In Uncategorized on 01/15/2014 at 19:38

It’s still a joint return if you intended to make one. That’s Judge Laro’s lesson for Susan R. Zimmerman-Phillips, 2014 T. C. Sum. Op. 8, a small-claimer filed 1/15/14.

Sue and soon-to-be ex-husband Tom were splitsville, but not final, when the year in question ended. Their respective attorneys told them to file jointly, as they had done for the previous 25 years. As she did every year, Sue gathered the documents necessary to prepare the 1040, put them in a file folder, and handed it to Tom, who turned out the return.

Except Sue didn’t have her W-2, so she didn’t include it. And Tom didn’t let Sue see or sign the return, which he filed electronically. And Tom didn’t give Sue the PIN needed to access the return.

Sue claimed she tried to reach Tom before the return was due, but only reached him on April 16, when she found out Tom had filed electronically. At the trial, Sue testified she needed the return to file the FAFSA for her daughter (and if you don’t know what a FAFSA is, you’re lucky; I struggled for years with the Free Application for Federal Student Aid), but not because she thought there was anything fishy about the return.

Tom finally gave Sue a redacted copy of the 1040. Sue showed Tom the W-2 from her employer, and Tom’s reaction told her that the refund he thought he was getting wasn’t going to happen.

Sue tries calling the IRS, but they won’t talk to her without the PIN. And Sue never tries filing a 1040X to correct the error.

Sue claims innocent spousery, now that she’s free of Tom and IRS is breathing fire and slaughter.

No go, says Judge Laro. First, Sue’s non-signing is not dispositive. The question is did she and Tom intend to file a joint return? And burden of production is on IRS to show they did, and burden of persuasion is on Sue to show they didn’t.

“Respondent has met his burden of production by introducing evidence that petitioner intended to file a joint return with her former husband. First, petitioner did not file a separate return…, even though she had substantial income. Second, since 1988 petitioner and Mr. Phillips had always filed their Federal income tax returns as ‘Married filing jointly’. Third, petitioner’s and Mr. Phillips’ respective attorneys advised them to file jointly …. Finally, and most compellingly, petitioner created a file for her … tax documents which she gave Mr. Phillips so that he could file their … return. Petitioner testified that when she gave Mr. Phillips her tax documents file, she ‘assumed that he would prepare the taxes and then I would sign them and then he would file them.’ In the light of these facts, petitioner has not met her burden of persuasion to establish that she did not intend to file a joint return with Mr. Phillips.” 2014 T. C. Sum. Op. 8, at p. 9.

Now at long last the new innocent spouse rules apply. See Rev. Proc. 2013-34, 2013-43 I.R.B. 397. And Sue passes all the tests, except that the item she is fighting is solely hers, namely and to wit, the W-2 she got but Tom never got.

Sue claims fraud bails her out, because Tom never showed her the return and she never signed it. However, that’s a non-starter, because she never gave Tom the whole story.

But, as that great sage and orator Lawrence Peter Berra remarked, “it ain’t over ‘til it’s over.”

Judge Laro makes sure it’s over. “Our analysis, however, does not end here. As we stated above, although we consider the Commissioner’s guidelines for equitable relief, we are not bound by them. See Pullins v. Commissioner, 136 T.C. at 438-439. Thus, we determine de novo on the basis of all the facts and circumstances whether petitioner is entitled to equitable relief. See sec. 6015(f). We hold that she is not.” 2014 T. C. Sum. Op. 8, at p. 14.

Sue didn’t give Tom the W-2, didn’t seek professional advice when IRS wouldn’t talk to her, didn’t try to file a 1040X–in short, Sue did nothing.

Judge Laro: “Petitioner intended to file a joint return with Mr. Phillips. To that end, it was her responsibility to ensure that Mr. Phillips received all her tax documents, it was her responsibility to inform Mr. Phillips that the file was incomplete, and it was her responsibility to correct any errors on the return or bear the consequences of her inaction. Petitioner’s excuse that ‘at that point, I couldn’t do any more’ is unavailing. She is therefore not entitled to equitable relief from joint and several liability under section 6015(f).” 2014 T. C. Sum. Op. 8, at p. 14.

As we learned on The Hill long ago, those who seek equity must do equity.


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