Articles Posted in Innocent Spouse

Published on:

Hardin v. Comm’r, T.C. Memo. 2016-141, 2016 WL 4006806 (2016)

Facts: Husband and wife were married in During the marriage, the husband was partner in a law firm, and he also ran a sports management business. The wife was owner and president of a financial planning company. The husband was not involved with the operation of the wife’s business.

For 2009 and 2010, the parties filed joint tax returns.

Husband and wife were divorced in Missouri in 2011. Their divorce decree incorporated the settlement agreement, which gave each party all of the assets and liabilities of their respective businesses, and required each party to hold the other harmless from all business debts. There is no suggestion that the wife claimed any form of abuse in the divorce case.

The IRS examined the 2009 and 2010 returns, and found deficiencies. Some of these deficiencies arose from the husband’s law firm, and some arose from the wife’s financial planning business. Each party filed a petition for innocent spouse relief. The IRS agreed that each party was entitled to relief from liability for tax problems attributable to the other’s business.

The wife then filed an additional petition for innocent spouse relief from taxes attributable to her own business. In this petition, she argued for the first time that she was abused by the husband.

Issue: Is the wife entitled to innocent spouse relief from taxes arising from operation of her own business?

Answer to Issue: No

Summary of Rationale: The only issue before the court was discretionary innocent spouse relief under 6015(f). The seventh threshold condition normally requires proof that the tax liability is attributable at least in part to property or income of the nonrequesting spouse. The taxes at issue were on the wife’s business, so the seventh condition was facially not met. Continue reading →

Published on:

13062458_1042739802458603_2436945721037467362_n

By: Dana M. Horlick, Attorney, Woodruff Family Law Group

 

Hollimon v. Comm’r, T.C. Memo. 2015-157, 2015 WL 4747779 (2015)

(a) Facts: During their marriage, the parties established and worked for a business providing temporary staffing to hospitals. The wife testified that the husband ran the business and she was an employee. The husband testified that the parties ran the business together.

“Unfortunately, Ms. Hollimon and Mr. Al Bakari’s relationship has been rife with abuse. The abuse has not been one sided; it has been perpetrated by both parties, and each of them has requested restraining orders against the other at various times.” 2015 WL 4747779, at *1.

The business was run out of the parties’ home. On their joint tax return for 2009, the parties claimed a credit for business use of their home. The wife testified that the husband prepared the return, and that she was scared to question it because of the risk of abuse. The husband testified that both parties prepared the return.

The IRS disallowed a portion of the credit for the business use of the parties’ home and assessed a deficiency. The wife filed Form 8857, seeking discretionary innocent spouse relief. The IRS denied relief and the wife appealed to the Tax Court. The Ihttps://www.woodrufflawfirm.com/domestic-violence.htmlRS conceded that the wife was entitled to relief, but the husband intervened and opposed relief.

(b) Issue: Was the wife entitled to discretionary innocent spouse relief?

(c) Answer to Issue: Yes.

(d) Summary of Rationale: The wife met all threshold conditions except the last one, whether the tax at issue was attributable to income of the nonrequesting spouse. It was disputed whether the business income was attributable to the wife. But the court held that the dispute did not matter, because abuse is a recognized exception to the last condition, and abuse was present on the facts:

Continue reading →

Published on:

13062458_1042739802458603_2436945721037467362_n

By: Dana M. Horlick, Attorney, Woodruff Family Law Group

 

Sapp v. Comm’r, T.C. Memo. 2015-143, 2015 WL 4639260 (2015)

(a) Facts: The IRS assessed deficiencies on a husband and wife’s joint income tax returns for 2004, 2006, and 2008. The parties appealed to the Tax Court, and the wife sought both mandatory and discretionary innocent spouse relief. The IRS conceded that relief was appropriate, but the husband argued otherwise.

The tax at issue arose from the husband’s plumbing business, for which the wife served as bookkeeper. There was a history of domestic abuse in the marriage going back to 2002. The parties had been separated multiple times, and the wife spent time living in a domestic violence shelter.

At the time of the Tax Court hearing the parties were separated but not yet divorced. The wife had little income and was receiving food stamps.

(b) Issue: Was the wife entitled to innocent spouse relief?

(c) Answer to Issue: Yes.

(d) Summary of Rationale: Because the wife served as bookkeeper for the business, she knew of the tax matters at issue, and she was not eligible for mandatory innocent spouse relief.

