                       114 T.C. No. 24



                UNITED STATES TAX COURT



    THOMAS CORSON AND JUDITH CORSON, Petitioners v.
      COMMISSIONER OF INTERNAL REVENUE, Respondent



Docket No. 27181-85.                      Filed May 18, 2000.



     Ps T and J filed a joint Federal income tax return
for the taxable year 1981, and R issued a notice of
deficiency for taxes, additions to tax, and interest
related thereto. Ps filed a joint petition for
redetermination with this Court, and J later amended
the petition to assert a claim for innocent spouse
relief. Subsequently, J and R entered into a
stipulation in which J conceded liability for the
deficiencies determined by R but preserved her right to
pursue innocent spouse relief. T and R then signed a
similar stipulation settling all issues pertaining to
T’s tax liabilities for the 1981 year. At a later
date, J and R also executed a stipulated settlement
granting J complete relief from joint and several
liability pursuant to sec. 6015(c), I.R.C. When T
thereafter refused to sign a stipulated decision based
on these agreements, R filed a motion for entry of
decision. T contends that provisions of the Internal
Revenue Service Restructuring and Reform Act of 1998,
Pub. L. 105-206, sec. 3201, 112 Stat. 685, 734, confer
                               - 2 -

     upon him, as the nonelecting spouse, a right to
     litigate in challenge of a decision by R to grant
     relief under sec. 6015, I.R.C., to the electing spouse.

          Held: T, the nonelecting spouse, should be
     afforded an opportunity to litigate the decision by R
     to grant relief from joint and several liability to J,
     the electing spouse.

          Held, further, respondent’s motion for entry of
     decision will be denied.



     Stephen Benda, for petitioner Thomas Corson.

     Arthur A. Oshiro, for petitioner Judith Corson.

     Robert H. Schorman, Jr., for respondent.



                              OPINION


     NIMS, Judge:   This matter is before the Court on

respondent’s motion for entry of decision.   Broadly stated, the

issue to be resolved is whether objection by petitioner Thomas

Corson to respondent’s settlement with petitioner Judith Corson,

granting her relief under section 6015(c) from joint and several

liability, provides sufficient basis for the Court to deny

respondent’s motion for entry of decision.   As more narrowly

framed by the contentions of the parties, the question raised is

whether provisions of the Internal Revenue Service Restructuring

and Reform Act of 1998 (Restructuring Act), Pub. L. 105-206, sec.
                                - 3 -

3201, 112 Stat. 685, 734, confer upon the spouse not seeking

relief from joint and several liability rights that make such a

denial appropriate.

     Unless otherwise indicated, all section references are to

sections of the Internal Revenue Code in effect for the relevant

years, and all Rule references are to the Tax Court Rules of

Practice and Procedure.

                             Background

     Thomas and Judith Corson filed a joint Federal income tax

return for their 1981 taxable year.     (For convenience, Thomas

Corson and Judith Corson will hereinafter be referred to

collectively as petitioners and individually as Thomas and

Judith, respectively.)    Petitioners subsequently separated in

1983 and divorced in 1984.    A joint notice of deficiency was

issued by respondent to petitioners on April 12, 1985,

determining a tax deficiency of $21,711 and additions to tax

pursuant to section 6653(a)(1) and (2).     Respondent further

determined that the deficiency constituted a substantial

underpayment attributable to tax motivated transactions, thus

rendering applicable the provisions for increased interest under

section 6621(d).   The $21,711 deficiency resulted largely from

disallowance of losses relating to petitioners’ investments in

one of a group of tax shelter limited partnerships.     In July of
                               - 4 -

1985, petitioners filed with this Court a joint petition

contesting the notice of deficiency.   Both at that time resided

in the State of California.

     A test case involving the group of tax shelter partnerships

was thereafter litigated, and investment losses were held to be

nondeductible.   See Krause v. Commissioner, 99 T.C. 132 (1992),

affd. sub nom. Hildebrand v. Commissioner, 28 F.3d 1024 (10th

Cir. 1994).   Following this decision and based on its results,

settlement negotiations were initiated with parties in related

suits.

