Opinion
Civil Action No. 02-12490-REK.
September 30, 2004
Memorandum and Order
I. Pending Matters
Pending for decision are matters related to the following filings:
(1) Kathleen Haag's Motion for Summary Judgment (Docket No. 13) (filed April 16, 2004), Kathleen Haag's Memorandum in Support of Her Motion for Summary Judgment (Docket No. 14) (filed April 16, 2004), and Kathleen Haag's Statement of Undisputed Facts (Docket No. 15) (filed April 16, 2004);
(2) United States' Motion for Partial Summary Judgment That Kathleen Haag Does Not Qualify for Innocent Spouse Relief (Docket No. 18) (filed September 1, 2004); and
(3) Kathleen Haag's Opposition to the Plaintiff's Motion for Summary Judgment (Docket No. 19) (filed September 14, 2004), Kathleen Haag's Statement of Facts in Dispute (Docket No. 20) (filed September 14, 2004), Memorandum in Support (titled "Procedural History") (Docket No. 21) (filed September 14, 2004), and Statement of Timothy Burke (titled "Affidavit of Timothy Burke re: tax liability") (Docket No. 22) (filed September 14, 2004)
(4) United States' Reply to Kathleen Haag's Opposition to Its Motion for Partial Summary Judgment (Docket No. 23, Attachment No. 1) (filed September 24, 2004).
(5) Mrs. Haag's Reply to the Plaintiff's Reply to Her Opposition to Her Motion for Summary Judgment (included as part of Docket No. 24 titled "Opposition re 23 Motion for Leave to File Reply to Kathleen Haag's Opposition to Its Motion for Partial Summary Judgment") (filed September 29, 2004).
II. Factual and Procedural Background
On December 30, 2002, Plaintiff, the United States of America, filed a complaint in this court seeking to reduce to judgment the Defendants', Robert and Kathleen Haag's, unpaid liabilities for their federal taxes. Defendant Kathleen Haag ("Defendant Haag") seeks to defend against the plaintiff's claim with an innocent spouse affirmative defense. Defendant Haag filed a motion for summary judgment based on the affirmative defense. Plaintiff filed a competing motion for partial summary judgment asking this court to rule against Defendant Haag's affirmative defense because Defendant Haag never submitted an election with the IRS as required by statute and administrative regulations and that the time for doing so has elapsed.
III. Disposition of the Motions for Summary Judgment
A. Summary Judgment Standard
Summary judgment should be granted only where the court, viewing the evidence in the light most favorable to the non-moving party, determines that no genuine dispute of material fact exists. See Fed.R.Civ.P. 56. The movant has the "initial responsibility of informing the district court of the basis for its motion, and identifying those portions" of the record showing the absence of a genuine dispute of material fact. Celotex Corp. v. Catrett, 477 U.S. 317, 323, 91 L. Ed. 2d 265, 106 S. Ct. 2548 (1986). Then the non-moving party must demonstrate that " every essential element of its claim or defense is at least trialworthy." Price v. General Motors Corp., 931 F.2d 162, 164 (1st Cir. 1991) (italics in original).
A dispute is genuine if it "may reasonably be resolved in favor of either party." Cadle Co. v. Hayes, 116 F.3d 957, 960 (1st Cir. 1997). Facts are "material" if they possess "the capacity to sway the outcome of litigation under the applicable law." Id. The facts in genuine dispute must be significantly probative in order for summary judgment to be denied; "conclusory allegations, improbable inferences, and unsupported speculation will not suffice." Id.
Moreover, "[t]he standards are the same where, as here, both parties have moved for summary judgment." Bienkowski v. Northeastern Univ., 285 F.3d 138, 140 (1st Cir. 2002) (citing 10A Charles Alan Wright, Arthur R. Miller Mary Kay Kane,Federal Practice and Procedure § 2720, at 335-36 (3d ed. 1998) ("The court must rule on each party's motion on an individual and separate basis, determining, for each side, whether a judgment may be entered in accordance with the Rule 56 standard.")).
B. Defendant Haag's Motion for Summary Judgment
Because Defendant Haag has failed to timely raise the innocent spouse issue for all the tax years in question except for tax year 2001, her motion for summary judgment is denied as to those tax years. The innocent spouse exemption for joint filers currently encoded in I.R.C. § 6015, "was . . . developed in an effort to offer some protection to a spouse who, through no fault of their own, did not have any knowledge of the incorrect tax reporting of the other spouse." In re French, 242 B.R. 369, 376 (Bankr. N.D. Ohio 1999). Three separate innocent spouse provisions appear in § 6015. Section 6015(b) is a general relief provision. Section 6015(c) applies to divorced and separated individuals. By their own terms, both (b) and (c) apply only when a deficiency exists. Section 6015(f) is a broader provision and provides for equitable relief at the discretion of the Secretary if (b) and (c) do not apply. At issue in this case are provisions § 6015(b) and (f). An in depth discussion of the application of each of these provisions is not necessary since each of these provisions, either by statute or administrative regulation, requires that an election be made to the IRS within two years from the first collection action.
