In my years of reading tax cases, an erroneous impression I formed was that asking for innocent spouse status was simply not manly. When I actually took the trouble to scan a year’s worth of cases, I concluded it is not that uncommon for men to claim innocent spouse status. (Although a married couple usually has a lower total tax liability with a joint return, there is a significant downside – joint and several liability. The IRS can collect the whole tax from either of them. Taxpayers can request relief from joint and several liability by establishing “innocent spouse” status, but it is not easy.) I don’t know that the courts make it any harder on men. There was one case, that of Robert McGhee , who could not get out from the tax liability created by his wife’s embezzling, that had me speculating that his gender might have counted against him:
In a previous post I quoted Dr. Johnson’s remark that “Every man thinks meanly of himself for not having been a soldier, or not having been at sea” which motivates me to throw my stubborn ounces on the scale that is in equipoise. Mr. McGhee used his spare time to serve his country. The evidence that he benefited from embezzled funds was the testimony of the embezzler. If he had divorced her he would have had another point in his favor, but he didn’t do that. I can’t say his gender counted against him. Women also lose innocent spouse cases, which is why I have so many blog posts on the unrecognized hazards of joint returns. Regardless, I think he got a raw deal.
It could be worse. Consider the plight of Robert Thomas, an Australian resident of Saudi Arabia. His wife was convicted of embezzling and he got 16 months in prison and 300 lashes (in convenient installments of 50 each). Under Sharia law there is no such thing as a male innocent spouse.
Even though guys claiming innocent spouse status is far from rare, it is unusual enough that seeing two decisions within a week of one another is worth noting. Cory Chaput was granted innocent spouse status and Neil Yosinski was not. (Just so you can keep things straight the petitioner is the husband claiming innocent spouse status and the intervenor is the wife who is objecting.) Here are the highlights:
Since 2005 and at all times relevant thereafter, intervenor was employed by a car wash company called U-Wash, Inc. (U-Wash). Intervenor’s paychecks were typically hand delivered to her at her place of employment. Intervenor also typically cashed her paychecks at her place of employment rather than depositing them in the couple’s joint bank account.
Like her paychecks, intervenor’s Forms W-2, Wage and Tax Statement, were typically hand delivered to her at her place of employment. U-Wash frequently changed payroll companies and generally issued intervenor more than one Form W-2 for a year.
Petitioner and intervenor filed a joint Federal income tax return for 2008 (joint return). Petitioner prepared the joint return. Intervenor gave petitioner a single Form W-2 showing wages she received from U-Wash in 2008, and petitioner reported those wages on the joint return. Intervenor, however, received additional wages from U-Wash in 2008 that were not shown on the aforementioned Form W-2 received by petitioner and were not reported on the joint return. Instead, U-Wash issued two additional Forms W-2 for 2008 to intervenor reporting the additional wages she received (additional Forms W-2).
Neil J. Yosinski v Commissioner TC Memo. 2012-195
Petitioner asserts he did not know, and had no reason to know, that Colleen Gloceri would not pay the couple’s reported 2006 tax liability. We are skeptical that petitioner did not know that Colleen Gloceri would not pay the 2006 tax liability. Colleen Gloceri had no source of substantial income, earning only a meager amount in 2006. And there is nothing in the record to indicate that Colleen Gloceri had any assets of substantial value in her own name
Petitioner and Colleen Gloceri’s separation and subsequent divorce was acrimonious. Each battled the other every step of the way throughout the divorce proceedings. Each had a restraining order against the other; each filed police reports and contempt charges against the other. Indeed, five years after their divorce petitioner and Colleen Gloceri are still litigating financial matters in the Colorado court system
In connection with the divorce, the District Court, El Paso County, Colorado (Colorado district court), ordered petitioner to make monthly spousal maintenance and child support payments to Colleen Gloceri. At this time petitioner was no longer employed. Consequently, the Colorado district court anticipated that petitioner would have to withdraw funds from his retirement accounts to make these payments and support himself. Further, petitioner was required to pay the couple’s marital debts and approximately $50,000 to Colleen Gloceri for the purpose of completing construction on the marital house. To meet his obligations, and after consulting with a financial adviser, petitioner rolled over three retirement ( section 401 (k)) accounts into a single IRA. During 2006 he withdrew approximately $442,000 from the IRA. A portion of the amounts withdrawn (distributions) was given to Colleen Gloceri; petitioner retained the amount not given to Colleen Gloceri. No income tax was withheld from the distributions. The distributions were subject to taxation, as well as the section 72(t) additional tax, because they were not made pursuant to a qualified domestic relations order.
Comments
Both of these decisions seem pretty reasonable. It is very unusual for the preparer of the return to be given innocent spouse status, but multiple W-2’s from the same employer are not that common either. Neil Yosinski’s case falls in the “What was he thinking ?” category. There is a procedure for transferring IRA funds to a spouse without recognizing income called a “qualified domestic relations order”. Apparently, it was not chosen. Mr. Yosinki’s is argument that he thought his Ms. Gloceri was going to pay the tax on the joint return is a refrain you will catch from time to time in collection cases. In the case of an estranged couple signing a joint return, it would seem wiser to go to meet at the post office or the lawyer’s office and actually see that a check was going in with the return. Of course in this case it was his income, so the option of filing separately was not really on the table for him.
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Originally published on Forbes.com on July 28th, 2012