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Tax litigation: The week of July 18, 2022 to July 22, 2022

  • Pettennude c. Comm’r, TC Memo. 2022-79 | July 18, 2022 | Buch, J. | Dekt. No. 636-21L
  • González c. Comm’r, TC Summary Notice 2022-13 | July 18, 2022 | Panuthos, J. | Dekt. No. 1548-19S
  • Rojas c. Comm’r, TC Memorandum 2022-77 | July 18, 2022 | Thorntan, J. | Dekt. No. 7453-19
  • Thompson v. Commissioner, TC Memo. 2022-80 | July 20, 2022 | Lauber | Dekt. 8792-20.

Soler v. Comm’r, TC Memo. 2022-78 | July 18, 2022 | Wonder, J. | Dekt. No. 18639-19


Short summary: In this case, Jennifer Soler sought innocent spouse relief from joint and several liability under 26 USC § 6015(b) or (f) with respect to the 2012, 2013, 2014, and 2015 tax years. Ms. Soler and her husband, Carlos Soler, had been married for more than 25 years. They have two children together and have never been legally separated. Ms. Soler is the main source of income. Mr. Soler holds a bachelor’s degree in accounting and was primarily a stay-at-home dad during the tax years at issue. Mr. Soler also operated a consulting business and a real estate business. The statements in question were prepared by Mr. Soler and signed by Mr. and Mrs. Soler. Mr. Soler reported income and expenses from his consulting and real estate businesses on separate Schedule Cs, Business Profit or Loss. The IRS informed the Solers that their tax returns were being reviewed. Later, the IRS issued separate letters and Forms 4549-A, Income Tax Review Amendments for the 2012, 2013, and 2014 tax years. The IRS subsequently issued a notice of deficiency which determined a deficiency of tax and a penalty related to the correctness of section 6662 for each year. The IRS then conducted an income matching review of the Solers’ 2015 tax return and determined that the 2015 return was not included in Mr. and Mrs. Soler. Thus, the IRS issued a notice of deficiency for the 2015 tax year determining a tax deficiency and penalty related to the accuracy of section 6662. About three years later, the IRS issued a timely received Form 8857, Request for Innocent Spouse Relief, from Ms. Soler, requesting joint and several liability relief for the 2012, 2013, 2014, and 2015 tax years pursuant to Section 6015(b), (c) and (f). She claimed she was unaware of any income tax debt until the IRS began deducting from her paycheck and that she believed Mr. Soler was unemployed during the years in question. The IRS tentatively denied his request. Ms. Soler submitted Form 12509, Innocent Spouse Statement of Disagreement, appealing the IRS’ preliminary decision, and her case was assigned to the IRS Office of Appeals (Appeals). Ms. Soler argued that she relied on Mr. Soler to handle all family finances and tax filings. Appeals issued a Final Notice of Decision, denying his request for relief. Ms. Soler made a timely motion to the Tax Court and the case went to trial.

Key questions:

  • Was Jennifer Soler entitled to innocent spouse relief from joint and several liability under 26 USC § 6015(b) or (f) with respect to the tax years at issue?

Main holdings:

  • Jennifer Soler has failed to meet her burden of proof for relief under section 6015(b) or (f). She knew or had reason to know of the understatements at the time she signed the returns for the years at issue, and factors relevant to equitable relief weighed in favor of the IRS’ decision to hold her liable. of insufficiency.

Main points of law:

  • Joint liability. Generally, married taxpayers who elect to file a joint federal income tax return are jointly and severally liable for all taxes owing on that return. 26 USC § 6013(d)(3); Butler v. Commissioner114 TC 276, 282 (2000).
  • Exemption from Joint Liability. Section 6015 provides three avenues for relief from joint and several liability: (1) full or partial relief under subsection (b) (general safe harbor provision applicable to all joint filers); (2) proportionate relief under paragraph (c) (in respect of spouses who are no longer married, legally separated or no longer living together); and (3) if relief is not available to the taxpayer under paragraph (b) or (c), equitable relief under paragraph (f) (equitable relief).
  • Scope of Review. The scope of the Tax Court’s review is limited to the administrative record established at the time of the IRS decision and any newly discovered or previously unavailable evidence. 26 USC § 6015(e)(7).
  • The taxpayer requesting relief under Section 6015 generally bears the burden of proving that they are entitled to the relief. See Rule 142(a).
  • Relief under Section 6015(b). A taxpayer requesting this relief must meet each of the following requirements: (1) a joint return has been filed for the years in question; (2) the returns contain a tax understatement attributable to an erroneous element of the non-claimant spouse; (3) at the time of signing the statement, the claimant spouse did not know and had no reason to know of the understatement; (4) taking into account all the facts and circumstances, it is unfair to hold the applicant spouse liable for the tax loss attributable to the under-estimation; and (5) the claimant spouse’s request for relief is made in a timely manner. 26 USC § 6015(b)(1); Alt c. Commissioner119 TC 306, 313 (2002), aff’d, 101 F. App’x 34 (6th Cir. 2004). A taxpayer knows or has reason to know of an understatement if he actually knew of the understatement or if a reasonable person in similar circumstances would have known of the understatement. Treasures. Reg. § 1.6015-2(c).
  • Lack of knowledge. A spouse lacks actual knowledge if they are unaware of the circumstances that gave rise to the error in the tax return. See Bokum v. Commissioner94 TC 126, 145–46 (1990), aff’d, 992 F.2d 1132 (11th Cir. 1993). In the case of omitted income, actual knowledge generally means knowledge of the receipt of the income. Treasures. Reg. §§ 1.6015-2(c), 1.6015-3(c)(2)(i)(A). In the case of erroneous inferences, actual knowledge means knowledge of the facts which made the item inadmissible as an inference. Treasures. Reg. §§ 1.6015-2(c), 1.6015-3(c)(2)(i)(B); see also Price v. commissioner887 F.2d 959, 963 n.9 (9th Cir. 1989).
  • Reason to know. In determining whether a claimant spouse had reason to know of an understatement, the Tax Court considers all of the facts and circumstances. Price v. Commissioner887 F.2d to 965; see also Reg. § 1.6015-2(c). Section 6015’s fallback provisions are “designed to protect the innocent, not the intentionally ignorant[.]” Dickey v. Commissioner, Memo TC. 1985-478, 50 TCM (CCH) 1041, 1046. Thus, the criterion of reason to know establishes a duty of investigation on the part of the petitioning spouse. Stevens v. Commissioner872 F.2d 1499, 1505 (11th Cir. 1989), aff’g CT memo. 1988-63; Butler, 114 TC at 283–84. A spouse who fails to fulfill this obligation can be charged with implied knowledge of the euphemism. Price887 F.2d at 965.
  • Relief under Section 6015(f)—Determination of Threshold. Section 6015(f) permits relief from joint and several liability where no relief is available under paragraphs (b) or (c) if, having regard to all facts and circumstances, it would unfair to hold the plaintiff spouse jointly and severally liable. 26 USC § 6015(f)(1); see proc. 2013-34, 2013-43 IRB 397, amending and superseding Rev. proc. 2003-61, 2003-2 CB 296 (framework for reviewing equitable remedies). Factors to consider: (1) a joint return has been filed for the years in question; (2) the tax burden from which the plaintiff spouse claims to be exempted is attributable in whole or in part to an element of the non-plaintiff spouse; (3) relief is not available to the requesting spouse under section 6015(b) or (c); (4) no assets were transferred between the spouses as part of a fraudulent scheme; (5) the Non-Applicant Spouse has not transferred the Disqualified Assets (as defined by Section 6015(c)(4)(B)) to the Applicant Spouse; (6) the applicant spouse did not knowingly participate in the filing of a fraudulent joint declaration; and (7) the claim for relief is timely filed.
  • Streamlined relief. Once a taxpayer has met the threshold conditions, the Tax Court will determine whether the claimant spouse qualifies for simplified relief or, if not, whether he or she qualifies under the full facts and circumstances. Rev. proc. 2013-34, §§ 4.02 and 4.03, 2013-43 IRB at 400–03. Streamlined decisions granting equitable relief under Section 6015(f) are available if the plaintiff spouse can establish that he or she (1) is no longer married to the non-plaintiff spouse; (2) would suffer economic hardship if the relief were not granted; and (3) did not have knowledge or reason to know of the understatement at the time the statement in question was signed. Rev. proc. 2013-34, § 4.02.
  • Facts and circumstances. If a requesting spouse is not eligible for simplified relief, the Tax Court will then and finally consider the request for relief, taking into account all of the facts and circumstances. ID. §§ 4.02 and 4.03. Factors considered include, but are not limited to (1) marital status; (2) economic difficulties; (3) knowledge; (4) legal obligation to pay tax; (5) the amount of benefit arising from the understatement or underpayment; (6) compliance with tax laws; and (7) mental or physical health. ID. 4.03; see also Pullins, 136 TC at 448–55. Each factor has its own particular emphasis depending on the circumstances, and the Tax Court will generally apply reasoning to each relevant factor, treating each factor as favorable, unfavorable or neutral to the relief sought. See proc. 2013-34, § 4.03(2)(d), 2013-43 IRB at 402.

Knowledge: Ms. Soler was not innocent and the evidence established that she was, more likely than not, intentionally unaware of her and Mr. Soler’s tax status with respect to the statements at issue. To obtain equitable relief under section 6015(f), the taxpayer bears the burden of presenting evidence to support a range of factors. Each factor is important to the determination, and the Tax Court, in exercising its function as an administrative tribunal, will carefully weigh the factors based on the evidence presented. It’s not an easy line to hoe. Ms Soler, being educated and the main breadwinner in the household, endured an uphill battle only to find that her claim for compensation would be denied.

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