Innocent spouse case

[kcjenkins]

U.S. TAX COURT

The husband in this case had invested substantial sums of money in the famous Hoyt Partnership tax schemes, which have been held fraudulent.

The wife, who signed the couple's joint tax return, said she relied on her husband's assurances that the Hoyt Partnership investments were legitimate, even though she did not consult separate professionals for an opinion. The wife had never received any training or instruction in business or taxes.

The IRS rejected the wife's application for innocent-spouse status based on her alleged participation in the Hoyt partnerships, and because she was thought to have benefitted from the erroneous tax refunds the couple received on account of the fraudulent Hoyt returns.

The Tax Court disagreed, noting that there was virtually no evidence that the wife participated, had never communicated with a Hoyt representative, had never attended a Hoyt meeting, and never read correspondence from the Hoyt people.

As to substantial benefit, the court noted the evidence that the substantial refunds were deposited in the husband's separate bank account, and that there was no evidence the wife enjoyed any special benefit from it; the funds were apparently largely reinvested in more Hoyt schemes.

Observed the Court: "During the years in issue, petitioner's (wife's) standard of living remained constant. There were no lavish expenditures of any kind that benefitted petitioner." The court recited the accepted rule that the benefit rule only applies to "significant" benefit, and "Normal support is not considered a significant benefit."

As to whether the wife had a duty to make reasonable inquiry into the legitimacy of a tax related investment, the court found that her questioning of her husband satisfied that requirement.

Based on these considerations the Tax Court held that the wife was entitled to innocent-spouse relief under 26 U.S.C. § 6015©.

Juell v. Commissioner of Internal Revenue, T.C. Memo 2007-210 (Aug. 8 2007). Swift, Judge.