the Code).
As in Washington v. Commissioner, 120 T.C. 137
(2003), I believe that Mrs. Ordlock’s relief is not limited
merely to relief from joint and several liability--which is very
little relief indeed as, per the majority, respondent can levy on
her wages, her bank accounts, and her other assets, which are
community property under State law, to satisfy liabilities she
was “relieved” from pursuant to section 6015.
Respectfully, I dissent.
SWIFT, WELLS, COLVIN, and FOLEY, JJ., agree with this
dissenting opinion.
- 60 MARVEL, J., dissenting:
I agree with the majority’s
statement that “The crux of this dispute is the application of
the last sentence of section 6015(a) and the language of section
6015(g)(1).”
Majority op. p. 8.
However, I disagree with the
majority that the wording and structure of section 6015 and its
legislative history support the majority’s conclusion that a
person who resides in a community property State and who
qualifies for relief under section 6015 is not entitled to a
refund of any part of the community property used to satisfy her
spouse’s Federal income tax liability.
The principal reasons for
my disagreement are summarized below.
Section 6015(a) Unequivocally Provides That “Any determination
[under section 6015] shall be made without regard to community
property laws.”
As the majority correctly points out, Congress in 1998
enacted section 60151 as a means of expanding relief to innocent
spouses.
See H. Conf. Rept. 105-599, at 249-255 (1988), 1998-3
C.B. 747, 1003-1009; S. Rept. 105-174, at 55-60 (1998), 1998-3
C.B. 537, 591-596; H. Rept. 105-364 (Part 1), at 60-62 (1997),
1998-3 C.B. 373, 432-434.
Section 6015 replaced section 6013(e),
which was often criticized as too narrowly crafted to provide
broad-based relief from liability to deserving taxpayers.
1
Sec. 6015 was enacted in the Internal Revenue Service
Restructuring and Reform Act of 1998, Pub. L. 105-206, sec. 3201,
112 Stat. 734.
- 61 The last sentence of section 6015(a) unequivocally provides
that “Any determination under this section shall be made without
regard to community property laws.”
Section 6015 does not define
the term “determination”, nor does it contain any words limiting
the types of determinations to which the last sentence of
subsection (a) refers.
In particular, section 6015 contains no
language limiting the term “determination” to determinations made
under subsection (b), (c), or (f), although Congress could very
easily have inserted such a limitation if it had intended to
enact one.
Under well-recognized principles of statutory
interpretation, if a statute does not define a term, that term is
given its ordinary and commonly accepted meaning.
See Keene v.
Commissioner, 121 T.C. 8, 14 (2003); Payless Cashways, Inc. v.
Commissioner, 114 T.C. 72, 77-28 (2000).
The term
“determination” is defined in Webster’s Third New International
Dictionary (1971) to mean “the settling and ending of a
controversy” and, alternatively, “the resolving of a question by
argument or reasoning”.
It is also defined in Black’s Law
Dictionary (7th ed. 1999) to mean “A final decision by a court or
administrative agency”.
Under any of these definitions, a
decision regarding whether a taxpayer qualifies for a refund
under section 6015(g) is a determination.
- 62 The majority nevertheless concludes that a decision as to
whether a taxpayer is entitled to a refund under section 6015(g)
is not a determination within the meaning of section 6015(a).
The majority’s analysis begins with “the statutory use of the
word ‘determination’ in the context of community property laws
and relief from joint liability”, majority op. p. 10, and then
traces the use of the term “determination” in former section
6013(e) and in section 6015, and in the legislative history of
those sections, see majority op. pp. 10-12.
Former section
6013(e)(5) contained a special rule that specifically provided
that “the determination of the spouse to whom items of gross
income (other than gross income from property) are attributable
shall be made without regard to community property laws.”
Section 6015(a) does not contain any language modifying or
limiting the word “determination”.
The majority attempts to find
a limitation in the structure and wording of the rest of section
6015 and focuses on the fact that the words “determine” and
“determination” do not appear in section 6015(g)(1).
