TAX COURT OPINION

Case: Tate A. Hohnstein & Alexandra T. Faretra
Docket Number: 3547-22S
Judge: Goeke
Opinion Type: bench
Filed: 02/08/2024
Pages: 7

United States Tax Court Washington, DC 20217 Tate A. Hohnstein & Alexandra T. Faretra, COMMISSIONER OF INTERNAL REVENUE, Respondent Docket No. 3547-22S. ORDER Petitioners v. Pursuant to Rule 152(b) of the Tax Court Rules of Practice and Procedure, it is ORDERED that the Clerk of the Court shall transmit herewith to petitioners and to the Commissioner a copy of the pages of the transcript of the hearing in this case before Judge Joseph Robert Goeke at Milwaukee, Wisconsin containing his oral findings of fact and opinion rendered at the trial session at which this case was heard. In accordance with the oral findings of fact and opinion, Decision will be entered upholding innocent spouse relief for petitioner Alexandra T. Faretra. (Signed) Joseph Robert Goeke Judge Served 02/08/24 Bench Opinion by Judge Joseph Robert Goeke January 31, 2024 3 Tate A. Hohnstein & Alexandra T. Faretra v. Commissioner of Internal Revenue Docket No. 3547-22S THE CLERK: The Court has decided to render oral findings of fact and opinion in this case and the following represents the Court's oral findings of fact and opinion. The oral findings of fact and opinion shall not be relied upon as precedent in any other case. This case was heard pursuant to the provisions of section 7463 of the Internal Revenue Code. Pursuant to section 7463(b), the Decision to be entered is not reviewable by any other court and this opinion shall not be treated as precedent for any other case. This matter is before the Court based upon a petition that was filed after Respondent issued a Notice of Deficiency to the Petitioners, Tate Hohnstein and T. Alexandra JRG ^ Faretra. The Petitioners filed a joint return for the year 2019. At the time, they were in the process of seeking a divorce and the deficiency results from the fact that a W-2 issued to Mr. Hohnstein was omitted from this joint return. The Respondent asserted a deficiency for 2019 of $7,636 and an addition to tax of $1,305 under section 6662(b)(2) and (d). Code section cited in this 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 opinion are to the Internal Revenue Code in effect for the 4 year 2019. The parties have entered into a stipulation of settlement where they agreed to the adjustments underlying the deficiency but Respondent conceded the addition to tax. The facts of the case are straightforward, but there's a preliminary issue about jurisdiction based upon the fact that the Petitioner, Ms. Faretra, testified that she did not sign the petition. However, she engaged Counsel to represent her in this matter and she knowingly entered into a stipulation to settle the case, and at the same time, preserve her rights to seek relief under section 6015(b). She also acknowledged that pursuing the case was in her best interest. Accordingly, she has ratified the petition and is properly a party to this case pursuant to Tax Court Rule 60(a)(1). The facts of the case are straightforward. Mr. Hohnstein and Ms. Faretra filed a joint return for 2019, which was finalized in 2020 and filed with the Internal Revenue Service before their divorce was completed. Their divorce was later finalized in 2020. At the time they filed a joint return, they were communicating either via text or some other electronic form, or through counsel in the divorce proceeding. 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 Based upon agreements reached in the divorce 5 proceedings, Ms. Faretra was to file the return for 2019 and she was to split any refund with Mr. Hohnstein. She relied upon Mr. Hohnstein to give his W-2 information for 2019 to her and she supplied the tax return preparer with W-2s that she had received. He submitted to her two W-2s. He did not provide a W-2, which has roughly $30,000 in income. This amount was in excess of the normal income he had earned in prior years. His decision to fail to submit this has led to the underlying deficiency. Whether this was intentional or inadvertent is not established in the record. But it would appear that had he submitted this W-2 to Ms. Faretra's counsel in the divorce proceedings, he may have been subject to paying additional amounts to her in the divorce proceeding, as this amount was far in excess of his normal income in 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 prior years. 18 19 20 21 22 23 24 25 This failure to include the W-2 has been the subject of a stipulation and agreement by the parties and is no longer in dispute. What remains in dispute is whether Ms. Faretra is an innocent spouse pursuant to section 6015(b). Section 6015(b) sets forth requirements for innocent spouse relief under that subsection of section 6015. We will review those requirements before getting further into this findings of fact as they shed 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 light on what is relevant from a factual perspective. 6 Section 6015(b)(1)(A through F) sets forth the requirements for the application of section 6015(b). The key requirements at issue in this case are whether Ms. Faretra, in signing the return, did not know of the omitted W-2 income and whether it would be inequitable to hold her liable for the deficiency that's been stipulated by the parties. Pursuant to section 6015(c)(2) she bears the burden of proof in this matter. The facts relative to her knowledge are demonstrated in the record. There are ample facts to show she did not know of the omitted W-2. And the fact that it was omitted from the divorce proceeding may have affected the allocation of assets between her and her husband in that proceeding. So it was not in her interest to omit the W-2 if she had been aware of it. This gives her situation further credibility. There's absolutely no evidence in the record that would rebut her assertion that she did not know of the W-2, and we find this fact that she did not know of this omitted income and that the income was solely generated by Mr. Hohnstein. This leaves the only requirement of (d) regarding innocent spouse relief to be whether it would be inequitable to find that Ms. Faretra was liable for the underlying tax. Mr. Hohnstein, at trial, argued that she shared the results of the original refund and that therefore, she should share the liability, which was partially generated by that refund. In analyzing his argument, we believe it is 7 noteworthy that the amount in question that was omitted exceeded the amounts of income in prior years and that had it been properly acknowledged to Ms. Faretra's counsel in the divorce proceedings it may very well have affected the allocation of assets in that proceeding. In addition, her economic circumstances as a result of the divorce and her care of the two children, which were generated in the marriage, support the position that it would be inequitable for her to be held liable for the joint liability generated by the omission of the 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 income. 16 17 18 19 20 21 22 23 24 25 Accordingly, we feel and find as fact that the elements of subsection 6015(b) have all been met and that she is entitled to relief pursuant to that section and she is not liable for the joint income tax liability generated by the 2019 return. Accordingly, a Decision in this case will be entered finding that there is no deficiency owed by Ms. Faretra pursuant to section 6015(b) and that there is a deficiency otherwise owed in the case by the other Petitioner in the case. This ends the Court's oral findings of fact and 8 opinion in this matter. We're off the record. (Whereupon, at 11:21 a.m., the above-entitled matter was concluded.) 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25