July 29, 2019 - Douglas Myser

Court denies innocent spouse relief. In our ongoing series of tax court related articles, this discusses on particular case, Traci Newburn v. Commissioner of the Internal Revenue Service. The Judge, Buch, designated a bench opinion in an innocent spouse case that highlights some lesser known nuances of the conditions and factors analyzed.  Section 6015(f) requires the analysis of threshold conditions, and then a decision is made after analyzing the factors found in either the streamlined conditions or facts and circumstances test. The court points out that is not bound by those factors, only considers them to be guidelines and makes its decision based on the totality of the facts and circumstances. See Pullins v. Commissioner: 136 21 T.C. 432, 438-439 (2011), and Porter v. Commissioner, 132 T.C. 23. Court denies innocent spouse relief.

These procedures outline seven threshold conditions that a spouse must meet to qualify for relief: (1) the requesting spouse filed a joint return for the taxable year for which relief is sought: (2) the relief is not available to the requesting spouse under section 6015(b) or (c),  (3) the claim for relief is timely filed, (4) no assets were transferred between the 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 the filing of a fraudulent joint return, (7) absent certain enumerated exceptions, the tax liability from which the requesting spouse seeks relief is attributable to an item of the non-requesting spouse or an underpayment resulting from the non-requesting spouse's income.

The first lesser known nuances the IRS Court identifies relate to one of the threshold conditions, specifically the seventh condition, which states, "absent certain enumerated exceptions, the tax liability from which the requesting spouse seeks relief is an underpayment resulting form the non-requesting spouse's income. The nuances are found in the enumerated exceptions. While the record supports the fact that petitioner was not involved in the operation of the business, it is less clear whether petitioner had an ownership interest in the business because she was listed as a 50% owner.

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