Jodell Sample
22656-22
| Tax Ct. | Nov 17, 2025|
Check Treatment|
Docket
United States Tax Court
T.C. Memo. 2025-118
JODELL SAMPLE,
Petitioner
v.
COMMISSIONER OF INTERNAL REVENUE,
Respondent
__________
Docket Nos. 4394-20, 22656-22, Filed November 17, 2025.
11655-23L.
__________
Eric Johnson, for petitioner.
Paul A. George, for respondent.
MEMORANDUM FINDINGS OF FACT AND OPINION
HOLMES, Judge: Joseph Schara is a dentist who has long
practiced in Minnesota. His wife, Jodell Sample, has long worked with
him as the office manager and receptionist. Their tax troubles began
when the couple stopped reporting Schara’s income from his dental
practice on their return for 2011. Then they stopped reporting Sample’s
salary from the dental practice. Over the next several years, Schara
continued to underreport their income and underpay their tax. Even
though she signed every return they filed together, Sample says she
caught on only when a revenue officer dropped by their office in 2015.
This revelation didn’t seem to faze her. Schara continued to
manage their finances. Sample continued to not worry about them, but
the couple’s tax debt grew to more than $300,000. She argues that
Schara’s deception about their situation continued for years, and she
now wants to extract herself from their joint liability by requesting
innocent-spouse relief from their joint liabilities for tax years 2011,
2012, 2013, 2014, 2017, and 2018.
Served 11/17/25
2
[*2] FINDINGS OF FACT
I. Their Marriage
Schara and Sample were married in 1995. Schara owned his own
dental practice and hired Sample as his office manager. The couple
worked together for years, and his business was their main source of
income. Sample’s formal education had ended with high school, and she
relied heavily on Schara when it came to the family’s finances.
Sample didn’t bother to check the mail. She signed their joint
returns without reading them. Schara oversaw the couple’s financial
affairs; in his wife’s eyes, he had a track record of solving any issues that
arose, and he assured her that everything was taken care of. Though
she worked alongside him, she did not show any interest in his business
finances and never bothered to check his books. While she was aware
that they had unpaid tax before the revenue agent’s 2015 visit, Schara
had consistently assured her that the tax debts were “just temporary”
and that he would pay them.
By 2015, this “just temporary” problem had been going on for
years. They had failed to pay the tax due at the time they filed their
return for 2004, and it took them almost a decade to do so. They also
had unreported income for tax years 2008 and 2010. The IRS knew
about this and was launching correspondence at the couple, but as far
as we can tell from the record, Sample wasn’t involved in the resulting
back-and-forth with the IRS or their accountant.
The couple legally separated in late March 2019 after Sample
learned of the full extent of their financial problems. The terms of the
separation were unusually favorable to her. Schara agreed to be solely
responsible for their federal and state tax debts. Sample received one of
their shared cars, their main residence in Minnesota, a second home in
Montana, and Schara’s entire section 401(k) account. We specifically
note that their legal separation has not meant a physical separation.
Although Sample has filed numerous innocent-spouse requests, she has
continued to live with Schara in their marital home, at least into 2021
and with nothing in the record to suggest that this arrangement has not
continued.
3
[*3] II. History of Innocent Spouse Requests
Section 6015 1 offers (b), (c), and (f) relief, each named after its
subsection. After her legal separation began, Sample began trying to
obtain relief from the accumulated tax debt. For five of these years she
filed two Forms 8857, Request for Innocent Spouse Relief. For one of
these years she asked for all three kinds of relief, but for the rest only
(f) relief. For the sixth year she asked for innocent-spouse relief at the
hearing (called a collection-due-process, or CDP, hearing) that the Code
offers taxpayers who face enforced collection of a tax debt.
We first describe in detail these requests, the method and kind of
relief Sample sought, and then try to straighten out the resulting
malocclusion of scopes and standards of review, as well as the different
substantive standards for relief of each type that Sample seeks.
A. 2011–14
Sample submitted her first request for innocent-spouse relief for
tax years 2011–14. When filing their returns for those tax years, Sample
and Schara either paid a de minimis amount of tax or withheld less than
their tax due:
Tax Year Withholding Paid Estimated Tax Paid Tax Still Owed
2011 $1,163 $200 $81,344
2012 5,955 — 120,227
2013 6,155 — 78,062
2014 17,047 — 14,769
Sample’s 2014 return was also the first where she omitted the
wages from her job at the dental office.
