U.S. Tax Court: “Innocent spouse relief” not available as defense for trust fund recovery penalty liability

Liability for trust fund recovery penalty did not arise from any liability shown on a joint federal income tax return

Innocent spouse relief not available as defense for trust fund recovery penalty liability

The U.S. Tax Court today held, in part, that the taxpayer was not eligible for “innocent spouse” relief under section 6015 because her liability for the trust fund recovery penalty under section 6672 did not arise from any liability shown on a joint federal income tax return.

The Tax Court also held that the taxpayer had a prior opportunity to challenge her trust fund recovery penalty liability when she received Letter 1153, Notice of Trust Fund Recovery Penalty, and that she was not entitled to challenge her underlying tax liability at the collection due process (CDP) hearing or before the Tax Court.

The case is: Chavis v. Commissioner, 158 T.C. No. 8 (June 15, 2022). Read the Tax Court’s opinion [PDF 140 KB]

Summary

The taxpayer and her then-husband during 2011–2014 were officers of a corporation that withheld payroll taxes from its employees’ wages but the corporation did not remit those taxes over to the government.

The IRS issued Letter 1153, informing the taxpayer of the intent to assert trust fund recovery penalties against her and her husband under section 6672. The taxpayer did not challenge the proposed assessment, as she was entitled to do, and the IRS eventually assessed trust fund recovery penalties of approximately $150,000. To collect this unpaid liability, the IRS issued to the taxpayer Letter 3172, Notice of Federal Tax Lien Filing and Your Right to a Hearing.

The taxpayer timely requested a collection due process (CDP) hearing. During the CDP hearing, the taxpayer sought to challenge her underlying liability for the trust fund recovery penalties. The IRS explained that the taxpayer could not challenge her underlying liability because she had declined to take advantage of a prior opportunity to challenge the trust fund recovery penalties when she received Letter 1153.

The taxpayer also requested “innocent spouse” relief, but the IRS determined that such relief is unavailable for trust fund recovery penalties because these did not arise from a joint federal income tax return.

The Tax Court today agreed with the IRS and granted the government’s motion for summary judgment upholding the penalty assessment.

 

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