     On June 11, 1996, Judith, now represented by separate

counsel, filed a motion to amend the 1985 petition to assert her

entitlement to innocent spouse relief under former section

6013(e).   The motion was served on attorneys for respondent and

for Thomas, and neither raised an objection.   The Court granted

Judith’s motion and filed the amendment on June 18, 1996.

     Then, in November of 1996, Judith and respondent entered

into a stipulation resolving all issues with respect to Judith

except that of innocent spouse relief.   The settlement stated

that, without considering the innocent spouse provisions of

section 6013(e), an income tax deficiency of $21,711 was due from

Judith for the 1981 taxable year, with increased interest under
                              - 5 -

section 6621(c) (formerly section 6621(d)), but she was not

liable for additions to tax under section 6653(a)(1) or (2).

     In early 1998, respondent’s Appeals Office began

consideration of Judith’s claim for innocent spouse relief.    A

letter to Judith dated July 8, 1998, communicated, in part, the

following:

          This letter is to inform you that all the facts
     and circumstances that serve as the basis for your
     claim for IRC 6013(e) “Innocent Spouse” relief were
     carefully considered. In addition, this office served
     notice of the claim on Thomas Corson, and requested
     that he furnish any information relevant to a
     determination as to whether or not such relief would be
     appropriate. In response, Mr. Corson has furnished
     information that must be given due consideration in
     this matter.

The Appeals officer then concluded:   “It would be my

recommendation that the requirements of the law are not met and

that Innocent Spouse relief could not be approved.”

     On July 22, 1998, the Restructuring Act was enacted.   The

statute, among other things, revised and expanded the relief

available to spouses filing joint returns, and Judith’s attorney

informed the Appeals officer that Judith elected to have the

newly promulgated section 6015(c) applied for purposes of

resolving her still-pending claim for relief.

     Then, in November of 1998, Thomas and respondent entered

into a stipulation settling all issues with respect to Thomas.

Like the earlier settlement with Judith, this stipulation

reflected that an income tax deficiency of $21,711 was due from
                               - 6 -

Thomas for the 1981 taxable year, with increased interest under

section 6621(c), but that he was not liable for additions to tax

under section 6653(a)(1) or (2).

     Also in late 1998, respondent’s Appeals Office denied

Judith’s request for complete relief from joint and several

liability, and the case was released to the jurisdiction of the

Internal Revenue Service District Counsel.   The matter was

thereafter calendared for trial beginning on May 17, 1999, in Los

Angeles, California.   Prior to the scheduled court appearance,

Judith and respondent entered into a stipulation of settlement

agreeing that Judith qualified for relief under section 6015(c)

and was not liable for any deficiencies, additions to tax, or

interest in connection with the 1981 taxable year.   When Thomas

subsequently refused to sign a stipulated decision based on this

agreement with Judith and his own previous settlement, respondent

on June 7, 1999, filed the motion for entry of decision that is

the subject of the instant controversy.

                            Discussion

I.   Statutory Provisions and Case Law

     As a general rule, section 6013(d)(3) provides that “if a

joint return is made, the tax shall be computed on the aggregate

income and the liability with respect to the tax shall be joint

and several.”   An exception to such joint and several liability
                                 - 7 -

exists, however, for spouses able to satisfy the statutory

requirements for what has traditionally been termed “innocent

spouse” relief.

     A.   Prior Innocent Spouse Law

     Prior to the enactment of the Restructuring Act, section

6013(e) governed the granting or denial of claims for innocent

spouse relief.    Section 6013(e) read in part as follows:

          SEC. 6013(e).    Spouse Relieved of Liability in
     Certain Cases.--

                (1) In general.--Under regulations prescribed
           by the Secretary, if--

                       (A) a joint return has been made under
                  this section for a taxable year,

                       (B) on such return there is a
                  substantial understatement of tax
                  attributable to grossly erroneous items of
                  one spouse,

                       (C) the other spouse establishes that in
                  signing the return he or she did not know,
                  and had no reason to know, that there was
                  such substantial understatement, and

                       (D) taking into account all the facts
                  and circumstances, it is inequitable to hold
                  the other spouse liable for the deficiency in
                  tax for such taxable year attributable to
                  such substantial understatement,

           then the other spouse shall be relieved of
           liability for tax (including interest, penalties,
           and other amounts) for such taxable year to the
           extent such liability is attributable to such
           substantial understatement.

