Haag v. Shulman

United States Court of Appeals
For the First Circuit

No. 11-1979

KATHLEEN HAAG,

Petitioner, Appellant,

v.

DOUGLAS SHULMAN,
Commissioner of Internal Revenue Service,

Respondent, Appellee.

APPEAL FROM THE JUDGMENT OF THE
UNITED STATES TAX COURT

Before

Lynch, Chief Judge,
Torruella and Lipez, Circuit Judges.

Timothy J. Burke, with whom Burke & Associates, was on brief
for appellant.
John Schumann, Attorney, Tax Division, with whom Tamara W.
Ashford, Deputy Assistant Attorney General, and Teresa E.
McLaughlin, Attorney, Tax Division, was on brief for appellee.

July 2, 2012
 TORRUELLA, Circuit Judge. Taxpayer Kathleen Haag

("Haag") appeals from the Tax Court's ruling that she is ineligible

for "innocent spouse" relief and may not assert that defense

against the government's continuing attempts to reduce to judgment

certain federal income tax liabilities. Because the Tax Court

correctly concluded that Haag was not entitled to renew her claim

for the relief sought due to res judicata grounds, we affirm.

I. Background

The United States sued Haag and her husband, Robert Haag,

(collectively, the "Haags") in 2002 in the U.S. District Court for

the District of Massachusetts to reduce federal income tax

liabilities to judgment. These liabilities totaled $1,620,224 and

were incurred during separate time periods spanning tax years 1985

through 1991 and 1993 through 2001. In the answer the couple filed

with the district court, Haag raised, as an affirmative defense,

her asserted entitlement to "innocent spouse" relief from joint and

several liability under 26 U.S.C. § 6015(b)(1)-(2), (f).

In October 2004, while the initial action against them

was still pending before the district court, the Haags brought a

separate action against the United States in the same court

claiming that they had been denied their statutory right to a

collection due-process ("CDP") hearing. This hearing, in which a

taxpayer appears before the Internal Revenue Service ("IRS") before

she is deprived of her property, is granted as of right under

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26 U.S.C. § 6320. In their filings, the Haags alleged that the IRS

failed to notify them of their right to a CDP hearing. The

district court then consolidated the two actions in December 2004.

In January 2006, the district court entered judgment

against the Haags with regards to the government's collection

action. On the issue of Haag's asserted eligibility for innocent

spouse relief under § 6015, the district court found that the

statutory limitations period and applicable tax regulation --

specifically, the provisions found at § 6015(b)(1)(E) and at Treas.

Reg. § 1.6015-5(b)(1) -- required such claims to be filed with the

IRS within two years after the IRS's first collection action was

taken against the Haags. Because the IRS's efforts to collect on

the Haags' tax liabilities commenced in 1999, the court dismissed

Haag's claim for innocent spouse relief -- first raised in 2002 --

as untimely.

Although the government first conceded that it had failed

to notify the Haags of their right to a CDP hearing and allowed the

Haags to appear before the IRS in a substitute hearing, it later

reversed course when it discovered evidence that it had, in

actuality, sent proper notice. Consequently, on August 1, 2006,

the district court also ruled against the Haags as to their

separate action against the United States. The Haags appealed the

district court's judgment only as to their CDP claim and, on

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April 3, 2007, we affirmed. See Haag v. United States, 485 F.3d 1

(1st Cir. 2007) ("Haag I").

Two more lawsuits involving the Haags are relevant to the

present appeal. First, in the interval between the district

court's August 1, 2006, ruling and our judgment in Haag I, the

Haags filed another suit against the United States, which alleged

that the government had failed to properly notify their attorney of

tax liens against them. This suit was first administratively

closed when Robert Haag filed for bankruptcy, then dismissed due to

the district court's finding that it was barred by res judicata.

Second, Haag, acting on her own, sued the United States claiming

that the IRS had failed to consider a request for innocent spouse

relief that she raised at her substitute CDP hearing in 2005. The

district court also dismissed this claim, reasoning that the Haag

I action barred it due to res judicata.

The Haags then appealed the district court's dismissal of

both cases to this Court. On December 14, 2009, we affirmed the

district court's judgment and endorsed its reasoning that both

actions were barred due to the preclusive effect of final judgment

in the Haag I action. See Haag v. United States, 589 F.3d 43 (1st

Cir. 2009) ("Haag II").

This appeal stems from Haag's renewed efforts to obtain

innocent spouse relief from liability. As we explain further

infra, Haag attempts to avail herself of an intervening change in

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the law that she posits is both applicable and beneficial to her.