By the end of 2021, the couple had an outstanding balance of
$589,393 for these four years. Sample sent the Commissioner her Form
8857 in April 2019 and included a list of assets and liabilities. For the
1 Unless otherwise indicated, statutory references are to the Internal Revenue
Code, Title 26 U.S.C. (I.R.C. or Code), in effect at all relevant times, regulation
references are to the Code of Federal Regulations, Title 26 (Treas. Reg.), in effect at all
relevant times, and Rule references are to the Tax Court Rules of Practice and
Procedure.
4
[*4] years 2011–13, she asked only for equitable relief under section
6015(f). For tax year 2014, she asked for (b) and (c) relief as well.
The IRS’s Cincinnati Centralized Innocent Spouse Operation
(CCISO) issued two preliminary determinations. Both denied Sample’s
requests. She filed an administrative appeal with the IRS 2 and asked
for a chance to give oral testimony. The office denied this request and
issued a final determination that denied her relief for all four years.
B. 2017
On their 2017 return, the couple reported that they owed another
$6,000:
Estimated Tax
Year Withholding Paid Tax Still Owed
Paid
2017 $83,570 $23,943 $5,972
They did not pay, and the Commissioner sent Sample a notice of intent
to levy 3 in June 2021. She asked for a CDP hearing soon after. In her
request she asked for an installment agreement or an offer-in-
compromise, or for the account to be placed in currently-not-collectible
status. She abandoned her request for these collection alternatives
shortly afterward and again asked for innocent-spouse relief from this
underpayment. The Appeals officer (AO) assigned to her hearing sent
her request off to CCISO, which once more made a preliminary
determination to deny her relief.
Sample appealed the denial back to IRS Appeals. AO Rassenfoss
sustained CCISO’s denial and recommended that she send him any
additional documents to make sure they made it into the administrative
record, should she want to appeal again to our Court. This may not have
been the best advice. Remember that Sample had made this request for
innocent-spouse relief in the runup to her CDP hearing. CDP hearings
are also held at IRS Appeals, but typically a different part of IRS
Appeals. And so her request for relief was routed to the AO in charge of
2 If CCISO denies an innocent-spouse claim, the taxpayer may request an
administrative appeal at Appeals. IRM 25.15.1.10.1 (Jan. 27, 2023).
3 When the Commissioner wishes to collect tax by seizing a taxpayer’s property,
he must issue a notice of intent to levy, which informs a taxpayer of her right to a CDP
hearing. I.R.C. § 6330.
5
[*5] her CDP hearing. That AO denied her (f) relief again and sustained
the levy in a notice of determination issued in June 2023.
C. 2018
The couple again underpaid their tax for 2018:
Withholding Estimated Tax
Year Tax Owed
Paid Paid
2018 $61,225 — $5,972
Sample again asked for innocent-spouse relief. Because the
Commissioner had not tried to collect this debt, Sample reverted to
sending in a Form 8857 directly to CCISO. CCISO again denied her
request, and Sample again filed an administrative appeal. An AO
sustained the denial but gave Sample time to submit more information
to support her case. She chose not to do so, and Appeals sent her a notice
of determination.
She filed timely petitions with our Court to challenge each of
these three notices of determination. We consolidated all the cases. 4
Sample consented to submit all three for decision without a trial
under Rule 122. We do note that Sample could have offered testimony
at trial regarding any newly discovered or previously unavailable
information. She nevertheless agreed to submit the case fully
stipulated.
OPINION
I. Innocent Spouse Relief Under Section 6015
These cases are complicated because Sample asked for every
different kind of innocent-spouse relief and did so both in stand-alone
requests and as a defense to collection in her CDP case. And neither she
nor the Commissioner quite understood the complexity of some of these
combinations. We will organize our analysis to try to simplify it as much
as reasonably possible.
4 Since she lived in Minnesota when she filed each of her three petitions, her
appeal presumptively lies with the Eighth Circuit. See I.R.C. § 7482(b)(1).
6
[*6] That means we will begin with an overview of relief under 6015:
• the forms of relief;
• the paths to seeking relief; and
• the standards and scope of review when a case comes to us.
We will then analyze a procedural objection that Sample makes to how
CCISO and IRS Appeals evaluated her various requests for relief before
moving on to our own analysis of each of her requests by type of relief
sought and year for which she sought it.
Spouses who file a joint federal income tax return are jointly and
severally liable for the income-tax liability they report. I.R.C.
§ 6013(d)(3). But this is tax law, so there are always exceptions to the
general rule, and a spouse who wants to get out of joint liability must
look to section 6015.
There are three forms of innocent-spouse relief. Subsection (b)
offers relief from an understatement of tax, subsection (c) allows for
allocation of a deficiency between separated or divorced spouses, and
subsection (f) offers relief even when it is not available under either
subsection (b) or (c) if that would be “equitable”. Subsection (f) relief is
especially valuable because it is the only subsection that allows relief
from a failure to pay (underpayment) as well as a failure to correctly
report the tax due (understatement).