The section then went on to impose an additional requirement that

the understatement exceed a specified percentage of the innocent
                               - 8 -

spouse’s income in order for relief to be available.   See sec.

6013(e)(4).   Section 6013(e) did not, however, set forth any

particular procedures to be followed in seeking relief or any

explicit guidelines regarding the availability of judicial

review.

     Taxpayers desiring to claim entitlement to the relief

afforded by section 6013(e) typically did so by asserting

innocent spouse status either in their initial petition to this

Court for redetermination of a deficiency or in an amendment to

such a petition.   See Garvey v. Commissioner, T.C. Memo. 1993-

354; Himmelwright v. Commissioner, T.C. Memo. 1988-114.     The

issue would then be settled prior to trial or would remain a

contested question for judicial resolution.    See Garvey v.

Commissioner, supra; Himmelwright v. Commissioner, supra.      If the

tax liability had been paid before the mailing of a deficiency

notice and section 6013(e) was invoked as the basis for a refund,

this Court would have no jurisdiction over the issue, and the

matter would generally be decided in U.S. District Court.      Cf.

sec. 6213(b)(4).

     Against this statutory and procedural background, the

question of whether one spouse had a right to challenge by

litigation the Commissioner’s decision to grant relief to the

other spouse was answered in the negative.    See Estate of Ravetti

v. United States, 37 F.3d 1393, 1395-1396 (9th Cir. 1994); Garvey
                               - 9 -

v. Commissioner, supra; Himmelwright v. Commissioner, supra.     For

example, in Garvey v. Commissioner, supra, this Court was faced

with a controversy having a procedural posture nearly identical

to that of the instant case.   The Court declined, however, to

interfere with the parties’ settlement negotiations and granted

the Commissioner’s motion for entry of decision.   See id.

     In deciding Garvey v. Commissioner, supra, the Court also

relied on the earlier opinion issued in Himmelwright v.

Commissioner, supra.   In that case, Mr. Himmelwright likewise

objected to the Commissioner’s motion for entry of decision

following his own settlement with the Commissioner and a

settlement between the Commissioner and Ms. Himmelwright granting

her relief under section 6013(e).   See id.   Mr. Himmelwright

argued that he settled believing his wife would share the tax

burden, but the Court, observing that his agreement was not

contingent upon resolution of Ms. Himmelwright’s claim, saw no

reason to reject the Commissioner’s concession.    See id.

     A similar viewpoint was taken by the Court of Appeals for

the Ninth Circuit, to which appeal in the instant case would

normally lie.   See Estate of Ravetti v. United States, supra at

1395-1396.   In Estate of Ravetti v. United States, supra at 1395,

the Court of Appeals noted the basic proposition that “A taxpayer

generally has no standing to challenge the tax liability
                              - 10 -

determination of another taxpayer” and, hence, concluded that “A

taxpayer therefore lacks standing to challenge the ‘innocent

spouse’ relief granted to his or her spouse.”

     Consequently, under prior law it is clear that Thomas’s

objection here would not furnish grounds for denying respondent’s

motion.   We thus turn to whether changes wrought by the

Restructuring Act demand a different result.

     B.   Present Innocent Spouse Law

     The Restructuring Act revised and expanded the relief

available to joint filers by striking subsection (e) from section

6013 and by promulgating in its place a new section 6015.     See

Restructuring Act sec. 3201(a), (e)(1), 112 Stat. 734, 740.

Section 6015 was also given retroactive effect to the extent that

it was made applicable to any liability for tax arising after

July 22, 1998, and to any liability for tax arising on or before

such date but remaining unpaid as of July 22, 1998.   See

Restructuring Act sec. 3201(g)(1), 112 Stat. 740.

     Whereas section 6013(e) had offered only a single avenue of

relief, based on a spouse’s lack of knowledge or reason to know

of a substantial understatement, section 6015 authorizes three

types of relief.   Subsection (b) provides a form of relief

available to all joint filers and similar to, but less

restrictive than, that previously afforded by section 6013(e).

