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In Ryke v Commissioner (U.S. Tax Court, TC Memo 2017-144, Docket No. 20587-15, July 25, 2017) a doctor claiming innocent spouse relief for unpaid taxes was denied the same because she knew or should have known of the tax status of herself and her husband.

The opinion recites that Mr. Ryke “has a long history of failing to pay his debts when due”. Dr. Ryke became aware of that fact when the couple purchased a home before marrying. She was aware he had a low credit score and outstanding student loans.

Dr. Ryke left the preparation of tax returns to her husband. She testified she had little opportunity to inspect the returns and she did not examine them when she signed them. She believed her husband was paying the full tax liability for the years in question.

Dr. Ryke paid some $53,000 toward joint tax liabilities of which she became aware and thought she had satisfied all outstanding liabilities, but did not make any inquires. She subsequently learned of additional liabilities from which she sought innocent spouse relief under Internal Revenue Code §6015.

The parties to the case agreed that Dr. Ryke met the “threshold requirements” for relief under §6015. The next step of analysis became whether she met the requirements for “streamlined relief” under that Code section. In this case, such relief was denied because Dr. Ryke and her husband remained married. That denial led to the third level of analysis, a fact-specific inquiry “to determine whether it is ‘inequitable to hold an individual liable for all or part of any unpaid tax or deficiency arising from a joint return.’” In other words, a “facts and circumstances” test.

The factors to be considered in the last analysis are: “…the requesting spouse’s (1) marital status; (2) economic hardship if relief is not granted; (3) knowledge or reason to know that the tax liability would not be paid; (4) legal obligation to pay the outstanding income tax liability; (5) receipt of a significant benefit from the unpaid income tax liability; (6) compliance with income tax laws; and (7) mental and physical health.” The Tax Court concluded with respect to the third factor that “…Dr. Ryke had both knowledge that at least some part of the tax had not been paid and reason to know that the tax reported on the returns would not be paid.”

In its analysis of the third factor, the Tax Court cited the fact that Dr. Ryke knew her husband had poor credit and was in debt prior to marrying him. She became aware of their joint tax liabilities. She did not inquire about whether her payment of the tax debt satisfied it in full. She had reason to know that her husband was not paying the amount of tax owed each year and had actual knowledge of open tax liabilities, even though she did know the details of the same. Consequently, she fell under the third factor set forth above and relief would be denied to her since the analysis of the remaining factors did not weigh in her favor. Her “self-imposed ignorance with regard to the outstanding joint tax liabilities she owe[d] with her [husband]” doomed her claim for relief.

The Court recited in its opinion that the parties remain married. When it comes to matters involving taxes between married couples, ignorance is not necessarily a bar to collection under joint tax liability. The Ryke opinion points out an obligation to become aware and advised as to tax matters and make further inquiry as circumstances warrant is crucial in claiming innocent spouse relief. It is also important to the relationship between spouses.

PK Law advises clients on a wide range of tax matters. For more information on innocent spouse relief, contact a PK Law attorney. For more information on the new audit rules and planning for a partnership, please contact a PK Law Corporate and Real Estate Attorney or Tax Attorney.

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