In Welwood v. Comm’r, T.C. Memo. 2019-113, the Tax Court held that a Texas woman did not meet the criteria for equitable relief because she was not able to show sufficient economic hardship and that there was evidence she knew or should have known about the unpaid liabilities.
Taxpayer was born in 1944. She completed two years of college. Taxpayer got married on March 25, 1973 and remained married until September 24, 2017.
Taxpayer suffers certain health conditions that have been with her since birth. Other health problems are age related but have not prevented her gainful employment and are not unusual.
Between 2008 and 2015, taxpayer and her ex-husband filed joint returns which had unpaid tax liabilities of over $200,000.
In response to a Letter 1058, Final Notice of Intent to Levy and Your Right to a Hearing, taxpayer requested an appeals conference. She also filed Form 8857, Request for Innocent Spouse Relief.
After the IRS denied innocent spouse relief, taxpayer petitioned the Tax Court.
Criteria for innocent spouse relief of unpaid tax liability
If a joint return is filed each spouse is jointly and severally liable for the entire tax due for that year. A requesting spouse may be relieved from joint and several liability under section 6015 if certain conditions are met.
Section 6015(f) grants the Commissioner discretion to relieve an individual from joint liability that arises from an underpayment of tax reported as due on a joint return.
The requesting spouse must meet seven threshold requirements to be considered for relief under section 6015(f).
- the requesting spouse filed a joint return for the taxable year for which relief is sought;
- relief is not available to the requesting spouse under section 6015(b) or (c);
- the claim for relief is timely filed;
- no assets were transferred between the spouses as part of a fraudulent scheme;
- the nonrequesting spouse did not transfer disqualified assets to the requesting spouse;
- the requesting spouse did not knowingly participate in the filing of a fraudulent joint return; and
- absent certain enumerated exceptions, the tax liability from which the requesting spouse seeks relief is attributable to an item of the nonrequesting spouse
Rev. Proc. 2013-34, sec. 4.03, provides a list of nonexclusive factors to be weighed by the Commissioner in making a decision.
- marital status (i.e., do the spouses remain together?),
- economic hardship,
- knowledge or reason to know of the understatement by the requesting spouse,
- legal obligation arising from a divorce decree or other binding agreement,
- significant benefit gained by the requesting spouse,
- compliance with income tax laws, and
- mental or physical health at the time of filing the request for relief.
No single factor is determinative, and all factors are considered and weighted appropriately.
Because this case involves underpayments of reported liabilities, an important factor is whether the requesting spouse knew or had reason to know that the other spouse would not pay the reported liabilities.
The court finds that while taxpayer met the threshold conditions to be considered for relief, she did not meet the equitable factors to obtain relief.
Specifically, the court finds that:
- Taxpayer has not shown such economic hardship as would favor relief. Certain of taxpayer’s health problems have been with her from birth. With respect to taxpayer’s age-related health issues, they have not prevented her gainful employment and are not unusual.
- The court believes the evidence shows that taxpayer knew that her ex-husband would not and could not pay the reported liabilities. She cannot obtain relief from liability by refusing to read her mail or look at their joint returns.
The court denies taxpayer’s request for innocent spouse relief and sustains IRS appeals officer’s notice of determination.