Marianne Hopkins v. Commissioner

120 T.C. No. 17

UNITED STATES TAX COURT

MARIANNE HOPKINS, Petitioner v.
COMMISSIONER OF INTERNAL REVENUE, Respondent

Docket No. 363-01. Filed June 30, 2003.

P filed a request for relief under sec. 6015,
I.R.C., with respect to her joint and several tax
liabilities for 1982 and 1983. P and H reported loss
deductions from a partnership on their returns for
those years. In 1988, P and H signed a closing
agreement under sec. 7121, I.R.C., in which they agreed
to adjustments with respect to the partnership
deductions. The adjustments to the partnership
deductions resulted in tax deficiencies for 1982 and
1983, which R assessed. The tax liabilities for those
years were the subject of a prior bankruptcy case
involving P and H and the Government. In that case, P
raised a claim for relief from joint and several
liability under former sec. 6013(e), I.R.C. The
bankruptcy court entered judgment holding that the
closing agreement precluded P from asserting her claim
for relief under sec. 6013(e), I.R.C. A Federal
District Court and the Court of Appeals for the Ninth
Circuit affirmed the bankruptcy court’s judgment. See
Hopkins v. United States (In re Hopkins), 146 F.3d 729
(9th Cir. 1998). R argues that the closing agreement P
 - 2 -

signed precludes her assertion of a claim for relief
under sec. 6015, I.R.C. R also argues that the
doctrines of res judicata and collateral estoppel
preclude her assertion of a claim for relief under that
section.

Held: P is not precluded from claiming sec. 6015,
I.R.C., relief because of her closing agreement. Sec.
6015, I.R.C., was enacted in 1998 in order to provide
additional relief to taxpayers who had filed joint
income tax returns. Sec. 6015, I.R.C., was made
applicable to any tax remaining unpaid as of July 22,
1998. P signed the closing agreement in 1988, 10 years
before the enactment of sec. 6015, I.R.C. Thus, when P
signed the closing agreement, she never had the
opportunity to request relief under sec. 6015, I.R.C.,
with regard to her 1982 and 1983 joint and several tax
liabilities.

Held, further, the doctrines of res judicata and
collateral estoppel do not preclude P’s claim for sec.
6015, I.R.C., relief.

Sandra G. Scott, for petitioner.

Thomas M. Rohall, for respondent.

RUWE, Judge: The issue for decision is whether a closing

agreement entered into under section 71211 precludes the

assertion of a claim for relief from joint and several liability

under section 6015 where petitioner signed the closing agreement

before the effective date of section 6015. We hold that it does

not.

1
Unless otherwise indicated, all section references are to
the Internal Revenue Code as amended.
 - 3 -

FINDINGS OF FACT

Some of the facts have been stipulated and are so found.

The stipulation of facts and the attached exhibits are

incorporated herein by this reference. At the time of filing the

petition, petitioner resided in Kentfield, California.

Petitioner was formerly married to Donald K. Hopkins.2

Petitioner filed joint income tax returns with Mr. Hopkins from

1978 to 1997. Petitioner and Mr. Hopkins claimed deductions on

their joint returns for 1982 and 1983, which related to a certain

Far West Drilling partnership. They claimed a loss deduction of

$83,402 on their joint return for 1982. They claimed a loss

deduction of $91,086 and a depletion deduction of $2,126 on their

joint return for 1983. Those deductions were erroneous.

Respondent audited the Far West Drilling partnership. In

the course of respondent’s examination, petitioner and Mr.

Hopkins agreed to settle their tax liabilities relating to Far

West Drilling. They signed a Form 906, Closing Agreement on

Final Determination Covering Specific Matters, dated September

28, 1988. The closing agreement provides:

Under section 7121 of the Internal Revenue Code
Donald K and Marianne Hopkins 111 Diablo DR.,
Kentfield, CA 94904 * * * and the Commissioner of
Internal Revenue make the following closing agreement:

2
Petitioner and Mr. Hopkins were separated on Feb. 1, 1989.
At some point thereafter, they were divorced.
 - 4 -

WHEREAS, the Taxpayers were investors in Far
West Drilling Associates (the “Partnership”),
beginning with the taxable year 1981.

