S-4759-119
Read twice and referred to the Committee on Finance.
Sponsored by Margaret Hassan (D-NH)
What it does
This bill would amend the Internal Revenue Code to change how courts review "innocent spouse" relief cases. Currently, the Tax Court reviews these cases using an "abuse of discretion" standard — meaning it only overturns IRS decisions if the agency acted unreasonably. This bill would replace that with "de novo" review, meaning the Tax Court and other courts could examine the facts and law fresh, without deferring to the IRS's original determination. The change would apply to petitions filed or pending on or after the bill's enactment date.
Who benefits
Taxpayers — most often women — who seek innocent spouse relief from joint tax liabilities they did not know about or did not benefit from. Divorce attorneys and tax professionals who represent these clients, as de novo review may make court challenges more viable. Taxpayers who were denied relief by the IRS but have strong factual cases that were not fully developed in the administrative record. Legal aid organizations that assist lower-income spouses in tax disputes.
Who is hurt
The IRS, whose determinations would carry less weight in court, potentially increasing its litigation burden and administrative costs. Taxpayers broadly, to the extent that increased litigation costs are absorbed by the agency and passed on through reduced enforcement resources. The federal government may collect less in disputed tax liabilities if more innocent spouse claims succeed under a more permissive review standard.
Supporters argue
Supporters argue that the current "abuse of discretion" standard places an unfair burden on innocent spouses — often survivors of financial abuse or fraud by a former partner — by forcing courts to defer to IRS decisions even when new evidence exists. They contend that de novo review aligns innocent spouse cases with how courts handle other tax disputes and ensures that individuals are not held liable for a partner's hidden tax misconduct simply because the IRS's administrative record was incomplete.
Opponents argue
Opponents argue that replacing deferential review with de novo review undermines the IRS's administrative expertise and invites taxpayers to bypass the agency process by holding back evidence for court. They contend that the current standard already provides meaningful judicial oversight — courts can and do reverse IRS denials under abuse of discretion — and that expanding de novo review may increase litigation volume, strain Tax Court resources, and create inconsistent outcomes across jurisdictions.
Constitutional context
No significant constitutional issue is raised by this bill. Congress has broad authority under the Taxing and Spending Clause (Art. I, §8, cl. 1) to define the procedures and standards governing tax disputes, including the scope of judicial review of IRS determinations.
Checks and balances
The judiciary gains authority under this bill, as courts would no longer defer to IRS determinations in innocent spouse cases; the IRS retains its administrative role but loses the procedural advantage of the abuse-of-discretion standard.
Historical precedent
The innocent spouse relief provisions were significantly expanded by the IRS Restructuring and Reform Act of 1998, which created the current framework under IRC §6015, including the Tax Court review mechanism this bill would modify.