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Monday, March 31, 2003


The opinion in the case of Mitchell S. Wiest strongly rebukes the IRS�s administration of claims for equitable relief of joint liability under section 6015(f). Two flaws in the way the IRS analyzed the case lead Tax Court to conclude that the IRS abused its discretion and to rule in favor of relief. First, the presence of a valid signature on the tax return lead the IRS to conclude that Wiest did not have reason to know that the liability would not be paid. Tax Court recognizes that there is a big leap from having knowledge of the unpaid tax to knowing that it will be paid. (In fact, Tax Court goes even further than that to question the practice of using valid signatures to establish knowledge of an unpaid tax. Tax Court states disapprovingly in a footnote, �If signing a joint return that reports a liability is sufficient to establish actual or constructive knowledge of an underpayment, then no taxpayer signing such a joint return would ever lack knowledge or reason to know of the underpayment.�)

Second, Tax Court here establishes a method for determining the amount of liability attributable to the petitioner for relief. IRS tried to determine this by calculating what Wiest�s liability would be if he had filed separately and was entitled to none of the couple�s five dependency exemptions. They then subtracted his withholding from that figure, and compared the result to the amount of the unpaid tax to determine that Wiest was responsible for 40% of the liability. Tax Court rejected those obnoxiously aggressive assumptions. They simply took Wiest�s proportion of the total tax liability for the year to be equal his proportion of contribution to the couple�s gross income and then subtracted his withholding to determine the amount of the unpaid tax attributed to him. (Tax Court did imply that this calculation could be different if facts made it necessary to allocate dependency exemptions solely to one taxpayer.) Tax Court than granted Wiest relief of the unpaid tax in excess of the amount they found to be attributable to him.

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