WHEREAS, the Taxpayers have made cash
contributions to the Partnership in the total
amount of $67,500.00[.]

WHEREAS, the Taxpayers have claimed losses
with respect to their interest in the Partnership
on their Federal income tax return beginning in
the year 1981, the allowance of which are
contested by the Commissioner of Internal Revenue.

WHEREAS, the parties wish to resolve with
finality the Federal income tax consequences of
their investment in the Partnership.

NOW THEREFORE, it is hereby determined and
agreed for Federal income tax purposes that:

1. The Taxpayers are entitled to an ordinary
deduction in the amount of $50,625.00 for the
taxable year ending December 31, 1981, with
respect to their investment in the Partnership.
Said amount represents 75% of their cash
investment in the Partnership.

2. The Taxpayers shall be entitled to an
ordinary deduction in any taxable year ending
subsequent to 1981 equal to the amount of cash
payments made by them during such taxable year,
against their assumed portion of the Partnership
debt to Mitchell Petroleum Technology Corporation,
upon substantiation of such cash payments.

3. The Taxpayers’ basis in the Partnership
shall be $0 as of December 31, 1981. The
Taxpayers will, however, be allowed an increase in
their basis in the Partnership, equal in amount to
any subsequent cash payment by Taxpayers made
pursuant to their assumption of a portion of any
debt of the Partnership to Mitchell Petroleum
Technology Corporation.

4. The Taxpayers are not entitled to the
investment tax credit with respect to their
interest in the Partnership for any taxable year.
 - 5 -

5. The Taxpayers are not entitled to any
deductions in the taxable year ending December 31,
1981, or in any subsequent year, other than the
deductions which are set forth in paragraphs “1”
and “2” above.

6. Any release, discharge or forgiveness of
any obligation with respect to the Taxpayers’
investment in the Partnership in any year
subsequent to the taxable year ending December 31,
1981 will not result in gross income to the
Taxpayers in any taxable year.

7. No penalty shall be assessed against the
Taxpayers for the taxable year ended December 31,
1981 or any subsequent taxable year by reason of
the disallowance of any losses claimed as a result
of their interest in the Partnership. The
increased interest rate pursuant to I.R.C. §
6621(c) shall apply.

This agreement is final and conclusive except:

(1) the matter it relates to may be reopened in
the event of fraud, malfeasance, or
misrepresentation of material fact;

(2) it is subject to the Internal Revenue Code
sections that expressly provide that effect
be given to their provisions notwithstanding
any other law or rule of law except Code
section 7122; and

(3) if it relates to a tax period ending after
the date of this agreement, it is subject to
any law, enacted after the agreement date,
that applies to that tax period.

By signing, the above parties certify that they
have read and agreed to the terms of this document.

Respondent accepted the closing agreement on October 13, 1988.

Respondent made adjustments to petitioner and Mr. Hopkins’s

1982 and 1983 returns pursuant to the closing agreement. Those

adjustments resulted in deficiencies for 1982 and 1983, which
 - 6 -

respondent assessed.3 Respondent filed notices of Federal tax

lien with the county recorder of Marin County, California,

relating to those assessments. The tax liabilities for 1982 and

1983 remain unpaid.

On February 8, 1995, petitioner filed a chapter 7

bankruptcy. She also filed an adversary complaint in the U.S.

Bankruptcy Court for the Northern District of California, Santa

Rosa Division, in which she sought to be relieved of her joint

and several tax liabilities, and the related tax liens, for 1982

and 1983 under former section 6013(e). The Government filed a

motion for summary judgment, arguing, inter alia, that petitioner

was barred from seeking relief because she had executed a closing

agreement under section 7121 with respect to the Far West

Drilling adjustments. The bankruptcy court granted the

Government’s motion, concluding that petitioner was precluded by

the closing agreement from asserting a claim for relief under

section 6013(e). Petitioner appealed from that judgment to a

Federal District Court. The District Court affirmed the

bankruptcy court’s decision. Hopkins v. United States (In re

Hopkins), 79 AFTR 2d 97-2625, 97-1 USTC par. 50,446 (N.D. Cal.

