To print this article, all you need is to be registered or login on Mondaq.com.
The Tax Court in Brief – July 18th – July 22nd,
Tax Litigation: The Week of July 18th, 2022, through July 22nd,
Soler v. Comm’r, T.C. Memo. 2022-78 | July 18, 2022
| Marvel, J. | Dkt. No. 18639-19
Short Summary: In this case,
Jennifer Soler petitioned for innocent spouse relief from joint and
several liability under
26 U.S.C. § 6015(b) or (f) with respect to tax years 2012,
2013, 2014, and 2015. Mrs. Soler and her husband, Carlos Soler,
were married for over 25 years. They have two children together and
have never been legally separated. Mrs. Soler is the primary income
earner. Mr. Soler has a bachelor’s degree in accounting and was
primarily a stay-at-home father during the tax years in issue. Mr.
Soler also operated a consulting business and a real estate
business. The returns in issue were prepared by Mr. Soler and were
signed by both Mr. and Mrs. Soler. Mr. Soler reported the income
and expenses of his consulting and real estate businesses on
separate Schedules C, Profit or Loss From Business. The IRS
informed the Solers that their income tax returns were being
examined. Later, the IRS mailed separate letters and Forms
4549–A, Income Tax Examination Changes for the 2012, 2013,
and 2014 tax years. The IRS later issued a notice of deficiency
that determined a deficiency in tax and a section 6662
accuracy-related penalty for each year. The IRS later performed an
income-matching examination of the Solers’ 2015 tax return and
determined that the 2015 return failed to include in income
distributions from Mr. and Mrs. Soler’s qualified retirement
accounts. So, the IRS issued a notice of deficiency for the 2015
tax year determining a deficiency in tax and a section 6662
accuracy-related penalty. About three years later, the IRS received
a timely Form 8857,
Request for Innocent Spouse Relief, from Mrs. Soler, requesting
relief from joint and several liability for tax years 2012, 2013,
2014, and 2015 pursuant to section 6015(b), (c), and (f). She
claimed that she was unaware of any income tax liabilities until
the IRS began levying against her wages and that she believed Mr.
Soler was unemployed during the years at issue. The IRS
preliminarily denied her request. Mrs. Soler submitted Form
12509, Innocent Spouse Statement of Disagreement, appealing the
IRS’s preliminary determination, and her case was assigned to
the IRS Office of Appeals (Appeals). Mrs. Soler argued that she
relied on Mr. Soler to handle all of the family finances and tax
returns. Appeals issued a final notice of determination, denying
her request for relief. Mrs. Soler timely petitioned the Tax Court,
and the case was tried.
- Whether Jennifer Soler was entitled to innocent spouse relief
from joint and several liability under
26 U.S.C. § 6015(b) or (f) with respect to tax years in
- Jennifer Soler did not meet her burden of proof to receive
relief under section 6015(b) or (f). She had knowledge or reason to
know of the understatements at the time she signed the returns for
the years at issue, and the factors relevant to equitable relief
weighed in favor of the IRS’s determination to hold her liable
for the deficiency.
Key Points of Law:
- Joint Liability. Generally, married taxpayers
who elect to file a joint federal income tax return are jointly and
severally liable for the entire tax liability due on that return.
26 U.S.C. § 6013(d)(3); Butler v. Commissioner, 114
T.C. 276, 282 (2000).
- Relief from Joint Liability. Section 6015
provides three avenues to relief from joint and several liability:
(1) full or partial relief under subsection (b) (general relief
provision applicable to all joint filers); (2) proportionate relief
under subsection (c) (dealing with spouses who are no longer
married, legally separated, or no longer living together); and (3)
if relief is not available to the taxpayer under either subsection
(b) or (c), equitable relief under subsection (f) (equitable
- Review Scope. The Tax Court’s scope of
review is limited to the administrative record established at the
time of the IRS’s determination and any newly discovered or
previously unavailable evidence. 26 U.S.C. § 6015(e)(7).
- The taxpayer requesting relief under section 6015 generally
bears the burden of proving that he or she is entitled to relief.
See Rule 142(a).
- Relief Under Section 6015(b). A taxpayer
requesting this relief must satisfy each of the following
requirements: (1) a joint return was filed for the years at issue;
(2) the returns contain an understatement of tax attributable to an
erroneous item of the non-requesting spouse; (3) at the time of
signing the return, the requesting spouse did not know and had no
reason to know of the understatement; (4) taking into account all
the facts and circumstances, it is inequitable to hold the
requesting spouse liable for the deficiency in tax attributable to
the understatement; and (5) the requesting spouse’s claim for
relief is timely. 26 U.S.C. § 6015(b)(1); Alt v.
Commissioner, 119 T.C. 306, 313 (2002), aff’d,
101 F. App’x 34 (6th Cir. 2004). A taxpayer has knowledge or
reason to know of an understatement if he or she actually knew of
the understatement or if a reasonable person in similar
circumstances would have known of the understatement. Treas. Reg.