Subsection (c) permits a taxpayer who has divorced or separated
                              - 11 -

to elect to have his or her tax liability calculated as if

separate returns had been filed.   Subsection (f) confers

discretion upon the Commissioner to grant equitable relief, based

on all facts and circumstances, in cases where relief is

unavailable under subsection (b) or (c).

     Subsections (a), (e), and (g) of section 6015 address

general and procedural aspects relating to the operation of the

section and the role therein to be played by this Court and by

the Commissioner.   Portions of these subsections relevant to the

present matter are set forth below:

     SEC. 6015.   RELIEF FROM JOINT AND SEVERAL LIABILITY ON
                  JOINT RETURN.

          (a) In General.--Notwithstanding section
     6013(d)(3)--

               (1) an individual who has made a joint return
          may elect to seek relief under the procedures
          prescribed under subsection (b); and

               (2) if such individual is eligible to elect
          the application of subsection (c), such individual
          may, in addition to any election under paragraph
          (1), elect to limit such individual’s liability
          for any deficiency with respect to such joint
          return in the manner prescribed under subsection
          (c).

     Any determination under this section shall be made
     without regard to community property laws.

                     *    *    *      *    *   *     *

          (e) Petition for Review by Tax Court.--

               (1) In general.--In the case of an individual
          who elects to have subsection (b) or (c) apply--
                             - 12 -

                    (A) In general.--The individual may
               petition the Tax Court (and the Tax Court
               shall have jurisdiction) to determine the
               appropriate relief available to the
               individual under this section if such
               petition is filed during the 90-day period
               beginning on the date on which the Secretary
               mails by certified or registered mail a
               notice to such individual of the Secretary’s
               determination of relief available to the
               individual. Notwithstanding the preceding
               sentence, an individual may file such
               petition at any time after the date which is
               6 months after the date such election is
               filed with the Secretary and before the close
               of such 90-day period.

                    *    *    *    *    *    *    *

               (4) Notice to other spouse.--The Tax Court
          shall establish rules which provide the individual
          filing a joint return but not making the election
          under subsection (b) or (c) with adequate notice
          and an opportunity to become a party to a
          proceeding under either such subsection.

                    *    *    *    *    *    *    *

          (g) Regulations.--The Secretary shall prescribe
     such regulations as are necessary to carry out the
     provisions of this section, including--

                    *    *    *    *    *    *    *

               (2) regulations providing the opportunity for
          an individual to have notice of, and an
          opportunity to participate in, any administrative
          proceeding with respect to an election made under
          subsection (b) or (c) by the other individual
          filing the joint return.

Additionally, the Restructuring Act directed the Secretary to

develop, within 180 days from the date of enactment, a form for

use by taxpayers in applying for relief under section 6015.    See

Restructuring Act sec. 3201(c), 112 Stat. 740.
                              - 13 -

      To date, this Court has established Rules 320 through 325

which specify procedures relating to actions under section 6015.

Rule 325 addresses the participation of the nonelecting spouse:

paragraph (a) requires the Commissioner to serve notice of the

filing of a petition under section 6015 on the nonelecting

spouse, and paragraph (b) gives the nonelecting spouse 60 days in

which to file a notice of intervention with the Court.   The

Secretary has also developed Form 8857 for the making of a

section 6015 election but has not issued any regulations pursuant

to section 6015(g)(2).

II.   Contentions of the Parties

      The primary basis for Thomas’ objection to respondent’s

motion for entry of decision is that section 6015(e)(4) alters

prior law and gives the nonelecting spouse a right to litigate in

this Court after a decision by the Commissioner to grant relief

under section 6015(b) or (c) to the electing spouse.   Thomas

maintains that in providing the nonelecting spouse opportunity to

become a party to a proceeding under section 6015(c), section

6015(e)(4) confers upon the nonelecting spouse means to challenge

such a grant in this Court.   Thomas finds in section 6015(e)(4) a

congressional intent that the nonelecting spouse become a “full

player” in the process of determining innocent spouse relief,

such that each of three parties now has rights to fully litigate

such issues.   According to Thomas, a contrary view, which
                              - 14 -

deprives the nonelecting spouse of the chance to vindicate his or

her position, renders hollow the statutorily mandated opportunity

to become a party.

