Case in a nutshell: Taxpayer petitioned for innocent spouse relief when she discovering, after his death, that her late husband had secretly drawn out large amounts from pension funds without adequate withholdings in the year of his death. She filed a joint return because that is what accountant prepared. (He assumed since she had always filed jointly with her husband she would want to continue to do so.) The tax court found against the taxpayer.
- Never sign a joint return in a situation such as this. One of the factors is whether the spouse knew or should have known that the tax would not be paid when signing the return. In this case, she absolutely knew because her spouse was dead and she knew she couldn’t pay the tax.
- The IRS frequently tries to state that being widowed does not equate to being divorced at the time when relief is sought. (One of the 7 factors the courts consider.) The tax courts repeatedly find this neutral.
- In this case the taxpayer significantly benefited from the income in that her mortgage was paid off using the draws. She could afford to make payments on the taxes with the income she received or she could have borrowed against the house to do so. Whoever advised her to pursue this in tax court gave her bad advice. Case precedents are plentiful and it seems clear that she did not stand a chance.