Just like the IRS, the California Franchise Tax Board (FTB) also has a program to allow one spouse to be relieved of existing joint liabilities if that spouse can prove that she or he meets the requirements for “innocent spouse” relief. These types of cases whether at the IRS or FTB level can be hotly contested and the other ex-spouse can intervene and attempt to impede the determination to relieve the liability for the claimant spouse. In a recent case, McShea, California State Board of Equalization, No. 509192, April 22, 2014, released August 2014, a taxpayer demonstrated that the FTB erred in its denial of her request for innocent spouse relief from unpaid California personal income tax liabilities.
In the McShea case, the FTB initially granted the taxpayer complete equitable relief for 1993 and partial equitable relief for 1994. However, the taxpayer’s ex-husband appealed the grant of relief, arguing that they had agreed to share the tax liabilities for the tax years at issue. As a result, the FTB changed its position, determining that it had erroneously granted equitable relief.
In reviewing the case, the Board of Equalization determined that the following factors weighed in favor of reversing the FTB’s proposed action on appeal:
• the taxpayer’s marital status (divorced for at least 12 months prior to the date the innocent spouse determination was being made);
• the taxpayer’s compliance with the income tax laws in the years following the years for which relief was requested;
• the presence of severe domestic abuse during the taxpayer’s years of marriage;
• and the taxpayer’s lack of knowledge or reason to know, when she was ordered by a judge to sign the 1993 and 1994 joint returns in 2007, that her ex-
husband would not or could not pay the tax liabilities.
The FTB argued that the taxpayer could have clarified at the couple’s 2007 court hearing whether her ex-husband intended to remit payment for the 1993 and 1994 tax liabilities on or about the time he filed the 1993 and 1994 returns. However, the State Board of Equalization determined that due to the years of abuse and the taxpayer’s belief that she needed to sign the returns in order to receive the child support her ex-husband owed, the taxpayer was afraid to confront her ex-husband and the judge concerning the payment of the 1993 and 1994 tax liabilities at the time she signed the returns and, therefore, she did not know or have reason to know that her ex-husband would not or could not pay the tax liabilities.
This is a great result for the innocent spouse, especially in a situation where the ex-spouse intervened and attempted to persuade the tax authorities not to grant the innocent spouse relief. It is extremely important that when making a claim for innocent spouse that all the factors are considered and that the claimant is prepared to get into a heated battle with the ex-spouse. Sometimes the other ex-spouse does not intervene and sometimes the ex-spouse intervenes but only to help the innocent spouse obtain the relief being requested. So you really need to vet the situation prior to making the claim so that you are prepared to deal with all the possible scenarios. Innocent spouse relief is a powerful tool that can be used to abate the existing tax liabilities, thus in the appropriate circumstances, it should not be overlooked.
If you have questions or want to pursue this type of claim, you can contact the Wilson Tax Law Group at 714-463-4430. Our attorneys are experts in innocent spouse relief and can assist or advise you regarding these types of matters.