In Uncategorized on 04/05/2016 at 15:04

A further innocent spousery wrinkle for you Defenders of the Innocent today, straight from the Capitol Reporting Company’s archive (and the transcript is missing pages 1 and 2, although the opinion seems complete without them), as spoken by The Great Dissenter, a/k/a The Judge Who Writes (and Talks) Like a Human Being, s/a/k/a You Know What, and Old China Hand, Judge Mark V. Holmes.

Judge Holmes turned a sympathetic ear to Rosanna G. Viray, Docket No. 21479-13, filed 4/5/16, an off-the-bencher.

IRS and Rosanna agree that the Sched C of loved-once Angel Pascua is his and only his. The dubious disallowed deductions and their consequences are his.

But the fight is over the Sched A, plus a couple credits (hi, Judge Holmes) as to which, according to IRS, Angel continued in his somewhat casual ways.

IRS claims Rosanna is pari passù, as a former law partner of mine liked to say, with Angel. Wherefore, she gets hit for the five (count ‘em, five) phonies, three on the Sched A and two education tax credits, to all of which Rosanna and IRS agree she isn’t entitled.

It’s our old chums the Section 6015 innocents.

“Under section 15(d) (sic) for purposes of allocating a deficiency, erroneous items are generally allocated to the spouses as if separate returns were filed. Ms. Viray did, in fact, file her request for relief within two years of the IRS’s collection action against her, and indicated that she had been divorced….” Order, at p. 5.

But she wants apportioned relief, and apportionment isn’t defined in the IRC, only in the Regs.

There are pages and pages of Regs on how to divvy up the hits.

“However, under 26 CFR section 1.6015-3(d)(2) (iv), ‘Deduction items unrelated to a business or investment are also generally allocated 50 percent to each spouse unless the evidence shows that a different allocation is appropriate.’

“So the presumption is that Ms. Viray would be responsible for the proportion of the overall deficiency not already allocated to Mr. Pascua, determined by the total amount of the deficiency multiplied by a fraction, the numerator of which is the net amount of erroneous items allocable to her, over the denominator of which is the net amount of all erroneous items. The algebra is more conveniently shown in section 26 CFR 1.6015-3(d)(4) (i) (A), and I refer the Commissioner to that for the inevitable math in this exercise.” Order, at p. 6.

More like arithmetic than either algebra or mathematics, Judge, but that’s OK. IRS will understand.

But Rosanna is linguistically challenged, and Judge Holmes is sympathetic.

Joint liability is a presumption, and that can be overcome. Just because the phony deductions appear on a joint return doesn’t mean both spouses are pari passù. (That’s such a cool phrase, isn’t it?). IRS must show Rosanna had actual knowledge to stick her with the whole megilla. Rosanna’s English is poor, she’s a medical tech who makes $25K a year, and IRS neither pleaded nor proved that Rosanna had a clue what games Angel was playing. And it’s actual knowledge here, not that she should have known (constructive knowledge).

So it’s 50-50 on the contested items in the deficiency.

But there’s more.

Accuracy chops (and fraud chops, even though not in play here) don’t get allocated. “…the reason for that is found in 26 CFR section 1.6015-3(d) (4)(iv)(B) that tells me that the accuracy-related penalty under section 6662 should be allocated to the spouse’s item that generated the penalty.

“That’s a long, long way of saying that since the accuracy-related penalty is attributed to all of the inaccurate items, both Mr. Pascua’s business inaccurate items and the contested Schedule A items and the unjustified credits, that the accuracy-related penalty applies to Ms. Viray’s portion of the proportionate allocation of the  overall deficiency for which I am finding her responsible.” Order, at pp. 9-10.

So what does that mean in English?

“My conclusion, in other words, is that one half of these contested erroneous items are allocable to Ms. Viray, together with half of the accuracy-related penalty. The remaining half of those contested items, as well as all those already conceded by the IRS to be allocable to Mr. Pascua, are allocable to Mr. Pascua.” Order, at p. 11.

Judge Holmes finds this to be a math problem, so he send the parties off to a Rule 155.


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