Tax Lawyer's Blog

Lois Weiner v. Commissioner – In a 47 page opinion Tax Court Judge J. Paige Marvel affirmed the IRS’s denial of the taxpayer’s request for innocent spouse relief under § 6015(b) and overturned the IRS’s denial of her request for equitable relief under § 6015(f). 

Denial of Innocent Spouse Claim

The IRS argued that the taxpayer had reason to know of the understatement when she signed the joint tax return and, therefore, did not qualify for innocent spouse relief. The Court listed the following factors to be considered in determining whether or  a Requesting Spouse has “reason to know” of an understatement:

Factors to consider in analyzing whether a taxpayer had reason to know of the understatement include: (1) The taxpayer’s level of education; (2) the taxpayer’s involvement in the family’s business and financial affairs; (3) the presence of expenditures that appear lavish or unusual when compared to the family’s past levels of income, standard of living, and spending patterns; and (4) the culpable spouse’s evasiveness and deceit concerning the couple’s finances.

Because the claimed partnership losses were evident on the face of the returns the taxpayer had signed, the court concluded that,

[U]under the facts and circumstances of this case, [the taxpayer] had a duty to inquire regarding the partnership losses claimed on her 1979-81 returns. Because she failed to satisfy her duty of inquiry we find that she had reason to know of the understatements.

Grant of Equitable Relief

The Court properly applied the procedures set forth in Rev. Proc. 2000-15 which lists six positive factors that weigh in favor of granting equitable relief and six negative factors that weigh in favor of denying equitable relief.

Given petitioner’s age, her health, and the financial hardship that she will experience if she is not granted relief under section 6015(f), we conclude on the totality of the record that petitioner qualifies for relief under section 6015(f) and that respondent’s determination to the contrary is in error.

Practice Pointer: Judge Marvel does a marvelous job of explaining how the innocent spouse and equitable relief rules are to be applied. Her opinion should be a permanent addition to the tax practitioner’s library.

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