The United States Tax Court has ruled on a case involving a taxpayer, David Billings, who asked to be relieved from liability for the tax owed on money his wife embezzled from his employer without his knowledge, and has decided in his favor.
The court had originally declined to rule on the case, saying it was outside the court's jurisdiction. Billings appealed and while his appeal was pending, Congress amended the Tax Code to give the court jurisdiction over cases like his.
Billings married his wife Rosalee in 1996. He was working at General Motors, while she was employed as a payroll clerk at a local electric company. They kept two checking accounts. Both accounts were jointly held, but each spouse kept almost exclusive control over their own account.
In 1999, she transferred money from her employer's payroll account into her checking account. Her embezzlement continued until 2000, but she kept it secret from her husband until she was caught. Her lawyer advised her to file an amended return as he believed a judge would be inclined to be more lenient if she took responsibility for her actions. Her husband signed the amended return, which showed a tax increase of $16,000. The couple filed for bankruptcy, but even though they received a discharge, the IRS still insisted they pay the tax.
David Billings retired and asked for innocent spouse relief from the IRS for joint liability for the unpaid tax. The IRS denied his request, he appealed, was denied again, and then took his case to U.S. Tax Court. The court's jurisdiction in the case was a matter of controversy, with the Ninth Circuit and Eighth Circuit courts telling the Tax Court that it lacked jurisdiction. Billings then appealed to the Tenth Circuit, Congress amended the law, and the Tax Court won jurisdiction.
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