The “Not-So-Innocent Spouse” Couldn’t Get Away with His Shenanigans

Client:

IRS Tax Filer

Challenge:

A recently divorced woman filed her own tax return with the IRS and received a refund. Unbeknownst to the woman, her now ex-husband filed his return as “married, filing jointly,” which taxes income at much more favorable rates than “married, filing separately.”  The IRS questioned the “joint” return because it did not contain the wife’s income, and the IRS sent billings to each spouse for the tax on what appeared to be omitted and unreported income. The (former) husband then claimed he was an “innocent spouse” in an effort to have his ex-wife take the blame—and pay the financial price—for the omitted income on the tax return. The IRS agreed with him and sent a notice to the wife that she could be held liable for taxes on the unreported income as well as interest and penalties. They were supposed to advise her that she had the right to “intervene” and challenge the IRS’ preliminary determination, but they failed to advise her.

While attempting to navigate the complicated IRS procedures and law concerning “innocent spouse” herself, the woman received bad advice from several IRS representatives which made her situation even worse. Realizing she needed professional tax help, the woman reached out to Fineman West.

Strategy:

Fineman West partner, Steven Jager, first filed an Entry of Appearance on behalf of this woman as “Intervenor” in the United States Tax Court to be able to represent this woman. Steven quickly concluded that there could not be a valid innocent spouse claim because the prerequisite to such a claim is there be a jointly-filed tax return, and there was no joint return. To file a joint tax return, both spouses must sign it and the woman had not. She had also filed her own return and cashed her refund check, making it even more obvious that she was not trying to avoid claiming her own income. We took on an IRS attorney, citing case law and other evidence to show that there could not (legally) be a valid innocent spouse claim without a joint return. We also pushed back against IRS representatives who cited actions the wife had taken—after receiving the bad advice from their own agency—as reasons to try and deny her tax relief.

Result:

By sticking to our valid and unwavering argument that there could not be an innocent spouse in the first place because there was not a joint return, we were successful in clearing our client of any responsibility for additional taxes resulting from her ex-husband’s attempt to abuse the system. The woman kept her tax refund from her separate filing and the IRS had to concede that no adjustments are warranted to her tax liability. The ex-husband must have his tax return recalculated using married filing separate rates, and pay any resulting taxes, penalties and interest. This is a remarkable example of the firm’s unique skill set within the federal tax court, in which Partner Steven Jager is one of only approximately 300 non-lawyers admitted to practice.

Have an income tax filing issue? Contact us today at (213) 688-9898 or info@fwllp.com.