1997). Petitioner then appealed to the Court of Appeals for the

3
The increase in tax for 1982 was the product of both the
adjustment to the partnership deduction that petitioner and Mr.
Hopkins claimed for that year and the recomputation of a certain
NOL carryforward deduction they claimed for 1982.
 - 7 -

Ninth Circuit, which also affirmed. Hopkins v. United States (In

re Hopkins), 146 F.3d 729 (9th Cir. 1998).

On May 24, 1999, petitioner filed a Form 8857, Request for

Innocent Spouse Relief, with respondent for her 1982 and 1983

joint and several tax liabilities in which she requested relief

under the recently enacted provisions of section 6015. On

January 8, 2001, petitioner filed a petition for relief from

joint and several liability with this Court. At the time of

petitioner’s filing the petition, respondent had not made a

determination with respect to her request.

OPINION

We decide in this Opinion whether petitioner is precluded by

her closing agreement from asserting a claim for relief from

joint and several liability under section 6015. The closing

agreement was signed before the effective date of section 6015,

and the tax liabilities assessed pursuant to that closing

agreement were unpaid as of that effective date. This case

presents an issue of first impression.

With certain exceptions, a husband and wife may elect to

file a joint return. Sec. 6013(a). If a joint return is made,

the tax is computed on the aggregate income, and the liability

with respect to the tax is joint and several. Sec. 6013(d)(3).

However, in specified circumstances, relief from joint and
 - 8 -

several liability was previously available under former section

6013(e) and is currently available under section 6015.

Section 6013(e), as amended,4 provided generally that a

spouse could be relieved of a joint and several liability if:

(1) A joint income tax return was filed; (2) the return contained

a substantial understatement of tax attributable to grossly

erroneous items of the other spouse; (3) in signing the return,

the spouse seeking relief did not know, and had no reason to

know, of the substantial understatement; and (4) under the

circumstances it would be inequitable to hold the spouse seeking

relief liable for the substantial understatement. Cheshire v.

Commissioner, 115 T.C. 183, 189 (2000), affd. 282 F.3d 326 (5th

Cir. 2002). However, relief under section 6013(e) was difficult

to obtain. Id.

Congress enacted section 6015 on July 22, 1998, as part of

the Internal Revenue Service Restructuring and Reform Act of 1998

(RRA 1998), Pub. L. 105-206, sec. 3201(a), 112 Stat. 734.

Congress repealed former section 6013(e) as part of this

enactment, and section 6015 was given retroactive effect with

4
Sec. 6013(e) was enacted in the Act of Jan. 12, 1971, Pub.
L. 91-679, sec. 1, 84 Stat. 2063, as amended by the Deficit
Reduction Act of 1984, Pub. L. 98-369, sec. 424, 98 Stat. 801.
 - 9 -

respect to any liability for tax remaining unpaid as of July 22,

1998. See RRA 1998 sec. 3201(g)(1), 112 Stat. 740.5

Section 6015 is more accessible than former section 6013(e).

See Cheshire v. Commissioner, supra at 189; H. Conf. Rept. 105-

599, at 249 (1998), 1998-3 C.B. 747, 1003. Section 6015 provides

three avenues of relief from joint and several liability. First,

section 6015(b)(1) (which is similar to former section 6013(e))

allows a spouse to escape joint and several liability. Section

6015(b)(2) also allows a spouse to be relieved from a portion of

the understatement. Second, section 6015(c) generally provides

for an allocation of liability for a deficiency as if the spouses

had filed separate returns. Third, section 6015(f) confers upon

the Secretary discretion to grant equitable relief in situations

where relief is unavailable under section 6015(b) or (c). See

Cheshire v. Commissioner, supra; Mora v. Commissioner, 117 T.C.

279, 285 (2001).

