The Innocent Spouse case of the month is Wickman v. Commissioner, T.C. Summary Opinion 2012-8 (January 25, 2012). This case was heard under the Small tax case procedures, elected by the petitioner under Section 7463, and may not be cited as precedent for any other case. Nonetheless, it is one of those cases that you read and wonder, what was IRS thinking? It also is case that illustrates how the right of a spouse to intervene under Section 6015(e) (4) impacts Tax Court review of innocent spouse denials.
Why did initially deny Sherry Wickman’s request for equitable relief under Section 6015(f)? Let’s look at the facts as stipulated and found by the court:
- She was married to Kevin Wickman in 1990.
- They separated in 2004 and lived apart thereafter.
- They divorced in 2006.
- They filed a joint return for 2005 and the return showed a balance due.
- Sherry is profoundly deaf and speech impaired and communicates by signing.
- Her highest level of education was 12th grade at a vocational school.
- She was unemployed at the time of trial.
- She received no alimony or support of any kind from Kevin.
- She supported herself and three children only on Social Security.
- She had substantial non-tax debt, did not own a car and uses public transportation.
- Her living expenses equaled or exceeded her income.
- She’d attempted to communicate with the return preparer before signing the joint return to explain that she no longer lived with Kevin but her attempt, probably due to her condition, resulted in confusion and misunderstanding. This may have led her to ultimately sign the joint return.
- She credibly testified that at the time the return was filed she’d thought Kevin would pay the tax.
- After the return was filed, Kevin began making payments on the balance due.
- Kevin earned substantially more than Sherry in 2005 and continued to be employed in 2006 when the joint return was filed.
- The unpaid liability in the return arose from Kevin making an early withdrawal from his retirement account in 2005 to pay a criminal attorney representing him against child abuse charges for criminal sexual conduct involving his daughter.
- Kevin in 2007 was convicted and incarcerated in a Michigan prison.
- Once in jail, Kevin ceased making payments to IRS on the 2005 liability.
- Sherry filed Form 8857 in August 2008.
- IRS denied the equitable relief request in April 2009.
What was IRS thinking? The decision does not state why IRS denied the request for equitable relief. After the petition was filed, however, IRS District Counsel undoubtedly realized the lack of merits for its denial, and a stipulation was entered that Petitioner was entitled to equitable relief from joint and several liability on the 2005 return as well as to refund of amounts she’d paid through voluntary payments and offsets on the tax liability for 2005.
Absent, Kevin’s intervention under Rule 325(b), the case would have been over. But, Kevin, objected to Sherry being released from joint and several liability. His argument was that she better able to pay the liability than he. The court finding that argument irrelevant, reviewed the IRS guidelines under then governing Rev. Proc. 2003-61, finding further that Sherry met all of the 7 threshold conditions in Section 4.01 of the Rev. Proc. and the 3 conditions under Section 4.02 under which the Rev. Proc. states IRS will ordinarily grant equitable relief (divorced, had no reason to know the tax would not be paid and would suffer economic hardship if not granted relief).
Thus, the court made an ultimate finding that Sherry was entitled to equitable relief and entered its decision giving effect to the stipulation between Petitioner and IRS.
© 2012 by Robert S. Steinberg, Esquire
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