In Uncategorized on 10/22/2018 at 18:24

Christopher Schorse, Petitioner, and Cynthia Palabrica, Intervenor, 2018 T. C. Memo.176, filed 10/22/18, reprise the Doris Day – Jimmy Stewart – Alfred Hitchcock classic, and as in the movie, Chris is the man who knows too much.

Chris the computer guy originally got innocent spousery from IRS because of the losses allegedly sustained by loved-once OB/GYN Cynthia’s Sub S, that Chris deducted although he shouldn’t. But then Cynthia intervened, and Chris’ innocent spousery for the two (count ‘em, two) years at issue is out.

For the years at issue, when Chris and Cynthia were still wed, each kept their own bank accounts, but paid mortgage, insurance and utilities from a common account. Cynthia paid the greatest portion of their children’s high-priced private school and high-priced nanny.

But Chris did the taxes. Cynthia gave Chris the K-1s she got from her wholly-owned Sub S, which showed delightful losses.

But Cynthia’s accountant told Chris Cynthia hadn’t enough basis in her Sub S stock to deduct the losses.

So Chris dispensed with the time-honored two-adviser rule (see my blogpost thus entitled, 6/23/16), and did it himself.

Judge Paris: “…intervenor provided petitioner with her tax information, including her [Sub S] Schedules K-1, Partner’s Share of Income, Deductions, Credits, etc.  Intervenor’s [Sub S] Schedules K-1 reflected losses for [years at issue]. Petitioner asked intervenor and her business accountant about the losses.  They informed him that intervenor did not have a sufficient basis in [Sub S] to deduct the losses for those years.  For each year in issue petitioner calculated their tax liability both with and without the loss claimed.  For each year in issue petitioner then instructed his business accountant to prepare and file a joint return that claimed the loss deduction.  Petitioner thought that the information on intervenor’s [Sub S] Schedules K-1 was similar to the information he would have reported on his business’ Schedules K-1 and that the profits and losses reported on intervenor’s [Sub S] Schedules K-1 were the amounts to be used on the joint returns.” 2018 T. C. Memo. 176, at p. 4.

Chris took full responsibility for all tax issues in the divorce decree.

Chris knew Cynthia was paying the freight for the children’s school and nanny, and the tax refunds generated by the Sub S losses went into home improvements.

Judge Paris trudges through the Section 6015 options, both regular and streamline, but at the end of the day, it boils down as follows.

” Although many of the factors for equitable relief either favor petitioner or are neutral, petitioner’s actual knowledge of the losses deducted on the joint returns, his involvement in preparing those returns, and the significant benefit he received from the understatements weigh too heavily against him to allow relief.  Weighing all the facts and circumstances, the Court finds that petitioner is not entitled to relief from joint and several liability under section 6015(f).” 2018 T. C. Memo. 176, at pp. 22-23.

Too much knowledge is as dangerous as too little. See my blogpost “A Dangerous Thing,” 4/13/11.

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