The experienced tax attorneys at Nardone Law Group in Columbus, Ohio, are committed to keeping taxpayers updated on the Internal Revenue Service’s efforts to collect federal tax liabilities, including advising taxpayers on the various collection alternatives that may be available. These collection alternatives include: (i) offer-in-compromise, (ii) installment agreements, (iii) currently not collectible status, (iv) discharging taxes in bankruptcy, and (v) challenging the underlying tax liability. When taxpayers are contacted by an IRS revenue officer, we recommend that taxpayers thoroughly scrutinize the liabilities to ensure accuracy.
In our prior article on Innocent Spouse Relief, we discussed how one may potentially avoid such tax liabilities if they fulfill the requirements to be considered an “innocent spouse.” Under the pertinent federal law, IRC section 6015, a spouse may seek relief from joint and several liability if they satisfy five conditions. This article will provide a brief overview of these five conditions and will summarize a recent case that provided an analysis of each requirement. To know if you qualify, it is important to carefully review each of the five requirements.
Innocent Spouse Relief Requirements
Under section 6015(b), a qualifying spouse may seek relief from joint and several liability. Taxpayers bear the burden of proving whether they are entitled to relief and are required to satisfy five conditions:
- A joint return was filed for the taxable year;
- There is an understatement of tax attributable to erroneous items of the taxpayer’s spouse;
- The taxpayer establishes that in signing the return, he or she did not know, and had no reason to know, that there was an understatement;
- Taking into account all facts and circumstances, it would be inequitable to hold the taxpayer liable for the relevant deficiency; and
- The taxpayer timely files for relief under section 6015(b).
In determining whether a taxpayer is entitled to relief, the court will thoroughly review the case and relevant facts in their entirety. If the court determines that the spouse has failed to satisfy one or more of the conditions, then the spouse is not entitled to relief from joint and several liability under section 6015(b). These cases can often be complex, however, and the taxpayer is not necessarily liable if they fail to meet the five requirements. The spouse may be able to seek equitable relief under section 6015(f), but this, too, involves a stringent requirement threshold. To better understand the requirement threshold for innocent spouse relief, it is often helpful to review cases that discuss the subject in greater detail. The following recent case, Irene K. Wang, et vir. v. Commissioner, provides an excellent example of a taxpayer who failed to meet the strict innocent spouse relief requirements.
Wife/Former Chemical Engineer/Homemaker Denied Relief
Recently, a Tax Court decision denied a woman innocent spouse relief from joint liabilities for years she and her husband claimed law firm business deductions for personal expenses. The petitioner wife, a homemaker and former chemical engineer, and her husband, a subsequently disbarred attorney, filed joint federal income tax returns for 2007 and 2008, and have continued to file jointly since. The IRS commenced audits of the couple’s 2007 and 2008 returns, and eventually issued notices of deficiency. The IRS determined deficiencies in tax and accuracy-related penalties of nearly $44,000 for the relevant period. The petitioner wife claimed that she met all five of the relevant requirements and should, therefore, be afforded relief as an innocent spouse.
The Tax Court denied her relief, however, concluding that she participated extensively in the firm’s business during the years at issue. Therefore, the court held that she failed to prove that she did not know, or had no reason to know, of the understatement, due to her heavy involvement in the business. Further, the fact that she had a high level of education and chose not to question the husband, regarding the tax filings, weighed heavily against her. Although she claimed that her husband was deceptive and intentionally withheld information from her, the court found no credibility in her testimony, which was constantly contradictory.
The court’s full opinion can be found here: Irene K. Wang, et vir. v. Commissioner
NLG Comment: As you can see, spouses bear a high burden of proof when seeking relief from joint liabilities. It is important to consult with an experienced tax attorney to find out whether you qualify and what options are available.
Contact Nardone Law Group
Nardone Law Group routinely represents individuals and businesses in federal tax issues, including spouses seeking innocent spouse relief. If you have been contacted by an IRS revenue officer and believe you might have a claim for innocent spouse relief, contact one of our tax attorneys today. The tax attorneys at Nardone Law group have vast experience representing clients before the IRS. We will thoroughly review your case and determine what options and alternatives are available.