In the instant case, petitioner requests relief under

section 6015(b), (c), and (f) with respect to the tax liabilities

5
Sec. 3201(g)(1) of the Internal Revenue Service
Restructuring and Reform Act of 1998 (RRA 1998), Pub. L. 105-206,
112 Stat. 740, provides that sec. 6015 “shall apply to any
liability for tax arising after the date of the enactment of this
Act and any liability for tax arising on or before such date but
remaining unpaid as of such date.” RRA 1998 sec. 3201(g)(2)
provides that the 2-year period of limitations for filing an
election in sec. 6015(b)(1)(E) or (c)(3)(B) “shall not expire
before the date which is 2 years after the date of the first
collection activity after the date of the enactment of this Act.”
 - 10 -

arising from the closing agreement. Respondent argues, however,

that the closing agreement precludes petitioner from asserting a

claim for relief under section 6015.

Generally, petitioner’s closing agreement would preclude her

from asserting any defense to a tax liability covered by the

agreement. See, e.g., sec. 7121(b);6 sec. 301.7121-1(c), Proced.

& Admin. Regs. A closing agreement entered into under section

7121 settles or “closes” the liability of an individual for any

tax covered by the agreement, and it is final and conclusive as

to both the taxpayer and the Commissioner. See, e.g., S&O

Liquidating Pship. v. Commissioner, 291 F.3d 454, 458 (7th Cir.

2002); Hopkins v. United States (In re Hopkins), 146 F.3d at 733;

6
Under sec. 7121(a), the Commissioner is authorized to enter
into a written agreement with any person relating to the tax
liability of such person for any taxable period. Sec. 7121(b)
provides:

SEC. 7121(b). Finality.--If such agreement is
approved by the Secretary (within such time as may be
stated in such agreement, or later agreed to) such
agreement shall be final and conclusive, and, except
upon a showing of fraud or malfeasance, or
misrepresentation of a material fact--

(1) the case shall not be reopened as to the
matters agreed upon or the agreement modified by
any officer, employee, or agent of the United
States, and

(2) in any suit, action, or proceeding, such
agreement, or any determination, assessment,
collection, payment, abatement, refund, or credit
made in accordance therewith, shall not be
annulled, modified, set aside, or disregarded.
 - 11 -

In re Miller, 174 Bankr. 791, 796 (9th Cir. BAP 1994), affd.

without published opinion 81 F.3d 169 (9th Cir. 1996); Zaentz v.

Commissioner, 90 T.C. 753, 760-761 (1988). Closing agreements

may not be annulled, modified, set aside, or disregarded in any

suit or proceeding unless there is a showing of fraud,

malfeasance, or misrepresentation of a material fact. Wolverine

Petroleum Corp. v. Commissioner, 75 F.2d 593, 595 (8th Cir.

1935), affg. 29 B.T.A. 1236 (1934); H Graphics/Access, Ltd.

Pship. v. Commissioner, T.C. Memo. 1992-345.

In a prior opinion involving petitioner and the same closing

agreement at issue in this case, Hopkins v. United States (In re

Hopkins) 146 F.3d 729 (9th Cir. 1998), the Court of Appeals for

the Ninth Circuit held that these same principles applied to

preclude petitioner’s assertion of a claim for relief from joint

and several liability under section 6013(e). The Court of

Appeals held:

We now hold that a taxpayer may not avoid tax
liabilities arising out of a valid closing agreement by
asserting an innocent spouse defense where that defense
has not been preserved in the text of the closing
agreement. Closing agreements are meant to insure the
finality of liability for both the taxpayer and the
IRS. This is why courts have strictly enforced closing
agreements, finding them binding and conclusive on the
parties even if the tax at issue is later declared to
be unconstitutional or in conflict with other internal
revenue sections. * * * In signing the closing
agreement, Ms. Hopkins explicitly agreed to have her
tax liability determined by the closing agreement. If
Ms. Hopkins wished to try later to avoid the tax
consequences flowing from that agreement, she had a
duty to preserve any possible defenses to personal
liability in that agreement. Having failed to do so,
 - 12 -

Ms. Hopkins should not now be permitted to reopen the
question of her liability in the current adversary
proceedings on the grounds that she was an “innocent
spouse.” Permitting her to do so would undermine the
very purpose of entering into a closing agreement in
the first place. [Id. at 733.]

The Court of Appeals decided that case in the context of a claim

for relief under former section 6013(e). Relief under section

6015 was not available at the time that case was decided on June

17, 1998. Following the decision of the Court of Appeals for the

Ninth Circuit in Hopkins v. United States (In re Hopkins), 146

F.3d 729, section 6015 was enacted and provided retroactive

relief for tax liabilities remaining unpaid as of its effective

date. Petitioner argues that, despite her signing the closing

agreement, she is entitled to claim relief under section 6015.

