WELL, DID SHE SIGN THE RETURN, OR DIDN’T SHE?


When discussing innocent spouse relief from joint and several liability for tax liability, the issue of equitable relief may come into play.  Equitable relief under §6015(f) is available only if relief is not available under §6015(b) (the spouse requesting relief had no knowledge nor reason to know of the understatement of tax) or §6015(c) (for divorced or separated spouses).  A threshold requirement for equitable relief is that the individuals have made a joint return for the relevant year.

Determining whether a joint return has been made can often be a hairy task.  Case law tells us that married filing jointly status does not apply to a return unless both spouses intend to make a joint return, and that the intent to make a joint return must be proven by a preponderance of the evidence.  Yet, in Okorogu v. Commissioner, T.C. Memo 2017-53, the U.S. Tax Court came to a conclusion that would challenge our basic understanding of those requirements.

In Okorogu, the taxpayers, husband (H) and wife (W), and their children moved to California from Nigeria where W was a physician. H worked as an optical engineer in California, but W could not work in the United States as a physician and was a full-time homemaker except for September 2011 through 2013 when she worked as a clinical researcher. H severely abused W both emotionally and physically, often resulting in hospital visits, and in one incident, breaking her back so that she could not walk normally for months. In addition to the abuse, H was also extremely controlling of W, especially regarding finances. H did all of the household shopping and paid the household bills, and imposed a $10 spending limit on W, which, when exceeded, caused H to throw W out of the home and lock her out.

H also spent lavishly for his own personal use and allegedly forged W's signature in transactions that were kept from W, including the transfer of the deed to their home.  H filed the tax returns for 2011 and 2012 and included W’s income for those years, however, W testified that she had no knowledge of an obligation to report income for file a tax return, she did not sign either return and her signature on the returns was apparently forged, and she had no knowledge that the returns had been filed. 

In May 2014, the IRS sent notices of deficiency to the taxpayers, disallowing expenses claimed as deductions for H's unreimbursed employee expenses and his expenses from his sole proprietorship and other itemized deductions, and stating that taxpayers failed to report cancellation of debt income and unemployment compensation. The IRS determined deficiencies and accuracy-related penalties for 2011 and 2012. 

After filing a joint petition with H in Tax Court, W was granted leave to file a separate amended petition in the Tax Court in which she raised a claim to relief from joint and several liability. H opposed the claim, stating that the returns he filed were not valid joint returns and therefore W is not eligible for innocent spouse relief.

In its opinion granting innocent spouse relief to W, the Tax Court held that, although W did not sign and did not expressly agree to the filing of the returns, W tacitly consented to the filing and therefore the returns are valid joint returns. In the opinion, the court stated that H indisputably intended to file joint returns and was responsible for providing all of the financial information on the returns, and that W's ignorance of the filing obligation does not negate her ability to tacitly consent to the filing of the joint returns.  The court also noted W’s compliance with all filing requirements since becoming aware of the obligation to file in 2014 and her testimony that, had she been aware of the returns, she would have signed them.

How did the court come to conclude that a woman that did not know of an obligation to file and was unaware of the actual filing “tacitly consented” to the filing?  In Alford v. Commissioner, 38 T.C.M. 123 (1979), the court held that no joint return is made if one spouse does not sign and is unaware that a return has been made.   So was it W’s testimony that she would have signed if she had been aware of the returns?  Was it her compliance with all filing requirements since becoming aware of the filing obligations?  Was it her complete dependence on H for all financial matters?  Or was it that the court was affected by the abuse suffered by W, the dominant and controlling nature of H, and a real desire to grant relief to a taxpayer that had already been victimized in so many ways?