Specifically, Haag relies upon Lantz v. Commissioner, 132 T.C. 131

(2009) ("Lantz I"), rev'd, 607 F.3d 479 (7th Cir. 2010), in which

the Tax Court invalidated the Department of the Treasury's

regulation imposing a two-year statute of limitations on § 6015(f)

requests for innocent spouse relief as an improper interpretation

of the statute. Haag filed administrative requests for § 6015(f)

relief with the Commissioner of Internal Revenue relying on Lantz

I in July 2009, which the Commissioner denied in the following year

on res judicata grounds. Haag then filed the present action with

the Tax Court to again assert her request for innocent spouse

relief and to challenge the Commissioner's application of res

judicata principles. In addition, Haag relied upon 26 U.S.C.

§ 6015(g)(2), which lifts the res judicata bar to allow certain

taxpayers' claims for relief in some circumstances, and contended

that her innocent spouse defense could proceed on those grounds as

well.

The Tax Court granted the Commissioner's request for

summary judgment. With regards to Lantz I and the fact that the

Tax Court had eventually invalidated the statute of limitations

that originally rendered Haag ineligible for relief, the Tax Court

reasoned that res judicata generally does not account for changes

in the law and, therefore, Haag's action remained barred. As to

the statutory provisions that would grant a taxpayer relief from

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res judicata, the Tax Court found that Haag did not meet the

requirements for such a dispensation to attach. This timely appeal

of the Tax Court's judgment followed.

II. Discussion

We review the Tax Court's decision to grant summary

judgment de novo. Burke v. Comm'r, 485 F.3d 171, 173 (1st Cir.

2007).

Taxpayers who file joint returns are held jointly and

severally liable for liabilities that flow from those submissions.

See 26 U.S.C. § 6013(d)(3). "Innocent spouse" relief provisions in

the tax code offer a narrow exception to this arrangement. Under

these, the tax code exempts a joint filer who "did not know or have

reason to know that there was an understatement on the tax return"

from joint and several liability. Jones v. Comm'r, 642 F.3d 459,

460 (4th Cir. 2011). Section 6015(f), upon which Haag specifically

relies in this action, allows the Secretary of the Treasury to

relieve an innocent spouse of liability if (1) the totality of the

circumstances make it inequitable for that person to be held liable

and (2) relief is not otherwise available to an individual under

certain related statutory provisions. 26 U.S.C. § 6015(f); see

also Lantz v. Comm'r, 607 F.3d 479, 480 (7th Cir. 2010) ("Lantz

II").

The tax code authorizes the Secretary of the Treasury to

prescribe rules and regulations by which to implement the code's

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provisions. See 26 U.S.C. §§ 6015(h), 7805(a). Acting under his

delegated authority, the Secretary promulgated a regulation

implementing a two-year limiting period during which an individual

may assert a claim for relief under § 6015(f). See Treas. Reg.

§ 1.6015-5(b)(1). Per the regulation, the two-year deadline starts

to run as of the IRS's first action to collect tax liabilities,

e.g., by "issuing a notice of intent to levy on the taxpayer's

property." Lantz II, 607 F.3d at 480.

As noted above, Haag's present action unfolds against a

changed regulatory landscape because, in 2009, the Tax Court

invalidated the two-year statute of limitations on § 6015(f) claims

for relief as an improper interpretation of the tax statute. See

Lantz I, 132 T.C. at 138-40. In doing so, the Tax Court looked to

the other two subsections of 26 U.S.C. § 6015 that provide relief

from liability -- i.e., § 6015(b) and (c) -- and noted that those

provisions expressly incorporated a two-year deadline on a

taxpayer's request for relief. Because § 6015(f) lacked such a

deadline, the Tax Court reasoned that Congress did not intend for

there to be a two-year limit on claims brought under that

subsection. Id.

Our resolution of this appeal hinges on res judicata

principles and the statutorily-recognized exceptions to the same

found at 26 U.S.C. § 6015(g)(2). We are not called upon to pass

judgment on whether the Tax Court's decision to invalidate the

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Secretary of the Treasury's two-year statute of limitations on

innocent spouse claims brought under § 6015(f) was either proper or

correct. We limit our discussion accordingly, but find it

appropriate to note without saying more that the circuit courts of

appeal that have considered those issues have not viewed the Tax

Court's judgment kindly. See Jones, 642 F.3d at 465 (concluding

two-year deadline on § 6015(f) claims "is a reasonable approach to

filling the gap left in § 6015" and "conclud[ing] that it is a

valid regulation"); Mannella v. Comm'r, 631 F.3d 115, 122 (3d Cir.

