In a fully reviewed 28 page opinion released Thursday, September 28, 2017, the Tax Court gave full attention to an important problem: when a married taxpayer files a return with an impermissible filing status (such as single or head of household) can the spouses later still elect to file jointly or do the restrictions in §6013(b)(2) apply?
The case is Fansu Camara and Aminata Jatta v. Commissioner. The opinion is worth your time not only for the well-reasoned outcome, but also for its neat demonstration of how precedent sometimes operates like a game of telephone. First I will need to sketch out the facts and holding for you. And then I will have one tax policy observation about the outcome. But I promise it won’t be 28 pages. So, if you are brave, you will continue reading below the fold.
Mr. Camara and Ms. Jatta were a married couple for the 2012 tax year. However, for that year, only Mr. Camara filed a return, and he incorrectly claimed a filing status of a single taxpayer. Ms. Jatta did not file a return. The IRS caught the error and sent Mr. Camara a Notice of Deficiency (NOD) whereby it proposed to change his filing status from “single” to “married, filing separately.” After receiving the NOD Mr. Camara and Ms. Jatter quick-like-a-bunny filed a joint return for 2012 and they timely petitioned the Tax Court to contest the proposed deficiency.
After concessions on both sides the issue boiled down to whether IRC §6013(b) permitted these taxpayers to now file a joint return. In general §6103(b)(1) permits married taxpayers to switch from a “separate return” to a joint return but §6103(b)(2) says (inter alia) that taxpayers cannot do so after receiving an NOD for the year in question. The IRS pointed out that Mr. Camara had already filed a return claiming the filing status of a single taxpayer and the couple had attempted to change their filing status only after receiving the NOD, thus seemingly running afoul of the restrictions in §6013(b)(2).
Judge Thornton’s nicely-written opinion for the Tax Court holds for taxpayers by interpreting the term “separate return” in §6013(b)(1) as referring only to returns claiming a status of “married, filing separately.” That meant Mr. Camara had not filed a “separate return” and so the restrictions in (b)(1) did not apply because the taxpayers had simply never made the permitted election. Judge Thornton sums up the Court’s reasoning this way:
We reach this conclusion for two related reasons. First, section 6013(b)(1) describes filing a separate return as an “election,” and we agree with the Courts of Appeals in Ibrahim and Glaze that filing a return with an erroneous claim to an impermissible filing status does not constitute an “election” for this purpose. And second, the legislative history shows that section 6013(b)(1) was intended only to provide taxpayers flexibility in switching from a proper (though perhaps improvident) initial election to file a separate return to an election to file a joint return; it was not intended to foreclose correction of an erroneous initial return.
One might rightly wonder whether this opinion opens up the potential for fraud. Unscrupulous married couples could keep their options open indefinitely by deliberately choosing to have one of them file as “head of household” rather than “married, filing separately.” They understand how difficult it will be for the IRS to ever show they selected the impermissible filing status deliberately with the intent to evade tax. This latter group can now deliberately choose the wrong filing status (when it benefits them, natch) and then later cry “oh, my bad!” when they get caught.
In other words, this opinion helps both the merely ignorant taxpayers, like Mr. Camara, and the really sophisticated taxpayers who are also dishonest enough to fake ignorance. On balance, however, I would expect the former are much more numerous than the latter. It would be an interesting empirical study if anyone had the time and resources to do it.
What interested me most about the opinion, however, was the fine legal research evidenced in the opinion. You see, the IRS had quite properly cited to six Tax Court Memorandum Opinions that had interpreted “separate return” to include a single return or a head of household returns for §6013(b) purposes. Wow. Six cases supporting the IRS position. That’s a lot even though Memo opinions are not technically binding precedent. But Judge Thornton explained how “for the most part...the ultimate authority for these Memorandum Opinions appears to be traceable to earlier cases where the effect of an erroneous claim of filing status was neither addressed nor even presented as an issue.” Judge Thornton, in a lengthy footnote 11, traces back the case law relied on in three of the Memo opinions (a fourth, Ibrahim, had been reversed on appeal). The footnote nicely shows how generations of citations subtly changed the meaning of precedent.
I was curious on why Judge Thornton said “for the most part” and then only addressed four of the six cases supporting the IRS position. So I looked up the other two cases and found they had simply assumed, without analysis, that the term “separate return” included any return that selected a filing status other than married, filing jointly. Since they had said nothing about their reasoning, Judge Thornton said nothing about them.
Bottom line: this case is a useful object lesson that if you really press the precedent, you may find it is much weaker than you think.