Innocent Spouse Relief Evaluation

Correct attached memo, taking into account following recommendations:

*factual analysis needs a lot of work Best to go through the requirements of each option under the statute and compare it to the facts in the case.

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Tax Research Memo
To: Mrs. C. Lamprey
From:
Date: 4/13/2024
Subject: Innocent Spouse Relief Evaluation
Relevant Facts
Mrs. C. Lamprey had been married to E.E.L. Lamprey for 20 years, filing joint tax returns
during their marriage while residing in Florida. In 2019, Mrs. Lamprey discovered her husband
was having an affair that led to divorce in the same year. In the 2017 tax year case, it was found
that Mr. Lamprey did not disclose $175,000 of their joint income on their tax return. Mrs. Lamprey,
who lacked financial knowledge, signed the return just as her husband presented it without
questioning. Consequently, the IRS withheld Mrs. Lamprey’s 2019 tax refund of $9,700 as
compensation for the unpaid taxes in 2017. In that year, Mrs. Lamprey reported $37,500 in wages
with withholding of $5,200, the appropriate amount for the earnings. Mrs. Lamprey did not benefit
from the unclaimed income, which her husband deposited into a joint account with his girlfriend.
Mrs. Lamprey was lawfully divorced from Mr. Lamprey on January 31, 2020; and, the separation
declaration did not address any obligation towards unpaid tax liabilities.
Specific Issues
I.
Is innocent spouse relief likely to be granted to Mrs. Lamprey?
II.
What factors support or weigh against granting innocent spouse relief?
III.
Which type of innocent spouse relief under IRC 6015 should Mrs. Lamprey
request?
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IV.
Would the streamlined procedures for equitable relief under Rev. Proc. 2013-34 be
applicable to Mrs. Lamprey’s case?
Conclusions
I.
Yes, innocent spouse relief is likely to be granted to Mrs. Lamprey based on the
factors discussed below (Agostino & Rego, 2022).
II.
The following factors weigh in favor of granting relief: (Dowis et al., 2021).
Mrs. Lamprey did not know the unreported income (Rev. Proc. 2013-34, § 4.03(2)(c)(i)(A))
Mrs. Lamprey did not receive any profit/benefit from the unreported income (Rev. Proc. 2013-34,
§ 4.03(2)(e))
Mrs. Lamprey is now divorced from Mr. Lamprey (Rev. Proc. 2013-34, § 4.03(2)(a))
Holding Mrs. Lamprey liable for the understated tax would be inequitable given her lack of
financial knowledge and Mr. Lamprey’s control over domestic finances (Rev. Proc. 2013-34, §
4.03(2)(c)(i)(A))
III.
Mrs. Lamprey should seek equitable relief under IRC 6015(f), as she does not
qualify for relief under IRC 6015(b) (innocent spouse relief) or IRC 6015(c) (separation of liability
relief) due to the understatement being related to her former spouse’s unreported income (Alarie
& Giandomenico, 2021).
IV.
Yes, the streamlined procedures for equitable relief under Rev. Proc. 2013-34, §
4.02 apply to Mrs. Lamprey’s case. She meets the three requirements: she is divorced from Mr.
Lamprey, will face economic hardship without relief, and was unaware of the understatement
(Oren-Kolbinger, 2020). Using the streamlined procedures will simplify the process for obtaining
equitable relief.
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Support
I.
Innocent Spouse Relief Eligibility:
Rev. Proc. 2013-34, § 4.01 outlines the threshold conditions for equitable relief under IRC 6015(f),
which Mrs. Lamprey meers.
Rev. Proc. 2013-34, § 4.03(2) lists factors weighing for and against relief, with several factors
favoring Mrs. Lamprey’s case as discussed above.
II.
Factors Supporting Relief
Rev. Proc. 2013-34, § 4.03(2)(c)(i)(A) – Mrs. Lamprey did not know the unreported income,
especially given Mr. Lamprey’s control over finances and her lack of financial knowledge.
Rev. Proc. 2013-34, § 4.03(2)(e) – Mrs. Lamprey did not receive any significant benefit from the
unreported income, which Mr. Lamprey deposited into a separate account without her knowledge.
Rev. Proc. 2013-34, § 4.03(2)(a) – Mrs. Lamprey is now divorced from Mr. Lamprey, weighing in
favor of relief.
Rev. Proc. 2013-34, § 4.03(2)(c)(i)(A) – Due to Mr. Lamprey’s control over finances and Mrs.
Lamprey’s lack of financial knowledge, it would be unequal to hold her accountable for the
unreported tax.
III.
Type of Relief to Request
IRC 6015(b) (innocent spouse relief) and IRC 6015(c) (separation of liability relief) are not
applicable because the understatement is attributable to Mr. Lamprey’s unreported income, not an
erroneous item of Mrs. Lamprey (Rev. Proc. 2013-34, § 4.01(7)).
IRC 6015(f) (equitable relief) is the appropriate request, as it considers all facts and circumstances
to determine if it would be unfair to hold the requesting spouse responsible for the unpaid tax or
deficiency.
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IV.
Streamlined Procedures for Equitable Relief:
Rev. Proc. 2013-34, § 4.02 outlines streamlined measures for granting rational relief under IRC
6015(f) if certain conditions are met.
Mrs. Lamprey meets the three conditions in § 4.02 (mentioned above).
Using the streamlined measures will simplify the process for obtaining equitable relief for Mrs.
Lamprey.
Actions to Be Taken
Discuss the findings and recommendation with the client, Mrs. C. Lamprey on April 13, 2024.
Prepare a memo or letter to Mrs. Lamprey outlining the conclusion that she appears to qualify for
streamlined equitable relief under IRC 6015(f).
Prepare and file Form 8857, Request for Innocent Spouse Relief, on behalf of Mrs. Lamprey.
In summary, based on the facts presented and the applicable law and guidance under Rev. Proc.
2013-34, Mrs. Lamprey has a strong case for obtaining equitable relief from dual responsibility
for the 2017 levy year under IRC 6015(f). The streamlined procedures for equitable relief outlined
in Rev. Proc. 2013-34, § 4.02 apply to her case, simplifying the request process. I recommend
discussing these conclusions with Mrs. Lamprey and, if she agrees, preparing Form 8857 to request
equitable relief from the outstanding 2017 tax liability.
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References
Agostino, F., & Rego, M. (2022). Code Sec. 6015: How to Prepare Form 8857, Request for
Innocent Spouse.
Alarie, B., & Di Giandomenico, S. (2021). Seventh Circuit Affirms Spouse is Not so Innocent on
Appeal. Tax Notes Federal, 2149.
Dowis, W. B., Englebrecht, T. D., & Wiggins, M. (2021). An Examination of the Factors That
Impact Innocent Spouse Tax Relief Decisions in the US Tax Court. In Advances in
Taxation (pp. 135-153). Emerald Publishing Limited.
Oren-Kolbinger, O. (2020, January). How to Get Away with Tax Non-Compliance? Judicial
Decision-Making in Equitable “Innocent Spouse Relief” Cases. In Proceedings. Annual
Conference on Taxation and Minutes of the Annual Meeting of the National Tax
Association (Vol. 113). National Tax Association.