2011) ("[T]he absence of a statutory filing deadline in subsection

(f) . . . does not require us to conclude that the Secretary cannot

impose a two-year deadline by regulation."); Lantz II, 607 F.3d at

482 (noting "fact that Congress designated a deadline in two

provisions of the same statute and not in third is not a compelling

argument that Congress meant to preclude the [Secretary] from

imposing a deadline applicable to cases governed by that third

provision").

The doctrine of res judicata dictates that "a final

judgment on the merits of an action precludes the parties from

relitigating claims that were or could have been raised in the

prior action." Haag II, 589 F.3d at 45. Res judicata commonly

attaches if three requirements are discernibly present: "(1) a

final judgment on the merits in an earlier action; (2) an identity

of the cause of action in both the earlier and later suits; and (3)

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an identity of parties or privies in the two suits." Havercombe v.

Dep't of Educ. of P.R., 250 F.3d 1, 3 (1st Cir. 2001) (quoting Kale

v. Combined Ins. Co. of Am., 924 F.2d 1161, 1166 (1st Cir. 1991)).

Speaking specifically to the tax liability context, the Supreme

Court has explained that because taxes are assessed annually,

"[e]ach year is the origin of a new liability and a separate cause

of action." Comm'r v. Sunnen, 333 U.S. 591, 598 (1948).

Accordingly, "if a claim of liability or non-liability relating to

a particular tax year is litigated, a judgment on the merits is res

judicata as to any subsequent proceeding involving the same claim

and the same tax year." Id.

It is beyond question that res judicata principles are

applicable in the present action: Haag does not contest -- nor

could she -- that she was party to the government's previous

attempt to reduce to judgment certain tax liabilities that she and

her husband incurred during the same tax years that are at issue

here.

Crucial to Haag's appeal, however, the tax code does

carve out certain narrow exceptions that would permit an innocent

spouse taxpayer to obtain relief even if her claim were otherwise

barred by res judicata. Specifically, under 26 U.S.C. § 6015(g)

(2), a taxpayer may stave off the preclusive effect of a prior

action if she can show "(1) that [her] innocent spouse claim 'was

not an issue' in the prior proceeding and (2) that [s]he did not

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'participate meaningfully' in the prior proceeding." Koprowski v.

Comm'r, 138 T.C. No. 5, 2012 WL 371888, at *8 (Feb. 6, 2012)

(original alterations omitted). As the accentuated conjunction

suggests, a taxpayer must satisfy both factors to lift the bar of

res judicata.

We conclude that Haag meets neither of the § 6015(g)(2)

elements and that she is therefore barred by res judicata from

disputing her asserted entitlement to innocent spouse relief under

§ 6015(f). With regards to the first of the above-cited factors,

we note that Haag's innocent spouse relief request was not only an

issue in the litigation that led to our judgment in Haag I, it was

also addressed in detail by the parties and considered by the

district court. As noted above, Haag raised the issue of her

innocent spouse claims under 26 U.S.C. § 6015 early on, by

asserting them in her answer to the government's complaint in its

tax collection action against Haag and her husband. See Haag II,

589 F.3d at 44. Indeed, as the government correctly underscores,

the points enumerated in this filing under the heading "Request for

Determination as an Innocent Spouse" together comprised the only

affirmative defense that Haag raised in her pleading to the court,

devoting approximately three full pages of a five-page answer to

arguments grounded on § 6015(b)(1)-(2) and § 6015(f). See Deihl v.

Comm'r, 134 T.C. 156, 165 (2010) (noting innocent spouse "relief

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from joint and several liability" was "an issue" where "raised in

the pleadings").

Having failed to satisfy the first § 6015(g)(2)

requirement, Haag's attempt to come under the provision's scope

must fail. We nonetheless address her remaining arguments for the

sake of thoroughness.

Haag expends more effort in contending that she satisfies

the second criterion under § 6015(g)(2) -- i.e., that a taxpayer

requesting relief under the relevant provisions may not have

"meaningfully participated" in prior proceedings that would trigger

res judicata's preclusive effect -- but her arguments on this issue

similarly lack merit. Whether a taxpayer requesting innocent

spouse relief has participated meaningfully in prior proceedings is

determined by looking to the "totality of the facts and

circumstances," see Harbin v. Comm'r, 137 T.C. 93, 98 (2011), but

the Tax Court has listed certain factors -- e.g., "exercising

exclusive control over" conduct in a prior proceeding, "having a

high level of participation" in the same, or previously "having the

opportunity to raise a claim for relief from joint and several

liability" -- as being particularly probative of meaningful

participation, id. We agree with the Tax Court that Haag handily

meets any standard for meaningful participation. In addition to

the above-referenced pleading, the district court's order rejecting

Haag's asserted § 6015 defense lists several filings that Haag

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submitted to the court in her singular capacity as a defendant and

independent of her husband.1 See United States v. Haag, No. Civ.

