Separate Liability Requirements Must be Met Prior to Spouses Death

B and her spouse D filed jointly in 1981 and 1982. On the returns, they claimed deductions attributable to Ds limited partnership interest in V partnership. The IRS issued a deficiency notice attributable to the V deductions and B and D filed a Tax Court petition. After a test case concerning similar partnerships was decided, the parties stipulated they were liable for the deficiencies, subject to a possible innocent spouse defense.

At all times, B and D were Colorado residents. B died on March 16, 1996. On June 13, 2000, D, acting as the estates (Es) personal representative, submitted a request for relief under amended Sec. 6015. The Tax Court ultimately held that B was not entitled to any innocent spouse relief; Est. of Barbara Jonson, 118 TC 106 (2002). It reasoned that E was not eligible under Sec. 6015(c), because B did not meet the eligibility requirements prior to her death. On appeal, E argued that the Tax Court erred in concluding that B did not qualify under Sec. 6015(c). The Tax Court also denied Es claims for innocent spouse relief under Sec. 6015(b) and (f); however, those denials are not challenged on appeal.

Law

Sec. 6015(c) provides relief from joint liability for taxpayers no longer married, legally separated or not living together. An individual eligible for relief under Sec. 6015(c) is not liable for unpaid taxes to the extent they are attributable to income earned by, or deductions improperly taken by, the other spouse. An individual is eligible to elect innocent spouse treatment under Sec. 6015(c)(3)(A)(i) if:

(I) at the time such election is filed, such individual is no longer married to, or is legally separated from, the individual with whom such individual filed the joint return to which the election relates; or

(II) such individual was not a member of the same household as the individual with whom such joint return was filed at any time during the 12-month period ending on the date such election is filed.

E argues that it is entitled to relief under the above rules because, under Colorado law, death ends marriage. In Es view, B became entitled to innocent spouse relief under Sec. 6015(c)(3)(A)(i)(I) on the date of her death, both because she was no longer married to D and was legally separated from him. In addition, because the election was filed more than 12 months after Bs death, E claims that it is entitled to innocent spouse relief under Sec. 6015(c)(3)(A)(i)(II), be-cause B was not a member of the same household as D for the 12 month period ending on the date the election was filed.

The court agrees that D and Bs marriage terminated on Bs death; see, e.g., In re Marriage of Connell, 870 P2d 632, 633 (CO Ct. App. 1994) (divorce action abates on death of one of the spouses because, the object sought to be attained by final decree already is accomplished by the prior death of one of the parties, and there remains no status of marriage upon which a final decree of divorce may operate (quoting Est. of McLaughlin v. Craig, 184 P2d 130 (CO 1947)). Also, B was not a member of Ds household during the 12-month period preceding the filing of the Sec. 6015(c) election.

 However, B ceased to be an individual once she died, so that there was no one to which Sec. 6015(c) could apply. Sec. 6015(c) requires that the individual is no longer married to, or legally separated from the other person or that the individual was not a member of the same household as the other person during the required period. Because the Code does not define the word individual, the court interprets it in accordance with its ordinary, everyday meaning; U.S. v. New Mexico, 536 F2d 1324, 1328 (10th Cir. 1976). The dictionary definition of individual that fits the present context is: A human being regarded separately from a group or from society. Websters II New College Dictionary (2001). When individual is used elsewhere in the Code, the context almost always compels it to be construed to mean a human being; see, e.g., Sec. 1(a), (c) (discussing married and unmarried individuals). Here, the meaning is inescapable; when Sec. 6015(c) speaks of an individual in terms of being married or legally separated or belonging to a household, it is surely speaking of a living person. Accordingly, when E filed for relief under Sec. 6015(c), B was not an individual and thus, did not meet Sec. 6015(c)(3)(A)(i)(I) and (II).

An estate can often act on behalf of the decedent for tax purposes, but only when it can engage in the conduct otherwise required of the decedent. Here, for example, the E could perform the filing of the Sec. 6015(c) election. However, it could not satisfy the condition of being no longer married to D or not [being] a member of the same household as D. Thus, Es filing could not qualify for innocent spouse relief under Sec. 6015(c).

Est. of Barbara J. Jonson, 10th Cir., 12/30/03

Reflections: In this case, the court denied relief to the deceased spouses estate on the grounds that the estate was not an individual within the meaning of Sec. 6015(c)(3). However, the opinion suggests that a surviving spouse could satisfy the requirements for separate liability after the death of the deceased spouse, because the surviving spouse is an individual who is no longer married to (or in the same household as) the deceased spouse.