Haag v. Shulman , 683 F.3d 26 ( 2012 )


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  •           United States Court of Appeals
    For the First Circuit
    No. 11-1979
    KATHLEEN HAAG,
    Petitioner, Appellant,
    v.
    DOUGLAS SHULMAN,
    Commissioner of Internal Revenue Service,
    Respondent, Appellee.
    APPEAL FROM THE JUDGMENT OF THE
    UNITED STATES TAX COURT
    Before
    Lynch, Chief Judge,
    Torruella and Lipez, Circuit Judges.
    Timothy J. Burke, with whom Burke & Associates, was on brief
    for appellant.
    John Schumann, Attorney, Tax Division, with whom Tamara W.
    Ashford, Deputy Assistant Attorney General, and Teresa E.
    McLaughlin, Attorney, Tax Division, was on brief for appellee.
    July 2, 2012
    TORRUELLA,    Circuit    Judge.      Taxpayer   Kathleen      Haag
    ("Haag") appeals from the Tax Court's ruling that she is ineligible
    for "innocent spouse" relief and may not assert that defense
    against the government's continuing attempts to reduce to judgment
    certain federal income tax liabilities.           Because the Tax Court
    correctly concluded that Haag was not entitled to renew her claim
    for the relief sought due to res judicata grounds, we affirm.
    I.     Background
    The United States sued Haag and her husband, Robert Haag,
    (collectively, the "Haags") in 2002 in the U.S. District Court for
    the   District   of   Massachusetts   to     reduce   federal   income   tax
    liabilities to judgment.    These liabilities totaled $1,620,224 and
    were incurred during separate time periods spanning tax years 1985
    through 1991 and 1993 through 2001. In the answer the couple filed
    with the district court, Haag raised, as an affirmative defense,
    her asserted entitlement to "innocent spouse" relief from joint and
    several liability under 
    26 U.S.C. § 6015
    (b)(1)-(2), (f).
    In October 2004, while the initial action against them
    was still pending before the district court, the Haags brought a
    separate action against the United States in the same court
    claiming that they had been denied their statutory right to a
    collection due-process ("CDP") hearing.         This hearing, in which a
    taxpayer appears before the Internal Revenue Service ("IRS") before
    she is deprived of her property, is granted as of right under
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    26 U.S.C. § 6320
    .   In their filings, the Haags alleged that the IRS
    failed to notify them of their right to a CDP hearing.          The
    district court then consolidated the two actions in December 2004.
    In January 2006, the district court entered judgment
    against the Haags with regards to the government's collection
    action.   On the issue of Haag's asserted eligibility for innocent
    spouse relief under § 6015, the district court found that the
    statutory limitations period and applicable tax regulation --
    specifically, the provisions found at § 6015(b)(1)(E) and at 
    Treas. Reg. § 1.6015-5
    (b)(1) -- required such claims to be filed with the
    IRS within two years after the IRS's first collection action was
    taken against the Haags.   Because the IRS's efforts to collect on
    the Haags' tax liabilities commenced in 1999, the court dismissed
    Haag's claim for innocent spouse relief -- first raised in 2002 --
    as untimely.
    Although the government first conceded that it had failed
    to notify the Haags of their right to a CDP hearing and allowed the
    Haags to appear before the IRS in a substitute hearing, it later
    reversed course when it discovered evidence that it had, in
    actuality, sent proper notice.    Consequently, on August 1, 2006,
    the district court also ruled against the Haags as to their
    separate action against the United States.   The Haags appealed the
    district court's judgment only as to their CDP claim and, on
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    April 3, 2007, we affirmed.    See Haag v. United States, 
    485 F.3d 1
    (1st Cir. 2007) ("Haag I").
    Two more lawsuits involving the Haags are relevant to the
    present appeal.    First, in the interval between the district
    court's August 1, 2006, ruling and our judgment in Haag I, the
    Haags filed another suit against the United States, which alleged
    that the government had failed to properly notify their attorney of
    tax liens against them.       This suit was first administratively
    closed when Robert Haag filed for bankruptcy, then dismissed due to
    the district court's finding that it was barred by res judicata.
