IRS Tax Cases, Rulings and Changes in the Federal Law By Lauren G. Hughes Wise & Reber LC
Tax Cases
1. In re Bowman, 632 B.R. 64 (Bankr. E.D. La. 2021) Bowman was a bankruptcy case in which the debtor, a widow, objected to a claim filed by the IRS in the amount of $96,759 by asserting that she qualified for innocent spouse relief under Code Sec. 6015. After the Court walked through (1) the validity of the claim (it was a valid claim) and (2) the burden of proof (because the claim was valid, the dispute for such claim shifted to the debtor), the Court denied the widow’s motion for summary judgment finding that there was a genuine fact dispute as to whether she did in fact qualify for equitable relief under Code Sec. 6015(f). The Court noted: “[A]s a general rule, when married persons file a joint income tax return they become jointly and severally liable for the tax due with respect to that return.” In re Wyly, 552 B.R. 338, 464 [117 AFTR 2d 2016-1508] (Bankr. N.D. Tex. 2016). But “under certain circumstances, such liability could be unfair.” Id. Pursuant to Section 6015(f) of the Internal Revenue Code, a spouse may obtain relief from tax liability if she can establish that under “all the facts and circumstances, it is inequitable to hold [her] liable for any unpaid tax.” Haggerty v. Comm’r, 505 F. App’x 335, 337 [111 AFTR 2d 2013-411] (5th Cir. 2013) (quoting 26 U.S.C. § 6015(f)). “The Commissioner has issued revenue procedures to guide courts in determining whether a requesting spouse is entitled to relief from joint and several liability.” Id. Revenue Procedure 2013-34 provides guidance in this case regarding whether the Debtor is entitled to equitable relief under Section 6015(f) and lists seven general conditions for relief. See Rev. Proc. 2013-34, 2013-43 I.R.B. 397, § 4. Those conditions include (1) The requesting spouse filed a joint return for the taxable year for which she seeks relief; (2) Relief is not available to the requesting spouse under §§ 6015(b) or (c); (3) The claim for relief is timely; (4) No assets were transferred between the spouses as part of a fraudulent scheme by the spouses; (5) The non-requesting spouse did not transfer “disqualified assets” to the requesting spouse as that term is defined in § 6015(c)(4)(B); (6) The requesting spouse did not knowingly participate in the filing of a fraudulent joint return; and (7) The income tax liability from which the requesting spouse seeks relief is attributable in full or in part to an item of the non-requesting spouse or an underpayment resulting from the non-requesting spouse’s income and only to the extent the liability is attributable to the nonrequesting spouse.
8 The REPorTer
In her request for innocent spouse relief, the Debtor attached a copy of her husband’s Certificate of Death, a letter from her family physician addressing the Debtor’s mental health condition, a copy of her Request for Innocent Spouse Relief submitted to the IRS, a copy of Revenue Procedure 2013-34, and a schedule purported to be generated by the IRS listing tax liability amounts which would have been due by the Debtor if the liability had been based solely on her income for the years 2009 to 2013. The Debtor believed that she submitted sufficient evidence that satisfied her burden to demonstrate that no genuine issue of material fact exists regarding her qualification as an innocent spouse under Section 6015(f). While the IRS relied in large part on sworn documents, the IRS asserted that the evidence alone did not absolve the fact that genuine issues of material fact existed as to whether the Debtor qualifies for equitable relief under Section 6015(f). The Court agreed with the IRS and found that insufficient evidence had been presented to determine whether the Debtor, as a matter of law, qualified for equitable relief under Section 6015(f). Although taxpayer submitted the documents outlined above, she failed to satisfy threshold requirements for relief, including regarding whether income tax liability from which she sought relief was attributable in full or in part to item of husband or underpayment resulting from his income. She also failed overall factors test. The key takeaway from Bowman is that when applying for innocent spouse relief, the applicant must take care that each factor listed in Section 6015(f) be carefully met in the application process. 2. Estate of Lee v. Commissioner (TC Memo 2021-92) In a memo opinion, the Tax Court determined that an estate’s executor was personally liable for the estate’s unpaid estate taxes because he made distributions of estate assets knowing that the estate owed the taxes. An executor is personally liable for the unpaid “claims” of the U.S. to the extent the executor distributes assets from the estate when either (1) the estate was insolvent at the time of the distribution, or (2) the distribution rendered the estate insolvent and the executor had knowledge or notice of the U.S.’s claim. 31 USC §3713(b). A “claim” includes an estate’s federal tax liability. In April 2006, the IRS sent Mr. Frese, a licensed attorney who was Executor of the estate of Kwang Lee, a notice of deficiency claiming the estate owed over $1,000,000 in estate tax. Executor promptly filed a petition in the Tax Court disputing the estate tax claim. In February 2007, while the Tax Court case was pending,
