Innocent Spouse Relief Granted When MFJ Return Signed Under Duress

Mr. & Mrs. Smith married in 1998.  They had three children.  They divorced in 2010.  During their entire marriage Mr. Smith physically and verbally abused Mrs. Smith including threatening her life, physical assaults, and verbal abuse. Mrs. Smith documented several instances of abuse in a handwritten diary from December 13, 2005, to April 4, 2007.

On April 3, 2007, Mr. Smith presented Mrs. Smith with a self-prepared 2006 MFJ income tax return for her signature.   She refused to sign the return without having the chance to review it.  He allowed her a quick glance at the return.  She saw a casualty loss deduction that was much higher than their real loss and refused to sign the return.  Mr. Smith became angry and twisted Mrs. Smith’s arm several times, pulled her hair, struck her on the head with an open hand.  She still refused.  Later that evening he cornered her in the bathroom, shoved her against the wall, threatened her with harm and told her she would never see their children again.  Fearing for her safety she scrawled a signature on the tax return.  A few days later Mr. Smith went on a business trip overseas.  That day Mrs. Smith went to the police station and filed a report about the April 3rd abuser.  Shortly thereafter she filed for a divorce and a temporary restraining order.  About a year later they reconciled.

In December 2008 IRS began an examination of the 2006 MFJ return.  Mr. Smith did not allow Mrs. Smith to participate in the examination.  In March 2009 he asked that she sign several documents that would have given him sole authority to communicate with IRS.  She refused to sign them.  He became angry.  The police were called.  An emergency protective order was filed against Mr. Smith. Mrs. Smith again filed for divorce a few days later.  The divorce was final in 2010.

Upon issuance of IRS’ Notice of Deficiency Mrs. Smith filed for Innocent Spouse Relief.  Mr. Smith filed a Form 13, Notice of Intervention.  He testified in Court that they together prepared the 2006 joint tax return and both voluntarily signed it.  She provided evidence showing bruising on her left arm and a copy of the police report, the restraining order, and her diary.  The Court was more inclined to believe her than to believe him and granted innocent spouse relief.  Many issues are considered in determining if a taxpayer is entitled to this relief including, but not limited to, voluntarily signing a MFJ return, facing economic hardship if required to pay the tax, taxpayer is separated or divorced from other party, attempts to be current in filing subsequent tax returns, knowledge of the inaccuracy, and knowing the other party would not pay the tax.

Final result –When all of the issues were examined, Tax Court & Ct. of Appeals granted innocent spouse relief to Mrs. Smith.

TC Memo 2011-280, 9th Circuit Court of Appeals, 2015-1

This text has been shared with you courtesy of David & Mary Mellem, EAs & Ashwaubenon Tax Professionals.