     Thomas further asserts that he was denied an opportunity to

meaningfully participate in the administrative process, as is

required under section 6015(g)(2).     Accordingly, Thomas’

alternative position is that the Court should order

reconsideration by respondent, with additional input from Thomas,

of Judith’s entitlement to section 6015(c) relief.

     Conversely, respondent and Judith contend that the

Restructuring Act does not confer upon the nonelecting spouse an

independent right to litigate or contest a grant of relief under

section 6015 to the electing spouse.     Respondent first asserts

that the provisions of section 6015(e) are inapplicable in the

case of an existing judicial proceeding before the Court pursuant

to section 6213(a).   Moreover, with respect to those instances

where section 6015(e) applies, respondent and Judith argue that

interpreting the section to afford to the nonelecting spouse an

independent litigation right would contravene congressional

intent to make innocent spouse relief easier to obtain.       They

further maintain, because section 6015(e)(1) specifies that a

petition to the Tax Court may be filed by the electing spouse

after a determination of available relief by the Secretary (or

failure to rule), that this Court has jurisdiction under the
                               - 15 -

section only over denials of relief, or disputes between the

Commissioner and the electing spouse regarding such relief (i.e.,

partial denials).    Hence, their position is that, since the

nonelecting spouse has no right to raise the issue in this Court

if relief is granted prior to a petition by the electing spouse,

an anomalous result is created if the nonelecting spouse is

permitted to pursue litigation simply because the issue was

settled after suit was filed but before trial.

       With respect to section 6015(g)(2), both respondent and

Judith aver that any right to participate afforded to Thomas

thereby was not violated.    In addition, respondent maintains that

the section has no applicability to the matter at hand because

the decision to grant relief was made not in an administrative

proceeding but in settlement of a pending court proceeding.

       We conclude, for the reasons explained below, that concerns

raised by promulgation of the Restructuring Act counsel us to

deny respondent’s motion for entry of decision.

III.    Interpretation and Application

       As indicated above, the ultimate issue in this case is

whether Thomas’ objection is a sufficient basis for denial of

respondent’s motion.    In addressing this question, we must

determine what bearing, if any, the Restructuring Act has on the

right of a nonelecting spouse to litigate a grant of section 6015

relief to the electing spouse.
                                - 16 -

     Under present law, there exist at least two jurisdictional

bases upon which this Court may review a claim for relief from

joint and several liability.    Such a claim may be raised as an

affirmative defense in a petition for redetermination of a

deficiency filed pursuant to section 6213(a).    See Butler v.

Commissioner, 114 T.C. ___, ___ (2000) (slip op. at 18-20);

Charlton v. Commissioner, 114 T.C. ___, ___ (2000) (slip op. at

9-10).   In a deficiency proceeding, we may take into account all

facts and circumstances relevant to ascertaining the correct

amount of the deficiency, including affirmative defenses.    See

secs. 6213 and 6214; Butler v. Commissioner, supra at ___ (slip

op. at 18); Woods v. Commissioner, 92 T.C. 776, 784-785 (1989);

Naftel v. Commissioner, 85 T.C. 527, 533 (1985).    Innocent spouse

relief has traditionally been so characterized as an affirmative

defense, and passage of the Restructuring Act has not negated our

authority to hear it as such.    See Butler v. Commissioner, supra

at ___ (slip op. at 18-20).

     Subsequent to the statute’s enactment, we held in Butler v.

Commissioner, supra at ___ (slip op. at 19-20):    “our authority

to review petitioner’s affirmative defense that he or she is

entitled to innocent spouse treatment is governed by our general

jurisdiction to consider any issue which affects the deficiency
                               - 17 -

before us.”    A spouse or former spouse may therefore elect to

seek relief from joint and several liability by pleading the

issue in a petition for redetermination of a deficiency.

     A second basis upon which we may exercise jurisdiction to

decide entitlement to relief from joint and several liability is

that established in section 6015(e).    This provision enables an

electing spouse to petition for review of an administrative

determination regarding relief, or failure to rule, as a “stand

alone” matter independent of any deficiency proceeding.    See

Fernandez v. Commissioner, 114 T.C. ___, ___ (2000) (slip op. at

7, 9).

