James v. Commissioner (T.C. Memo. 2021-7)

Posted on January 13, 2021

On January 13, 2021, the Tax Court issued a Memorandum Opinion in the case of James v. Commissioner (T.C. Memo. 2021-7). The issue presented in James v. Commissioner was whether the petitioner was entitled to innocent spouse relief under IRC § 6015(e)(1).

A Tangled Marital Web in James v. Commissioner

The petitioner was married to her husband from 2003 until 2006. Nevertheless, the petitioner lived with her husband in 2010, when the petitioner went through a serious illness. During that time the petitioner’s husband was primarily responsible for the household’s finances. Although they had been divorced for several years at that point, the petitioner’s husband “worked with his accountant to file a joint Federal income tax return” for 2010. Trusting her husband, the petitioner did not review the return before signing it. The IRS issued a refund of $11,000, which was deposited into the petitioner’s husband’s bank account. The IRS audited the return, assessing additional tax of $11,000, and accuracy -related penalty of $2,200, and interest of $400. Because of the liability, although the petitioner would have received refunds in 2014 and 2016, the IRS offset the refunds against the outstanding balance from 2010.

Request for Innocent Spouse Relief

In June 2017, the petitioner sent a Form 8857 (Request for Innocent Spouse Relief) to the IRS with respect to the 2010 assessment, requesting refunds of her 2014 and 2016 overpayments. The tax examiner assigned determined that the petitioner had made and invalid joint return election because they were not married in that year. The examiner, therefore, concluded that innocent spouse relief under IRC § 6015 was unavailable because a valid joint return was a prerequisite. Although the examiner reached this conclusion, he also concluded that the petitioner was entitled to a refund of her 2016 overpayment. (Because the 2014 overpayment was outside the two-year limitations period set forth in IRC § 6511, the examiner did not allow this year’s refund.)

Innocent Spouse Framework

Generally, married taxpayers may elect to file a joint Federal income tax return. IRC § 6013(a). After making the election, each spouse becomes jointly and severally liable for the entire tax due for that taxable year. IRC § 6013(d)(3); Butler v. Commissioner, 114 T.C. 276, 282 (2000). Where, as here, a taxpayer seeks equitable relief under IRC § 6015(f), she may be excused from joint and several liability for the joint tax due upon a showing that it is inequitable to hold her liable. See Pullins v. Commissioner, 136 T.C. 432, 438 (2011). Where the IRS has already collected the tax (or collected some amount of the total tax liability), the taxpayer may request a refund under IRC § 6015(g)(1). See Minihan v. Commissioner, 138 T.C. 1, 8 (2012).

As implied above, the filing of a valid joint return is required for IRC § 6015 relief. See, e.g., Raymond v. Commissioner, 119 T.C. 191, 194 (2002); Abdelhadi v. Commissioner, T.C. Memo. 2018-183, *5. A joint return is one made by “a husband and wife”, ordinarily determined as of the close of the year. See IRC § 6013(a), (d)(1)(A); see also Abdelhadi, T.C. Memo. 2018-183, at *5; Gaitan v. Commissioner, T.C. Memo. 2012-3, *6 (“A joint return may be filed only by a couple that was married as of the last day of the tax year.”).