For discretionary innocent spouse relief, there is an exception to the knowledge requirement in cases of abuse. The court summarily held that abuse was present, so the threshold conditions were met.

Continue reading →

Published on:

13062458_1042739802458603_2436945721037467362_n

By: Dana M. Horlick, Attorney, Woodruff Family Law Group

 

Agudelo v. Comm’r, T.C. Memo. 2015-124, 2015 WL 4086310 (2015)

(a) Facts: A husband and wife filed a joint tax return for tax year 2010. The return did not report as income certain unemployment benefits received by the husband. The IRS discovered this fact and assessed a deficiency.

The husband filed a request for innocent spouse relief. In support of that request, he testified that the wife had taken the benefit checks without his knowledge. The wife intervened and testified that she never opened the husband’s mail for him. By the time of trial, the parties were separated, though not yet divorced.

(b) Issue: Was the husband entitled to innocent spouse relief?

(c) Answer to Issue: No.

(d) Summary of Rationale: One of the threshold conditions for innocent spouse relief is proof that the tax at issue is based upon the nonrequesting spouse’s income. The tax at issue here was based upon the husband’s own income.

Continue reading →

Published on:

13062458_1042739802458603_2436945721037467362_n

By: Dana M. Horlick, Attorney, Woodruff Family Law Group

 

Palomoares v. Comm’r, T.C. Memo. 2014-243, 2014 WL 6778542 (2014)

(a) Facts: A husband and wife lived in Washington State. The wife was not fluent in English and mostly spoke Spanish.

The parties separated in 2005, and the wife filed sole tax returns for 2006 and 2007, claiming refunds. The IRS rejected the wife’s claims, as it seized the amount of her refunds to satisfy unpaid tax liability from the parties’ joint 1996 tax return.

When the wife did not receive the refunds, a legal clinic helped her to file Form 8379, Injured Spousal Allocation, which is aimed at allocation of liability on a joint tax return by an injured spouse.  The IRS rejected the form, informing the wife by letter that she needed to file Form 8857 to seek innocent spouse relief. The wife did not do this, but she barely spoke English and could not understand the letter.

Throughout this period, the wife was abused physically by the husband, her father in Mexico was seriously ill, and her wages were garnished because of the husband’s business activities. These problems caused the wife to suffer from depression, which was treated with medication.

The parties were divorced in 2010. The wife’s divorce attorney learned that the wife’s 2006 and 2007 refunds had been applied to the 1996 liability. With her attorney’s help, she finally filed Form 8857, seeking innocent spouse relief.

The IRS initially indicated an intent to deny the wife’s claim under its former policy regarding the two-year statute of limitations. After the IRS’s policy changed, it did not do this. Instead, it granted innocent spouse relief, but only with regard to payments made within two years of the filing of Form 8857. The wife appealed to the Tax Court, arguing that she should obtain relief retroactive to her filing of Form 8379.

Continue reading →

Published on:

13062458_1042739802458603_2436945721037467362_n

By: Dana M. Horlick, Attorney, Woodruff Family Law Group

 

Johnson v. Comm’r, T.C. Memo. 2014-240, 2014 WL 6676824 (2014)

(a) Facts: During her marriage, the wife owned and operated a dental practice. The parties filed a joint tax return in 2007, which correctly reported the tax due, but the parties had financial problems and were not able to pay the tax.

In 2010, the parties were divorced in California. Their settlement agreement provided that they would share tax debts equally.

The wife suffered from bipolar disorder, which she was able to manage successfully with medication.

The wife filed a request for innocent spouse relief from the 2007 tax liability. The IRS denied that request, and the wife appealed to the Tax Court. The husband intervened to oppose relief.

(b) Issue: Was the wife entitled to innocent spouse relief?

(c) Answer to Issue: No.

(d) Summary of Rationale: The last of the seven threshold conditions for granting innocent spouse relief provides that the tax at issue must be based upon the income of the nonrequesting spouse. That condition was not met; the tax was attributable to the income from the wife’s dental practice.

