In the wrinkled skin of Section 6015(c) allocated or apportioned innocent spousery, actual knowledge of the unreported or overdeducted is a particularly deep wrinkle. When IRS folds but non-requestor objects, who has BoP? Will we ever find out, as the Tax Court bench seems uniformly determined to dodge the issue with “preponderance of the evidence”? And this is the one part of innocent spousery where intent of the non-signer to file jointly carries the day; the sacred “signed under penalty of perjury” requirement is set aside.

Now throw spousal abuse into the mix, set Judge Mark V Holmes to stir the cauldron, and we have innocent spousery bouillabaisse ready to serve, in Elizabeth Kitazono, Petitioner and Christopher K. Chung, Intervenor, Docket No. 3961-20, filed 12/17/21.*

Unhappily, because DAWSON won’t let me cut-and-paste from the transcript of this off-the-bencher, I must refer you to the text online (assuming it isn’t sealed because one document out of fifty in the docket was sealed). This is an enforced impediment to my right and responsibility to report accurately, in ipsissima verba, what the opinion says, and a willful obstruction to the free journalism mandated by Section 7461 and the US Constitution, as amended.

Elizabeth says Chris was abusive. He was also an ultra-successful serial entrepreneur, and while they were married they lived in CA, thus community property is in play. Chris did the returns, and reported much wage and investment income, but left out the constructive dividends he took from his corporation. Elizabeth admits she had income and was adequately withheld, but claims she never saw or signed anything. She wants out from Chris’ unreporteds, IRS folds, but Chris says no.

BoP gets less than a paragraph, Transcript, at p. 8. Judge Holmes isn’t wasting his sweetness on the desert air of an off-the-bencher. Totality of facts and circumstances, y’know.

Now did Elizabeth have an “actual and clear awareness, as opposed to reason to know, of the items giving rise to the deficiency”? Transcript, at p. 8. I’ve blogged this question before. See my blogpost “René Descartes, Thou Should’st Be Living At This Hour,” 1/4/18, and even that wasn’t the first time.

Back to Chris and Elizabeth. Community property is out, because Reg. 1.6015-3(c)(2)(iv) takes out the joint ownership exception if that’s the sole reason to impute actual knowledge to Elizabeth. Next, if the requestor was abused, even if actually knowledgeable but didn’t object for fear of physical injury, then actual knowledge doesn’t count.

Even though Judge Holmes finds Chris physically abused Elizabeth three (count ’em, three) times near when the return were filed, that’s not what prevented her from objecting. Before you join me in yelling “WTF!” read on, Transcript, at p. 11. Chris was making a ton of money legitimately, and they’d invested in real estate early in the marriage, and that was doing well. She had corporate checks paying for childcare and daycare for their kids, but Chris told her this was a company plan. Most importantly, even though she knew the source of the unreporteds was Chris’ company, the issue is the items themselves.

Remember, Elizabeth claimed she knew nothing. Judge Holmes says that because the returns for years at issue showed much wage income and real estate investment income, and IRS conceded on the trial a chunk of claimed constructive dividend deficiencies for a couple years (it is Judge Holmes, after all), Elizabeth couldn’t know that part of the cashflow was constructive dividends.

Taishoff says that since Elizabeth had a BA in biology and worked at the San Francisco Zoo during years at issue, Transcript, at pp. 3-4, I would make a wee wager with Judge Holmes (if that were ethically permissible, which I know it isn’t) that Elizabeth couldn’t define “earnings and profits,” “basis in stock” or “constructive dividend” with a running start and a five-pound handicap; stakes to be a couple ales at Jake’s Saloon.

Judge Holmes lets her off, but needs a Rule 155 beancount for the concessions.

*Elizabeth Kitazono Docket No 3961-20 12 17 21