Just as there are three kinds of relief under section 6015, there
are three ways to ask for relief:
• by filing Form 8857 directly with the IRS and then petitioning our
Court in a “stand-alone” case if that relief is denied, see, e.g.,
Fernandez v. Commissioner, 114 T.C. 324, 329 (2000);
• by raising innocent-spouse relief as an affirmative defense in a
deficiency case; and
• by raising entitlement to innocent-spouse relief at a CDP hearing
requested by a taxpayer after the IRS threatens to seize her
property to pay unpaid tax bills, see I.R.C. § 6330.
See generally DelPonte v. Commissioner, 158 T.C. 159, 165 (2022).
7
[*7] Our standard and scope of review vary by the path a requesting
spouse embarks upon. If the issue of relief comes up in a stand-alone
petition that’s filed under section 6015 itself, section 6015(e)(7) tells us
that:
Any review of a determination made under this section
shall be reviewed de novo by the Tax Court and shall be
based upon—
(A) the administrative record established at
the time of the determination, and
(B) any additional newly discovered or
previously unavailable evidence.
Kruja v. Commissioner, T.C. Memo. 2019-136, at *8 n.4.
If the issue of relief comes up in a deficiency case filed under
section 6213, the standard and scope of review are entirely de novo, as
with most issues in our deficiency cases. Porter v. Commissioner, 132
T.C. 203, 208 (2009).
But what if the issue of relief comes up in a CDP case filed under
section 6320 or 6330? Here we meet what might be a small but novel
issue. More than twenty years ago we held that a taxpayer who raises
an innocent-spouse defense in a CDP hearing is seeking not just a
determination under section 6330, but a determination under section
6015 as well. That meant that even when we denied review of the CDP
determination because the petition was untimely, we could still review
that portion of the CDP determination that disposed of the innocent-
spouse claim if the petition was timely under section 6015. 5 See
Raymond v. Commissioner, 119 T.C. 191, 194 (2002).
This rule—that a taxpayer who asks for relief from enforced
collection may effectively combine it with other forms of relief under the
Code has been endorsed by circuit courts and made general. In Wright
v. Commissioner, 571 F.3d 215, 220(2d Cir. 2009), vacating and remandingT.C. Memo. 2006-273
, the Second Circuit held that a
taxpayer who asked for interest abatement during his CDP hearing was
effectively asking for relief under section 6404 even if he didn’t mention
that section. That Court also reasoned that the taxpayer’s request
meant that, at least for the issue of interest abatement, we should have
5 We established that CDP-borne requests require these dual determinations
two decades before the Supreme Court in Boechler, P.C. v. Commissioner, 142 S. Ct.
1493 (2022), held the deadline for a CDP petition was nonjurisdictional.
8
[*8] followed the jurisdictional rules for review of interest-abatement
determinations. Id.The U.S. Court of Appeals for the Third Circuit has likewise held that payment of the tax bill that led to a CDP hearing might moot a CDP case, but that if the taxpayer has raised interest abatement during that hearing the case would stay alive because “a petition ostensibly filed under [section 6330] can also be viewed as having been filed under section 6404(h)(1) if the taxpayer had raised the issue of interest abatement in his [CDP] hearing.” 6 Ahmed v. Commissioner,64 F.4th 477
, 487 (3d Cir. 2023) (quoting McLane v. Commissioner,T.C. Memo. 2018-149
, at *29, aff’d,24 F.4th 316
(4th Cir. 2022)), vacating and remandingT.C. Memo. 2021-142
.
We ourselves have reasoned that, despite the general rule of
Greene-Thapedi v. Commissioner, 126 T.C. 1, 8(2006) (that we can’t grant refunds in appeals of CDP determinations), a petition filed under section 6330 “can be viewed as giving independent jurisdiction under another provision that may provide us with the authority to consider overpayment claims” including section 6015(g). McLane,T.C. Memo. 2018-149
, at *33.
We can therefore safely conclude that Sample’s 2017 request for
innocent-spouse relief in her CDP hearing transformed the resulting
determination, at least to the extent it disposes of spousal defenses, into
a determination under section 6015. And that means that we will apply
the same standard and scope of review—the standard and scope given
to us by section 6015(e)(7)—to this tax year that we do to all the years
for which she filed stand-alone petitions. See Chavis v. Commissioner,
158 T.C. 175, 182 n.2 (2022) (reserving issue).
Deciding what kind of determination we make also affects the
remedy we can provide. Our de novo decisions in section 6015 cases do
not allow us to send the case back to the IRS. Friday v. Commissioner,
124 T.C. 220, 222 (2005).
II. Sample’s Procedural Objection
Our analysis of Sample’s case is also complicated by the different
types of innocent-spouse relief that Sample argues she’s entitled to. And
6 When asked to define a determination under section 6330, the Supreme Court
answered: “simply a decision as to whether a levy may go forward.” Commissioner v.
