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PROCEDURALLY TAXING tax notes federal

by Jenni Black Jenni Black is a managing director in Citrin Cooperman’s national tax office and the practice leader of the tax procedure and controversy practice. Jenni is also a contributing author for Procedurally Taxing. In this post, Black considers whether the significant noncompliance by the IRS found by the Treasury Inspector General for Tax Administration regarding joint return disclosures permitted under section 6103(e)(8) stems from the fact that the rules aren’t as clear cut as they seem. This post reflects the author’s personal views and not necessarily those of Citrin Cooperman. Before Procedurally Taxing joined Tax Analysts we had a robust comment section associated with our posts. It took a few years after we started the blog to get the right instructions out to individuals interested in commenting, but once we did, we received comments that occasionally exceeded the post in terms of quality and analysis of an issue. When we joined Tax Analysts, we lost our publicly available comment section; however, it is still possible to comment on a post and we do respond to comments. Underneath the author’s name at the top of each post there is a link titled “Message the Author.” If you click on that link, you can send a message about the article. All of the messages come to me, and I distribute them to the actual author of the post if I did not write the post. We try to respond to each comment; however, all of this happens generally behind the scenes of the blog.

In an October 14 post I discussed a recent Treasury Inspector General for Tax Administration report (No. 2025-300-046) regarding disclosure of information on a joint return to each spouse. That post resulted in a comment from Jenni Black, one of our contributors. Her comment was lengthy, insightful, and precisely the kind of comment that would enhance everyone’s understanding of the issues raised in the post. I encouraged her to turn that comment into a post and the result is below. Thanks, Jenni. If you have a comment, please send it in. Even if we don’t publicly acknowledge it, your comments help us, and you may be providing information we will find a way to share on the blog. — Keith 1

Under section 6103(e)(8), the IRS “shall” disclose: • whether the IRS has attempted to collect the joint debt from the other spouse; • the general nature of the collection activities; and • the amount collected. That’s it. Those categories are not as straightforward as they may seem and the people handling the calls at the IRS are not attorneys or disclosure specialists.2 Despite what it may look like, it’s very subjective. As with most legal things,

This article is only discussing the TIGTA report and disclosures made under section 6103(e)(8). All of the information related to the joint debt is likely the return information of both spouses (as the information was gathered or created as part of the collection of their liability under the Internal Revenue Code) and could be disclosed, in full, to each spouse under section 6103(e)(7), provided the disclosure would not seriously impair federal tax administration. So, while section 6103(e)(8) addresses the disclosure of limited information, that’s not to say that more information than can be disclosed under section 6103(e)(8) couldn’t be disclosed in a request for the spouse’s own return information (which is generally done through the Freedom of Information Act). So I am not entirely sure why section 6103(e)(8) is necessary. 2

Although section 6103(e)(8) requires the request and response to be in writing, the TIGTA report notes that “after the passage of the Taxpayer Bill of Rights 2 [in 1996], the IRS Disclosure Office issued guidance permitting employees to provide both oral and written responses to taxpayers’ requests made orally or in writing.”

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Shades of Grey: Disclosures Under Section 6103(e)(8)

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that is about the same 29 cases, which suggests the IRS may have violated a taxpayer’s right to privacy presumably because the person was not “clearly” the taxpayer. That seems like an authentication issue and not specific to section 6103(e)(8). What else could “failure to comply” with section 6103(e)(8) mean? Does an IRS employee fail to comply with section 6103(e)(8) if the employee did not volunteer information the requester was not asking for? If spouse calls up and asks how much the IRS has collected from exspouse and the IRS employee accurately tells them, the requester thanks the employee, then hangs up, has the IRS employee “failed to comply” with section 6103(e)(8) because the employee did not tell the requester the nature of the collection activity (obviously, if the IRS collected an amount, then they have attempted to collect from the ex-spouse) even though the requester didn’t ask? Section 6103(e)(8) says the IRS must disclose certain information “upon request in writing.” To me at least, there hasn’t been a request for the information so it’s not disclosable under section 6103(e)(8). But could some say that, if any request is made for collection information surrounding the collection of a joint debt and ex-spouses, the IRS has to disclose every single piece of information the person is entitled 4 to receive under section 6103(e)(8), regardless of whether the person asked for it or not? Shade of grey. With the exception of the possible authentication issue, the report focuses mainly on information not being disclosed. Looking at the Internal Revenue Manual dealing with disclosures under section 6103(e)(8), there is Exhibit 5.1.22-1, which provides examples of things the IRS can, and cannot, disclose under section 6103(e)(8). However, I see things in that exhibit that arguably are not whether the IRS attempted to collect the joint debt from the other

