Opinion ID: 339205
Heading Depth: 1
Heading Rank: 2

Heading: The 1968 Joint Tax

Text: 19 The largest item secured by the lien on plaintiff's home was the tax assessed against plaintiff and her former husband jointly for the unreported income her husband realized in liquidating the business in 1968. Because a joint return was filed for that year, plaintiff is jointly liable for the tax unless she can bring herself within the innocent spouse provision of the Code, 26 U.S.C. § 6013(e)(1). To qualify as an innocent spouse, she must show the following:(A) a joint return has been made under this section for a taxable year and on such return there was omitted from gross income an amount properly includable therein which is attributable to one spouse and which is in excess of 25 percent of the amount of gross income stated in the return, 20 (B) the other spouse establishes that in signing the return he or she did not know of, and had no reason to know of, such omission, and 21 (C) taking into account whether or not the other spouse significantly benefited directly or indirectly from the items omitted from gross income and taking into account all other facts and circumstances, it is inequitable to hold the other spouse liable for the deficiency in tax for such taxable year attributable to such omission. 22 The first condition is concededly met here. The second was not considered by the District Court, which granted summary judgment against plaintiff because it found that she had received a significant benefit from the omitted income. This benefit was said to accrue to plaintiff through both the property division awarded her in the divorce proceeding and the money received in her later settlement with her husband. 23 In support of this holding the government argues that the failure to pay taxes on the income realized from the liquidation of the jointly owned business increased the couple's joint net worth and thus increased the plaintiff's one-half share of that net worth, even if she never received any of the proceeds of the liquidation. This reasoning, however, is based on the questionable assumption that the divorce court's award constituted in fact an equal division of the couple's property. Although this was the court's goal, plaintiff's husband made a precise division impossible by secreting all the family's liquid assets including the proceeds of the liquidation. With only an estimated figure to work with, the divorce court found it fair and equitable to award plaintiff all the jointly held real property that her husband had been unable to conceal. We cannot presume that the division would have been significantly different had Mr. Busse paid the full 1968 tax and thereby reduced his hidden assets by the $15,000 then due. 24 The government also relies on the payment made to plaintiff in settlement of her claims against her husband, which payment, it says, also represented a . . . substantial benefit. But these claims were based on the husband's failure to comply with the original award. 3 Inasmuch as the settlement was in lieu of part of the original award, it was no more a benefit derived from omitted income than was the original award. 25 The government also argues that by accepting a settlement in return for a release of the claim arising out of the tax lien, plaintiff lost her right to any refund from the government. This argument is based on the assumption that plaintiff received full payment of this claim from her husband, despite the fact that the claim was only one of several totaling at least twice the amount he paid her in settlement. The government asks us to presume that the tax claim was paid in full, absorbing $26,000 of the $42,500 settlement and leaving only $16,500 to settle the other claims, which totaled $62,000. There is no reason to conclude that the claims were settled so disproportionately. It is more reasonable to allocate the settlement to the various claims pro rata, which would leave plaintiff compensated only in part for the tax claim. The guilty spouse's payment of a part of the tax, either directly to the government or by way of reimbursement to the innocent spouse, does not preclude innocent-spouse relief as to the remainder of the tax. 4 26 The government further contends that the high standard of living enjoyed by plaintiff during her marriage constituted a significant benefit. The divorce court found that the husband accustomed the plaintiff to live in a high style, having spent approximately $3000 per month on the operation of their home. The husband testified in the divorce proceeding that some of the secreted funds were used for this purpose, but the divorce court found that the husband's salary could have been the source of this money. Moreover, plaintiff and her husband had other substantial assets, including a savings account of over $51,000, and it appears that the plaintiff may have enjoyed this standard of living before her husband liquidated the business. We think there is a question of fact to be resolved concerning the source of the household funds. 27 Finally, even if the District Court had correctly found a significant benefit, innocent-spouse relief would still be available if it would nevertheless be inequitable to hold plaintiff liable for the tax. 26 U.S.C. § 6013(e)(1)(C); Sanders v. United States, 509 F.2d 162, 170, 171 n.6 (5th Cir. 1975); Dakil v. United States, 496 F.2d 431, 433 (10th Cir. 1974). The inequitability issue depends, in part at least, upon disputed facts relating to benefit. Any benefit found must be considered in the totality of the circumstances. The inequitability provision of the statute is a recognition that, in the words of the Tenth Circuit, (e)ven a tax collector should have some heart. Dakil v. United States, supra, 496 F.2d at 433.