In interpreting section 6015, our purpose is to give effect

to Congress’s intent. Ewing v. Commissioner, 118 T.C. 494, 503

(2002); Fernandez v. Commissioner, 114 T.C. 324, 329 (2000). We

begin as always with the statutory language, and we interpret

that language with reference to the legislative history primarily

to learn the purpose of the statute and to resolve any ambiguity

in the words contained in the language. Ewing v. Commissioner,

supra at 503.

Section 6015 does not address the issue of unpaid taxes

arising from a section 7121 closing agreement. Section 6015

makes no explicit reference to closing agreements except for a
 - 13 -

parenthetical reference in section 6015(g)(1).7 However, that

provision by its terms applies only in the case of credits and

refunds. It does not express Congress’s intent with respect to

cases, such as the instant case, which do not involve credits and

refunds.8 We do not interpret Congress’s failure to otherwise

address closing agreements in section 6015 as evidence of its

intent to restrict the availability of relief in the case of an

unpaid tax liability arising from a closing agreement.

As we indicated above, section 6015 was enacted to provide

spouses with broader access to relief from joint and several tax

liabilities. See H. Conf. Rept. 105-599, supra at 249, 1998-3

C.B. at 1003. Indeed, Congress provided retroactive relief in

the case of any liability for tax arising on or before July 22,

7
Sec. 6015(g)(1) provides:

SEC. 6015(g). Credits and Refunds.--

(1) In general.--Except as provided in paragraphs
(2) and (3), notwithstanding any other law or rule of
law (other than section 6511, 6512(b), 7121, or 7122),
credit or refund shall be allowed or made to the extent
attributable to the application of this section.
8
Respondent argues that Congress recognized in sec.
6015(g)(1) that sec. 7121 overrides the provisions of sec. 6015.
He suggests that, although sec. 6015(g)(1) applies only to
credits and refunds, the parenthetical reference to sec. 7121
recognizes that closing agreements are final and conclusive
except in those specific circumstances identified in sec.
7121(b). However, as petitioner points out, one could also argue
that “Since Congress made closing agreements applicable to
credits and refunds, if Congress had intended closing agreements
also to apply to deficiencies Congress would have so stated.”
 - 14 -

1998, but remaining unpaid as of such date. RRA 1998 sec.

3201(g)(1), 112 Stat. 740.9 It is clear that Congress intended

section 6015 to be applied broadly and expansively to provide

relief for joint and several tax liabilities remaining unpaid as

of the effective date of section 6015. Considering Congress’s

purposes in enacting section 6015, we cannot construe Congress’s

failure to address the overall effect of closing agreements,

which were entered into before the effective date of section

6015, to indicate an intent to restrict section 6015 relief that

would otherwise be available in the absence of a closing

agreement.

Although Congress did not address the effect of closing

agreements in the situation presented here, it did address the

effect of a final decision in a prior court proceeding; i.e., the

effect of the doctrine of res judicata on the availability of

section 6015 relief. Section 6015(g)(2) provides:

In the case of any election under subsection (b) or
(c), if a decision of a court in any prior proceeding
for the same taxable year has become final, such
decision shall be conclusive except with respect to the
qualification of the individual for relief which was
not an issue in such proceeding. The exception
contained in the preceding sentence shall not apply if
the court determines that the individual participated
meaningfully in such prior proceeding.