Zuch, 145 S. Ct. 1707, 1712 (2025). But when a taxpayer raises innocent-spouse relief
during her CDP hearing, section 6015 requires a specific determination as to whether
she is entitled to relief under that section. See I.R.C. § 6015(e)(7).
9
[*9] before we bite down on each type of relief and each tax year at issue,
we first need to examine a procedural argument that she raises. Sample
argues the IRS should have given her the opportunity to present new
evidence and rebut the government’s fact-finding for all the tax years at
issue. She asserts that she had the right to a hearing before CCISO
issued its preliminary determinations. Depriving her of that hearing
means the AOs had no basis for their denial of her requests because the
record was improperly sparse. The Commissioner denies this and
insists that his procedures complied with section 6015 for stand-alone
innocent-spouse relief.
We see two problems for Sample here. The first is that she didn’t
take advantage of the opportunities for presenting additional evidence
that existing administrative procedures gave her. After she submitted
her Form 8857, she chose not to send supplemental material at the
administrative level. She also chose not to submit any “newly discovered
or previously unavailable evidence” when these cases came before us. 7
CCISO deemed Sample’s Forms 8857 for tax years 2011–14 and
2018 valid and complete at the time she submitted them. 8 Under the
IRS’s own rules, CCISO is not obligated to ask for additional information
unless a Form 8857 is incomplete. See IRM 25.15.3.10.3 (Jan. 10, 2020),
25.15.6.8.8 (June 19, 2017). Sample’s wasn’t. Agencies are free to grant
additional procedural rights in the exercise of their discretion, but courts
generally can’t dictate any such procedures to them. See Vt. Yankee
Nuclear Power Corp. v. NRDC, 435 U.S. 519, 524 (1978).
As for the 2018 tax year, Sample cites Roman v. Commissioner,
87 T.C.M. (CCH) 835, 837(2004), for the proposition that we must overturn the IRS’s denial of innocent-spouse relief if a taxpayer wasn’t afforded a reasonable chance to be heard before the Commissioner issued a notice of determination. In Roman, however, we found no abuse of discretion by the IRS—“No statutory or regulatory provision requires that taxpayers be afforded an unlimited opportunity to supplement the administrative record.”Id.
7 While her request for relief from her 2018 joint liability was in Appeals, her
representative argued that part of the record was missing because it “was not
technically part of the admin file when the petition was filed.” Although Sample was
given time to submit the information, she did not send any additional documents.
8 And when she submitted a request for relief for 2018, her answers were
almost identical to her 2011–14 request.
10
[*10] For her 2017 tax year, Sample was given an opportunity for a
hearing under section 6330 before her case came to us. 9 See I.R.C.
§ 6330(c)(2)(A). This hearing was her chance to make her best case for
innocent-spouse relief. See I.R.C. § 6330(c)(2)(A). Her choice to not send
supplemental material to the AO does not grant her additional
procedural rights. See Roman, 87 T.C.M. (CCH) at 837.
III. Section 6015(b) Relief
Sample seeks (b) relief for only her 2014 tax year. Relief under
that subsection requires:
• A joint return for the year at issue;
• an understatement of tax attributable to an erroneous item of
the nonrequesting spouse;
• that the requesting spouse didn’t know and had no reason to
know of the understatement at the time of signing the return;
• that it would be inequitable to hold the requesting spouse
liable for the deficiency given all the facts and circumstances;
and
• that the claim for relief is timely.
I.R.C. § 6015(b)(1); Alt v. Commissioner, 119 T.C. 306, 313(2002), aff’d,101 F. App’x 34
(6th Cir. 2004).
These conditions are conjunctive—all must be satisfied. Reynolds
v. Commissioner, 124 T.C.M. (CCH) 311 (2022) (citations omitted).
Under section 6015(e)(7) our standard of review is de novo. We
limit our review to the administrative record because Sample chose not
to supplement that record with any newly discovered or previously
unavailable evidence. Sample has the burden of proving she is entitled
to relief. See Rule 142(a); Alt, 119 T.C. at 311.
