Ordlock v. Comm'r , 126 T.C. 47 ( 2006 )

Thornton, J.,

concurring: I agree with the majority opinion and write to append additional views in support of it.

“[D]omestic relations are preeminently matters of state law”. Mansell v. Mansell, 490 U.S. 581, 587 (1989). Accordingly, “the Supreme Court has decreed that Federal law supplants community property law only where the congressional intent to accomplish such a result is clear and unequivocal.” Powell v. Commissioner, 101 T.C. 489, 494 (1993) (citing Supreme Court precedents). There is no question or dispute that section 6015(a) supplants community property law for purposes of determining eligibility for relief from joint and several liability. But as the majority opinion concludes, there is no “clear and unequivocal” indication that Congress intended to go further (as urged by petitioner and the dissenters) and supplant community property law that would otherwise permit a creditor (here, the Internal Revenue Service) to reach community assets and apply them to a debt owed by one spouse alone (here, Mr. Ordlock). Rather, the legislative history strongly suggests that Congress did not intend to supplant community property law in this manner.

The predecessor of section 6015 was section 6013(e), enacted in the Act of Jan. 12, 1971, Pub. L. 91-679, sec. 1, 84 Stat. 2063. Under section 6013(e), in certain circumstances a requesting spouse could be eligible for relief from tax liability with respect to erroneously omitted gross income attributable to the other spouse. Section 6013(e)(2)(A) provided that for this purpose, “the determination of the spouse to whom items of gross income (other than gross income from property) are attributable shall be made without regard to community property laws”. The legislative history makes clear that the intended effect of this provision was to disregard community property for purposes of determining the requesting spouse’s eligibility for relief.¹

In 1997, in expanding the relief available under former section 6013(e), the House bill retained language substantially identical to the just-quoted language: “For purposes of this subsection, the determination of the spouse to whom items of gross income (other than gross income from property) are attributable shall be made without regard to community property laws.” H.R. 2676, 105th Cong., 1st Sess. sec. 321 (1997); H. Rept. 105-364 (Part 1), at 19 (1997), 1998-3 C.B. 373, 391.

The first appearance of what is now the flush language of section 6015(a) (the disputed language) occurred in 1998, in the Senate amendment to the just-described House bill. Whereas the House had agreed to liberalize the type of relief available under former section 6013(e), the Senate agreed to a different type of relief: in the case of a deficiency arising from a joint return, the Senate amendment would have permitted the spouse to elect to be liable only to the extent that items giving rise to the deficiency were allocable to the spouse.² For this purpose, under the Senate amendment, as under current section 6015(c), items were generally allocated between spouses in the same manner as they would have been allocated if the spouses had filed separate returns. The Senate amendment, like the disputed language of current section 6015(a), states that “Any determination under this section shall be made without regard to community property laws.” H.R. 2676, sec. 3201(a), as amended and passed by the Senate on May 7, 1998. The report of the Senate Finance Committee explains this provision as follows: “The allocation of items is to be accomplished without regard to community property laws.” S. Rept. 105-174, at 56 (1998), 1998-3 C.B. 537, 592.

Rather than choose between them, the conference agreement incorporated both the House version of expanded relief from joint and several liability (currently in section 6015(b)) and, for certain limited circumstances, the Senate version of allocable relief (currently in section 6015(c) and (d)). The conference agreement also included the Senate version of the language supplanting community property law (what is currently the flush language of section 6015(a)). Describing this provision of the Senate amendment, the conference report repeats verbatim the explanation from the Senate Finance Committee: “The allocation of items is to be accomplished without regard to community property laws.” H. Rept. 105-599, at 250 (1998), 1998-3 C.B. 747, 1004.

As previously noted, this stated purpose was consistent with the longstanding provision of section 6013(e) for supplanting community property law, which had been adopted verbatim in the House bill. In fact, the conference report does not even acknowledge any difference between the House and Senate bills in this regard, or between the conference agreement and prior law. Instead, the conference report states that the conference agreement “follows the Senate amendment” with respect to deficiencies for taxpayers who are no longer married, or who are legally separated or not living together; and “also includes the provision in the House bill expanding the circumstances in which innocent spouse relief is available.” Id. at 251, 1998-3 C.B. at 1005. The conference report further states that it “follows the House bill and the Senate amendment with respect to procedural rules”. Id. at 255, 1998-3 C.B. at 1009.

In sum, the legislative history lends strong support to the view that in enacting section 6015, Congress intended to supplant community property law only for purposes of making the necessary allocations to determine eligibility for relief from joint and several liability, just as had been the case for over a quarter of a century under former section 6013(e). There is not the slightest indication that Congress intended to expand the preemption of State law in the manner urged by petitioner and the dissenters.

