Taxpayer First Act changes innocent spouse relief.

• Author: Creech, James

The Taxpayer First Act (TFA), P.L. 116-25, was for the most part an improvement for taxpayer rights. Congress strengthened the Office of the Taxpayer Advocate, mandated new taxpayer protections for IRS third-party contacts, and reaffirmed the independence of IRS Appeals. Despite all of these positive changes, in one area, the TFA was a step backward for taxpayer rights. The TFA changed the Tax Court's scope of review in innocent spouse petitions filed after July 1, 2019, from de novo to a review of the administrative record, with limited exceptions (Sec. 6015(e)(7)). While this change might sound minor, it significantly affects how an innocent spouse case is prepared and places an increased burden on return preparers who interact with a taxpayer who potentially has an innocent spouse claim.

Prior to the passage of the TFA, it was not unusual for innocent spouse cases to start late in a deficiency proceeding or as part of a collections case. Taxpayers were often three to five years removed from the actual filing of the return and able to use hindsight to evaluate the strength of their case.

The Tax Court's prior scope of review was a de novo, or "we can consider all of the evidence presented even if it is something new" standard of review that made hindsight extremely valuable. If a taxpayer seeking innocent spouse relief learned of his or her spouse's gambling winnings years after the return was filed, it made no difference. The taxpayer could discuss the facts surrounding the state of the marriage, the imbalance of financial power, any mental or physical abuse, and the facts surrounding the income at the time of trial. Usually by this point, the marriage had dissolved, and the person requesting innocent spouse relief had a margin of physical and emotional safety that allowed him or her to freely testify.

This is no longer necessarily the case. The Tax Court's current scope of review is primarily the administrative record. It can only consider facts contained in the administrative record unless the facts presented were newly discovered or previously unavailable. Putting these two exceptions aside for the moment, the change to the scope of review means that innocent spouse cases are built based on information available years earlier, when the taxpayer seeking the innocent spouse relief did not have the benefit of extended hindsight and was likely more inextricably linked to the other spouse.

Beyond those factors, getting facts into the...