9 Taxpayers can raise an innocent-spouse defense at a CDP hearing, but only
if the IRS hasn’t already made a final determination about that defense in a notice of
deficiency or an earlier final determination letter. Treas. Reg. § 301.6330-1(e)(2). The regulations also require taxpayers raising such a defense to otherwise comply with the requirements of section 6015 and Revenue Procedure 2013-34, 2013-43 I.R.B. 397
.Treas. Reg. § 301.6330-1
(e)(2).
11
[*11] The root of Sample’s problem is the third requirement in the list
above—knowledge or reason to know about the understatement at the
time she signed her 2014 return. We don’t look for knowledge of a
particular amount of understatement but what the caselaw calls the
“knowledge-of-the-transaction” test. Cheshire v. Commissioner, 282
F.3d 326, 332–33 (5th Cir. 2002), aff’g115 T.C. 183
(2000). Under this test, a taxpayer has knowledge when she is “aware of the circumstances that gave rise to the understatement of income.” Wilson v. Commissioner,113 T.C.M. (CCH) 1301
(T.C. 2017) (citing Bokum v. Commissioner,94 T.C. 126
(1990), aff’d,992 F.2d 1132
(11th Cir.
1993)). 10
We do not think that, given their disparate levels of education,
Sample should be as familiar as Schara with managing money. When a
taxpayer lacks education in finance, it’s more likely that she won’t be
able to figure out any complicated omissions of income. See Freeman v.
Commissioner, T.C. Memo. 2023-10. But it doesn’t take a degree in
accounting to recognize that this return looked different. Sample was
her husband’s office manager, and she was paid from the business’s
income. Yet the return did not even mention any income from the dental
practice, which was almost $200,000 that year. (Their joint returns from
2011–13 had showed annual income of almost $300,000 or more in
business income.) Under Treasury Regulation § 1.6015-2(c), failure to
question items that a reasonable person would question at or before the
time the return was signed creates an inference of knowledge. This
return was obviously error-ridden, as Sample’s own W-2 income wasn’t
even reported. The nature of the errors should have prompted a double
take on Sample’s part.
We also find it more likely than not that she reasonably should
have known about other missing income, including capital gain, taxable
dividends, and interest. She always had access to her financial
accounts. She wasn’t deeply involved in managing the finances for their
marriage or in her husband’s business, but that wasn’t because of
Schara. She could’ve checked her records, but she just chose not to. The
purpose of section 6015(b)(1)(C) is not to protect the “intentionally
ignorant.” Hall v. Commissioner, 108 T.C.M. (CCH) 199 (2014) (citing
10 In doing this review, we evaluate Sample’s knowledge on an item-by-item
basis, because apportioned relief is available under section 6015(b). See Treas. Reg.
§ 1.6015-2(e)(1).
12
[*12] Cohen v. Commissioner, T.C. Memo. 1987-537, 1987 Tax Ct.
Memo. LEXIS 529, at *10).
Considering her involvement in the business and the blatant
errors in the return, we find it more likely than not that she had reason
to know of the understatement.
IV. Section 6015(c) Relief
Next in line is (c) relief for the tax year 2014. This subsection of
6015 allows for the allocation of a deficiency between spouses. Winning
it requires proof that:
• a joint return was filed for the year for which relief from joint
and several liability is requested;
• at the time the election for relief was made, the spouses were
divorced, legally separated, or had not been members of the
same household at any time during the previous 12 months;
• the requesting spouse sought relief less than two years after
the first collection activity with respect to the liability giving
rise to the deficiency or understatement;
• the spouses did not transfer property to avoid tax or, if they
did, the value of the property transferred is less than the value
of the liability for which relief is elected; and
• the requesting spouse did not have actual knowledge at the
time the joint return was signed of the items giving rise to the
deficiency that are not allocated to the requesting spouse.
I.R.C. § 6015(c)(3).
In reviewing a stand-alone 6015(c) request for relief, we apply a
de novo standard. Our scope of review is limited to the administrative
record. I.R.C. § 6015(e)(7). Relief under subsection (c) is also unusual
in that the IRS bears the burden of proving that the requesting spouse
had actual knowledge of the item giving rise to the deficiency at the time
she signed the return, and not just what a reasonably prudent person
would know. I.R.C. § 6015(c)(3)(C); Mitchell v. Commissioner, 292 F.3d
800, 804(D.C. Cir. 2002), aff’gT.C. Memo. 2000-302
; Culver v. Commissioner,116 T.C. 189
, 196 (2001).
13
[*13] We find here that the Commissioner has shown that Sample had
actual knowledge that her husband’s dental practice was earning
income that should have been reported. While we recognize that Sample
was not financially sophisticated, she worked at the business and knew
it was the family’s main source of income. We conclude from this that it
is more likely than not that she actually knew the dental practice was
earning income. 11
We’ll therefore partially deny Sample’s request for (c) relief and
turn to her request for (f) relief for all the years at issue.
