Panayiotis Xenakis
St. John’s University School of Law
American Bankruptcy Institute Law Review Staff
Section 6015(f) of the Internal Revenue Code allows the Secretary of the Treasury to relieve an “innocent spouse” of liability for any unpaid tax or deficiency if it is inequitable to hold him or her liable for the malfeasance of his or her significant other.[1] Section 505(a) of title 11 of the United States Code (the “Bankruptcy Code”) allows bankruptcy courts to determine the “legality of any tax, or penalty relating to a tax” regardless of whether it was previously contested before a judicial or administrative tribunal, so long as it has not already been adjudicated.[2] In Geary vs. United States (In re Geary), the debtor sought a determination under section 505 of the Bankruptcy Code that she owed no taxes for the years 2015 through 2018 as an innocent spouse contemplated by the Internal Revenue Code.[3] The bankruptcy court dismissed the debtor’s adversary proceeding, holding that section 505(a) does not give the court subject matter jurisdiction to grant relief under section 6015(f) of the Internal Revenue Code.[4] The bankruptcy court in Geary strayed from other bankruptcy courts and held that section 6015(f) only affords jurisdiction to Tax Courts to review innocent spouse petitions.[5]
The bankruptcy court in Geary emphasized that in determining Congressional intent, the plain meaning of the statute prevails absent ambiguity or an absurd result.[6] The bankruptcy court held that section 6015(f) of the Internal Revenue Code is unambiguous in granting only the Secretary of the Treasury the equitable power to grant innocent spouse relief, because the statute explicitly refers to only the Secretary.[7] The bankruptcy court acknowledged that other jurisdictions, like the Southern District of Texas in In re Pendergraft, have held that section 505 of the Bankruptcy Code should include interpreting section 6015(e)(1)(a) of the Internal Revenue Code.[8] The bankruptcy court in Geary distinguished this case from Pendergraft because in Geary the debtor, and alleged “innocent spouse,” was not asking for a determination regarding the legality of her taxes owed, but instead that the tax obligation should be waived for equitable reasons.[9]
In Geary, the bankruptcy court saw an issue with allowing section 505 to be a backdoor for interpretations of section 6015(d)(1)(a).[10] Instead of seeing section 6015(e)(1)(a)’s reference to “other remed[ies] provided by law” as an implicit allusion to bankruptcy jurisdiction over innocent spouse relief, according to the bankruptcy court in Geary,the section is just “a means to exercise the Tax Court’s jurisdiction.”[11] The bankruptcy court dismissed the debtor’s complaint to determine her tax liability, and recommended the Tax Court as a viable forum to pursue the desired relief.[12]
Geary is the first case outside of the Fifth Circuit to discuss whether an “innocent spouse” may obtain equitable relief in a bankruptcy forum under section 505(a) of the Bankruptcy Code, and as such it is significant that the reasoning of Pendergraft was not followed. It is possible that a circuit split may appear on a larger scale in the near future, with those preferring expediency suggesting that Geary will cause unnecessary hardship on a debtor wishing to consolidate all of their financial issues into a single case, opposed by those who prefer a narrow reading of a bankruptcy court’s jurisdiction.
[1] See I.R.C. § 6015(f).
[2] 11 U.S.C. § 505(a).
[3] 650 B.R. 486, 487 (Bankr. W.D. Pa. 2023).
[4] Id. at 488.
[5] Id.
[6] Id.
[7] Id. at 489.
[8] See id. at 488–89 (citing Pendergraft v. United States Dep’t of the Treasury IRS (In re Pendergraft), No. 16-33506, WL 1091935 at *3 (Bankr. S.D. Tex. 2017)).
[9] See id. at 490.
[10] Id. The bankruptcy court in Geary bolsters its conclusion by noting the paradoxicality of Congress carefully limiting federal jurisdiction in Section 6015(f) “only to imply bankruptcy jurisdiction through a vague prefatory clause.” If Section 505 was among the intended remedies contemplated by Section 6015(e)(1)(a) of the Internal Revenue Code, then according to the bankruptcy court in Geary, Congress would have made a more explicit reference to it. (“After all, I.R.C. SS6015€(6) explicitly addresses the impact of bankruptcy cases on the time periods for seeking relief, so one might expect Congress to reference section 505 more directly.”). Id.
[11] See id. at 490.
[12] Id. at 491.