These are perfect examples of whether the reasonable minds of experts on section 6103 can differ. I asked a (now retired) good friend of mine who is also an expert in section 6103 (more than me) to peer review the article for me and she and I differ on whether disclosing the details of where the seizure came from (i.e., beach house, Bank X account) is a disclosure of the general nature of the collection activity. However, we both agree it would be the return information of both spouses and disclosable to either spouse under section 6103(e)(7) (subject to any impairment call). The IRM tells employees they cannot disclose these details. See IRM Exhibit 5.1.22-1.

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In its report TIGTA takes issue with the IRM 5.1.22, which says the IRS “may” disclose information because the statute says “shall.” The report states that, by using “may,” this says the disclosure is optional. But “may” also can mean “the employee is allowed to” and that’s accurate. Under section 6103(e)(7), the IRS can only disclose return information if the disclosure would not seriously impair federal tax administration. Section 6103(e)(8) is not exempt from this. Therefore, information that “shall” be required to be disclosed under section 6103(e)(8) could be withheld under section 6103(e)(7).

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there are a lot of shades of grey (maybe even 50 of them). Yet people answering the phone are expected to know and get it 100 percent right in all cases. There are plenty of situations that can arise with section 6103(e)(8) in which those who are experts in section 6103 can reasonably differ on the answer to whether something could be disclosed. If section 6103 experts can reasonably differ on the answer, how does the person answering the phone have a chance of accurately navigating the shades of grey? From the TIGTA report, it seems like some of its findings come from hypothetical quizzes given to selected IRS employees and interviews and not actual cases. As with any question, the answer could be more/less clear depending on the wording of the question. For example, if someone asks “where did you get the money from my exspouse” is that question asking the source of the payment (that is, bank account, stock account, 3 seizing their beach house), which is not allowed, or is it asking the general nature of the collection activity (for example, levy, voluntary payment). If the employee took it as asking about the source (but the requester meant the nature of the collection action) and said they couldn’t say, did they “violate” section 6103? I promise you, very few people are asking “please tell me the general nature of the collection activities with respect to my former spouse.” Shade of grey. It is also unclear to me from the TIGTA report what “failed to comply with disclosure requirements” means. In the report it says that in 29 cases the employee did not disclose information the requester was entitled to receive. But the next sentence is interesting. It says in “most” of those cases, the IRS employee did not provide the information requested. So . . . if in “most” of the 29 cases, the requested information was not provided, what happened in the rest of the 29 cases? I presume the paragraph that follows

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As per the previous footnote, I do not think this would be an unauthorized disclosure of return information as most, but maybe not all, of the information would be the return information of both spouses.

