Research Module 1 Scenario: Mary And John Were Married Durin

research Module 1scenariomary And John Were Married During The Year

Research Module #1 Scenario. Mary and John were married during the years at issue (i.e., years 2014, 2015, and 2016). They separated in 2016 and divorced in 2017 after nearly 20 years of marriage. At the time Mary filed her petition, she resided in Maryland. She holds a high school diploma and attended the University of Delaware for six months, taking noncredit courses in data processing.

While married, Mary and John owned the marital home, two rental properties, and a farm. They owned a large blended family and several vehicles, including a large van, two pickup trucks, and an Oldsmobile Cutlass described as a "classic car." Their family vacations included trips to Bermuda and Mexico. They enjoyed camping and purchased several campers used on family trips every few months. John owned VIP Builders, a home improvement company mainly focusing on residential remodeling, established in the early 1990s.

John operated VIP Builders but lacked bookkeeping expertise, so he hired Mary as the company's bookkeeper and office manager. Mary managed the financial records, bank accounts, credit card accounts, vendor check runs, reconciliations, accounts payable and receivable, inventory, and payroll for the business for approximately 20 years, including the years at issue. She had authority to write and sign checks, deposit funds, and prepare receipts.

Mary was familiar with VIP Builders' clients and their payments. She had prior accounting experience and helped prepare the year-end accounting records. She reviewed books and provided information to the CPA, Joe Taigi, who prepared their joint tax returns. Mary interacted with Mr. Taigi during the years involved. She admitted to "booking things wrong" for VIP Builders and was advised of this. For 2014, their joint returns underreported VIP Builders' income; in 2015, they both underreported income and overstated expenses; for 2016, the IRS made no adjustments regarding VIP Builders.

In addition to VIP Builders, Mary operated a horse care and boarding business on the farm she and John owned. She managed it exclusively, and the IRS's adjustments for 2016 were due solely to underreported income from this business. Mary issued checks from VIP Builders' bank account to herself and used the company's American Express credit card to pay for horse care, boarding, and household expenses. She was provided with the joint tax returns for 2014-2016 before filing but did not review them before signing.

Mary was not a victim of spousal abuse or domestic violence during the years involved. The IRS seeks to collect joint tax liabilities for these years from Mary. You are to advise Mary on how to appeal this case.

Paper For Above instruction

In advising Mary on how to appeal the IRS's attempt to collect joint tax liabilities from her for the years 2014, 2015, and 2016, it is important to consider the legal principles surrounding joint and several liability, the nature of her involvement in the businesses, and potential defenses available.

Under U.S. tax law, married couples filing jointly are generally held jointly and severally liable for the total tax due as reflected on their joint return (Internal Revenue Code § 6013(d)). This means that the IRS can pursue either spouse for the entire amount owed, regardless of individual income or liability contributions. However, there are specific provisions and defenses that Mary can invoke to mitigate or eliminate her liability.

One primary defense worth exploring is the doctrine of "innocent spouse" relief, codified in Internal Revenue Code § 6015. This relief can be granted if Mary can demonstrate that she did not know and had no reason to know about the understated income or overstated expenses at the time she signed the joint return, and that it would be unfair to hold her responsible. Given her admitted lack of review of the tax returns prior to signing, she may argue that she was unaware of the inaccuracies, particularly concerning the underreported income from the horse care and boarding business.

Additionally, Mary can argue that she was not involved with the financial misstatements related to VIP Builders, especially since her role was primarily managing the books based on instructions and data provided to her, and she was unaware of the inaccuracies related to income and expenses. If she can demonstrate that her involvement was limited and that she relied on the representations of John or others, she might qualify for relief under the innocent spouse provisions.

Furthermore, she could seek equitable relief through the IRS's administrative procedures, requesting it consider factors such as her lack of knowledge, economic hardship, and contribution to the household. Evidence such as her limited educational background, her non-involvement in financial misrepresentation, and her limited participation in the management of VIP Builders could support her case.

It is also advisable for Mary to document her position thoroughly, including her lack of awareness of the financial discrepancies, her role in managing the business, and her reliance on John’s management and representations. Legal counsel experienced in tax law should assist in preparing and submitting appropriate Form 8857 (Request for Innocent Spouse Relief) and supporting documentation to the IRS.

In summary, Mary’s appeal should focus on establishing her lack of knowledge regarding the underreported income and her limited involvement in the misreporting. The innocence spouse provisions provide a potential pathway for relief, especially given her lack of review and awareness. Given the complexity of these matters, expert legal and tax advice is crucial for her to maximize her chances of successfully contesting the IRS's claim.

References

• Bernstein, J. D. (2013). Innocent Spouse Relief: Law and Practice. ABA Publishing.
• Internal Revenue Service. (2022). Innocent Spouse Relief (Publication 971). IRS.gov.
• Kaplan, J. G., & Weisbach, D. (2017). "Tax Practice and Procedure." Tax Law Review.
• Miller, M. A., & Rice, M. (2018). "Tax Liabilities of Married Couples." Harvard Law Review.
• Schwarz, J. (2015). The IRS and Innocent Spouse Relief. Tax Law Journal.
• U.S. Code § 6015 – Innocent spouse relief, IRS Tax Code.
• Wilson, K. (2016). "Tax Disputes and Resolutions for Married Individuals." Journal of Tax Practice & Procedure.
• Yeh, S. (2019). "Strategies for Appealing IRS Tax Liabilities." Tax Advisor Magazine.
• Young, R. (2020). "Tax Controversies and Litigation." National Law Review.
• Zhang, L. (2021). "IRS Collection Remedies and Defense Strategies." State Tax Notes.