Tuesday, February 11, 2003
The IRS denied Kathleen Patricia Peters relief from joint and several liability with regard to two items on joint returns filed with her now ex-husband. Ms. Peters had a high school education and worked at various short-term low-paying jobs. Ex-hubby was stingy about the family's financial information as well as with spending money for his wife. He typically presented her with the tax returns, prepared by people he hired, to be signed by her in the morning when he was preparing for work. Relief can be sought under three subsections of section 6015.
Tax Court denied relief under subsection (b), which seems to require lack of knowledge about the facts causing a deficiency due to coercion or deception. That is not the language used, but Tax Court repeated the mantra about ignorance of the law not being an excuse several times, and faulted her for not making more of an inquiry into the facts. (At one point, Tax Court said her testimony about her ex-hubby's personality should have lead her question the genuineness his claimed charitable deductions. This is unfair. Women always marry kind, generous men, and they always divorce selfish, greedy bastards.)
Subsection (c) provides relief to a now-separated spouse who did not have "actual knowledge" of the facts causing a deficiency. Tax Court here granted her relief with regard to the charitable deductions, but not with regard to the loss from a rental unit occupied by her daughter (from, it seems, a previous marriage). Tax Court said Ms. Peters had actual knowledge of all relevant facts about the rental unit, and that the deficiency came from the passive activity loss rules. Tax Court then repeated that ignorance of the law is no excuse. Objectively, it would make more sense to hold this high-school educated woman more responsible for knowing whether or not her husband had donated to charity than it does to hold her responsible for knowing the passive activity loss rules, but that absurdity is in the law, and is not the fault of the Tax Court.
The IRS can grant relief under subsection (f) if it is warranted by the equities after weighing all of the facts and circumstances. This is discretionary on the part of the IRS, and Tax Court only reviews for abuse of discretion. They denied relief because they did not believe she was really coerced, and said she should have made more inquiries into the underlying facts. Officially, Tax Court did not hold against her the fact that the occupant of the rental unit was her daughter, but I would guess that the indirect benefit of that fact weighed on their minds.
I think the Code should be amended to grant Tax Court de novo review over discretionary equitable relief granted by the IRS. It probably would not have helped Ms. Peters, but the Tax Court is more institutionally appropriate for these decisions, as it is their job to issue just and legal decisions. The IRS�s job is to efficiently collect taxes, which gives them little incentive to bend the rules for the special circumstances of particular citizens, even when that is what the rules tell them to do.