V. Section 6015(f) Relief
A. Conditions for Relief
Subsection (f) of section 6015 is the only possible relief from an
unpaid, and not just understated, tax liability. I.R.C. § 6015(f). The
Code calls this “equitable” relief. This open-ended term has been
cabined by revenue procedures that the Commissioner has issued to help
IRS employees figure out which requesting spouses should get relief. As
our own standard of review shifted to de novo, we continued to analyze
requests for equitable relief under these procedures. Neither party here
has challenged that practice, and we won’t do so ourselves. The current
procedure is Revenue Procedure 2013-34. It tells us to organize our
analysis into three steps. We first look for “threshold factors” that must
all be present to qualify for (f) relief at all. If these are present, we move
on to look for facts that entitle a spouse to “streamlined” relief. But if
that doesn’t work, the revenue procedure gives us an open-ended list of
factors that we must weigh before reaching a final decision.
Those threshold factors are whether:
• the requesting spouse filed a joint return for the year for which
she is requesting relief;
• relief was not available under (b) or (c);
• the request for relief was timely filed;
11 Because respondent failed to defend the other items that make up the
deficiency (e.g., $121 of interest, $17,497 of third-party network transactions, $33 of
capital-gain distributions, $24 of taxable dividends, and $376 of education-program
payments), we grant partial relief to Sample from the portion of the understatement
arising from these items.
14
[*14] • assets were not transferred between the spouses as part of a
fraudulent scheme;
• the nonrequesting spouse did not transfer disqualified assets
to the requesting spouse;
• the requesting spouse did not knowingly participate in the
filing of a fraudulent joint return; and
• the income tax liability from which the requesting spouse
seeks relief is attributable either in full or in part to an item
of the nonrequesting spouse or an underpayment resulting
from the nonrequesting spouse’s income.
Rev. Proc. 2013-34, § 4.01, 2013-43 I.R.B. at 399–400. 12
We next ask whether the requesting spouse qualifies for
streamlined relief. Streamlined relief requires that all these conditions
be met:
• The requesting spouse is no longer married to the
nonrequesting spouse as of the date the determination was
made by the Service.
• The requesting spouse would suffer economic hardship if
equitable relief was not granted.
• The requesting spouse did not know or have reason to know
that there was an understatement or a deficiency on the joint
return or did not know or have reason to know that the
nonrequesting spouse would not or could not pay the
underpayment of tax reported on the joint return.
Id. § 4.02, 2013-43 I.R.B. at 400.
12 The Commissioner has conceded that Sample meets all the threshold
conditions for all the years at issue. We discern that Sample’s separation agreement
shifted all assets (including their shared Montana home worth $650,000) to Sample
while all debts went to Schara. The timing of the separation—which came shortly after
the Department of Justice filed suit to foreclose on Sample’s residence—might make
this transfer look like an effort to protect their home from IRS collections. See United
States v. Schara, No. 19-cv-696 (D. Minn. filed Mar. 14, 2019). But the Commissioner,
for whatever reason, has conceded that there was not a disqualified transfer of assets
relating to the tax year at issue. With this in mind, we find that Sample satisfies these
threshold factors.
15
[*15] If a spouse crosses the threshold, but stumbles into the
streamlined factors we move on to the multifactor balancing test of Rev.
Proc. 2013-34, § 4.03 to decide whether it would be inequitable to hold
Sample liable for all or part of her unpaid income tax liability.
The list of factors:
• the taxpayer’s marital status,
• whether the requesting spouse will suffer economic hardship
absent relief,
• whether the requesting spouse had knowledge or reason to
know that the nonrequesting spouse wouldn’t or couldn’t pay
the liability,
• whether either spouse had a legal obligation to pay the
liabilities,
• whether the requesting spouse significantly benefited from
the underpayments,
• whether the requesting spouse complied with the income tax
laws in the years following those to which the request for relief
relates, and
• the requesting spouse’s mental or physical health.
Id. § 4.03(2), 2013-43 I.R.B. at 400–03.
This list is open-ended, but Sample has not suggested any other
factors for us to consider.
B. Streamlined Relief
Sample must show that she meets all three factors to win
streamlined relief. But we can decide this part of her cases by drilling
down on only one—whether she would suffer economic hardship were
we not to grant her relief. See Rev. Proc. 2013-34, § 4.02(2).