    Second, Haag, acting on her own, sued the United States claiming
    that the IRS had failed to consider a request for innocent spouse
    relief that she raised at her substitute CDP hearing in 2005.   The
    district court also dismissed this claim, reasoning that the Haag
    I action barred it due to res judicata.
    The Haags then appealed the district court's dismissal of
    both cases to this Court.     On December 14, 2009, we affirmed the
    district court's judgment and endorsed its reasoning that both
    actions were barred due to the preclusive effect of final judgment
    in the Haag I action.   See Haag v. United States, 
    589 F.3d 43
     (1st
    Cir. 2009) ("Haag II").
    This appeal stems from Haag's renewed efforts to obtain
    innocent spouse relief from liability.       As we explain further
    infra, Haag attempts to avail herself of an intervening change in
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    the law that she posits is both applicable and beneficial to her.
    Specifically, Haag relies upon Lantz v. Commissioner, 
    132 T.C. 131
    (2009) ("Lantz I"), rev'd, 
    607 F.3d 479
     (7th Cir. 2010), in which
    the   Tax   Court   invalidated   the    Department   of   the   Treasury's
    regulation imposing a two-year statute of limitations on § 6015(f)
    requests for innocent spouse relief as an improper interpretation
    of the statute.     Haag filed administrative requests for § 6015(f)
    relief with the Commissioner of Internal Revenue relying on Lantz
    I in July 2009, which the Commissioner denied in the following year
    on res judicata grounds.     Haag then filed the present action with
    the Tax Court to again assert her request for innocent spouse
    relief and to challenge the Commissioner's application of res
    judicata principles.      In addition, Haag relied upon 
    26 U.S.C. § 6015
    (g)(2), which lifts the res judicata bar to allow certain
    taxpayers' claims for relief in some circumstances, and contended
    that her innocent spouse defense could proceed on those grounds as
    well.
    The Tax Court granted the Commissioner's request for
    summary judgment.     With regards to Lantz I and the fact that the
    Tax Court had eventually invalidated the statute of limitations
    that originally rendered Haag ineligible for relief, the Tax Court
    reasoned that res judicata generally does not account for changes
    in the law and, therefore, Haag's action remained barred.            As to
    the statutory provisions that would grant a taxpayer relief from
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    res judicata, the Tax Court found that Haag did not meet the
    requirements for such a dispensation to attach. This timely appeal
    of the Tax Court's judgment followed.
    II.   Discussion
    We review the Tax Court's decision to grant summary
    judgment de novo.   Burke v. Comm'r, 
    485 F.3d 171
    , 173 (1st Cir.
    2007).
    Taxpayers who file joint returns are held jointly and
    severally liable for liabilities that flow from those submissions.
    See 
    26 U.S.C. § 6013
    (d)(3). "Innocent spouse" relief provisions in
    the tax code offer a narrow exception to this arrangement.     Under
    these, the tax code exempts a joint filer who "did not know or have
    reason to know that there was an understatement on the tax return"
    from joint and several liability.     Jones v. Comm'r, 
    642 F.3d 459
    ,
    460 (4th Cir. 2011). Section 6015(f), upon which Haag specifically
    relies in this action, allows the Secretary of the Treasury to
    relieve an innocent spouse of liability if (1) the totality of the
    circumstances make it inequitable for that person to be held liable
    and (2) relief is not otherwise available to an individual under
    certain related statutory provisions.       
    26 U.S.C. § 6015
    (f); see
    also Lantz v. Comm'r, 
    607 F.3d 479
    , 480 (7th Cir. 2010) ("Lantz
    II").
