## Facts

- Susan Taft was married to her husband for more than 20 years; she held an associate’s degree and worked as a registered nurse.
- Mr. Taft’s employer compensated him partly with shares of employer stock, which became a significant family asset.
- The Tafts maintained separate bank accounts, and Ms. Taft had little involvement in the couple’s finances.
- Near the end of the marriage, Mr. Taft began supporting a paramour and funded that support by selling employer stock.
- Mr. Taft tried to keep both the affair and the stock sales secret from Ms. Taft.
- For tax year 2010, Mr. Taft instructed the couple’s accountant to file a joint federal income tax return electronically without giving Ms. Taft an opportunity to review the return.
- The 2010 return failed to report several thousand dollars of taxable dividend income related to the stock holdings; Ms. Taft did not know about the omitted dividend income.
- The IRS examined the return and assessed an additional tax liability attributable to the unreported dividend income. Because the return was filed jointly, Ms. Taft was jointly and severally liable.
- Ms. Taft later learned of the affair and divorced Mr. Taft; by the time of the divorce, Mr. Taft had depleted much of the couple’s savings.
- In a later year, Ms. Taft overpaid her taxes and requested a refund. The IRS applied part of her overpayment to the unpaid 2010 joint-return liability.
- Ms. Taft sought innocent spouse relief by filing Form 8857. The IRS determined she qualified for relief under I.R.C. § 6015(c) (separation of liability) but denied her request for a refund on the ground that § 6015(c) does not allow refunds of amounts already collected.
- Ms. Taft petitioned the United States Tax Court under § 6015(e), arguing she also qualified for § 6015(b) (traditional innocent spouse relief), which can support a refund (subject to statutory limits).

## Issues

1. Whether Ms. Taft qualified for traditional innocent spouse relief under I.R.C. § 6015(b) for the 2010 understatement attributable to unreported dividend income associated with Mr. Taft’s stock.
2. Whether, in a stand-alone § 6015(e) case, the Tax Court could determine Ms. Taft was entitled to a refund of amounts the IRS collected by offsetting her later-year overpayment to the 2010 joint liability, where relief was available under § 6015(b).

## Decision

- The Tax Court held Ms. Taft met the requirements for relief under I.R.C. § 6015(b) for the 2010 understatement attributable to unreported dividend income.
- The court found Ms. Taft did not know and had no reason to know of the omitted income, given her limited role in family finances and Mr. Taft’s efforts to conceal the relevant facts, including filing the return without her review.
- The court found it would be inequitable to hold Ms. Taft liable, considering the concealment, the marital breakdown, and the dissipation of assets by Mr. Taft.
- The court held that § 6015(e)(1)(A) gives the Tax Court jurisdiction in a stand-alone innocent spouse case to determine the relief available under § 6015, including a credit or refund when permitted by the applicable subsection and refund-limitation rules.
- Because Ms. Taft qualified for relief under § 6015(b), the court determined she was entitled to a refund of the amount the IRS had collected from her by offset (about $1,500) to pay the 2010 joint liability.
- Having granted relief and a refund under § 6015(b), the court did not decide disputes about refund limits under § 6015(f) or the validity of any regulation asserted to restrict refunds in equitable-relief cases.

## Legal Principles

- To obtain relief under I.R.C. § 6015(b), a requesting spouse generally must show: (1) a joint return was filed; (2) the return contained an understatement of tax attributable to erroneous items of the other spouse; (3) the requesting spouse did not know and had no reason to know of the understatement when signing the return; (4) it would be inequitable to hold the requesting spouse liable; and (5) the request was made within the statutory time limits.
- “Reason to know” is evaluated from the facts and circumstances, including the requesting spouse’s involvement in financial affairs, the opportunity to review the return, and whether the nonrequesting spouse concealed transactions or information.
- Inequity under § 6015(b) may be supported by facts such as concealment of income, dissipation of marital assets, lack of significant benefit to the requesting spouse from the omitted income, and divorce or separation.
- Relief under § 6015(c) (separation of liability) allocates unpaid liability between spouses but generally does not authorize refunds of amounts already collected from the requesting spouse.
- In a stand-alone case under § 6015(e)(1)(A), the Tax Court’s jurisdiction to “determine the relief available” includes determining whether the requesting spouse is entitled to a credit or refund, subject to statutory refund limitations (including timing rules under I.R.C. § 6511).
- When the requesting spouse qualifies under § 6015(b), the Tax Court may award a refund of amounts collected from that spouse that are attributable to the relieved understatement, to the extent the refund is not barred by applicable limitations.

## Conclusion

In *Taft v. Commissioner of Internal Revenue*, T.C. Memo. 2017-66 (2017), the Tax Court held that Susan Taft qualified for traditional innocent spouse relief under § 6015(b) for a 2010 understatement caused by unreported dividend income her former husband concealed while filing a joint return without her review, and the court further held that its stand-alone § 6015(e) jurisdiction allowed it to order a refund of amounts the IRS had collected from her by offsetting a later-year overpayment to the 2010 joint-return liability.


Taft v. Commissioner of Internal Revenue, T.C. Memo. 2017-66 (2017)