We are meant to evaluate Sample’s financial situation at the time
of trial, but because this is a decision under Rule 122, we will determine
whether economic hardship exists based on the facts available in the
record. See Pullins v. Commissioner, 136 T.C. 432, 446 (2011). The
revenue procedure says that if Sample’s income is below 250 percent of
16
[*16] the federal poverty guidelines or if her monthly income exceeds
her reasonable basic monthly living expenses by only $300 or less, the
Commissioner (and we) would likely find this factor to favor relief. See
Rev. Proc. 2013-34, § 4.03(2)(b). Sample reports her total monthly
income as $12,000—$4,000 in wages and $8,000 in alimony—in every
innocent-spouse request she filed. This exceeds the 250% threshold.
Her monthly income also exceeds her reasonable basic monthly living
expenses ($10,500) by more than $300, which is another way of showing
economic hardship. See id.
In a situation like Sample’s, where one spouse has a good income
and a reasonable margin of income over expenses, the Revenue
Procedure still tells us to look at other facts and circumstances. We
think there are two of those here. The first are her assets. Sample
reported having $896,693 worth of assets, including her home, car,
Montana property, 401K, and bank accounts. (Though we do note that
her home and car are encumbered with secured debt that totals more
than $200,000.) We also note that, though legally separated, she still
lives with her husband, with all the sharing of expenses that makes
possible.
We therefore find with a considerable preponderance of evidence
that she could “make payments towards the tax liability” while still
having enough income for her reasonable living expenses. Id.
This leaves us with a case of “hypothetical hardship” that can’t
justify relief. See Pullins, 136 T.C. at 446. Streamlined relief is not
appropriate for any of the tax years at issue.
C. Equitable Relief
Without streamlined relief, we will look at each of the several
factors that the Revenue Procedure says we should consider as part of a
multifactor test. And we consider separately her claims for relief for
each year for some of the factors.
We also note that Sample is eligible only for partial equitable
relief because one of the items, her wages, can be attributed fully to her.
See Rev. Proc. 2013-34, § 4.01(7). And because we have already
evaluated Sample’s economic hardship, we will not repeat that analysis.
17
[*17] 1. Marital Status
The first of these remaining factors is Sample’s marital status on
the date of the IRS’s determination. See id. § 4.03(2)(a). Perhaps with
our de novo standard of review we should consider her status as of the
date of the cases’ submission. But it doesn’t matter, because Sample
was legally separated from Schara in March 2019. That’s enough for
Sample’s marital status to count in favor of relief.
2. Knowledge
There are separate standards for knowledge of an underpayment
versus an understatement, so we must analyze her underpayments for
the 2011–14, 2017, and 2018 tax years separately from her
understatement for the 2014 tax year. We evaluate Sample’s knowledge
as of the date she filed each joint return at issue. See id. § 4.03(2)(c).
a. Underpayment from 2011–14
When Sample signed the joint returns for 2011, 2012, 2013, and
2014, she had little reason to suspect anything was wrong with their
accounts. The couple definitely owed money to the IRS, but Schara had
given his word that he would pay the bill and that their tax balances
were “just temporary.” She knew he was meeting with accountants and
creditors to make things right. The IRS insists Sample knew they had
a balance due for 2004, 2009, and 2010, but the record we have doesn’t
show any evidence that those liabilities were still unpaid. We therefore
find it more likely than not that Sample did not know or have reason to
know that Schara would not be able to cure the underpayment. We find
this factor weighs in favor of relief.
b. Understatement from 2014
While Sample didn’t have reason to know Schara could not pay
their 2014 tax liability, she did have reason to know he underreported
his business income when she filed her joint return for 2014. The items
at issue were Sample’s own wages from Schara’s dental office and
Schara’s business income from his dental practice. Because she was
employed by Schara, she had insight into his income and expenses. Cf.
Leith v. Commissioner, 120 T.C.M. (CCH) 299 (2020) (finding that
petitioner could not have known her ex-spouse’s income because they
maintained separate jobs as well as separate bank accounts). She wrote
that plainly on her application for relief—“I knew [Schara] had
substantial income coming from his dental practice.” Because Sample
18
[*18] had reason to know of the underreported income when she filed
her joint return for 2014, we find this factor weighs against relief. See
Rev. Proc. 2013-34, § 4.03(2)(c)(i).
c. Underpayments from 2017 and 2018
Sample had reason to know at the time of filing that Schara could
not correct the underpayments of tax from their joint tax returns for
2017 and 2018. See id. § 4.03(2)(c)(ii).
Sample maintains in every initial innocent-spouse request that
Schara consistently told her he would pay off their tax debt. But
Sample’s behavior after learning of the extent of their debt leads us to
believe otherwise. She first learned there was trouble with the IRS
when a revenue officer visited the dental office in 2015. This revelation
that they owed money to the IRS didn’t faze her. It was learning the
extent of their tax debt that prompted her to act.