    The tax code authorizes the Secretary of the Treasury to
    prescribe rules and regulations by which to implement the code's
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    provisions.       See 
    26 U.S.C. §§ 6015
    (h), 7805(a).           Acting under his
    delegated    authority,      the   Secretary        promulgated   a   regulation
    implementing a two-year limiting period during which an individual
    may assert a claim for relief under § 6015(f).                 See 
    Treas. Reg. § 1.6015-5
    (b)(1). Per the regulation, the two-year deadline starts
    to run as of the IRS's first action to collect tax liabilities,
    e.g., by "issuing a notice of intent to levy on the taxpayer's
    property."    Lantz II, 
    607 F.3d at 480
    .
    As noted above, Haag's present action unfolds against a
    changed regulatory landscape because, in 2009, the Tax Court
    invalidated the two-year statute of limitations on § 6015(f) claims
    for relief as an improper interpretation of the tax statute.                   See
    Lantz I, 
    132 T.C. at 138
    -40.         In doing so, the Tax Court looked to
    the other two subsections of 
    26 U.S.C. § 6015
     that provide relief
    from liability -- i.e., § 6015(b) and (c) -- and noted that those
    provisions    expressly      incorporated       a   two-year   deadline       on   a
    taxpayer's request for relief.             Because § 6015(f) lacked such a
    deadline, the Tax Court reasoned that Congress did not intend for
    there   to   be    a    two-year   limit   on   claims    brought     under    that
    subsection.       Id.
    Our resolution of this appeal hinges on res judicata
    principles and the statutorily-recognized exceptions to the same
    found at 
    26 U.S.C. § 6015
    (g)(2).             We are not called upon to pass
    judgment on whether the Tax Court's decision to invalidate the
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    Secretary of the Treasury's two-year statute of limitations on
    innocent spouse claims brought under § 6015(f) was either proper or
    correct.    We   limit   our   discussion   accordingly,   but   find   it
    appropriate to note without saying more that the circuit courts of
    appeal that have considered those issues have not viewed the Tax
    Court's judgment kindly.       See Jones, 
    642 F.3d at 465
     (concluding
    two-year deadline on § 6015(f) claims "is a reasonable approach to
    filling the gap left in § 6015" and "conclud[ing] that it is a
    valid regulation"); Mannella v. Comm'r, 
    631 F.3d 115
    , 122 (3d Cir.
    2011) ("[T]he absence of a statutory filing deadline in subsection
    (f) . . . does not require us to conclude that the Secretary cannot
    impose a two-year deadline by regulation."); Lantz II, 
    607 F.3d at 482
     (noting "fact that Congress designated a deadline in two
    provisions of the same statute and not in third is not a compelling
    argument that Congress meant to preclude the [Secretary] from
    imposing a deadline applicable to cases governed by that third
    provision").
    The doctrine of res judicata dictates that "a final
    judgment on the merits of an action precludes the parties from
    relitigating claims that were or could have been raised in the
    prior action."    Haag II, 
    589 F.3d at 45
    .      Res judicata commonly
    attaches if three requirements are discernibly present: "(1) a
    final judgment on the merits in an earlier action; (2) an identity
    of the cause of action in both the earlier and later suits; and (3)
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    an identity of parties or privies in the two suits." Havercombe v.
    Dep't of Educ. of P.R., 
    250 F.3d 1
    , 3 (1st Cir. 2001) (quoting Kale
    v. Combined Ins. Co. of Am., 
    924 F.2d 1161
    , 1166 (1st Cir. 1991)).
    Speaking specifically to the tax liability context, the Supreme
    Court has explained that because taxes are assessed annually,
    "[e]ach year is the origin of a new liability and a separate cause
    of   action."   Comm'r   v.    Sunnen,    
    333 U.S. 591
    ,   598   (1948).
    Accordingly, "if a claim of liability or non-liability relating to
    a particular tax year is litigated, a judgment on the merits is res
    judicata as to any subsequent proceeding involving the same claim
    and the same tax year."       
    Id.
    It is beyond question that res judicata principles are
    applicable in the present action: Haag does not contest -- nor
    could she -- that she was party to the government's previous
    attempt to reduce to judgment certain tax liabilities that she and
    her husband incurred during the same tax years that are at issue
    here.
