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.
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