The question arises whether section 6015(a) is so clear and unequivocal as to require preemption of State community property law in the manner urged by petitioner and the dissenters, notwithstanding legislative history to the contrary. I agree with the majority opinion that the statute is ambiguous in this regard and accordingly fails to provide the “clear and unequivocal” expression of congressional intent that the Supreme Court requires for supplanting community property law. Powell v. Commissioner, 101 T.C. at 494. In the first instance, for reasons described in the majority opinion, there is considerable doubt as to whether allowing (or disallowing) a refund or credit constitutes a “determination” within the meaning of section 6015(a). But no less fundamentally, in my view, for the reasons discussed below, even if such an action were considered a “determination”, it would not be a determination “under” section 6015, within the meaning of section 6015(a).

Before a taxpayer may be allowed a refund or credit, there must be a determination that the taxpayer has made an overpayment. See secs. 6401 and 6402. The term “overpayment” is not statutorily defined but is construed to mean “any payment in excess of that which is properly due.” Jones v. Liberty Glass Co., 332 U.S. 524, 531 (1947). Under this definition, an overpayment has two elements: “(1) the correct tax for the year and (2) the amounts paid as tax.” Saltzman, IRS Practice and Procedure, par. 11.02, at 11-10 (rev. 2d ed. 2002). Section 6015 addresses only the first element; i.e., the extent to which the individual should be relieved of joint and several liability for the year.³ Before the individual may be entitled to a refund, however, there must also be a determination of the second element; i.e., the amount of tax the individual has paid. This determination implicates a host of factual and legal issues (including the issue of how to source payments from community property assets), none of which arise under or can be resolved under section 6015.⁴ Moreover, even if it is determined that the individual has an overpayment, the amount of any refund or credit to which the individual is entitled may depend upon other issues arising outside the scope of section 6015, such as whether the overpayment should be reduced by various offsets that the Secretary is authorized to make under section 6402.

Accordingly, inasmuch as there can be no determination as to whether an individual is entitled to á refund or credit unless there is first a determination whether the individual has an overpayment, and inasmuch as it cannot be determined “under” section 6015 whether the individual has an overpayment or to what extent the Secretary is authorized to reduce the overpayment in making any refund or credit, there can be no determination “under” section 6015 whether the individual is entitled to a refund or credit.⁵ Because this is not a determination “under” section 6015, it follows that section 6015(a) does not supplant community property law in the making of any such “determination”.

This conclusion is consistent with the proposed regulations, which had been published when petitioner applied for relief, and the final regulations.⁶ The proposed and the final regulations state: “In determining whether relief is available” under section 6015, “items of income, credits, and deductions are generally allocated to the spouses without regard to the operation of community property laws.” Sec. 1.6015-1(f), Proposed Income Tax Regs., 66 Fed. Reg. 3894 (Jan. 17, 2001); sec. 1.6015-1(f), Income Tax Regs. The proposed and the final regulations specifically state that “a requesting spouse who is relieved of joint and several liability under § 1.6015-2, § 1.6015-3, or § 1.6015-4 may nevertheless remain liable for the unpaid tax (including additions to tax, penalties and interest) to the extent provided by Federal or state transferee liability or property laws.” Sec. 1.6015-l(h)(l), Proposed Income Tax Regs., 66 Fed. Reg. 3894 (Jan. 17, 2001); sec. 1.6015-l(j), Income Tax Regs.

The preamble accompanying the issuance of the final regulations under section 6015 indicates that in finalizing the proposed regulations, the Internal Revenue Service received and rejected a suggestion to alter the just-quoted provision to achieve the result that petitioner and the dissenters now advocate.⁷ T.D. 9003, 2002-2 C.B. 294, 297. As support for rejecting this suggestion, the preamble cited, inter alia, United States v. Stolle, 86 aftr 2d 5180, 2000-1 ustc par. 50,329 (C.D. Cal. 2000). In Stolle, the District Court held that under California community property law, “community property tax is available to satisfy a debt from either spouse, even if the other spouse is not responsible for the debt.” Id. at 5186, 2000-1 USTC par. 50,329, at 83,981. Accordingly, the court reasoned, for purposes of determining the validity of a tax lien against spouses’ community property, it was “irrelevant” whether the wife was an innocent spouse under section 6015(b). Id. The court stated: “Nothing in the language or the case law suggests that the ‘innocent spouse’ provisions of the Internal Revenue Code prevents the government from collecting against community property in accordance with state law.” Id.; see also McIntyre v. United States, 222 F.3d 655 (9th Cir. 2000) (holding that the Internal Revenue Service may levy upon ERISA-regulated pension benefits to satisfy a husband’s tax debt notwithstanding the wife’s claim that she had a vested interest in half of those benefits under community property laws).

Gerber, Cohen, Halpern, Chiechi, Haines, Wherry, and Kroupa, JJ., agree with this concurring opinion.

