Today we continue our series highlighting the recent publication of the Pittsburgh Tax Review edition focusing on the Restructuring & Reform Act of 1998 a quarter century after enactment. Guest bloggers Leila Carney and Chris Rizek wrote one of the articles as well as today’s post. Both practice with Caplin & Drysdale in Washington, DC. Leila focuses on tax disputes and tax litigation. Like me, she has her undergraduate degree from William and Mary. Chris was a trial attorney in the Tax Division of the Department of Justice early in his career. His service as Associate Tax Legislative Counsel with the Treasury Department’s Office of Tax Legislative Counsel in the mid to late 1990s provides the background for today’s post and offered me the first opportunity to meet him. In that meeting, which took place in another of the rooms where it happened, he discussed the 25 legislative proposals that Chris Sterner and I had drafted. I remember Chris (Rizek) rejected one of the proposals which sought to codify the reach of the federal tax lien to tenancy by the entireties property because he thought it was an issue for the courts to decide. His rejection of that proposal seemed prescient when the Supreme Court held the federal tax lien reached T by E property a few years later in United States v. Craft, 535 U.S. 274 (2002). His practice focuses on tax disputes and tax litigation. He is well known in the tax procedure community and an early guest blogger for PT.
This post was originally posted on May 3rd, but has been updated on May 8th to correct a reference in the original post that had identified the jurisdictional parenthetical in Section 6015(e)(1)(A) as originating in Conference; the House had inserted that provision in its earlier proposed legislation.
Keith Fogg’s article in the Pittsburgh Tax Review’s recent issue, The IRS Restructuring and Reform Act [“RRA”] Twenty-Five Years Later,Vol. 20, No. 1 (2022), is entitled “In the Rooms Where it Happened,” and several authors of posts on this blog have likewise discussed how exciting, and even fun, it can be to be involved in the legislative or regulatory decision-making process. So, since we’re on that subject, I have a story to relate as well. The very last items resolved in the conference held to reconcile the House and Senate versions of the RRA were the competing provisions for “innocent spouse” reform. I was in the room(s) where that happened, and here’s how it happened.
A bit of background first. Under a provision in the Taxpayer Bill of Right II (1996), Congress had required the Treasury to study proposals to amend the statute governing relief from joint and several liability for “innocent spouses.” That study, which was finished in early 1998, recommended changes in the existing law to broaden the criteria to qualify for relief, but it did not endorse complete “separation of liability,” due to several perceived conceptual difficulties in correctly allocating liability that had been identified. See Report to the Congress on Joint Liability and Innocent Spouse Issues (U.S. Treasury Dept., February 1998) at 24-29, 53-55, 57. Buried at the end in a few brief sentences, the Treasury study also recommended that “Congress expand the Tax Court’s jurisdiction to allow it to review any denial (or failure to rule) by the IRS regarding an application for innocent spouse status.” Id. at 55.
As described in the article Leila Carney and I co-authored for the same Pittsburgh Tax Review, the House version of the taxpayer rights title of RRA consisted primarily of consensus items, mostly improvements to existing provisions in the Internal Revenue Code that were acceptable both to Treasury and the IRS and to members of the House who wanted strong reforms. The House bill thus included several agreed-upon changes to the existing innocent spouse rules in section 6013, generally making it easier to obtain relief. The Senate bill, by contrast, included an entirely new elective scheme of separation of liability. Innocent spouse reform was the last open item in the conference, due in part to Treasury’s opposition to complete separation of liability and to the perceived incompatibility of the two schemes for relief.
Senator Roth, Chairman of the Senate Finance Committee, and Rep. Archer, Chairman of the House Ways and Means Committee, were also chairing the conference committees for their two houses. At the conference, staffers from both committees, as well as the Joint Committee on Taxation, the offices of some other principals, and Treasury (including me) were as usual not sitting right at the table with the members but were scattered around in chairs against the walls. As the conference was finishing successfully, with hardly any controversy or even hard decisions, the two chairmen’s bonhomie increased, and they began cheerfully calling each other by their first names – Bill and Bill. So, with only one item remaining – the innocent spouse provision – one Bill suggested to the other Bill, “Bill, why don’t we just do both, put the House version and the Senate version together somehow?” And the other Bill responded that he thought that was “a splendid idea, Bill,” and they promptly agreed they would just do that.
And then they looked around the room at the staff – who were exchanging nervous glances with each other and even recoiling in horror. It had taken months to draft the Senate’s separation of liability provision and work out the problems with successive editions, and it still wasn’t perfect; and now the members wanted the staff to put the two versions together, with no real instructions on how to do it. And the bill was expected to go to the floors of both houses in less than a week!