saying the ex-spouse is CNC because of hardship smells a lot more like the ex-spouse’s income level and financial condition, which the IRM says is not allowed to be disclosed under section 6103(e)(8). Another shade of grey. Finally, the installment agreement. The IRM exhibit chart says the IRS can disclose that the spouse has requested an installment agreement. I agree the IRS could disclose the total payments collected, but is an installment agreement a “collection activity”? I could make the argument both ways. I mean, it collects money, but it’s an action initiated by the taxpayer, not the IRS. While not free from any doubt, this one I’m ok with, but it demonstrates how subjective/grey this all is. But the chart also says the employee can disclose the terms of the installment agreement — the payment amount, the dates of the payments, and the frequency of the payments. Section 6103(e)(8) authorizes the IRS to disclose “the amount collected.” Does this mean the total amount collected or does it permit a listing of the dates and amounts of every single payment? Is disclosing the terms of an ex-spouse’s installment agreement what Congress had in mind when it wrote “the amount collected”? And how far does “general nature” of collection activities go? In the chart they give examples of telling the requester the collection was from a wage garnishment. That’s a form of levy. If the employee had just said “levy” without getting into the specific type of levy, did they violate section 6103(e)(8)? Same thing with offset — that’s arguably a type of seizure. It seems a little harsh saying employees “violated” section 6103(e)(8) as that implies they were doing something wrong as opposed to not being perfect. Saying an employee “violated” a taxpayer’s rights but not disclosing every possible nugget of information possible is like being given a ticket for driving 3 mph over the speed limit. A very grey area indeed. In reality, I think section 6103(e)(8) can be satisfied 100 percent with three words: • yes or no; • levy, seizure, voluntary payment (ok that one is two words); and • dollar amount. That’s all section 6103(e)(8) covers.

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spouse (to me, this is a “yes” or “no” answer), the general nature of the collection activities, or the amount collected. This is why I say this is all nuanced (shades of grey), and it’s hard to fault people answering the phone for not understanding all of this perfectly. Let’s look at some of the examples in Exhibit 5.1.22-1. Several of these entries (offers in compromise, bankruptcy, innocent spouse) deal with whether the ex-spouse has been relieved of joint liability. How is that any of the three items allowed to be disclosed? That may be an explanation as to why there has not been collection, but does section 6103(e)(8) allow for the disclosure of reasons, or just the fact of attempted collection? The report even calls out bankruptcy as an example. The report notes that a small percentage of employees interviewed were unsure whether they could disclose the bankruptcy chapter filed by the other spouse. The IRM says the employee cannot disclose what chapter the bankruptcy was filed under but can tell the spouse whether the ex-spouse received a discharge from the joint liability. The report didn’t find that any of the disclosures authorized in the IRM were incorrect, yet I am pointing out ones that I think arguably are not allowed under the limited information permitted to be disclosed under section 6103(e)(8).5 An even darker shade of grey. Like I said, this isn’t as straightforward as it may seem, so maybe cut those people answering the phone a break? Back to the exhibit. The exhibit says that, if the ex-spouse is currently not collectible (CNC), the employee can disclose the type of CNC closure for the ex-spouse (for example, unable to locate, unable to contact, or hardship) but cannot disclose the income level the ex-spouse must have to no longer be considered CNC. But none of this is an amount or if the IRS has attempted to collect from the former spouse (again, arguably a yes or no answer). That leaves general nature of the collection activities. Is CNC a collection activity? To me, a collection activity is an action taken by the IRS to collect a debt. CNC is not that. So how is this allowable? CNC is a reason why the IRS isn’t collecting. And

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Personally, I’ve never understood how the information in section 6103(e)(8) helps anyone. According to the TIGTA report, not getting this information can burden taxpayers and negatively affect their ability to resolve their tax obligations. How? It’s a joint and several liability. Each spouse is liable for 100 percent of it. The IRS doesn’t have to collect from both spouses. The only thing I can think of where this information may be helpful is if the spouses have an agreement as to how much each would be liable for. But . . . wouldn’t the spouse know if they’ve paid the amount they agreed to pay? If you pay the amount you agreed to pay and there is still a balance, you kind of know the other person didn’t pay their part. But this would be something outside of the IRS and would not affect the taxpayer’s ability to resolve their tax liability with the IRS. Even snitching doesn’t help (that is, telling the IRS the ex-spouse has a ton of money sitting in his parents’ bank account) because it’s joint and several. The bottom line is that what specifically must be disclosed under section 6103(e)(8) isn’t super clear and straightforward. There is a lot of grey area where the rubber meets the road. I understand it’s a statute that requires specific disclosure, and I get TIGTA has to do this report. The reasonable minds of experts in section 6103 can differ on the specific nuances and limits of section 6103(e)(8). But the IRS employees who answer the phone have to navigate these 50 shades of grey while on the phone, in real time. It’s hard to say these people are going around violating taxpayers’ rights. 