How a 'Gorgeous' Dior Bag Cost a Widow $61,000 in Tax Court [View all]

As Tax Day approaches, here’s something married filers often overlook: It’s perilous to sign a joint tax return if your spouse is committing tax sins. A widow recently discovered just how much so. Her late husband had told her that he had “dealt with” their overdue income taxes—but he hadn’t. She ended up in Tax Court with the Internal Revenue Service. Now, she owes the IRS $61,000 of tax. With interest, her bill is about $93,000. Sydney Thomas owes this tax because when married couples sign a joint income-tax return, the law holds each spouse liable for everything on the return. The IRS can pursue either one for taxes due.

(snip)

Spouses who think they’ve wrongly been blamed do have a way out: It’s called an innocent-spouse claim, and it can be used with the IRS or–if that fails–in Tax Court. Successful claims absolve a person from paying taxes owed due to their spouse’s misdeeds. But innocent-spouse cases are hard to win, as Thomas’s case shows. And whatever the outcome, the relief request means tax authorities will delve deeply into a filer’s financial and personal history. Details matter: One factor in the ruling against Thomas was a blog post about her designer purses.

(snip)

Then the marriage began to break down, especially after Tracy Thomas stopped receiving regular bonuses about the time of the 2007-2009 recession. He left his job with an oil-field services firm for others; the couple became mired in credit-card and mortgage debt. To help pay it, they took early retirement-account withdrawals totaling about $263,000 during 2012, 2013 and 2014. But they didn’t pay the IRS the full amount of tax due for those years.

(snip)

In 2019, Thomas asked the IRS for innocent-spouse relief from unpaid taxes for 2012-14. The agency denied the request. So, too, did Tax Court Judge Emin Toro after he considered her banking records, assets like home equity, rental income from the ski house, and her blog posts, among other things. What counted most against her claim were two issues joint filers should note.

Number One: Did Sydney Thomas know about the unpaid taxes, or should she have known about them? The judge said yes, because she signed the return and discussed the taxes with her husband. He also questioned whether her claim that she believed her husband paid the taxes was reasonable, given the couple’s financial history.

Number Two: Did Thomas derive significant benefit from the unpaid taxes? Again, the judge said yes. While the IRS awaited her taxes, she paid for travel to Europe and elsewhere, plus a daughter’s $1,000 ticket to Hawaii. On her blog, she also discussed buying her daughter “a gorgeous bottle-green Dior bag” for her 18th birthday and mentioned other designer bags she owned.

More..

https://www.wsj.com/personal-finance/taxes/tax-cheating-husband-wife-court-87d57476?st=tzzpjstj30rk4m2&reflink=desktopwebshare_permalink