The Unhappy Marriage of Law and Equity in Joint Return Liability
13 Pages Posted: 16 Nov 2009 Last revised: 10 Apr 2010
Date Written: September 12, 2005
This article explores what happens when Congress attempts to smooth out the "square corners" of the tax code with notions of equity, but does so with an inadequate understanding of, or appreciation for, the problems of tax administration.
In the Internal Revenue Service Restructuring and Reform Act of 1998 (RRA 98), Congress revised the rules contained in IRC Section 6015 for spouses to obtain relief from joint and several liability reported in a prior jointly filed tax return. In a prior article - titled "Between a Rock and a Hard Place" and also posted on SSRN - I showed how Congress failed to give the Tax Court jurisdiction under 6015(e) to review IRS denials of section 6015(f) equitable relief in nondeficiency cases.
This article takes a broader look at that same jurisdictional problem, to fully examine the full interplay of its substantive provisions with tax procedure. In RRA 98, Congress increased the scope of equitable relief from joint and several liability. But the procedures it provided taxpayers who seek that relief are a conceptual and practical mess. The ironic result: In trying to cure old inequities, Congress created new ones. Because of RRA 98, substantive outcomes depend on choice of process.That is not good tax administration.
Part I of the article explains the history and theory of joint liability, because to understand the need for equity one needs to understand what corners of the law are too sharp and why. Part II explains how and why the concept of ‘‘innocent spouse’’ came into tax, and how that concept - taken from ancient divorce laws - has remained the bedrock idea underlying all forms of joint liability relief enacted since 1971. Part III looks at the mess made by Congress in RRA 98 when it tried to cure the problem of access to court review, but improperly conflated the tax determination process with the tax collection process, creating gaps and traps for taxpayers, no matter how wary they may be. Part III also offers some ideas on what the taxwriters should or could do to fix the mess.
Keywords: innocent spouse, joint returns, taxation of couples, economic units, joint liability, tax administration, 6015, equity
JEL Classification: B3, K34, K40
Suggested Citation: Suggested Citation