Her knowledge of the underpayment for the 2018 tax year is
especially evident. Once the Department of Justice targeted her and
Schara in Schara, No. 19-cv-696, to collect their unpaid federal tax
liabilities, Sample was very quick to try to protect herself from their
mountain of marital debts. The case was filed on March 14, 2019, the
couple was separated less than two weeks later, and her first innocent-
spouse claim was submitted less than a month after. She did not want
to be the government’s last resort. This chain of defensive actions by
Sample leads us to believe that by the time her tax return was filed in
November 2019, she knew her husband wouldn’t foot the bill. So this is
also a factor against granting Sample’s request.
3. Legal Obligation
This factor weighs in favor of relief if the nonrequesting spouse
has the sole legal obligation to pay the outstanding tax liability,
according to a binding agreement like a divorce decree. See Rev. Proc.
2013-34, § 4.03(2)(d), superseding Rev. Proc. 2003-61, 2003-2 C.B. 296. But this factor is neutral if, at the time the separation decree was entered, Sample knew or had reason to know that Schara would likely fail to pay the liability. Seeid.
Based on the analysis above, we find it
more likely than not that when Sample signed the separation
agreement, she didn’t think Schara could pay. We find this factor
neutral.
19
[*19] 4. Significant Benefit
The next factor is whether Sample received a significant benefit
as a result of the couple’s unpaid tax liability. See Treas. Reg.
§ 1.6015-2(d). The IRS concedes there is no evidence of significant
benefit for tax years 2011–14. We agree and will go one step further to
say that there is no evidence Sample received more than normal support
for tax years 2017 and 2018 as well.
Sample was awarded multiple properties under her separation
agreement with Schara, including a car and their shared second home
in Montana. But Sample’s separation proceeds were not acquired
because of their failure to pay their 2017 and 2018 tax. See Zaher v.
Commissioner, 103 T.C.M. (CCH) 1071, 1074(2012) (weighing this factor in favor of relief because the assets awarded in divorce were bought before their joint tax liability arose). That Schara transferred property to Sample is not enough to weight this factor against relief, as the benefit must be traceable to the omission of income. Seeid.
And while we could weigh this factor against relief if there were signs of excessive spending, we find none here. Sample doesn’t live a life of luxury, traversing the world on expensive vacations, sporting couture in sophisticated sports cars. See Rev. Proc. 2013-34, § 4.03(2)(e). Because we do not see the typical hallmarks of significant benefit, we will not find that Sample had more than normal support from her unpaid tax liability. See Zaher,103 T.C.M. (CCH) at 1074
. That makes this factor
neutral. See Rev. Proc. 2013-34, § 4.03(2)(e).
5. Compliance
Whether Sample complied with the income tax laws following her
separation from Schara is also a factor. See id. § 4.03(2)(f)(i). The
Commissioner concedes that this factor favors Sample.
6. Physical and Mental Health
The last factor is Sample’s physical and mental health. See id.
§ 4.03(2)(e). Sample checked the “no” box on every Form 8857 she
submitted when asked whether she had or has a physical or mental
health problem. So, this is a neutral factor.
The following chart depicts the results of the analysis: 13
13 We use an em dash when a factor is neutral.
20
[*20] Factors Tax Years
2011–13 2014 2017 2018
U/P U/S
Marital Status For For For For For
Economic Hardship — — — — —
Knowledge For For Against Against Against
Legal Obligation — — — — —
Significant Benefit — — — — —
Compliance For For For For For
Physical & Mental —
— — — —
Health
As with all multifactor tests, one must have some way of weighing
the factors and answering the ultimate question. That ultimate
question here is whether granting relief would be “equitable”. One way
of looking at this, we think, is whether there was a point when Sample
should reasonably have reacted to Schara’s tax troubles by
disentangling herself from the economic union of a married couple, and
especially from the filing of joint returns.
CONCLUSION
Our review of the record for the 2011, 2012, 2013, 2014, 2017, and
2018 tax years leads us to a split decision, with the dividing line being
Sample’s learning of the IRS’s visit in 2015. Before then, she was
reasonably ignorant of her husband’s underpayments for 2011 through
2013. But we also find she knew of the understatements—very
substantial understatements—starting with the 2014 return.
We will thus grant her equitable relief for tax years 2011 through
2013 and deny her relief for tax years 2014, 2017, and 2018.
To reflect the foregoing,
An order directing the parties to agree on the wording of the
decisions in these cases will be issued.