Continue reading →

Published on:

13062458_1042739802458603_2436945721037467362_n

By: Dana M. Horlick, Attorney, Woodruff Family Law Group

 

Observations:

  1. If the Tax Court asks for briefs, it is probably a good idea to file

 

  1. The husband’s attempt to argue duress was Duress occurs when consent is obtained through improper threats. The husband was in contempt of the state court divorce decree for various acts of noncompliance, including nonpayment of the very taxes at issue. The state court had every right to insist that he comply with the settlement agreement, as incorporated into the decree. There were no improper threats.
  1. The court’s statement that the wife “could . . . write checks for personal expenses but needed permission from intervenor to make purchases,” 2014 WL 6645592, at *3, is a little A check written for personal expenses is often a purchase, so this statement was ambiguous. Since the account was in the name of the husband’s business, the author assumes that the wife’s control over the account was limited. But she might have had considerable control if the definition of “personal expenses” was sufficiently broad. This point is not addressed in the opinion.
  1. The court’s finding that the wife had reason to know of the tax problem is troubling.

Continue reading →

Published on:

13062458_1042739802458603_2436945721037467362_n

By: Dana M. Horlick, Attorney, Woodruff Family Law Group

 

Demeter v. Comm’r, T.C. Memo. 2014-238, 2014 WL 6645592 (2014)

(a) Facts: A husband and wife were  married. During the marriage, the husband started a business, Sunshine Framing and Finishing (“Sunshine”). The wife was added as a vice president in 2008. She ran errands for the company and helped with its bookkeeping, but did not receive a salary. Sunshine’s bank account was used for personal expenses as well as business expenses; the parties had no individual bank accounts.

The husband retained an attorney to file the parties’ joint tax returns for 2004, 2005, and 2006, which were filed late in 2008. The wife never met the attorney, and signed the returns without reading them.

The returns reported tax due, which the husband did not pay. The wife was not aware that tax was due until the IRS began collection proceedings. She confronted the husband about the tax debts, and he promised to pay them. The parties eventually filed bankruptcy.

Shortly before the end of the bankruptcy case, the parties were divorced in Florida. The divorce decree incorporated a separation agreement, in which the husband agreed to pay all outstanding tax debt.

The husband failed to comply with the agreement, and was held in contempt by a Florida court. As part of the contempt proceedings, he signed an Affidavit For IRS Innocent Spouse Determination, reaffirming that he was responsible for all back taxes.

Continue reading →

Published on:

13062458_1042739802458603_2436945721037467362_n

By: Dana M. Horlick, Attorney, Woodruff Family Law Group

 

Hammernik v. Comm’r, T.C. Memo. 2014-170, 2014 WL 4119398 (2014)

(a) Facts: A husband and wife were divorced in Wisconsin. In 2003, before the divorce, the husband’s business encountered hard times, and he withdrew $104,909 from his personal retirement account to pay living expenses.

The parties filed a joint income tax return for 2003. They reported the withdrawn retirement funds as income, and returned tax due of $15,058, but failed to pay this amount.

The divorce decree left the parties equally responsible for paying all federal tax debts.

The husband paid more than half of the tax debt, and sought innocent spouse relief from the remainder. The IRS granted only partial relief, and no relief from the tax on the retirement withdrawal. The husband appealed to the Tax Court.

(b) Issue: Was the husband entitled to innocent spouse relief from the tax on the retirement withdrawal?

(c) Answer to Issue: No.

Continue reading →

Published on:

13062458_1042739802458603_2436945721037467362_n

By: Dana M. Horlick, Attorney, Woodruff Family Law Group

 

Varela v. Comm’r, T.C. Memo. 2014-222, 2014 WL 53656631 (2014)

(a) Facts: A husband and wife filed joint tax returns for 2007 and 2008. The IRS assessed deficiencies. The wife petitioned the Tax Court for innocent spouse relief, and the husband intervened, asking the court to deny the request. The court asked for briefs, and the husband failed to file one, but the court addressed the issues nevertheless.

The parties kept separate bank accounts during the years in question. The husband owned a business, JL Unique Homes, Inc. (“JL Unique”). The wife was initially a director but never did work for the company. She did, however, assist its office manager in organizing the company’s paperwork.

The tax issue arose when the husband used certain business funds for personal purposes. The wife did not know of this use initially. The parties separated in 2009, and the wife did learn of the use during divorce proceedings.

(b) Issue: Was the wife entitled to innocent spouse relief?

(c) Answer to Issue: Yes.

(d) Summary of Rationale: The IRS agreed that the wife was entitled to innocent spouse relief, so the only party objecting was the husband. The husband argued that the tax problem was partly attributable to the wife’s conduct, and that the wife should have known that the tax had not been paid.

Continue reading →