- Lack of Knowledge. A spouse lacks actual
knowledge if she is unaware of the circumstances that gave rise to
the error on the tax return. See Bokum v. Commissioner, 94
T.C. 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 receipt of the income. Treas. Reg.
§§ 1.6015-2(c), 1.6015-3(c)(2)(i)(A). In the case of
erroneous deductions, actual knowledge means knowledge of the facts
that made the item not allowable as a deduction. Treas. Reg.
§§ 1.6015-2(c), 1.6015-3(c)(2)(i)(B); see also Price
v. Commissioner, 887 F.2d 959, 963 n.9 (9th Cir. 1989).
- Reason to Know. In determining whether a
requesting spouse had reason to know of an understatement, the Tax
Court considers all of the facts and circumstances. Price v.
Commissioner, 887 F.2d at 965; see also Reg. §
1.6015-2(c). The relief provisions of section 6015 are
“designed to protect the innocent, not the intentionally
ignorant[.]” Dickey v. Commissioner, T.C. Memo.
1985-478, 50 T.C.M. (CCH) 1041, 1046. Thus, the reason to know test
establishes a duty of inquiry on the part of the requesting spouse.
Stevens v. Commissioner, 872 F.2d 1499, 1505 (11th Cir.
1989), aff’g T.C. Memo. 1988-63; Butler, 114 T.C. at
283–84. A spouse who does not fulfill this duty may be
charged with constructive knowledge of the understatement.
Price, 887 F.2d at 965.
- Relief Under Section 6015(f)—Threshold
Determination. Section 6015(f) allows for relief from
joint and several liability in cases where no relief is available
under subparagraph (b) or (c) if, taking into account all facts and
circumstances, it would be inequitable to hold the requesting
spouse jointly and severally liable. 26 U.S.C. § 6015(f)(1);
see Proc. 2013-34, 2013-43 I.R.B. 397, modifying and
superseding Rev. Proc. 2003-61, 2003-2 C.B. 296 (framework for
equitable relief review). Factors to consider: (1) a joint return
was filed for the years at issue; (2) the tax liability from which
the requesting spouse seeks relief is attributable in full or in
part to an item of the non-requesting 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-requesting spouse did not transfer
disqualified assets (as defined by section 6015(c)(4)(B)) to the
requesting spouse; (6) the requesting spouse did not knowingly
participate in the filing of a fraudulent joint return; and (7) the
claim for relief is timely filed.
- Streamlined Relief. Once a taxpayer has
satisfied the threshold conditions, the Tax Court will consider
whether the requesting spouse is eligible for streamlined relief
or, if not, whether he or she qualifies under the full facts and
circumstances test. Rev. Proc. 2013-34, §§ 4.02 and 4.03,
2013-43 I.R.B. at 400–03. Streamlined determinations granting
equitable relief under section 6015(f) are available if the
requesting spouse can establish that he or she (1) is no longer
married to the non-requesting spouse; (2) would suffer economic
hardship if relief were not granted; and (3) lacked knowledge or
reason to know of the understatement at the time the return at
issue was signed. Rev. Proc. 2013-34, § 4.02.
- Facts and Circumstances. If a requesting
spouse is not eligible for streamlined relief, the Tax Court will
next and finally consider the request for relief, taking into
account all the facts and circumstances. Id. §§
4.02 and 4.03. The factors considered include but are not limited
to (1) marital status; (2) economic hardship; (3) knowledge; (4)
legal obligation to pay the tax; (5) the amount of benefit derived
from the understatement or underpayment; (6) compliance with income
tax laws; and (7) mental or physical health. Id. §
4.03; see also Pullins, 136 T.C. at 448–55. Each
factor has its own specific emphasis based on the circumstances,
and the Tax Court generally will apply a reasoning to each relevant
factor, treating each factor as favorable, unfavorable, or neutral
for the relief requested. See Proc. 2013-34, §
4.03(2)(d), 2013-43 I.R.B. at 402.
Insights: Mrs. Soler was not innocent, and the
evidence established that she was, more likely than not,
intentionally ignorant of her and Mr. Soler’s tax situation
with respect to the returns in issue. To obtain equitable relief
under section 6015(f), the taxpayer bears the burden of presenting
evidence to support an array of factors. Each factor is important
to the determination, and the Tax Court will, in performing its
administrative court function, carefully weigh the factors based on
the evidence presented. It is not an easy row to hoe. Mrs. Soler,
being educated and the primary income-earner in the household,
endured quite the uphill battle only to find that her request for
relief would be denied.
The content of this article is intended to provide a general
guide to the subject matter. Specialist advice should be sought
about your specific circumstances.
POPULAR ARTICLES ON: Tax from United States