Innocent Spouse Relief In The 5th Circuit
The recession causes a lot of pain and a lot of bad consequences - divorce, foreclosure, bankruptcy, loss of income - the list goes on and on.
This recession is the recession that just keeps giving and giving.
Or maybe I should say reveals new victims everyday.
Divorce is particularly bad because it comes with many side effects - one of which is the family tax bill.
The classic scenario is this: Husband was self employed and the wife is a stay at home mom, or employed in a completely different profession.
Husband loses business, causing trouble at home.
Divorce ensues.
Shortly thereafter ex-husband and wife get a huge tax bill as a result of "questionable" business deductions.
Under the right circumstance, a divorced wife can claim innocent spouse relief under IRC Section 6015(c), Procedures to Limit Liability for Taxpayers No Longer Married.
The liability asserted by the IRS in this case arises from unsubstantiated deductions.
IRC Section 6015(c)(3)(C) provides that the Secretary (IRS) has the burden to demonstrate that taxpayer had actual knowledge of the items giving rise to the deductions at the time the returns were signed.
According to the Fifth Circuit, in order to carry this burden, the Commissioner (IRS) must prove by a preponderance of the evidence that the ex-wife had actual knowledge of any item giving rise to a deficiency.
See Cheshire v.
Commissioner, 282 F.
3d 326, 335 (5th Cir.
2002) cert.
denied.
Meeting that burden requires that the Commissioner establish, by a preponderance of the evidence, that the ex-wife had actual knowledge of all of the deductions claimed on their returns, and that some of the deductions were in fact not supported by any documentation.
In essence, the ex-wife would have to have had actual knowledge of the ex-husbands business activities, his bank accounts, his business records, and his business expenses.
Significantly, meeting the burden also requires that the ex-wife participated in the preparation of the tax return, including plugging in the unsupported entries into the return.
Innocent spouse relief is heavily fact and circumstance based.
What are the facts of the running the business? Having the ex-wife on the business bank account is not determinative.
Who wrote the checks? Did the ex-wife have any role in the business? Who is responsible for the deductions? Putting a lot of effort into an initial statement is well worth the time and expense.
Build your case and support with the law.
Point out to the revenue officer that he or she is bound by the law of the Federal Courts, not their IRS procedures.
One final note - don't be afraid to appeal an adverse decision to the revenue officers superior or the appeals section.
A well reasoned brief and factual statement might find a more receptive audience higher up the ladder.
This recession is the recession that just keeps giving and giving.
Or maybe I should say reveals new victims everyday.
Divorce is particularly bad because it comes with many side effects - one of which is the family tax bill.
The classic scenario is this: Husband was self employed and the wife is a stay at home mom, or employed in a completely different profession.
Husband loses business, causing trouble at home.
Divorce ensues.
Shortly thereafter ex-husband and wife get a huge tax bill as a result of "questionable" business deductions.
Under the right circumstance, a divorced wife can claim innocent spouse relief under IRC Section 6015(c), Procedures to Limit Liability for Taxpayers No Longer Married.
The liability asserted by the IRS in this case arises from unsubstantiated deductions.
IRC Section 6015(c)(3)(C) provides that the Secretary (IRS) has the burden to demonstrate that taxpayer had actual knowledge of the items giving rise to the deductions at the time the returns were signed.
According to the Fifth Circuit, in order to carry this burden, the Commissioner (IRS) must prove by a preponderance of the evidence that the ex-wife had actual knowledge of any item giving rise to a deficiency.
See Cheshire v.
Commissioner, 282 F.
3d 326, 335 (5th Cir.
2002) cert.
denied.
Meeting that burden requires that the Commissioner establish, by a preponderance of the evidence, that the ex-wife had actual knowledge of all of the deductions claimed on their returns, and that some of the deductions were in fact not supported by any documentation.
In essence, the ex-wife would have to have had actual knowledge of the ex-husbands business activities, his bank accounts, his business records, and his business expenses.
Significantly, meeting the burden also requires that the ex-wife participated in the preparation of the tax return, including plugging in the unsupported entries into the return.
Innocent spouse relief is heavily fact and circumstance based.
What are the facts of the running the business? Having the ex-wife on the business bank account is not determinative.
Who wrote the checks? Did the ex-wife have any role in the business? Who is responsible for the deductions? Putting a lot of effort into an initial statement is well worth the time and expense.
Build your case and support with the law.
Point out to the revenue officer that he or she is bound by the law of the Federal Courts, not their IRS procedures.
One final note - don't be afraid to appeal an adverse decision to the revenue officers superior or the appeals section.
A well reasoned brief and factual statement might find a more receptive audience higher up the ladder.
Source...