The U.S. Court of Appeals for the Ninth Circuit upheld a 2006 decision of the Tax Court denying innocent spouse relief. This was a very interesting case, and most striking was that the spouse requesting the relief had prepared the tax returns.
From 1979 through 1997, Khen T. Huynh worked in social services for the County of San Diego. Her husband, Hong, purchased insurance to cover payment on eleven credit cards if he ever became unemployed. In 1996 Hong lost his job. Payments were made from insurers of $9,719 for 1996 and $9,632 for 1997.
The couples 1996 & 1997 1040 Individual Income Tax returns were prepared by Khen as married filing joint. Khen did not think the amount paid by insurers was taxable income and such amounts were not included on the returns. The 1996 & 1997 returns prepared by Khen were audited by the Internal Revenue Service (IRS) and adjustments were made to account for the insurance payments made on Hong’s behalf.
Deficiency notices were mailed to Khen and Hong and both parties read and signed the petitions for the Tax Court to determine the deficiencies. At trial, Khen testified that she knew Hong had insurance to pay the credit card bills if he ever became unemployed and that she knew he was unemployed in 1996 and 1997. In August of 2001, the Tax Court filed its opinion stating that both Khen and Hong were responsible for payment on the tax deficiencies.
Khen requested relief under the innocent spouse rules in March of 2002 from the 1996 and 1997 tax deficiencies. The IRS denied Khen’s claim stating that spouses are jointly liable for the income tax deficiency on married filing joint returns. Further, IRS stated that Khen participated in the hearings and did not request relief from the tax deficiencies under the innocent spouse rules at any time during the trial. That court concluded in this case that Khen is barred under the innocent spouse rules from obtaining any relief from joint liability for the 1996 0r 1997 income tax deficiency.
Khen T. Huynh v. Commissioner, TC Memo 2006-180, Code Sec. 6015
Affirmed by Huynh v. Commission, 101 AFTR 2d 2008-2073