    Crucial to Haag's appeal, however, the tax code does
    carve out certain narrow exceptions that would permit an innocent
    spouse taxpayer to obtain relief even if her claim were otherwise
    barred by res judicata.       Specifically, under 
    26 U.S.C. § 6015
    (g)
    (2), a taxpayer may stave off the preclusive effect of a prior
    action if she can show "(1) that [her] innocent spouse claim 'was
    not an issue' in the prior proceeding and (2) that [s]he did not
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    'participate meaningfully' in the prior proceeding."             Koprowski v.
    Comm'r, 
    138 T.C. No. 5
    , 
    2012 WL 371888
    , at *8 (Feb. 6, 2012)
    (original alterations omitted).            As the accentuated conjunction
    suggests, a taxpayer must satisfy both factors to lift the bar of
    res judicata.
    We conclude that Haag meets neither of the § 6015(g)(2)
    elements and that she is therefore barred by res judicata from
    disputing her asserted entitlement to innocent spouse relief under
    § 6015(f).    With regards to the first of the above-cited factors,
    we note that Haag's innocent spouse relief request was not only an
    issue in the litigation that led to our judgment in Haag I, it was
    also addressed in detail by the parties and considered by the
    district court.      As noted above, Haag raised the issue of her
    innocent   spouse   claims   under    
    26 U.S.C. § 6015
       early   on,   by
    asserting them in her answer to the government's complaint in its
    tax collection action against Haag and her husband.              See Haag II,
    
    589 F.3d at 44
    .     Indeed, as the government correctly underscores,
    the points enumerated in this filing under the heading "Request for
    Determination as an Innocent Spouse" together comprised the only
    affirmative defense that Haag raised in her pleading to the court,
    devoting approximately three full pages of a five-page answer to
    arguments grounded on § 6015(b)(1)-(2) and § 6015(f). See Deihl v.
    Comm'r, 
    134 T.C. 156
    , 165 (2010) (noting innocent spouse "relief
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    from joint and several liability" was "an issue" where "raised in
    the pleadings").
    Having      failed    to   satisfy      the    first     §   6015(g)(2)
    requirement, Haag's attempt to come under the provision's scope
    must fail.    We nonetheless address her remaining arguments for the
    sake of thoroughness.
    Haag expends more effort in contending that she satisfies
    the second criterion under § 6015(g)(2) -- i.e., that a taxpayer
    requesting relief under the relevant provisions may not have
    "meaningfully participated" in prior proceedings that would trigger
    res judicata's preclusive effect -- but her arguments on this issue
    similarly lack merit.             Whether a taxpayer requesting innocent
    spouse relief has participated meaningfully in prior proceedings is
    determined     by     looking     to    the     "totality   of      the   facts   and
    circumstances," see Harbin v. Comm'r, 
    137 T.C. 93
    , 98 (2011), but
    the Tax Court has listed certain factors -- e.g., "exercising
    exclusive control over" conduct in a prior proceeding, "having a
    high level of participation" in the same, or previously "having the
    opportunity to raise a claim for relief from joint and several
    liability"    --    as    being    particularly      probative       of   meaningful
    participation, 
    id.
            We agree with the Tax Court that Haag handily
    meets any standard for meaningful participation.                    In addition to
    the above-referenced pleading, the district court's order rejecting
    Haag's asserted § 6015 defense lists several filings that Haag
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    submitted to the court in her singular capacity as a defendant and
    independent of her husband.1        See United States v. Haag, No. Civ.
    A 02-12490-REK, 
    2004 WL 2650274
    , at *1-2 (D. Mass. Sept. 30, 2004).
    In a noteworthy example, Haag filed a detailed memorandum of law in
    support of her own motion for summary judgment, which the district
    court then carefully considered and rejected.             See 
    id. at *2-4
    (discussing     Haag's   asserted    innocent    spouse   exemption     from
    liability and ruling "as a matter of law that Defendant Haag cannot
    prove the elements of her affirmative defense").                Based on her
    significant involvement in the Haag I litigation and, particularly,
    her repeated attempts to vindicate her individual claims and
    defenses we must conclude that Haag "participated meaningfully" in
    the   prior    proceeding   and   thus   fails   to   satisfy    the   second
    § 6015(g)(2) factor as well.
