Tax News

CCH (cch.taxgroup.com) reports:

The IRS abused its discretion in denying a request for equitable innocent spouse relief under Code Sec. 6015(f). The requesting spouse, a former schoolteacher but was not employed when the tax liability arose, relied completely upon the income of her husband, an attorney who was abusing drugs. The husband repeatedly presented their joint return for her to sign at or near the deadline for filing tax returns, keeping her from reviewing the return and telling her that he would pay the taxes due. She was also verbally abused by her husband. Eventually divorce papers were completed (although not filed) by the husband and, after that point, the couple slept in different rooms of a common apartment. By the time of trial, the husband had been disbarred and convicted and imprisoned for fraud and the wife had returned to teaching.
As an initial matter, the Tax Court concluded that it had jurisdiction to review the denial of innocent spouse relief under Code Sec. 6015(e)(1) and could use evidence outside of the administrative record in determining whether the IRS abused its discretion.
With regard to the factors set out in Rev. Proc. 2000-15, 2000-1 CB 448, which applied at the time that innocent spouse relief was requested, the IRS abused its discretion in failing to consider all of the factors required to be addressed in determining whether Code Sec. 6015(f) relief was available. Specifically, the IRS failed to consider whether the couple was still married, whether there was abuse or if a finding of liability would impose economic hardship on the wife. Of the factors the IRS did consider, only the wife's knowledge of the underpayment weighed against relief. Upon a finding of abuse of discretion, the Tax Court could use additional factfinding to determine the proper relief since remand was not available.
The IRS initially determined that the couple's marital status weighed in favor of relief, but in the final notice did not mention the factor at all. However, under the rules of Rev. Proc. 2000-15, the couple were living apart in the same home, and this factor weighed in favor of relief. Further, at the time of trial, the husband was in prison, so the couple was clearly no longer living together.
Abuse was also present in some form, as the wife's credible testimony indicated that she was fearful enough to not inquire further as to their tax debts. The IRS abused its discretion because it failed to follow up on her offers to have statements provided by neighbors regarding the alleged abuse. The IRS also erred in not finding economic hardship present because it based the decision on her failure to provide her husband's economic information, which she was afraid of investigating due to possible retaliation by her husband. Again, using its ability to employ additional factfinding, at the time of trial, the wife's income was barely enough to meet the expenses and she had no means of saving for retirement. Innocent spouse relief was proper because the only factor that ultimately weighed against the wife was her knowledge of the underpayment.
C. Nihiser, TC Memo. 2008-135, Dec. 57,445(M)
Other References:
Code Sec. 6015
CCH Reference - 2008FED ¶35,192.21
CCH Reference - 2008FED ¶35,192.25
CCH Reference - 2008FED ¶35,192.43
CCH Reference - 2008FED ¶35,192.815
Tax Research Consultant
CCH Reference - TRC INDIV: 18,052.20
CCH Reference - TRC INDIV: 18,058

State Headlines

Alabama --Corporate, Personal Income Taxes: Decoupling Legislation Fails to Pass
The Alabama Legislature has adjourned without passing proposed legislation that would have decoupled Alabama corporate and personal income tax laws from the bonus depreciation and IRC §179 asset expense election changes made by the federal Economic Stimulus Act of 2008 (ESA) (P.L. 110-185). The ESA enacted 50% bonus depreciation and increased the dollar and investment limits for the asset expense election for the 2008 tax year. Alabama currently conforms to federal depreciation and asset expense election provisions and will continue to do so. The bill also would have excluded the ESA federal tax rebates from Alabama personal income tax.