The Tax Court is becoming a continuation forum for divorce disputes that often  leapfrog from one court to another until tempers eventually burn out or the former spouses run out of money.  In Richard v. Commissioner, T.C. Memo. 2011-144 (June 27, 2011) the issue was whether Petitioner former husband was entitled to relief from joint and several liability on a jointly filed return under Section 6015(c).  Under Section 6015(c) a qualifying joint filer who is no longer married may elect to limit his or her tax liability to the portion of the tax deficiency that is allocable to that individual under Section 6015(d).  The deficiency in this case was attributable to an early distribution to the former wife of proceeds from her 401(k) account. 

A former spouse with actual knowledge, at the time of filing, of an item giving rise to the deficiency is disqualified from making the election under Section 6015(c).  The court has before held that actual knowledge may not be inferred from facts that make it likely the electing spouse knew of the unreported item.  Such inference is made where relief is sought under Section 6015(b) available to married spouses.  It seems fair to disqualify a present spouse for relief if the facts show that he or she had reason to know of the item.  Married spouses live in the same household, communicate daily and have equal access to the mail.  A former spouse does not have those information gathering advantages and therefore should not be imputed knowledge merly because it looks like he or she could have known.  Actual knowledge is required.  The election may be made at any time after a deficiency for such year is asserted but no later than 2 years after the date on which the IRS has begun collection activities against the electing spouse.  The Petitioner-former husband timely filed Form 8857, Request for Innocent Spouse Relief and IRS denied his request for relief.  A Tax Court Petition was filed and the former wife intervened in support of IRS’s denial of relief.  The decision did not state so but I speculate she may have been angry because the tax liability resulted from financial exigencies engendered by the former husband’s medical problems; yet, instead of stepping up to the plate and chipping in, the former husband had retreated to the dugout.

The parties, both appeared pro see and both testified.  As you would image the testimony conflicted.  Former Wife testified:

• Former husband was aware of the distribution
• Former husband was present when she made the online transfer.
• She told him afterwards that they had received the funds.
• The bank statement labeled the deposit, “Fidelity Investm Pension; Susan L. Ellis-Richard.”   
• Former husband had access to and opened the mail (not clear in decision if former wife’s testimony or IRS argument).
• She admitted, before drawing large checks petitioner would ask his former spouse if sufficient funds were on deposit and she would say, “yes we do. You can do that.”

Former husband testified:

• He was unaware of former wife’s request for and receipt of the $50,000 distribution.
• He and his former wife did discuss a possible loan from the 401(k) account.
• Former wife primarily maintained the joint checking account and primarily wrote checks drawn on the account and prepared the bank reconciliations.
• He opened mail coming to the home but put the bank statements aside for his former wife.

 The joint return reported total income of $305,510 of which $275,821 was attributable solely to the former wife.  The $50,000 distribution was less than a 20 percent increase over the former spouses earnings in 2004.  The court found the Petitioner’s testimony more credible than that of his former spouse.  The court found further that the evidence adduced at trial showed that Petitioner may have had reason to know of the $50,000. The weight of the evidence, however, did not support the assertion by IRS that he had actual knowledge.   Thus, the Petitioner was entitled to relief from joint and several liability under Section 6015(c) 

Once again the provisions of Section 6015 turn tax wars into divorce wars.