The Tax Court in Brief – November 14th – November 18th, 2022
Tax Litigation: The Week of November 14th, 2022, through November 18th, 2022
Parker v. Commissioner, T.C. Memo. 2022-110 | November 15, 2022 |Paris, J.| Dkt. No. 6054-19
Short Summary: This case involves whether a taxpayer is entitled to relief from joint and several liability regarding a deficiency in federal income tax under 26 U.S.C. § 6015(f). Haywood Earl Parker Jr. (Parker) and Jaqueline Ann Parker (Ann Parker) married in 1988 and divorced in April 2018. Parker has severe health problems and his only income as of 2012 arises from Social Security (SS) disability payments. Ann Parker received a settlement award in relation to a discrimination claim she asserted against her employer. The Parkers filed their joint tax return for 2016, where they excluded the attorney’s fees or noneconomic and compensatory damages from the settlement amount. They considered those amounts were non-taxable from a call held with the IRS. In 2018, under the divorce decree both agreed that with respect to previous tax returns, they are both equally liable. IRS assessed a deficiency in federal income tax and an accuracy-related penalty regarding unreported settlement proceeds. At the time of the notice, the Parkers were divorced, and each challenged the deficiency amount. The IRS agreed with each Parker that the deficiency amount to be paid is $39,318 with no penalties. Parker requested the IRS an innocent spouse relief from joint and several liability, as his only income is from the SS disability payments and such an amount only covers his living expenses. The IRS agreed. Ann Parker filed a motion to oppose such relief. Ann Parked argued Parker knew the items giving rise to the understatement at the time the tax return was filed; hence, that the relief should be denied to him.
Key Issue: Whether, pursuant to 26 U.S.C. § 6015(f), the taxpayer is entitled to innocent spouse relief from joint and several liability?
Primary Holdings: Yes. The Tax Court determined no single factor is relevant to determine if a taxpayer is entitled to innocent spouse relief. All the factors must be analyzed depending on the facts and circumstances of the taxpayer. The Tax Court determined the taxpayer was entitled to it.
Key Points of Law:
Under 26 U.S.C. § 6015(f) it is provided all facts and circumstances have to be considered to determine if the taxpayer is entitled to the equitable relief to relieve the taxpayer from its tax liability.
The Tax Court determined that “[n]o single factor is dispositive, and “[t]he degree of importance of each factor varies depending on the requesting spouse’s facts and circumstances.” See Pullins, 136 T.C. at 448; Hall v. Commissioner, T.C. Memo. 2014-171, at *38.
Proc. 2013-34, § 4.03(2), 2013-43 I.R.B. at 400–03 provides seven non-exclusive factors that should be considered for purposes of the equitable relief under section 6015(f): (1) marital status, (2) economic hardship, (3) if the spouse requesting the relief knew or had reason to know of the item giving rise to the understatement, (4) legal obligation to pay the tax liability, (5) if the taxpayer requesting the relief significantly benefited from the amount not reported, (6) if the taxpayer has made a good effort to duly comply with its tax requirements for the following years to the year in which the relief is requested, (7) if the taxpayer was in poor mental or physical health at the time the return was filed, the relief is requested or at the time of the trial. See Pullins, 136 T.C. at 448.
Insights: This case is a good example of a comprehensive analysis made by the Tax Court to determine if a taxpayer is entitled to spouse relief. Several factors and circumstances should be analyzed to determine whether a taxpayer should be entitled to such relief and not only a single factor. In our opinion the most relevant factors were the poor health of the taxpayer, its source of its income, and the economic hardship created to the taxpayer from not granting him such relief. It is advisable to the taxpayer to review and analyze if he or she complies with such requirements and the weight each of them, to determine if there is a more likely than not probability of obtaining a favorable resolution.