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Tax Research Memo
Yisel Abella Nunez
Miami, FL
04/15/2024
Relevant Facts
Under IRC 6015, there are three types of relief available: (a) relief by separation of
liability,(b) traditional innocent spouse relief, and (c) equitable relief. Given the facts of
the case, taxpayer application for relief will primarily be evaluated under sections
6015(b) for traditional relief and 6015(f) for equitable relief. Traditional Innocent Spouse
Relief (6015(b): To qualify, the taxpayer must demonstrate that she had no knowledge,
nor had any reason to know, of the understatement of tax. Client reliance on E.E.L. for
financial matters, combined with your lack of financial expertise and the absence of any
lavish lifestyle changes that might have indicated additional income, supports a claim
under this provision. Equitable Relief (6015(f): Should traditional relief not be fully
applicable, section 6015(f) provides a broader basis for relief by considering “fairness”
factors. Your lack of knowledge about the understated income, the financial deception by
E.E.L., and your financial independence post-divorce are compelling under this criterion.
Specific Issues
The specific issues of the case include Lack of Knowledge. Taxpayers were unaware of
the $175,000 understated income and the existence of a joint account with E.E.L.’s
“special friend.” There is no evidence that the client benefited from the understated
income, as her lifestyle did not change significantly. The taxpayer signed the tax return
without coercion, relying on E.E.L.’s management of financial affairs. The decree does
not indemnify you against liabilities for unpaid taxes, leaving you vulnerable to financial
repercussions from E.E.L.’s actions.
Conclusion
This case presents a strong basis for Innocent Spouse Relief under IRC 6015. It is
advisable to proceed with filing Form 8857, “Request for Innocent Spouse Relief,” to
formally initiate your request. The details provided herein will be incorporated into the
form to articulate the grounds of your claim comprehensively.
Support
Based on the above analysis, it is recommended that the client pursue Innocent Spouse
Relief under both IRC 6015(b) and (f). The facts strongly suggest that meets the criteria
for relief due to your lack of knowledge and the unfairness of holding you liable for the
tax understatement. Streamlined Procedures under Rev. Proc. 2013-34,
given your circumstances, including financial independence from E.E.L. and lack of
significant benefit from the understated income, the Streamlined Procedures under Rev.
Proc. 2013-34 may expedite the relief process.
Actions to Be Taken
•
Form 8857, ‘Request for Innocent Spouse Relief’, Part 11 Indicate the tax year(s)
for which you are requesting relief (2017)
•
Attach any relevant document, divorce decree, and supporting evidence of
innocence.
Preparer ________ Reviewer ________ Partner ________
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Tax Research Memo
To: Mrs. C. Lamprey
From: Teresa Halley
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. Apparently, in 2019, Mrs. Lamprey realized that
her husband was having an affair that led her to a 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 needed more financial knowledge, signed the return just as her husband
presented it without realizing the contents. Consequently, the IRS withheld Mrs. Lamprey’s 2019
tax refund of $9,700 as compensation for the unpaid joint tax 2017. For 2017, Mrs. Lamprey
reported $37,500 in wages while withholding $5,200 for taxes, equating to a tax she paid for the
reported income. Mrs. Lamprey was not the beneficiary of his unclaimed income, which he
deposited into a joint account with his girlfriend without her consent. Mrs. Lamprey was lawfully
divorced from Mr. Lamprey on January 31, 2020; therefore, the separation declaration did not
address any obligation towards the 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
& fGiandomenico, 2021).
IV.
Yes, the streamlined procedures for equitable relief under Rev. Proc. 2013-34, §
4.02 would apply to Mrs. Lamprey’s case. She meets the three requirements: she is divorced from
Mr. Lamprey, would face economic hardship without relief, and was unaware of the
understatement (Oren-Kolbinger, 2020). Using the streamlined procedures would 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 appears to meet.
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 would 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 would 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.