Section 6015(b)(1) prescribes the elements that are necessary to qualify for the innocent spouse exemption under § 6015(b):
(A) a joint return has been made for a taxable year;
(B) on such return there is an understatement of tax attributable to erroneous items of one individual filing the joint return;
(C) the other individual filing the joint return establishes that in signing the return he or she did not know, and had no reason to know, that there was such understatement;
(D) taking into account all the facts and circumstances, it is inequitable to hold the other individual liable for the deficiency in tax for such taxable year attributable to such understatement; and
(E) the other individual elects (in such form as the Secretary may prescribe) the benefits of this subsection not later than the date which is 2 years after the date the Secretary has begun collection activities with respect to the individual making the election[.]
Section § 6015(b)(1)(E) establishes a prerequisite that has not been satisfied by Defendant Haag for all tax years at issue except possibly 2001.
Whether filing an answer can serve the same purpose as an election is not addressed. As noted below, issues pertaining to tax year 2001 are moot.
Section 6015(f) establishes that, under procedures prescribed by the Secretary, the Secretary may relieve the individual of liability if:
(1) taking into account all the facts and circumstances, it is inequitable to hold the individual liable for any unpaid tax or any deficiency (or any portion of either); and
(2) relief is not available to such individual under subsection (b) or (c)[.]
Treasury Regulation § 1.6015-5(b) mandates that a taxpayer who requests relief from joint and several liability under IRC §§ 6015(b) or (f) file a Form 8857 "Request for Innocent Spouse Relief," or some similar statement, with the IRS within two years. Defendant Haag failed to meet this requirement.
Defendant Haag contends that the two-year time limit does not prevent Defendant Haag from asserting the innocent spouse defense. Defendant Haag's argument is without merit. The series of cases cited by Defendant Haag simply do not support her ability to raise the innocent spouse exemption in this court outside of the two-year time limit. Most of the authorities on which Defendant Haag relies are Tax Court cases. The Tax Court cases deal with the issue of the jurisdiction of the Tax Court, not the authority of a District Court to hear the innocent spouse affirmative defense after the time for election has passed. For example, in Ewing v. Commissioner, 118 T.C. 494, 496-97 (2002), the Tax Court noted it had jurisdiction to hear innocent spouse claims in three instances:
First, a claim may be raised as an affirmative defense in a petition for redetermination of a deficiency filed pursuant to section 6213(a). . . . A second basis upon which we may exercise jurisdiction is contained in section 6015(e). This provision allows a spouse who has requested relief to petition the Commissioner's denial of relief, or to petition the Commissioner's failure to make a timely determination. Such cases are referred to as "stand alone" cases, in that they are independent of any deficiency proceeding. . . . A third situation where we may exercise jurisdiction to determine relief from joint and several liability is where the issue is properly raised in a collection proceeding under sections 6320 and 6330.
(citations omitted). The Tax Court has a different relationship from that of a District Court with the Internal Revenue Code.
Defendant Haag has chosen not to exercise her statutory right to go before the Tax Court. Moreover, it is not clear from the precedent cited by the defendant that the Tax Court would allow an innocent spouse affirmative defense after the two-year time limit ended.
The one non-Tax Court case cited by Defendant Haag is not on point. United States v. Shanbaum, 10F.3d 305 (5th Cir. 1994), did treat the innocent spouse exemption as an affirmative defense. The authority of this court to hear such an affirmative defense is not in question. In addition, Shanbaum dealt with the older innocent spouse statute, § 6013, which did not require an election. Therefore, Shanbaum does not speak to the time limits of § 6015(b) or (f).
Defendant Haag cannot meet the legal requirements for seeking innocent spouse protection for the years before 2001. Therefore, her motion for summary judgment must be denied.
Finally, the tax liability for the tax year 2001 has been fully paid. See Statement of Timothy Burke (Docket No. 22); United States's Reply to Kathleen Haag's Opposition to Its Motion for Partial Summary Judgment (Docket No. 23, Attachment No. 1). Defendant Haag's summary judgment motion as it relates to tax year 2001 is therefore denied as moot.
IV. Plaintiff's Motion for Partial Summary Judgment
For the reasons stated above, I rule as a matter of law that Defendant Haag cannot prove the elements of her affirmative defense. Therefore, the plaintiff's motion for partial summary judgment must be granted as to the years 1985-91 and 1993. Since the tax for the 2001 tax year has been paid, the plaintiff's motion for summary judgment as it applies to the tax year 2001 is denied as moot.
Order
For the foregoing reasons, it is ORDERED:
(1) Defendant Haag's Motion for Summary Judgment is DENIED.
(2) Plaintiff's Motion for Partial Summary Judgment is GRANTED as to the tax years 1985-91 and 1993 and is DENIED as moot as to tax year 2001.