Wife Entitled to Innocent Spouse Relief and Tax Refund

Posted on June 22, 2017

In a recent case, the United States Tax Court found that a wife is entitled to innocent spouse relief and a refund of her taxes that were applied to a joint tax liability with her ex-husband.

In the case of Brenda Taft v. Commissioner of Internal Revenue, Brenda and Mr. Taft got married in 1981. In 2009, after being fired from his job, Mr. Taft began liquidating a stock fund to pay for an extramarital affair. Mr. Taft concealed his stock transactions and the affair from Brenda.

In order to continue to conceal the liquidation of his stock, Mr. Taft instructed his accountant to electronically file their federal Form 1040 tax return for 2010. Although this return listed the liquidation of Mr. Taft’s stock, he failed to report other income on their tax return.

After learning about the affair, Brenda filed for divorce which then became final. Brenda filed her tax return for 2012 listing a refund, part of which the IRS kept and applied to the joint liability for 2010 which arose from Mr. Taft’s unreported income. Brenda subsequently asked the IRS for innocent spouse relief, which the IRS denied. She then filed suit against the IRS in the United States Tax Court.

The Tax Court held for Brenda, stating that she did not know and had no reason to know of Mr. Taft’s unreported income. After considering the facts in the case, the Tax Court stated that it would be inequitable to hold Brenda liable for Mr. Taft’s tax deficiency and granted innocent spouse relief to her. Further, the Tax Court ordered the IRS to pay to her a portion of her refund for 2012 that was applied to the joint liability for 2010.

Do you have a joint tax liability stemming from your ex-spouse? Has the IRS seized your refunds to pay for your ex-spouse’s tax liability? Contact us; we can help!