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Tax Court In Brief | Soler v Commissioner | Innocent Spouse Relief Under 6015(b) And (f) Denied – Tax Authorities

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Tax Litigation: The Week of July 18th, 2022, through July 22nd,
2022

Soler v. Comm’r, T.C. Memo. 2022-78 | July 18, 2022
| Marvel, J. | Dkt. No. 18639-19


Opinion

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.

Key Issues:

  • 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
    issue?

Primary Holdings:

  • 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
    relief).

  • 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.
    § 1.6015-2(c).

  • 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.

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