On June 18, 2020, the Tax Court issued a Memorandum Opinion in the case of Rogers v. Commissioner (T.C. Memo. 2020-91). The issue before the court in Rogers was whether the petitioner-wife was eligible for innocent spouse relief pursuant to IRC § 6015(b), and, if not, whether she should be granted relief pursuant to IRC § 6015(f).
A (Not So) Beautiful Day in the Neighborhood
The petitioners, Mr. and Mrs. Rogers, have been married for over 50 years. At the time of trial, the petitioners were 78, and “have been and remain devoted to each other.” Though there was stress in their marriage, this was due, in large part to Mr. Rogers being a tax attorney. It appears, from the face of the opinion, that Mr. Rogers was not necessarily a “good” or “effective” tax attorney. In fact, the Tax Court notes that “[d]espite repeated setbacks in tax litigation involving their personal taxes and Mr. Rogers’ tax strategies for his clients, Mrs. Rogers remained confident that Mr. Rogers’ tax positions were correct, without any reasonable basis for that reliance.” Now that’s funny, but it gets better.
The Tax Court does not seem to care for Mr. Rogers, even a little bit. In fact, the Tax Court’s opening salvo against him notes that “Mr. Rogers is a career tax attorney who developed aggressive tax-advantaged transactions over two decades. His strategies have been consistently rejected by this Court and the Court of Appeals for the Seventh Circuit.” See, e.g., Sugarloaf Fund, LLC v. Commissioner, T.C. Memo. 2018-181, aff’d, 953 F.3d 439 (7th Cir. 2020). It does not get much more flattering from here on out, either.
Mrs. Rogers, on the other hand, is (by the court’s estimation and any objective metric) a remarkable woman. The court begins its laudatory remarks by noting “Mrs. Rogers is a very intelligent person with a zest for learning and intellectual pursuits.” Mrs. Rogers graduated with a degree in biochemistry, followed by a masters in biochemistry, an MBA, and then a doctorate in educational administration, and then a law degree from Villanova. “She obtained most of these degrees while being the mother of a son born in 1968 and also being employed.” The court, after a full page of praise, notes (and not so subtly, I might add) that “[i]ndependent of Mr. Rogers, she is a very accomplished person.” But tell us how you really feel, Judge Goeke…
Mrs. Rogers submitted Form 8857 (Request for Innocent Spouse Relief) to the IRS requesting innocent spouse relief for tax year 2011 in September 2014. This relief was denied, and she timely sought review of that denial in her petition to the Tax Court. Unfortunately for Mrs. Rogers, her brilliance belied her naivete as to tax matters (as the Tax Court respectfully sets forth for 8 pages in the findings of fact section of the opinion. She was a sophisticated taxpayer, and a strong, independent woman. That her husband was a bum and a tax-scoundrel wasn’t her fault, but neither did it entitle her to innocent spouse relief under the Code.
Innocent Spouse Relief
In the case of joint income tax return filers, IRC § 6013(d)(3) provides for joint and several liability. A joint filer may seek relief from that joint and several liability pursuant to IRC § 6015 (innocent spouse relief). In order to qualify for innocent spouse relief pursuant to IRC § 6015(b)(1), Mrs. Rogers must establish that, with respect to an understatement of tax “attributable to erroneous items” of Mr. Rogers, that in signing the return, Mrs. Rogers did not actually know, nor did she have reason to know, that there was such an understatement, and that it is inequitable to hold Mrs. Rogers liable for the deficiency for tax, after taking into account all facts and circumstances. Mrs. Rogers alternatively seeks relief under IRC § 6015(f)(1), which provides that a spouse may be relieved of joint and several liability if “taking into account all the facts and circumstances, it is inequitable to hold the individual liable.”
The Tax Court quickly dismisses the possibility for relief under IRC § 6015(b), because Mrs. Rogers knew or should have known about the understatement, thereby violating the requirement of IRC § 6015(b)(1)(C).
To qualify for relief under IRC § 6015(f), Mrs. Rogers must satisfy the threshold conditions set forth in Rev. Proc. 2013-34, § 4.01. First, Mrs. Rogers filed a joint return for the taxable year for which she seeks relief. Second, relief is not available to Mrs. Rogers under IRC § 6015(b) or IRC § 6015(c). Third, the claim for relief is timely filed. Fourth, no assets were transferred between the spouses as part of a fraudulent scheme by the spouses. Fifth, Mr. Rogers did not transfer disqualified assets to the Mrs. Rogers. Sixth, Mrs. Rogers did not knowingly participate in the filing of a fraudulent joint return. Seventh, with enumerated exceptions, the income tax liability from which Mrs. Rogers seeks relief is attributable (in full or in part) to an item of Mr. Rogers.
Although undoubtedly qualifying for relief under the first, second, and third prongs of Rev. Proc. 2013-34’s test, the Tax Court notes that the fourth and fifth prongs are not so easily satisfied by the savvy Mrs. Rogers. The Tax Court observes that as early as 1995 Mr. Rogers began the practice of placing all assets and funds in Mrs. Rogers’ name. Mrs. Rogers is not so innocent in this shifting of assets analysis, either. Even after Mrs. Rogers filed her innocent spouse claim, she transferred a family farm (FMV of $3m) to a trust for her son, over which she was trustee.
Mrs. Rogers’ knowledge of the erroneous items on the joint income tax returns is of special importance. See, e.g., Greer v. Commissioner, T.C. Memo. 2009-20, aff’d, 595 F.3d 338 (6th Cir. 2010). The relentless IRS attack on the tax shelters Mr. Rogers promoted also should not have been lost on Mrs. Rogers. She should have known that further investigation into her joint returns was required than simply taking Mr. Rogers’ word for it. See Hopkins v. Commissioner, 121 T.C. 73, 77-78 (2003).
Ultimately, even the Tax Court’s admiration for Mrs. Rogers as a person does not (nor should it have) carry the day. “While Mrs. Rogers’ blind confidence in her husband evidences her love and devotion, her emotional decision to ignore the facts and circumstances she well knew on an intellectual level is not a lack of knowledge for purposes of IRC § 6015.” The Tax Court opinion concludes by observing that Mrs. Rogers’ “willingness to set aside her intellect to support Mr. Rogers,” however, disqualifies her from relief of her joint tax liabilities.Add to favorites