See
majority op. p. 13.
Former section 6013(e)(5) specifically described a
determination that had to be made without regard to community
property law.
However, the existence of a limitation in former
section 6013(e)(5) is not sufficient to support the majority’s
conclusion that section 6015(a) is also so limited.
Although a
- 63 comparable limitation to that contained in former section
6013(e)(5) was included in the House version of the Internal
Revenue Service Restructuring and Reform Act of 1998, Pub. L.
105-206, 112 Stat. 685, see Internal Revenue Service
Restructuring and Reform Act of 1997, H.R. 2676, 105th Cong., 1st
Sess. sec. 321 (1997); H. Rept. 105-364 (Part 1), supra at 19,
1998-3 C.B. at 391, Congress did not include in the enacted
version any limitation upon the types of determinations that,
under section 6015(a), must be made without regard to community
property laws.
Clearly, Congress knew how to craft a limitation
had it wanted to do so.
See, e.g., former sec. 6013(e)(5).
Because I can discern no limitation from either the language or
structure of section 6015 or from its legislative history, I
conclude that a determination whether a taxpayer is entitled to a
refund under section 6015(g) is a determination within the
meaning of the last sentence of section 6015(a) and must be made
without regard to community property laws.
The Description of “problems and inconsistencies” in the Majority
Opinion Confuses the Service’s Right To Collect With the
Service’s Obligation To Refund.
The majority points out that the Internal Revenue Service
(Service) has the right to collect an unpaid tax liability from
community property even if spouses file separate returns and only
one spouse is liable for unpaid taxes.
Majority op. pp. 17-18.
The majority contends that, under petitioner’s section 6015
- 64 argument, if married spouses filed jointly, the Government could
not collect out of community assets without some tracing
mechanism when one spouse received section 6015 relief.
op. p. 18.
Majority
I disagree.
The issue before us involves petitioner’s claimed right to a
refund of some portion of the tax payments made with community
property.
The issue is not whether the Service has a right to
collect an unpaid Federal tax liability out of community
property.
Under California law, a creditor is entitled to
collect an unpaid debt out of community property even if the debt
is owed solely by one spouse.
2004).
See Cal. Fam. Code sec. 910 (West
That right has been exercised by the Service and upheld
by the Federal courts.
See, e.g., McIntyre v. United States, 222
F.3d 655 (9th Cir. 2000).
A conclusion that a determination
under section 6015(g) must be made without regard to community
property law would not change California community property law
or restrict the Service from continuing to collect from community
property the liability owed by petitioner’s husband.
Such a
conclusion, however, might require the Service to refund to
petitioner a part of what it collected from community property.
Determining a Refund Under Section 6015(g)
Although I disagree with the analysis and conclusion of the
majority regarding the proper interpretation of section 6015, I
initially was troubled by the lack of guidance in section 6015(g)
- 65 regarding how we determine whether a refund or credit is
warranted.
However, upon further thought, I believe that the
requirement in section 6015(a) to make determinations under
section 6015 without regard to community property law gives us
enough guidance to enable us to make the determination required
by section 6015(g).
Section 6015(g)(1) provides that “Except as provided in
paragraphs (2) and (3), notwithstanding any other law or rule of
law (other than section 6511, 6512(b), 7121, or 7122), credit or
refund shall be allowed or made to the extent attributable to the
application of this section.”
Section 6511 contains limitations
on credit or refund including a time limit for filing a claim,
sec. 6511(a), and a limitation on the allowance of credits and
refunds, sec. 6511(b)(1) and (2).
Section 6512(b) contains
provisions outlining our overpayment jurisdiction in deficiency
cases, including a limitation on the amount of the credit or
refund.
Sec. 6512(b)(3).
Section 7121 (closing agreements) and
section 7122 (compromises) authorize the Service to enter into
agreements to resolve a taxpayer’s tax liability.
