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Ladehoff v. Commissioner, TC Summ. Op. 2012-15 (February 27, 2012)

David Ladehoff and his wife had a stormy romance and were divorced in 2009. When the IRS assessed a tax deficiency regarding their 2008 joint return, David claimed that he was an “innocent spouse” and should not therefore be liable for the tax. As it turns out, members of his ex-wife’s family had provided childcare for the couple’s children. Although he prepared the return, his wife is the one who provided him with the information about the childcare expenses and he was browbeaten into falsifying the wages paid to his in-laws on Schedule H, resulting in the tax liability. After all, his wife was a bully who had abused him both physically and emotionally. Nonetheless, the IRS denied David’s claim for innocent spouse relief, and the Tax Court agreed.

Background

When a joint return has been filed, innocent spouse relief from the collection of tax related to the return may be available under Code section 6015. There are actually three different types of relief, all of which are taught in enrolled agent courses. Code section 6015(b) provides for the traditional type of relief and is applicable to an understatement of tax attributable to an erroneous item of the non-requesting spouse on a joint return. Additionally, a key fact learned from enrolled agent exam prep on this subject is that the requesting spouse has to show that he or she had no knowledge, or no reason to know, of the understatement at the time he or she signed the return. Although David claimed that his ex-wife falsified the childcare information, he could not prove it. Besides, the understatement was due to his use of the incorrect employment tax percentages applied to the amount of childcare expenses reported, so any misinformation was irrelevant to the liability. To boot, since David prepared the return himself, he could hardly claim that he had no knowledge of the understatement. David could have averted the tax understatement by simply hiring a professional who met tax preparer continuing education requirements to make an accurate tax calculation on the childcare wages. The second type of relief is available under Code section 6015(c) and is often referred to in enrolled agent education courses as “separation of liability.” Although liability on a joint return is joint and several, meaning that the IRS can collect the full amount from either spouse, this provision allows the IRS to apportion liability. The taxpayer must be divorced, legally separated, or living apart for 12 months or more to request this type of relief. As with 6015(b) relief, the requesting spouse must have no knowledge, or reason to know, of the understatement. Again, David is the
one who made the mathematical error on the return that resulted in the tax deficiency, so no separation of liability relief for him. Finally, Code section 6015(f) provides for so-called “equitable relief.” This is sort of a catchall provision that a tax professional who has become an enrolled agent may advise a client to use when the other types of relief do not apply. For example, equitable relief may be available for an underpayment as well as an understatement.  One argument that can be made under this form of relief is that the requesting spouse was subject to abuse and did not challenge the treatment of the items on the return for fear of retaliation from the non-requesting spouse.
David pointed out that he had filed not one, but two police reports against his ex-wife for domestic battery. The court noted, however, that the first incident occurred in July, nearly a year before he filed the return in question. The second did not occur until after the couple was divorced. In both cases David refused to press charges and, more importantly, no allegations of abuse were made during the couple's divorce proceedings. As such, the court determined that David’s abuse did not rise to the level that would reasonably put him in sufficient fear of retaliation to keep him from challenging the items on the return.

Question:

Innocent spouse relief is only available when:

1. A joint return has been filed
2. The taxpayer is divorced
3. The taxpayer knows about the understatement
4. Abuse allegations are made

Answer: a

IRS Circular 230 Disclosure Pursuant to the requirements of the Internal Revenue Service Circular 230, we inform you that, to the extent any advice relating to a Federal tax issue is contained in this communication, including in any attachments, it was not written or intended to be used, and cannot be used, for the purpose of (a) avoiding any tax related penalties that may be imposed on you or any other person under the Internal Revenue Code, or (b) promoting, marketing or recommending to another person any transaction or matter addressed in this communication.

Source: http://fastforwardacademy.blogspot.com/2012/10/tax-court-holds-that-taxpayer-was-not.html

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