Paul L. Caron
Dean



Tuesday, April 17, 2007

Idaho Tax Clinic Wins Innocent Spouse Tax Court Case

Mcintosh IdahoDeborah R. McIntosh, Supervising Attorney in the University of Idaho College of Law Tax Clinic, scored a major victory in the Tax Court yesterday.  In a 33-page opinion in Scott v. Commissioner, T.C. Summ. Op. 2007-57 (4/16/07), Judge Dawson held that the IRS abused its discretion in refusing to grant innocent spouse relief to the former wife of an accountant:

Mr. Scott prepared their joint Federal income tax returns for 1975 through 2000, all the tax years of their marriage. Each year, on or before the April 15 due date, Mr. Scott would place the Federal and State returns before petitioner and instruct her exactly where to sign each return. Petitioner did not fill in the date next to her signature; Mr. Scott did. Because Mr. Scott was an accountant and provided bookkeeping records and services and prepared tax returns for others, petitioner trusted him to properly complete their tax returns, and she did not review them. ...

The Scotts lived in California from 1990 through 1994. Petitioner moved to Idaho in late 1994 or early 1995. Mr. Scott remained in California. He filed for bankruptcy in 1995, after petitioner moved to Idaho. During the bankruptcy proceedings, petitioner learned that she and Mr. Scott owed income taxes for past years. Mr. Scott told petitioner that they could take care of the taxes in the bankruptcy proceedings. ...

Petitioner and Mr. Scott were divorced in January 2001. A few months before the divorce, Mr. Scott confessed to petitioner that he had been paying prostitutes during the last 14 years of their marriage. ...

Mr. Scott remarried after he was divorced from petitioner. Petitioner married Mr. Smith in 2002. ...

Petitioner, Mr. Smith, and Mr. Scott and his new wife met with petitioner’s clergyman, a bishop of the Church of Jesus Christ of Latter-Day Saints (the LDS Church). Mr. Scott told the bishop that he had filed erroneous Federal income tax returns and had kept that fact from petitioner and that he put the returns in front of petitioner and told her where to sign. At the bishop’s suggestion, Mr. Scott agreed to write a letter to the IRS exonerating petitioner. Mr. Scott never sent the letter. ...

Having observed petitioner’s appearance and demeanor at trial, we find her testimony to be honest, forthright, and credible. ...

Petitioner has presented a strong case for relief from joint tax liability on the basis of the factors promulgated by the Commissioner in Rev. Proc. 2000-15, sec. 4.03. Most of those factors favor granting petitioner relief. Most significantly, petitioner would suffer extreme economic hardship if relief were denied. After considering all of the facts and circumstances, we find that it would be inequitable to hold petitioner liable for payment of the outstanding tax liabilities for all years at issue. Accordingly, we hold that respondent abused his discretion in denying petitioner equitable relief from joint and several liability under section 6015(f).

https://taxprof.typepad.com/taxprof_blog/2007/04/idaho_tax_clini.html

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