9
We recently construed this provision expansively to the
benefit of a requesting spouse in Washington v. Commissioner, 120
T.C. 137 (2003).
 - 15 -

On July 18, 2002, the Secretary issued published regulations

which are applicable to all elections or requests for relief

filed on or after such date.10 See sec. 1.6015-9, Income Tax

Regs. Those regulations provide with respect to section

6015(g)(2) that “A requesting spouse has not meaningfully

participated in a prior proceeding if, due to the effective date

of section 6015, relief under section 6015 was not available in

that proceeding.” Sec. 1.6015-1(e), Income Tax Regs. The

legislative history also indicates that a spouse may elect

section 6015 relief without regard to whether he or she has

previously been denied relief under former section 6013(e). See

H. Conf. Rept. 105-599, supra at 251, 1998-3 C.B. at 1005.

Although section 6015(g)(2) and the regulations refer only

to res judicata, we believe the same logic applies in the case of

a closing agreement entered into before the effective date of

section 6015. We recognize the similarities that exist with

respect to closing agreements and the doctrine of res judicata.11

10
The final regulations were issued after the briefs in this
case were filed. See 67 Fed. Reg. 47278 (July 18, 2002). For
this reason, many of petitioner’s arguments rely upon the
proposed regulations. See secs. 1.6015-1 to 1.6015-9, Proposed
Income Tax Regs., 66 Fed. Reg. 3888 (Jan. 17, 2001).
11
Under the doctrine of res judicata, or claim preclusion, a
judgment on the merits in a prior suit bars a second suit which
involves the same parties and is based on the same cause of
action. Meier v. Commissioner, 91 T.C. 273, 282 (1988). The
parties to the prior suit are bound by every matter that was or
(continued...)
 - 16 -

They have a similar preclusive effect, and the policy reasons for

giving final and conclusive effect to a closing agreement and a

prior judgment of a court are also similar.12 Indeed, the Court

of Appeals for the Ninth Circuit in Hopkins v. United States (In

re Hopkins), 146 F.3d at 733 n.2, analogized the effect of a

closing agreement to res judicata. See also Katz v. United

States, 43 AFTR 2d 79-1124, 79-1 USTC par. 9332 (D. Mass. 1979).

Given the similarities in the purpose of a closing agreement

and the doctrine of res judicata, we cannot conclude any logical

reason to afford section 6015 relief in the case of a prior

judgment involving section 6013(e) and deny relief in the case of

a closing agreement entered into before the effective date of

section 6015. In both situations, the taxpayer-spouse did not

have an opportunity to raise a claim for relief under section

6015. We do not perceive Congress’s failure to include

specifically an exception with respect to closing agreements to

11
(...continued)
could have been offered and received to sustain or defeat the
claim. Commissioner v. Sunnen, 333 U.S. 591, 597 (1948); Calcutt
v. Commissioner, 91 T.C. 14, 21 (1988). The doctrine applies to
judgments even where the Court’s final decision was based on an
agreement of the parties. Trent v. Commissioner, T.C. Memo.
2002-285 (citing United States v. Bryant, 15 F.3d 756, 758 (8th
Cir. 1994)).
12
The purpose of a closing agreement is to once and for all
terminate and dispose of tax controversies. States Steamship Co.
v. IRS, 683 F.2d 1282, 1284 (9th Cir. 1982). Similarly, the
doctrine of res judicata has the “dual purpose of protecting
litigants from the burden of relitigating an identical issue and
of promoting judicial economy by preventing unnecessary or
redundant litigation.” Meier v. Commissioner, supra at 282.
 - 17 -

indicate Congress’s intent to restrict relief in the case of a

closing agreement entered into before the effective date of

section 6015.

The final regulations provide an opportunity to claim

section 6015 relief in the case of a section 6224(c) settlement

agreement which was entered into while the spouse was a party to

a pending partnership level (TEFRA) proceeding.13 Sec. 1.6015-

1(c)(2), Income Tax Regs.14 In doing so, the final regulations

provide an exception to the final and preclusive effect which we

have given section 6224(c) settlement agreements.15 The final

13
Unified partnership procedures were enacted as part of the
Tax Equity and Fiscal Responsibility Act of 1982 (TEFRA), Pub. L.
97-248, secs. 401-407, 96 Stat. 648-671. Those procedures, as
amended, are contained in secs. 6221 through 6234.
14
We note that petitioner relies upon sec. 1.6015-1(c),
Proposed Income Tax Regs., 66 Fed. Reg. 3894 (Jan. 17, 2001),
which provides a similar exception for sec. 6224(c) settlement
agreements. She contends that the closing agreement she signed
is a sec. 6224(c) settlement agreement relating to partnership
items. Since we hold that petitioner is not precluded from
claiming relief from the closing agreement without regard to this
contention, we need not decide whether petitioner’s closing
agreement would be an agreement described in sec. 6224(c).
15
Sec. 6224(c) provides:

SEC. 6224(c). Settlement Agreement.--In the
absence of a showing of fraud, malfeasance, or
misrepresentation of fact--

(1) Binds all parties.--A settlement
agreement between the Secretary and 1 or more
partners in a partnership with respect to the
determination of partnership items for any
partnership taxable year shall (except as
(continued...)
 - 18 -

regulations contain an example illustrating, as well as providing

a justification for including, this exception. Section 1.6015-

1(c)(3), Example (2), Income Tax Regs., provides:

H and W file a joint return for taxable year 2002,
on which they claim $25,000 in losses attributable to
H’s general partnership interest in Partnership B. In
November 2003, the Service proposes a deficiency in tax
relating to H’s and W’s 2002 joint return arising from
omitted taxable interest income in the amount of $2,000
that is attributable to H. In July 2005, the Internal
Revenue Service commences a TEFRA partnership
proceeding regarding Partnership B’s 2002 and 2003
taxable years, and sends H and W a notice under section
6223(a)(1). In March 2006, H and W enter into a
closing agreement with the Service. The closing
agreement provides for the disallowance of the claimed
losses from Partnership B in excess of H’s and W’s out-
of-pocket expenditures relating to Partnership B for
taxable year 2002 and any subsequent year(s) in which H
and W claimed losses from Partnership B. In addition,
H and W agree to the imposition of the accuracy-related
penalty under section 6662 with respect to the
disallowed losses attributable to partnership B. In
the closing agreement, H and W also agree to the
deficiency resulting from the omitted interest income
for taxable year 2002. W may not later claim relief
from joint and several liability under section 6015 as
to the deficiency in tax attributable to the omitted

15
(...continued)
otherwise provided in such agreement) be binding
on all parties to such agreement with respect to
the determination of partnership items for such
partnership taxable year. * * *

The standard that sec. 6224(c) prescribes for setting aside a
settlement agreement is the same standard prescribed by sec.
7121(b) for setting aside a closing agreement; i.e., such an
agreement is binding absent a showing of fraud, malfeasance, or
misrepresentation of fact. H Graphics/Access, Ltd. Pship. v.
Commissioner, T.C. Memo. 1992-345. This no doubt accounts for
including this provision in the final regulations as an exception
to the general rule in sec. 1.6015-1(c)(1), Income Tax Regs.,
regarding the finality of sec. 7121 closing agreements.
 - 19 -

income of $2,000 for taxable year 2002, because this
portion of the closing agreement pertains to
nonpartnership items. In contrast W may claim relief
from joint and several liability as to the disallowed
losses and accuracy-related penalty attributable to
Partnership B for taxable year 2002 or any subsequent
year(s). This is because this portion of the closing
agreement pertains to partnership and affected items
and was entered into at a time when W was a party to
the pending partnership-level proceeding regarding
Partnership B. Consequently, W never had the
opportunity to raise the innocent spouse defense in the
course of that TEFRA partnership proceeding. (See §
1.6015-5(b)(5) relating to premature claims).
[Emphasis added.]

We fail to see why the same rationale does not apply to a

closing agreement entered into before the effective date of

section 6015. A spouse who enters into such an agreement

likewise never had the opportunity to raise a claim under section

6015 before, or at the time of, her signing the closing

agreement. Although we recognize that the final regulations were

not effective for purposes of petitioner’s request for relief, we

believe the reason underlying the exceptions in section 1.6015-

1(c)(2) and(e), Income Tax Regs., supports a conclusion that a

closing agreement entered into before the effective date of

section 6015 does not preclude petitioner from asserting relief

under that section.16

16
We do not decide in this Opinion the effect of sec. 6015
on a closing agreement entered into after the effective date of
those rules. However, we note that the Secretary has issued
final regulations under sec. 6015 which provide that, in general,
a requesting spouse is not entitled to relief from joint and
several liability for any tax year for which the requesting
(continued...)
 - 20 -

We recognize that courts have strictly enforced closing

agreements executed pursuant to section 7121 (and section 6224(c)

for that matter), and they are binding and conclusive on the

parties even if the tax at issue is later declared to be

unconstitutional or in conflict with other Code sections. See

Hopkins v. United States (In re Hopkins), 146 F.3d at 733.