I interpret
section 6015(g) to mean that we must take the provisions of
sections 6511, 6512(b), 7121, and 7122 into account in making our
determination regarding a refund or credit, but not any other law
or rule of law that might operate to restrict the taxpayer’s
- 66 right to a refund or credit.
We must make the determination
regarding the taxpayer’s right to a refund or credit without
regard to community property law.
Sec. 6015(a).
If community property law is disregarded and if the taxpayer
can establish that he or she has satisfied the refund
requirements set forth in sections 6511 and 6512, it seems
logical to me that we must trace the source of the tax payments
to determine the amount of the refund.
If the payments are
traced to income earned by one or both spouses, the income would
be attributed to the person who earned it.
If the payments are
traced to the proceeds from the sale of property and the property
is subject to titling, then that property would be allocated in
accordance with title and applicable State law.
For example,
under California law, every interest created in favor of several
persons in their own right is an interest in common, unless
acquired by them in partnership for partnership purposes,
declared in its creation to be a joint interest, or acquired as
community property.2
2
Cal. Civ. Code sec. 686 (West 1982).
When
A community property interest is one form of joint
ownership that is recognized under California law. See Cal. Fam.
Code sec. 750 (West 2004). The other forms of joint ownership
are joint tenancies, tenancies in common, and community property
with a right of survivorship. Id. Under California law,
property owned jointly by a husband and wife can take any of the
above forms as long as the legal requirements are met. In
addition, a husband and wife, even if they are still married,
can sever the community and convert community property into other
forms of joint property.
- 67 two or more people take title to property as tenants in common
under an instrument silent as to their respective shares, a
presumption arises, which may be overcome by contrary evidence,
that their shares are equal.
Caito v. United Cal. Bank, 576 P.2d
466, 472 (Cal. 1978); Anderson v. Broadwell, 6 P.2d 267, 268
(Cal. Ct. App. 1931).
When the presumption is overcome, in the
absence of other controlling facts, the respective interests must
be determined by the relative proportion of the purchase price
paid by each.
Anderson v. Broadwell, supra at 268.
If we disregard community property law in making our
determination under section 6015(g), it is both logical and
consistent with the directive in section 6015(a) to analyze
petitioner’s interest in property that is owned jointly with her
husband as if she were an unmarried tenant in common under
California law.
This form of joint ownership is the closest in
character to a community property interest with no survivorship
right under California law.
The Need for Remedial Legislation
The majority opinion deprives taxpayers in community
property States who are otherwise entitled to relief under
section 6015 of the same relief afforded to taxpayers in common
law States.
Under the majority opinion, a taxpayer who is
- 68 granted relief under section 6015(b) or (f)3 will be entitled to a
refund (assuming other refund requirements are met) only if the
taxpayer’s separate property was used to satisfy all or a portion
of the spouse’s tax liability.
Unlike a taxpayer’s joint
property interests in a common law State, a taxpayer’s community
property interest will remain a collection source and the
taxpayer will have no right to a refund under section 6015(g)
with respect to community property used to satisfy the spouse’s
tax liability.
Given the remedial nature of section 6015 and
Congress’s avowed purpose of broadening a taxpayer’s ability to
obtain relief from joint and several liability, such a result
cannot be consistent with Congress’s intent.
In light of the majority opinion, Congress should revisit
section 6015 and provide us with guidance regarding the proper
application of section 6015 to taxpayers who reside in community
property States.
In the meantime, the majority opinion operates
as a strong incentive for taxpayers in community property States
to take advantage of State laws that may permit them to convert
community property into other forms of joint ownership.
COLVIN, FOLEY, and GALE JJ., agree with this dissenting
opinion.
3
Sec. 6015(g)(2) provides that no credit or refund shall be
allowed as a result of an election under subsec. (c).
This is a copy of a public record, reproduced as it was published. It is not legal advice, and it may not be the version a court would rely on. Check the official source before you cite it.