1 The House and Senate reports on the 1971 legislation state identically:

The bill provides that the determination of the spouse to whom items of gross income, other than gross income from property, are attributable is to be made without regard to community property laws. Thus, the rules of community property are not followed with respect to earned income or income from theft or embezzlement. Income earned by a husband, for example, and omitted from a joint return, is to be attributed to the husband, even though it may constitute community property, in determining whether the wife is entitled to relief from the tax liability under this provision. * * * [H. Rept. 91-1734, at 4 (1971); S. Rept. 91-1537, at 4 (1971), 1971-1 C.B. 606, 608.]

2 The Senate amendment also provided additional relief in situations where tax was shown on a return but not paid with the return. This type of relief was not included in the conference agreement. See H. Rept. 105-599, at 254 (1998), 1998-3 C.B. 747, 1008. The Senate amendment also contained provision for “equitable relief”, a version of which is now found in sec. 6015(f).

3 A determination of relief under sec. 6015 would not necessarily be dispositive of the individual’s correct tax for the year, inasmuch as the individual might have income taxes or other Federal taxes due unrelated to the amounts subject to relief under sec. 6015.

4 The following discussion illustrates some of the types of issues that arise in determining the amount of tax payments for purposes of determining whether there is an overpayment:

Before an overpayment can exist, a taxpayer must have “paid” the amount as tax. Not all remittances are treated as payments of tax when they are received by the Service. For example, remittances of withholding tax and estimated tax made by taxpayers before the due date of the return for the year are not considered “paid” until the due date of payment; that is, the date the return for the year is due without regard to any extension for filing the return. Section 6401(c) indicates that despite the fact that no return is yet due or filed nor an assessment of tax made, a taxpayer may nevertheless be considered to have made an overpayment. Although the Service treats an amount a taxpayer remits before the sending of a notice of deficiency as a deposit in the nature of a cash bond, not as a payment, the issue of whether a remittance is considered a payment or cash bond has provoked much litigation. [Saltzman, IRS Practice and Procedure, par. 11.02E2], at 11-16 and 11-17 (rev. 2d ed. 2002); fn. ref. omitted.]

5 Of course, a determination that an individual qualifies for relief from joint and several liability under sec. 6015 will affect the amount of the refund or credit that is “attributable to the application of this section” and thus authorized to be made under sec. 6015(g). It is telling that in describing the allowance of credits or refunds, sec. 6015(g) uses this very precise language rather than repeating the sec. 6015(a) language, “determination under this section”. Under well-established principles of statutory construction, we presume the variation in statutory phrasing to have been purposeful. Cf. Elec. Arts, Inc. v. Commissioner, 118 T.C. 226, 258 (2002) (“Ordinarily, in statutes and other legal documents, it is presumed that if the drafter * * * varies the terminology, then the drafter intends that the meaning also vary.”).

6 The final regulations under sec. 6015 apply to elections or requests for relief filed on or after July 18, 2002. Sec. 1.6015-9, Income Tax Regs. Because petitioner’s request for relief was filed before July 18, 2002, the final regulations are inapplicable. Although proposed regulations are given no greater weight than a position advanced by the Commissioner on brief, proposed regulations “can be useful as guidelines where they closely follow the legislative history of the act”, Van Wyk v. Commissioner, 113 T.C. 440, 444 (1999), as they do here. Moreover, as pertinent here, the proposed and the final regulations are identical. In these circumstances, we could scarcely repudiate the proposed regulations without also casting doubt on the validity of the final regulations, to which we owe considerable deference. See Natl. Muffler Dealers Association, Inc. v. United States, 440 U.S. 472, 477 (1979).

7 The preamble to the final regulations under sec. 6015 states:

One commentator suggested that the regulations adopt a rule that the IRS would not look to community property as a collection source when a requesting spouse with an interest in such community property is granted relief under section 6015. A federal tax lien arising under section 6321 attaches to all property and rights to property of the taxpayer. Whether a taxpayer has an interest in property to which the lien can attach is determined by state law. Aquilino v. United States, 363 U.S. 509 (1960). Once that property interest is defined, federal law alone determines the consequences resulting from the attachment of the federal lien on the property. United States v. Drye, 528 U.S. 49 (1999). If under the law of the community property state in which the spouses reside, the IRS can look to community property to collect a liability of one of the spouses, the determination that the other spouse is entitled to relief under section 6015 does not affect the Service’s ability to collect the nonrequesting spouse’s liability from the community property. See, e.g., United States v. Stolle, 2000-1 U.S.T.C. ¶ 50,329 (C.D. Cal. 2000); Hegg v. IRS, 28 P.3d 1004 (Idaho 2001). The final regulations do not adopt this recommendation because it goes beyond the scope of the statute. [T.D. 9003, 2002-2 C.B. 294, 297.]