However, in this case, we are dealing with legislation which has

retroactive effect in the case of unpaid tax liabilities and

which we have broadly and expansively construed consistent with

congressional intent. Indeed, we have previously stated that the

rules of section 6015 were designed to correct perceived

deficiencies and inequities apparent in former section 6013(e)

and that this curative legislation should be construed liberally

to effectuate its remedial purpose. Washington v. Commissioner,

120 T.C. 137, 155-156 (2003); Ewing v. Commissioner, 118 T.C. at

503; see also Flores v. United States, 51 Fed. Cl. 49, 53 (2001).

Construing section 6015 liberally, we conclude that Congress did

16
(...continued)
spouse has entered into a closing agreement with the Commissioner
that disposes of the same liability that is the subject of the
claim for relief. Sec. 1.6015-1(c)(1), Income Tax Regs. The
final regulations do not specifically address the effect of a
closing agreement entered into before the effective date of sec.
6015, and all the examples in the regulations deal with closing
agreements entered into after 1998. The final regulations are
applicable to all elections or requests for relief filed on or
after July 18, 2002. See sec. 1.6015-9, Income Tax Regs. Thus,
the final regulations are not effective with respect to
petitioner’s request for relief.
 - 21 -

not intend to restrict the availability of section 6015 relief in

the case of a closing agreement entered into before its effective

date. We hold that a closing agreement entered into before the

effective date of section 6015 does not preclude the assertion of

a claim for relief under that section, provided the tax liability

or liabilities arising from the closing agreement remain unpaid

as of July 22, 1998.

In the instant case, a portion of petitioner’s 1982 and 1983

tax liabilities was assessed pursuant to the closing agreement

that she signed. The closing agreement was signed at a time when

section 6015 relief was unavailable, and her tax liabilities

remained unpaid as of July 22, 1998. In those circumstances, we

hold that the closing agreement does not preclude petitioner from

asserting a claim for relief under section 6015.

Respondent also contends on brief that the doctrines of res

judicata and collateral estoppel preclude petitioner from

asserting relief under section 6015. He relies upon the decision

of the Court of Appeals for the Ninth Circuit in Hopkins v.

United States (In re Hopkins), 146 F.3d 729 (9th Cir. 1998).

However, as we stated above, the Court of Appeals in that case

addressed petitioner’s claim for relief under former section

6013(e), which, except for some similarities in section 6015(b),

was far more restrictive than relief under section 6015. That
 - 22 -

case involved a different claim from the claim which we have

before us. In addition, a critical factor in the decision of the

Court of Appeals was petitioner’s failure to preserve her claim

for relief under section 6013(e) as a defense in the closing

agreement: “We now hold that a taxpayer may not avoid tax

liabilities arising out of a valid closing agreement by asserting

an innocent spouse defense where that defense has not been

preserved in the text of the closing agreement.” Id. at 733.

Given the curative and retroactive effect of section 6015 and

petitioner’s inability to claim section 6015 relief at the time

she entered the closing agreement or in the subsequent bankruptcy

proceedings, we hold that she is not precluded by res judicata or

collateral estoppel from raising her claims to section 6015

relief. See Trent v. Commissioner, T.C. Memo. 2002-285.17

17
See also Friedman v. Commissioner, 82 AFTR 2d 6232, 98-2
USTC par. 50,717 (2d Cir. 1998), vacating and remanding without
published opinion T.C. Memo. 1996-327 (Commissioner conceded that
the provisions of sec. 6015 applied to liabilities that were
unpaid as of July 22, 1998, even though a prior decision denied
the taxpayer relief under sec. 6013(e)).
 - 23 -

We hold that petitioner is not precluded by the closing

agreement or the doctrines of res judicata and collateral

estoppel from claiming relief under section 6015 with respect to

liabilities attributable to the Far West Drilling partnership.

For purposes of convenience and clarity, we address whether

petitioner is entitled to relief under section 6015 in a separate

opinion.