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Thomas v. Commissioner: Some clarity on “newly discovered evidence” under IRC 6015(e)(7) that comes with a reality check

Posted on Apr. 17, 2023

PT readers may be interested to join the next free virtual Tax Chat! in the Transforming Tax Administration series hosted and organized by the Center for Taxpayer Rights.  This week’s Tax Chat! is on IRS IT Challenges and will be held on Tuesday April 18 at 1:30 PM EDT.  Guests include GAO’s David Hinchman, Fred Forman (IRS former Associate Commissioner of Business Systems Modernization) and Marina Nitze, former Chief Technology Officer, US Dept. of Veterans Affairs.  The recent GAO report on IRS legacy systems was discussed in https://www.wsj.com/articles/tax-irs-technology-gao-report-1dcdc87?st=sfgal294m8zr5no&reflink=desktopwebshare_permalink.  If you haven’t yet registered for the series, you can do so here.

The Taxpayer First Act amended IRC § 6015(e) to make clear the standard of judicial review in innocent spouse cases was de novo. At the same time, however, Congress added § 6015(e)(7), which provides that such review shall be limited to the administrative record along with “newly discovered or previously unavailable evidence.” This latter provision provoked despair among practitioners representing taxpayers seeking § 6015 relief, especially in cases where domestic abuse played a role. We all knew the administrative record of proceedings arising from the IRS’s Cincinnati Centralized Innocent Spouse Operation (CCISO) is almost always sparse, reflecting the woefully inadequate administrative process. So the key to obtaining meaningful judicial review would be the Tax Court’s interpretation of the “newly discovered or previously unavailable evidence.” PT has previously discussed the “Fatty Rule” here and here, relating to previously unavailable evidence, but until recently we have not had insight into the court’s position on newly discovered evidence.

Enter Thomas v. Commissioner, 160 T.C. No. 4 (2023).  Ms. Thomas, representing herself at trial, wanted to introduce some evidence that was not part of the administrative record, and she wanted to block some evidence – professional blogs in which she provided favorable information about her lifestyle and relationship with her spouse during the period before the court — that was not part of the administrative record and that the IRS wanted admitted as newly discovered evidence.  On April 26, 2022, Judge Toro entered an order requiring the parties to brief whether the various pieces of evidence should be admitted despite not being part of the administrative record; he also strongly encouraged Ms. Thomas to obtain pro bono counsel.

Fast forward to July 25, 2022, by which date Megan Brackney had agreed to represent Ms. Thomas on a pro bono basis, and the Center for Taxpayer Rights, the Community Tax Law Project, the University of California – Hastings Low Income Taxpayer Clinic, and the Villanova Law School Tax Clinic filed an amicus brief in the Tax Court on the matter.

And now we have Judge Toro’s opinion, issued on February 13, 2023 and reviewed by the full court, in which he allows the blogs to be admitted into evidence as ”newly discovered.”  While this result is certainly disappointing to Ms. Thomas, the question of how to weigh this evidence is still open.  Regardless, given the analysis in the ruling, going forward it may very well be more helpful for taxpayers than for the IRS.  Indeed, in footnote 5, the court points out that “our conclusion would be the same if, for example, a requesting spouse were to seek to introduce into evidence posts from a blog that the nonrequesting spouse maintained without the requesting spouse’s knowledge and that the requesting spouse discovered after the IRS had made a determination with respect to the request.”

The order starts off by determining that the phrase “newly discovered” should be interpreted according to the ordinary meaning of the words, and finds, relying on several dictionaries, that in 2019 (when the subsection was enacted), “newly discovered” meant “recently obtained sight or knowledge of for the first time.” Since the blogs were discovered by the IRS after the administrative record was closed, even though they had been posted earlier, they were “newly discovered” and thus admissible.

Ms. Thomas had urged the court to apply the Federal Rule of Civil Procedure (FRCP) 60(b)(2)’s approach to newly discovered evidence.  Under FRCP 60(b)(2), a court could consider a motion for a new trial on the basis of “newly discovered evidence that, with reasonable diligence, could not have been discovered in time to move for a new trial.”  (Emphasis added.)  According to Ms. Thomas, since the blog posts were public and could be discovered with a reasonably diligent search during the administrative proceeding, the evidence should be excluded at trial.  Judge Toro, however, was not persuaded; he noted that the 60(b)(2) language existed at the time IRC § 6015(e)(7) was added, but was not included in the amendment; and at any rate, the court found that the “reasonable diligence” language was not a definition of the phrase “newly discovered” but rather a limitation on its meaning.

