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Monday, April 21, 2003

Tax Court Uses State Court Decision as Evidence for Equity

Guy Nathaniel Gay, Jr. requested spousal relief from tax debts owed with his ex-wife Kimberly S. Gibson, based on 1099 income she earned while they were separated. Tax Court denied relief under section 6015(b) and (c) because Gay knew about the income she did not report. Indeed, his catty comments about her in his request for relief about how egregious it was that she did not report some of the income listed the payor and the fact that it was over $14,000 were used against him to show that he had actual knowledge of the income.

However, Tax Court ruled that the IRS abused its discretion by denying him equitable relief under section 6015(f). IRS, as usual, based its denial primarily on the fact that he had actual knowledge of the income that was not reported. Tax Court does not say so in this case, but I believe in a prior case they pointed out that this reasoning fails to make relief under (f) any different from relief under (b) or (c). Anyway, in finding for Gay, Tax Court relies primarily on the North Carolina court order requiring Gibson to either pay the liability in question or indemnify Gay for the amount. Tax Court does not actually explain why this trumps all other factors, and I can not really articulate why either, but I tend to agree. Normally, such an order requiring payment or indemnity would not be binding, or even influential, on Tax Court, but then Tax Court rarely gets to consider equities. While it may not fit into a legal box, relieving him of joint liability is fair given that she has been ordered to assume the debt in another court, and section 6015(f) creates a "fairness" ("equities") box in the law.

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