    Insofar as Haag articulates any arguments that could
    forestall this conclusion, she appears to rely on some of the
    above-quoted language found in the Tax Court's Harbin decision for
    the proposition that, in prior proceedings, she was unable to
    "raise a claim for relief from joint and several liability,"             137
    1
    Among these -- and aside from the motion for summary judgment
    and corresponding memorandum in support of that motion that are
    mentioned above -- the district court's order listed: a statement
    of undisputed facts (filed April 16, 2004); an opposition to the
    government's motion for summary judgment (filed September 14,
    2004); a statement of facts in dispute (filed September 14, 2004);
    and a sur-reply regarding her motion for summary judgment (filed
    September 29, 2004).
    -12-
    T.C. at 98, and thus, was precluded from meaningfully participating
    in the same.   Ultimately, this argument can be further reduced to
    the contention that Haag would have been able to more fully
    litigate her claims or defenses if her original assertion of
    innocent spouse relief eligibility had not been deemed barred by
    the applicable two-year statute of limitations.       This is, of
    course, a nonstarter: at the time Haag raised her initial claim for
    innocent spouse relief, the regulatory limitation period for relief
    under § 6015(f) had run and the district court in the Haag I
    litigation had no choice but to correctly dismiss Haag's claim as
    untimely. Whether she could have presented compelling arguments on
    the merits at that time or further participated in the litigation
    but for the two-year limiting period is of no issue.2    Cf. Lantz
    2
    In a footnote in her brief, Haag asserts that the policies found
    in IRS Notice 2011-70, 2011-
    32 I.R.B. 135
    , 
    2011 WL 3035113
    (released July 26, 2011) ("Notice 2011-70"), apply to her. This
    notice, issued on the heels of the Seventh Circuit's decision to
    reverse the Tax Court's judgment striking down the two-year filing
    deadline for § 6015(f) claims found at 
    Treas. Reg. § 1.6015
    -
    5(b)(1), see Lantz II, 
    607 F.3d at 480
    , states that going forward,
    taxpayers seeking equitable innocent spouse relief from liability
    under § 6015(f) will not be subject to a limitations period. We
    note that Haag's reliance on the IRS's notice is ineffectual to the
    resolution of the present appeal due to the well-settled principle
    that res judicata does not allow dispensation for intervening
    changes in the law. See Federated Dep't Stores, Inc. v. Moitie,
    
    452 U.S. 394
    , 398 (1981) ("Nor are the res judicata consequences of
    a final, unappealed judgment on the merits altered by the fact that
    the judgment may have been wrong or rested on a legal principle
    subsequently overruled in another case.").
    In any event, we are constrained to agree with the government's
    reasoning that the terms of Notice 2011-70 would be inapplicable to
    Haag even if her claim were not precluded by res judicata. With
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    II, 
    607 F.3d at 481
     ("[A]ny statute of limitations will cut off
    some, and often a great many, meritorious claims.").
    III.   Conclusion
    For the above-stated reasons, we affirm the Tax Court's
    grant of summary judgment.
    Affirmed.
    regards to the specific matter of innocent spouse claims that were
    adjudicated and rendered final prior to its date of issue, Notice
    2011-70 explains that the IRS will not take further collection
    activity against a taxpayer if the agency had "stipulated in the
    court proceeding that the individual's request for equitable relief
    would have been granted had the request been timely." In Haag's
    case, the IRS never stipulated that § 6015(f)'s two-year deadline
    constituted the sole obstacle to her claim. On the contrary, we
    note that in the Haag I litigation, the government argued that Haag
    administratively waived her claim by not articulating her request
    for relief before the Secretary prior to raising it at the district
    court.
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