On the other hand, IRC § 6015(e)(7) does contain qualifying language: “any additional newly discovered evidence.” The court cited the Supreme Court’s position that “any” has an expansive meaning – “one or some indiscriminately of whatever kind.” Thus, the court found that “any additional” counsels against adopting a limiting interpretation of the phrase “newly discovered.”

The court next noted that this expansive interpretation of “newly discovered” was further supported by the simultaneous grant of de novo review in these cases. Administrative record cases typically involve an abuse of discretion standard, while de novo review means a fresh record. Thus, the grant of de novo review supports the conclusion that evidence unknown to the parties in an innocent spouse proceeding should be admissible if offered by a party before the Tax Court.

Finally, distinguishing FRCP 60(b)(2) where the parties have already had an opportunity to conduct discovery, present testimony and subpoena witnesses at trial, such that a reasonable diligence rule makes sense, in the context of the IRS “relatively limited administrative proceeding, . . . .[t]he more permissive rule in section 6015(e)(7) is appropriate in these circumstances.” And in what the made all of us who participated in drafting the amicus brief stand up and do a happy dance, the court concluded by noting:

Our holding here is generally consistent with the amici’s view that “exceptions to the administrative record rule of § 6015(e)(7) [should] be applied expansively given the de novo review the court must conduct, the requesting spouse’s specific circumstances, and the nature of the IRS’s administrative procedures.” Amicus Br. 2. And as we have already observed, see note 5 above, the rule we adopt today would apply similarly to evidence that is newly discovered by the requesting spouse or the Commissioner.

Now, before we get too excited about all this, we must turn to the concurring opinion – the reality check, so to speak. Judge Buch, joined by Judges Ashford and Copeland, concurs with the court’s opinion “without reservation” but writes to highlight the gap between what Congress may have intended to achieve by enacting § 6015(e)(7), and what the statutory language actually says. He gives two examples – one, an abused spouse puts on social media glowing posts about family events and vacations; the other, also an abused spouse, posts comments about the abuse and participates in an online forum for abused spouses, as well as posting photos of her bruises. In each instance, upon leaving her spouse, she seeks relief under IRC § 6015 but does not submit these social media posts to the IRS for consideration. Thus, the social media posts are not part of the administrative record before the court.

In the first example, the Commissioner seeks to admit the glowing social media posts as newly discovered evidence, and as in Thomas, the court is likely to admit them. In the second example, the Petitioner seeks to admit the posts demonstrating the existence and effects of the abuse. Here, the Petitioner both created and controlled those posts. Judge Buch writes that “it may be difficult for her to establish that this potential evidence is newly discovered or previously unavailable to her. As a result, she may be precluded by section 6015(e)(7) from introducing this evidence.”

Judge Buch notes that this result seemingly runs contrary to what Congress was hoping to achieve with the amendment to § 6015 in the Taxpayer First Act, namely resolving the conflicts in the circuit about the de novo standard of review; the amendment was included in a law that was all about enhancing taxpayer protections.

The majority opinion reserves these issues raised by the amicus and the concurrence for another day: “To the extent the amici raise additional points that go beyond the facts of this case, we need not address them here, and we leave their resolution for another day.”

So Congress’ work as legislators, and our work as advocates, is not yet done. No one has come forward on the Hill or from the IRS to explain why the administrative record language was plopped into the statute. But there is something that can be done, immediately, that doesn’t require legislation. In his opinion, Judge Toro quotes extensively from amici’s description of the “skeletal” IRS innocent spouse procedures, including the following language:

Taxpayers, particularly pro se taxpayers without sufficient legal knowledge of IRS and court processes, may be unaware of what additional documents or information would support their case. Under the IRS’s innocent spouse processing procedures, CCISO has no requirement to provide a requesting spouse with documents or information supplied by the non-requesting spouse at the pre-Appeals stage. See IRM 25.15.18 (Jan. 15, 2020). To the extent that CCISO relies on information from a non-requesting spouse to deny the requesting spouse’s innocent spouse claim, taxpayers may be unaware of the need to submit additional documents to rebut that information.

The IRS has had 25 years to develop taxpayer-friendly and administratively accessible and inclusive innocent spouse procedures. It doesn’t need to wait for a legislative fix to change its procedures and avoid the harm Judge Buch identifies in the concurring opinion. The Thomas case demonstrates that IRS needs to fix things, stat.

To help the IRS get started with this reform, an upcoming post will discuss comments the Center and two clinics submitted proposing substantial revisions to Form 8857, the IRS form to request innocent spouse relief. These revisions would elicit the necessary information at the administrative stage, leading to more accurate administrative resolutions, or at least a more complete administrative record for the Tax Court to review de novo.

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