May 12, 2020 - Douglas Myser

Tax court case lassek memo. The Tax Court held that a wife was entitled to innocent spouse relief that was related to the understatement of tax when her husband reported a 401(k) IRS distribution on a tax return as nontaxable. Although the IRS has conceded that the wife was entitled to the relief, the husband, acting as intervenor, challenged the concession. In general, married taxpayers who file a joint federal income tax return are jointly and severally liable for the tax reported or reportable on the tax return. Tax court case lassek memo.

An election by one spouse under Code Sec. 6015 (c) treats former spouses that filed a joint return as if they had filed separate returns, and each spouse's liability is limited to that portion of the deficiency properly allocable to that spouse. Such an allocation is not permitted, however, if IRS demonstrates that the individual electing relief had actual knowledge, at the time the return was signed, of any item giving rise to a deficiency for portion thereof which is not allocable to that individual.

The husband contended that the wife knew about eh 401(k) plan distribution and her knowledge of it disqualified her form Code 6015 (C) relief. He also contended that the wife may have had "reason to know" about the understatement of tax shown on the return. The Tax Court agreed with the IRS that the wife was entitled to relief under Code Sec. 6015(c). First, the Court pointed out that an issue arises where the burden of proof shifts to the IRS under Code Sec. 6015 (c)(3)(C) in cases when the IRS favors granting relief and the non-requesting party intervenes to oppose it. The Court has previously resolved this issue of burden shifting by deciding the case on a preponderance of the evidence as presented by all three parties (the wife, the husband, and the IRS.)

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