Everyone graduating from law school these days must take a course in legal ethics aka professional responsibility. State bars also require persons seeking admittance to take a standardized test designed to ensure that those entering the profession have the requisite knowledge of the ethical rules that govern legal practice.
In 2007 when I was retiring from the Office of Chief Counsel, IRS and beginning to teach at Villanova, the law school wanted me to become a member of the Pennsylvania bar. Thankfully, Pennsylvania allowed members of the Virginia bar with the requisite number of years of practice to waive into the bar; however, they stopped my application because I had not passed the ethics exam. I pointed out to them that when I joined the bar in 1977 there was no ethics exam. I politely inquired if, given my age and length of service, I might be grandfathered in without need to take this standardized test. The bar examiners politely let me know I needed to take the test. So, shortly before retiring from federal service, I sat in a room filled with people 30 years younger than me who no doubt wondered what ethical lapses had caused this very old person to take the test. Thankfully, I passed.
One of the ethical rules, Rule 1.4(2) of the ABA model rules, concerns settlement and the requirement that an attorney must bring a settlement offer to the client. The ethical rules prevent the attorney from simply rejecting the settlement because the attorney does not like it. In Delponte v. Commissioner, 158 T.C. No. 7 (2022), the Tax Court explains how that rule does not apply to the attorneys in the Office of Chief Counsel handling an innocent spouse case. Taking it from the innocent spouse issue to the broader issue of cases handled by Chief Counsel, the rule does not apply to any of the cases in Tax Court nor does it apply to the Department of Justice Tax Division attorneys. Once a case moves into the office of Chief Counsel or DOJ Tax Division, the attorneys are in the driver’s seat in deciding when to settle. While they may consult with their client at the IRS, the relationship of the government attorney to its client differs dramatically from the relationship of the attorney in private practice to the client. This proves unfortunate for Ms. Delponte.
The case goes back to years from two decades ago. The Tax Court docket numbers, of which there are five, go back to 2005. Way back when, Ms. Delponte was married to Mr. Goddard who the Court described as “a lawyer who sold exceptionally aggressive tax-avoidance strategies with his business
partner David Greenberg and became very wealthy in the process.” Mr. Goddard not only sold aggressive tax shelters, he also invested in them. The IRS examined his returns, which were joint returns with Ms. Delponte, and proposed huge liabilities.
Ms. Delponte’s involvement in the Tax Court cases provides an interesting procedural sidelight. The notices of deficiency were sent to Mr. Goddard’s law office years after the parties had split. Mr. Goddard filed several Tax Court petitions as joint petitions without consulting or notifying Ms. Delponte. Even though he filed the petitions in years 2005 through 2009, she did not become aware of the petitions until November of 2010. At that point she ratified the petitions. Allowing her to ratify the petitions and be treated as if she timely filed them is an interesting feature of Tax Court jurisdiction.
The Tax Court, and the IRS, would not have known that she did not agree to the filing of the joint petition. The IRS would have held off making an assessment against her, thinking that doing so would violate IRC 6213. By putting her name on the petition even without her permission, Mr. Goddard not only suspended the statute of limitations on assessment for her liability but also preserved for her the opportunity to accept or reject the Tax Court case over five years after its filing. You can see the awkward position this puts everyone in. Yet, in many ways this works to the unknowing spouse’s advantage since it preserves the right to litigate in a prepayment forum. The suspension of the statute of limitations on assessment is the downside of this action on the unwitting spouse.
Mr. Goddard not only filed joint petitions but he also listed her as an innocent spouse. I do not know why in the five years between 2005 and 2010 the case had not progressed to a point that someone at Chief Counsel had pressed on the innocent spouse issue in a Branerton conference or otherwise, but at the point when she came fully into the case nothing seemed to have occurred regarding the innocent spouse defense.
When you raise an innocent spouse defense in a deficiency case, the Chief Counsel attorneys ask that you complete a Form 8857, the innocent spouse relief form, and they send the form off for review by the innocent spouse unit of the IRS located in Covington, Kentucky. This finally happened in Ms. Delponte’s case in April of 2011 only six years after the filing of the first petition in the case.
The Court points out that when Chief Counsel refers the case to the innocent spouse unit it requests that the unit not issue a determination letter as it would do if the request had arrived outside of a Tax Court deficiency proceeding but rather that the innocent spouse unit simply provide the results of its review to the attorney handling the deficiency case. Here the innocent spouse unit reviewed the submission and determined that Ms. Delponte met the criteria for relief.
At the Harvard Tax Clinic we handle quite a few innocent spouse cases. We submit what we believe are good applications but receive a favorable determination from the innocent spouse unit on a distinct minority of cases. We usually gain relief from Appeals or from Chief Counsel. So, the fact that this unit granted Ms. Delponte relief in no way reflects that her success at this stage was routine. Nonetheless, the Chief Counsel attorney did not accept the advice of its client and pressed forward with the innocent spouse case.
So, unlike an attorney in private practice who would be bound by the decision of its client, the government attorney is not so bound. Ms. Delponte disagreed with the refusal of Chief Counsel to accept the decision made by its client that she met the criteria for relief. She refused to meet with the Chief Counsel attorney to discuss the case, arguing that the additional information it sought “would be superfluous because CCISO (the innocent spouse unit) had already decided she was entitled to relief and its decision was binding on Chief Counsel.”
Because she would not meet, her innocent spouse status remained unresolved while the deficiency case moved forward, ultimately resulting in a large deficiency determination that was upheld on appeal. Once the underlying tax issue was complete, the Court turned back to her innocent spouse request. The next post on this case will discuss how the Tax Court came to the conclusion that Chief Counsel’s office could ignore the decision of its client and what happened on the merits of the innocent spouse relief request.