By: Danielle Sumner
Published On: November 17, 2023
Section 505 of the Bankruptcy Code is a broad provision granting bankruptcy courts discretionary authority to determine tax liabilities of debtors, a power traditionally reserved for Tax Courts. Meanwhile, Section 6015(e)(1)(A) of the Internal Revenue Code permits individual taxpayers requesting innocent spouse relief to, “in addition to any other remedy provided by law . . . petition the Tax Court to determine the appropriate relief available to the individual.” Innocent spouse relief is a type of equitable relief that releases innocent taxpayers from joint and several liability for any tax deficiencies resulting from their spouses’ illegal acts. Women comprise the majority of both individual debtors in bankruptcy and taxpayers requesting innocent spouse relief in Tax Courts.
While Section 505 of the Bankruptcy Code and Section 6015(e) of the Tax Code may reasonably be read together to mean that a bankruptcy court’s determination of a debtor’s tax liability under Section 505 is one such “other remedy provided by law,” most courts have found the power to grant innocent spouse relief to be exclusive to Tax Courts. These courts argue that innocent spouse relief is an equitable relief, and Section 505 only authorizes federal courts (namely, U.S. district courts and bankruptcy courts) to make legal determinations, not equitable ones. These courts argue that innocent spouse relief is an equitable remedy outside the purview of bankruptcy courts, as Section 505 only gives bankruptcy courts authority over legal remedies. The practical effect of this decision is that, when someone who otherwise would be eligible for innocent spouse relief has the misfortune of ending up in bankruptcy court before they can get to tax court, their innocent spouse claim will not be heard, let alone granted.
However, several federal courts have disagreed, arguing instead that Section 505 gives bankruptcy courts subject matter jurisdiction to a debtor’s innocent spouse status. Most notably, in In re Pendergraft, the Bankruptcy Court for the Southern District of Texas held that bankruptcy courts may determine whether to grant innocent spouse relief to a debtor, if such relief is denied by the Secretary of the United States Department of the Treasury or if a determination is not made within six months of filing under section 6015(e)(1)(A) of the Tax Code. The practical effect of this position is that debtors in bankruptcy court who wish to apply for innocent spouse relief will not face a plethora of administrative and financial barriers to do so.
All federal district and bankruptcy courts should adopt and broaden the holding of Pendergraft for both legal and policy reasons. Legally, as the Pendergraft court pointed out, both the plain meaning of Section 6015(e) and the legislative history of Section 505 indicate that bankruptcy and district courts do have the authority to hear innocent spouse claims and defenses. Whether a debtor qualifies for innocent spouse status is directly relevant to their tax liability, which in turn impacts the administration of the debtor’s bankruptcy estate. Congress enacted Section 505 specifically to expedite the administration of such tax claims to ensure efficient administration of the bankruptcy estate.
In addition to the legal reasons for permitting federal district and bankruptcy courts to make innocent spouse relief determinations, there are also critical policy reasons for doing so. Establishing federal courts’ authority to determine innocent spouse relief would promote consistent decision-making for similarly situated taxpayers. Moreover, it would alleviate economic hardships on taxpayers by permitting them to make innocent spouse claims in collection, bankruptcy, and refund cases. Allowing bankruptcy courts to grant innocent spouse relief would alleviate situations where individuals are faced with bankruptcy before they have the opportunity to claim innocent spouse relief in Tax Court.
While bankruptcy courts have not yet addressed it, this is a gendered issue. Innocent spouse relief is a largely gendered form of equitable relief, as the majority of taxpayers who claim it are women. As of 2012, 85.4% of taxpayers who filed for innocent spouse relief were wives. Additionally, women are slightly more likely to file for individual bankruptcy than men are — as of 2020, 52% of bankruptcy filers were women. Therefore, a debtor in bankruptcy court claiming innocent spouse relief is more likely to be a woman. Consequently, bankruptcy courts’ refusal to hear a debtor’s innocent spouse claim disproportionately saddles women with the resulting financial liabilities that they may have been relieved of if granted innocent spouse relief.