A 02-12490-REK, 2004 WL 2650274, at *1-2 (D. Mass. Sept. 30, 2004).

In a noteworthy example, Haag filed a detailed memorandum of law in

support of her own motion for summary judgment, which the district

court then carefully considered and rejected. See id. at *2-4

(discussing Haag's asserted innocent spouse exemption from

liability and ruling "as a matter of law that Defendant Haag cannot

prove the elements of her affirmative defense"). Based on her

significant involvement in the Haag I litigation and, particularly,

her repeated attempts to vindicate her individual claims and

defenses we must conclude that Haag "participated meaningfully" in

the prior proceeding and thus fails to satisfy the second

§ 6015(g)(2) factor as well.

Insofar as Haag articulates any arguments that could

forestall this conclusion, she appears to rely on some of the

above-quoted language found in the Tax Court's Harbin decision for

the proposition that, in prior proceedings, she was unable to

"raise a claim for relief from joint and several liability," 137

1
Among these -- and aside from the motion for summary judgment
and corresponding memorandum in support of that motion that are
mentioned above -- the district court's order listed: a statement
of undisputed facts (filed April 16, 2004); an opposition to the
government's motion for summary judgment (filed September 14,
2004); a statement of facts in dispute (filed September 14, 2004);
and a sur-reply regarding her motion for summary judgment (filed
September 29, 2004).

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T.C. at 98, and thus, was precluded from meaningfully participating

in the same. Ultimately, this argument can be further reduced to

the contention that Haag would have been able to more fully

litigate her claims or defenses if her original assertion of

innocent spouse relief eligibility had not been deemed barred by

the applicable two-year statute of limitations. This is, of

course, a nonstarter: at the time Haag raised her initial claim for

innocent spouse relief, the regulatory limitation period for relief

under § 6015(f) had run and the district court in the Haag I

litigation had no choice but to correctly dismiss Haag's claim as

untimely. Whether she could have presented compelling arguments on

the merits at that time or further participated in the litigation

but for the two-year limiting period is of no issue.2 Cf. Lantz

2
In a footnote in her brief, Haag asserts that the policies found
in IRS Notice 2011-70, 2011-32 I.R.B. 135, 2011 WL 3035113
(released July 26, 2011) ("Notice 2011-70"), apply to her. This
notice, issued on the heels of the Seventh Circuit's decision to
reverse the Tax Court's judgment striking down the two-year filing
deadline for § 6015(f) claims found at Treas. Reg. § 1.6015-
5(b)(1), see Lantz II, 607 F.3d at 480, states that going forward,
taxpayers seeking equitable innocent spouse relief from liability
under § 6015(f) will not be subject to a limitations period. We
note that Haag's reliance on the IRS's notice is ineffectual to the
resolution of the present appeal due to the well-settled principle
that res judicata does not allow dispensation for intervening
changes in the law. See Federated Dep't Stores, Inc. v. Moitie,
452 U.S. 394, 398 (1981) ("Nor are the res judicata consequences of
a final, unappealed judgment on the merits altered by the fact that
the judgment may have been wrong or rested on a legal principle
subsequently overruled in another case.").

In any event, we are constrained to agree with the government's
reasoning that the terms of Notice 2011-70 would be inapplicable to
Haag even if her claim were not precluded by res judicata. With

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II, 607 F.3d at 481 ("[A]ny statute of limitations will cut off

some, and often a great many, meritorious claims.").

III. Conclusion

For the above-stated reasons, we affirm the Tax Court's

grant of summary judgment.

Affirmed.

regards to the specific matter of innocent spouse claims that were
adjudicated and rendered final prior to its date of issue, Notice
2011-70 explains that the IRS will not take further collection
activity against a taxpayer if the agency had "stipulated in the
court proceeding that the individual's request for equitable relief
would have been granted had the request been timely." In Haag's
case, the IRS never stipulated that § 6015(f)'s two-year deadline
constituted the sole obstacle to her claim. On the contrary, we
note that in the Haag I litigation, the government argued that Haag
administratively waived her claim by not articulating her request
for relief before the Secretary prior to raising it at the district
court.

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