Innocent Spouse Determination

03 Aug Innocent Spouse Determination

Here are my notes on reviewing Wendy W. Bozick v. Commissioner
TC Memo 2010-61 regarding innocent spouse relief.

The issues of disagreement are whether Wendy:

• Knew her husband would not pay the tax liability.
• Will suffer economic hardship if she is not relieved of the joint tax liability.
• Benefited from the failure to pay the 2003 income tax.
• Made a good faith effort to comply with the income tax laws.

When Wendy’s husband Gary died in 2006, Wendy received a $750,000 proceed from his life insurance policy. She also smartly filed a Form 8857, Request For Innocent Spouse Relief, in February 2007 asking for relief from the 2003 joint tax liability. In July 2007, the IRS sent Wendy a letter denying her request. The IRS stated she did not qualify for relief under §6015(f). In the summer of 2008, the IRS seized Gary’s 401(k) account of $145,000 to pay the 2003 joint tax liability. That hurt.

Two factors support relief for Wendy, her marital status and her lack of significant benefit. Since Gary (husband) was dead at the time the IRS made its innocent spouse determination, the marital status factor weighs in favor of granting relief. Wendy did not receive significant benefit for not paying the 2003 income tax liability. This factor weighs in favor of relief. The additional factor that she was browbeaten by her husband to sign the joint return without being allowed to examine the return weighed heavily in her favor as well. So although she had reason to know the 2003 income tax liability would go unpaid, the Court found relief was in order.