Forcing debtors seeking innocent spouse relief to have to go to Tax Court when they already have an ongoing case before a bankruptcy court would impose additional legal, financial, and emotional demands on debtor-taxpayers. The majority approach of excluding innocent spouse relief from Section 505 authority harms women seeking innocent spouse relief and contravenes the purpose of Section 505, which is to hasten the bankruptcy process. Adopting a national standard, either through caselaw such as Pendergraft and Bowman or through enactment of federal legislation, would alleviate debtors who merit innocent spouse relief from significant and unnecessary legal and financial burdens. Women facing bankruptcy who are potentially on the hook for their husbands’ tax fraud would face fewer administrative barriers to achieving the relief they deserve.
 See 11 U.S.C. § 505(a)(1) (“the court may determine the amount or legality of any tax, any fine or penalty relating to a tax, or any addition to tax.”).
 See 26 U.S.C. § 6015(e)(1)(A).
 See id.
 See infra notes 14-16.
 See United States v. Boynton, 2007 U.S. Dist. LEXIS 7764, at *1, *11-12 (S. D. Cal.) (finding initial authority to grant innocent spouse relief to be exclusive to Tax Courts); In re Mikels, 524 B.R. 805, 807 (Bankr. S.D. Ind. 2015) (bankruptcy proceeding) (“Although the statute does not address whether the Tax Court’s jurisdiction is exclusive, courts interpreting the statute have concluded that it is.”); Chandler v. United States, 338 F. Supp. 3d 592, 603 (N.D. Tex. 2018) (“any argument that the language . . . in Section 6015(e)(1)(A) should include the ability of a district court to hear an innocent spouse relief claim instead of the Tax Court fails to persuade.”).
 See Chandler v. United States, 338 F. Supp. 3d at 601-02.
 See id. at 603; United States v. LeBeau, 2012 WL 835160, at *1, *3 (S.D. Cal. March 12, 2012) (finding district courts lack authority to adjudicate innocent spouse claims or defenses); Geary v. United States, 650 B.R. 486, 491 (Bankr. W.D. Pa. 2023) (“equitable relief from a legal determination of the amount of a tax is outside Section 505 jurisdiction”).
 See, e.g., In re Bowman, 129 A.F.T.R.2d (RIA) 909 (Bankr. E.D. La. 2022) (determining debtor’s innocent spouse relief status); In re Pendergraft, 2017 Bankr. LEXIS 771, No. 16-33506, at *1, *10 (Bankr. S.D. Tex. March 22, 2017).
 See id., at *9.
 See id., at *6 (“Due to the plethora of legislative history supporting bankruptcy courts’ jurisdiction over tax claims in certain instances, finding the Court to have subject jurisdiction in this case to determine Ms. Pendergraft’s innocent spouse status would not be a bizarre result against Congress’ intentions for Section 505.”).
 See id., at *11 (citing 124 Cong. Rec. H11095, H11110—H11111 (1978)).
 See National Taxpayer Advocate, 2023 Purple Book 112-13 (2023).
 See id. (“[T]axpayers in those cases may be left without any forum in which to seek innocent spouse relief before a court enters a financially damaging judgment or, in rare cases, a taxpayer loses his or her home to foreclosure.”).
 See Stephanie McMahon, What Innocent Spouse Relief Says about Wives and the Rest of Us, 37 Harv. J. L. & Gender 141, 151 n. 53 (2014).
 See id. at 169.
 See Andrew Sawin, Are Women More Likely to File for Bankruptcy Than Men?, Sawin & Shea (March 2, 2020), https://www.sawinlaw.com/blog/women-filing-for-bankruptcy-rate/.
 See 11 U.S.C. §505(a); In re Pendergraft, 2017 Bankr. LEXIS 771, No. 16-33506, at *1, *10 (Bankr. S.D. Tex. March 22, 2017).