Tax Court rules widowed taxpayer not entitled to innocent spouse relief

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By Pat Murphy
Dolan Newswires

A taxpayer was not entitled to “innocent spouse” relief when she learned of a substantial tax liability for a joint return filed after her husband’s death, the U.S. Tax Court has ruled in upholding an assessment of $25,000 for unpaid taxes.

The taxpayer’s husband died in 2006. She elected to file a joint return for the 2006 tax year, even after her accountant informed her that she would be liable for $25,000 in unpaid taxes as a result of her husband taking substantial distributions from his retirement plans before his death. The husband allegedly took the distributions without the taxpayer’s knowledge.

After having second thoughts about her tax liability, the taxpayer filed a petition for innocent spouse relief. Under §6015(f) of the Internal Revenue Code, a spouse or former spouse may be relieved from joint and several liability upon a showing that it would be inequitable to hold the taxpayer liable for any unpaid tax or deficiency.

The court concluded that the taxpayer in this case failed to carry her burden of showing that she was an innocent spouse. Significantly, the court found that the taxpayer would not suffer economic hardship by having to pay the tax liability in light of her monthly income of $8,700 and the fact that she owned her home free and clear of any mortgages.

Moreover, the court found weighing against relief the fact that the taxpayer knew or had reason to know that her husband would not pay the income tax liability.

The court said that the taxpayer “did not know of [her husband’s] income at the time he received it and was not involved in the income-generating activity or the expenditure of most of these funds. She was, however, benefited by the expenditure of a large portion of the funds to pay off the second mortgage encumbering their home. …

“[The taxpayer] knew of the tax liability at the time the return was filed; therefore, this factor weighs against relief.”

U.S. Tax Court. Haggerty v. Commissioner, No. 15589-09. Dec. 5, 2011. Lawyers USA No. 993-3402.