As usual after a conference, there ensued several long days of furious drafting and revising of the whole bill, with the pen being held by the Legislative Counsel’s office(s), and drafts of the conference provisions being commented on by the various interested staffers on a daily basis. Not surprisingly there was a lot of discussion of the innocent spouse revisions (especially new section 6015), which had been joined by keeping separation of liability elective but adding a number of restrictions to it. In particular, I and some other staffers expressed concerns over the provision granting judicial review of appeals from full or partial denials of separation of liability (placed in section 6015(e)), with the parenthetical, “(and the Tax Court shall have jurisdiction).” But the drafters left it that way.
The drafters took a similar approach to granting the Tax Court jurisdiction over another brainchild of the RRA, collection due process (“CDP”) determinations, employing much the same parenthetical: “(and the Tax Court shall have jurisdiction with respect to such matter).” Code §§ 6330(d)(1) (initially 6330(d)(1)(A)). Et voilà: ever since, a taxpayer may petition the Tax Court no later than 30 days after a final CDP determination and no later than 90 days after a final determination regarding relief from joint liability including innocent spouse status.
These 30- and 90-day deadlines were taken at face value for a long time, being generally understood to carry the weight of jurisdiction—the deadlines each being in the same sentence as the parenthetical granting jurisdiction. See Code §§ 6330(d)(1), 6015(e)(1)(A). But I was reminded of this drafting issue while discussing with Ms. Carney a recent CDP case, Boechler, P.C. v. Commissioner, 142 S.Ct. 1493 (2022), in which the Supreme Court opened the door for applying equitable doctrines to entertain untimely petitions in extreme cases. In Boechler, the Supreme Court put significant weight on the syntax of the jurisdictional grant in section 6330(d)(1) and the additional phrase “with respect to such matter,” which is present in section 6330(d)(1) but not in section 6015(e)(1)(A). Boechler, 142 S.Ct. at 1498-99. In holding that the CDP petition deadline is not jurisdictional, but merely procedural and therefore may be equitably tolled, the Supreme Court contrasted the two parentheticals, hinting that the text of section 6015(e)(1)(A) is more clearly jurisdictional and would not allow for equitable tolling. Id.
This somewhat surprising holding drew the attention of the National Taxpayer Advocate, whose 2023 legislative recommendations report (the “Purple Book”) offers the critique that interpreting certain deadlines as jurisdictional and others as merely procedural, without a substantive justification, can result in “harsh and unfair results.” The Purple Book thus recommends that Congress enact an entirely new section that clarifies that court filing deadlines are not jurisdictional. Id. (Legislative Recommendation #45).
While such legislation could create its own set of issues, arguably it would at least be in keeping with the impetus behind section 6015, which itself contains an equitable relief provision in section 6015(f). In fact, the grant of jurisdiction in section 6015(e)(1) spells out that “an individual who requests equitable relief . . . may petition the Tax Court . . . .” It certainly is odd that a person may be entitled to equitable relief under the substance of section 6015 but could be denied relief because the Tax Court’s jurisdictional grant precludes equitable tolling. And while I and perhaps some other staffers were not overly enthusiastic about the ad hoc approach to Tax Court jurisdiction taken in the RRA, we all know that Congress’s goal was to expand, not limit, jurisdiction to review IRS determinations. Even if it only helps a few individuals in extreme cases—after all, equitable relief is rarely granted—interpreting the deadlines as nonjurisdictional for both sections 6330 and 6015 would at least treat with consistency provisions enacted at the same time for the same reasons (and with about the same amount of forethought).
What is the moral of the story? Casual drafting sometimes causes years’ worth of problems. A more egregious recent example is shown by the Tax Court’s ruling in Farhy v. Commissioner, 160 T.C. No. 6 (April 3, 2023), which held that section 6038(b) penalties are not assessable because they were put in the wrong part of the Code—chapter 61 of subtitle F rather than with the assessable penalties contained in chapter 68. The Tax Court pointed out that unlike other penalty provisions in other areas of the Code, no separate provision was made for assessing section 6038(b) penalties, nor was there even a cross-reference to chapter 68. Id. at *4. My best guess is that when this penalty was being drafted, no one asked, how will that be assessed? The Congressional habit of rushing legislation through and drafting provisions hurriedly sometimes yields weird and inconsistent results. Certainly I could not have imagined that tax practitioners and courts, including even the Supreme Court, would spend twenty-five years and hundreds of pages parsing parentheticals that were drafted with little scrutiny. Put differently, the excitement of being in the room where it happens may be long gone (for me), but the “fun” sometimes continues for years.