In Gans v. Commissioner, the taxpayer prevailed over the IRS by establishing that she was abused by her husband, among others, and consequently qualified for relief from joint tax liability.
Marriage carries many tax consequences that could be minimized through careful tax planning strategies. Marriage planning should include discussion about tax liability. The subject of tax liability is even more important if you plan to execute a prenuptial or premarital agreement.
Married taxpayers are jointly and severally liable for the tax and any additions to tax, interest, or penalties that arise because of a joint return, even if they later divorce. Each taxpayer is legally responsible for the entire liability. One spouse could be legally held liable for all the tax due, even if the other spouse earned all the income or claimed improper deductions or credits.
Could an innocent spouse be relieved from a tax liability on a jointly filed tax return?
The tax court in Jessica Lynn Grady a.k.a. Jessica Lynn Gans v. Commissioner (T.C. Summary 2021-29) rejected the IRS determination that the taxpayer was not entitled to relief from liability under section 6015(f) for underpayments of joint federal income tax for the taxable years 2006, 2007, 2009, 2010, and 2011. The court found that Ms. Gans had been emotionally abused and neglected by her husband. The court concluded she did not gain any significant benefit from the non-payment of the joint tax liabilities.
There are seven (7) listed threshold conditions under Revenue Procedure 2013-34, section 4.01 (2013-43 I.R.B. at 399), that a spouse must meet to qualify for equitable relief under section 6015(f). The Tax Court found that Ms. Gans meets the threshold conditions to be considered for equitable relief under section 6015. The Internal Revenue Service concedes that Ms. Gans meets these qualifying conditions for all relevant years.
The Tax Court noted the factors that weigh in favor of relief for Ms. Gans. They include 1) marital status – Ms. Gans was divorced at the time she filed the request for relief, 2) economic hardship, 3) Mr. Dickey’s legal obligation to pay the joint income tax liabilities, 4) lack of any significant benefit to Ms. Gans from the nonpayment of the joint income tax liabilities, 5) Ms. Gans’ compliance with the income tax laws, and 6) the mental and emotional abuse she suffered and her serious health problems.
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