     Here, Judith’s claim for innocent spouse relief was raised

as an amendment to petitioners’ original petition for deficiency

redetermination.    Although no subsequent filing was made to

substitute a claim for relief under section 6015 for the section

6013(e) claim, the parties apparently assumed that the issue was

still properly before the Court.    In such circumstances, we treat

Judith’s request for relief under section 6015(c) as an amendment

to the petition, seeking our review of her entitlement under the

new statute.    See Charlton v. Commissioner, supra at ___ (slip

op. at 9-10).    We thus consider her claim within the framework of

our traditional deficiency jurisdiction.

     As a threshold matter, we note that “All concessions,

including stipulated settlement agreements, are subject to the
                              - 18 -

Court’s discretionary review” and may be rejected in the

interests of justice.   McGowan v. Commissioner, 67 T.C. 599, 607

(1976).   We further observe that the enactment of section 6015,

including the creation of a stand alone proceeding in section

6015(e), has injected into this calculus considerations not

present when cases such as Estate of Ravetti v. United States, 37

F.3d 1393 (9th Cir. 1994), Garvey v. Commissioner, T.C. Memo.

1993-354, and Himmelwright v. Commissioner, T.C. Memo. 1988-114,

were decided.   Principally, we believe that the interests of

justice would be ill served if the rights of the nonelecting

spouse were to differ according to the procedural posture in

which the issue of relief under section 6015 is brought before

the Court.   Identical issues before a single tribunal should

receive similar treatment.   For this reason, we cannot summarily

dispose of the instant matter on the grounds of the above-

mentioned cases involving section 6013(e) without addressing

whether a nonelecting spouse would be afforded additional rights

in a section 6015(e) proceeding and whether to extend any such

rights to the present proceeding as well.

     In the context of a stand alone proceeding, the right to

which the nonelecting spouse is entitled by the terms of section

6015(e)(4) is “an opportunity to become a party”.   However,

because this statutory phrase is undefined, any conclusion

regarding what it entails must be based upon a probing of
                               - 19 -

congressional intent.   While legislative history is

unenlightening (the only statement in the conference report

accompanying the Restructuring Act which addresses the

nonelecting spouse’s role as a party before this Court discusses

a rule not enacted, see H. Conf. Rept. 105-599, at 251 (1998)),

the statutory framework surrounding section 6015(e)(4) offers

guidance.

     Section 6015(e)(1) is structured so that administrative

consideration (or failure to rule) will precede any court action

when innocent spouse status is raised in a stand alone petition.

Section 6015(g)(2), in turn, contemplates an opportunity for the

nonelecting spouse to participate at the administrative level.

Section 6015(e)(4) then speaks of a similar chance for

participation should the matter move from an administrative to a

judicial forum.   Hence, as a general premise, we believe that

these sections, when read together, reveal a concern on the part

of the lawmakers with fairness to the nonelecting spouse and with

providing him or her an opportunity to be heard on innocent

spouse issues.    Presumably, the purpose of affording to the

nonelecting spouse an opportunity to be heard first in

administrative proceedings and then in judicial proceedings is to

ensure that innocent spouse relief is granted on the merits after
                              - 20 -

taking into account all relevant evidence.    After all, easing the

standards for obtaining relief is not equivalent to giving relief

where unwarranted.

     While we do not have before us a case for determining the

precise contours of the rights granted to a nonelecting spouse

under section 6015(e), we are satisfied that section 6015(e)(4)

was intended to confer some participatory entitlement beyond the

complete absence thereof condoned in Estate of Ravetti v. United

States, supra, Garvey v. Commissioner, supra, and Himmelwright v.

Commissioner, supra.   Thus, until such rights are more explicitly

defined in appropriate cases, we will refrain from following a

rule that could lead to an anomaly in the Court’s treatment of

innocent spouse issues.   We will instead effectuate the general

concern for fairness and merited relief evidenced in the statute

by permitting Thomas his day in court.    We further note that our

disposition makes it unnecessary to reach Thomas’s alternative

contention.

     To reflect the foregoing,



                                      An order denying respondent’s

                                 motion will be issued.
