Equitable Relief Not Available for Innocent Spouse–If You Do Not Look at the Tax Return
Jurries, TC Summary Opinion 2024-6, May 22, 2024
When taxpayers file a joint tax return, both spouses are jointly and severally liable for the entire tax due for that year. However, IRC section 6015(d)(3)(C) provides an exception if there is fraud by one or both individuals, allowing tax liability to be allocated appropriately between the spouses.
In a recent case, a taxpayer with a high school education and a W-2 job, whose employer provided and paid for a work vehicle, faced a tax issue. His wife, who had a college education and also held a W-2 job, handled their tax filings using TurboTax.
After 20 years of marriage, the couple divorced in 2017. While married, they filed joint Forms 1040. Initially, they prepared their returns together, but later the husband would provide his W-2 forms to his wife, who would then prepare and file their returns using TurboTax. For their 2016 joint return, filed in early 2017 while living apart, the wife did not show the completed return to her husband before filing it, nor did the husband ask to see it.
On the 2016 return, they deducted $42,181 as unreimbursed employee business expenses, primarily for the employer-provided vehicle. The IRS later audited the return and disallowed all these deductions. The husband, upon learning this, requested a copy of the return from his ex-wife and sought Innocent Spouse Relief under IRC section 6015(c), which was granted, reallocating the expenses as if they had filed separately.
The husband then petitioned the tax court for equitable relief under IRC section 6015(f) for the portion of the expenses allocated to him, claiming fraud by his ex-wife. Revenue Procedure 2013-34 outlines seven conditions that must be met for equitable relief:
1. The requesting spouse filed a joint return for the tax year in question.
2. Relief is not available under IRC section 6015(b) or (c).
3. The claim for relief is timely filed.
4. No assets were transferred between spouses as part of a fraudulent scheme.
5. The non-requesting spouse did not transfer disqualified assets to the requesting spouse.
6. The requesting spouse did not knowingly participate in filing a fraudulent return.
7. The tax liability from which relief is sought is attributable to the non-requesting spouse’s item or underpayment, barring exceptions like fraud.
The court found that while the taxpayer met the first six conditions, he did not meet the seventh. The court emphasized that the wife did not conceal the return, as the husband could have reviewed it via their TurboTax account. The court stated that IRC section 6015 does not protect a spouse who ignores readily available information.
Additionally, the husband received part of the refund resulting from the disallowed deduction, despite knowing the expenses were not deductible. He could not justify keeping the refund while leaving his ex-wife responsible for the tax deficiency.
Ultimately, the court ruled that the taxpayer failed to establish fraud and did not meet the requirements for equitable relief. This case underscores the importance of reviewing tax returns before filing, as ignorance of their contents cannot shield one from liability.