For Innocent Spousery

Haywood Earl Parker, Jr., Petitioner, and Jacqueline Ann Parker, Intervenor, T. C. Memo. 2022-110, filed 11/15/22, agree with IRS that the tax due for the year at issue is $39K more than their 1040 MFJ showed.

It was all due to Jacqueline’s settlement of an employment discrimination lawsuit. She and Haywood claim they got bogus advice from IRS and the forms were confusing, so IRS folded the chops. But tax is owed, and Haywood knew the amount of the settlement Jacqueline got and that it never made it onto the 1040 MFJ.

Judge Elizabeth Crewson Paris has this one, and wastes no time blowing off Sections 6015(b) and (c), and the streamliner. Haywood knew the income and the nonreporting.

Haywood’s trusty attorneys from the Kansas City (Mo.) LITC community (Jacqueline properly is not represented by them), whom I’ll call Lee and Mike and award a Taishoff “Good Job,” play up Haywood’s illness.

“Petitioner’s health condition prevents him from holding full-time employment, and his only source of income is Social Security disability payments. His annual income of $28,300 is below 250% of the federal poverty guidelines.” T. C. Memo. 2022-110, at p. 7. (Footnote omitted).

And while the divorce decree placed the tax burden on both parties equally, therefore neutral, that doesn’t seem to carry much weight with Judge Paris.

At close of play, poor health overcomes guilty knowledge.

“Petitioner’s poor physical health has left him disabled to the point that he is unable to work. His only source of income is Social Security disability payments, which allow him to meet his monthly expenses, but little else. Payment of the deficiency would create financial hardship. Although he did have knowledge of the income that gave rise to the deficiency in this case, petitioner credibly testified that he made a good-faith effort, despite confusing advice and reporting documents, to comply with the tax law but erroneously believed that the settlement funds were not taxable. He has remained in compliance with the federal income tax laws in subsequent years. On consideration of all of the relevant facts and circumstances, the Court concludes that petitioner is entitled to complete relief.” T. C. Memo. 2022-110, at p. 9.

Note that there’s testimony here, because the petition was filed pre-7/1/19, hence Section 6015(e)(7) plays no part, T. C. Memo. 2022-110, at p. 4, footnote 4.

I find it interesting that Judge Paris mentions that, when the parties divorced two (count ’em, two) years after the year at issue, Haywood sold Jacqueline his interest in the marital domicile for $50K cash, T. C. Memo. 2022-110, at p. 2. No suggestion that the funds came from settlement proceeds, or that this deal was in the works during year at issue; but from wherever the cash came, where did it go? We know that changed circumstances can result in remand to Appeals in CDP cases; see my blogpost “Back to the Future,” 8/1/11. Is this a signal from Judge Paris?