Tax Court not limited to administrative record in innocent spouse cases.

AuthorBeavers, James

The Eleventh Circuit held that the Tax Court properly considered evidence outside the administrative record in a trial to determine whether a taxpayer was entitled to innocent spouse relief.


Ruth Neal and her ex-husband Alimam Neal married in 1976, lived together until 1996, and divorced in 1998. During the marriage, the couple kept largely separate finances, maintained separate checking accounts, and rarely discussed their financial arrangements. Alimam took responsibility for preparing and filing the couple's tax returns. However, unknown to Neal, for a long period during their marriage, Alimam mailed the couple's completed tax returns to the IRS but did not include any payment with the returns for the taxes on his income. The IRS eventually assessed the couple for Alimam's unpaid taxes. Although a divorce court ordered Alimam to pay all the couple's past and future tax liabilities in their subsequent divorce proceedings, he made only minimal payments on the outstanding debt.

In 2000, Neal petitioned the IRS for equitable relief for the portion of the couple's unpaid tax debt that was attributable to Alimam's income. Neal responded to a written questionnaire sent by the IRS in which she represented that she was not involved with the preparation of tax returns, did not discuss the tax returns with Alimam, and did not review the tax returns.

Neal then met with an IRS examining agent and related some of these facts. Neither a court reporter nor an attorney was present at the interview, and no recording was made of it. The agent denied Neal relief because the agent found that Neal knew that an underpayment existed when she signed the returns, that she would not suffer an economic hardship if the IRS required her to pay the taxes owed, and that a portion of the taxes was attributable to her income. Neal protested the determination to the IRS Office of Appeals, but it also denied Neal's request for relief.

Neal then appealed the IRS's decision in the Tax Court. In the proceedings, the IRS took the position that the Administrative Procedures Act (APA) limited the Tax Court's review to the administrative record. The Tax Court, however, ruled that its review and determination were de novo, based on its decision in Ewing, 122 T.C. 32 (2004), and it agreed to hear testimony and consider other evidence that the parties wished to offer. In the trial, the Tax Court heard the testimony of Neal and an IRS revenue officer. Based on the...

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