Owe It to You or Cheat You out of It

Carolee F. Argyle v. Commissioner, TC Summary Opinion 2010-129

This was originally published on October 6th, 2010.

Time for another lesson on not reflexively filing joint returns.  Carollee Argyle was turned down for innocent spouse relief on her tax debt from the 2002 joint return she filed with her then husband, James Newkirk.

Early in 2002 both Ms. Argyle and Mr. Newkirk were laid off from their jobs with AT&T.  Mr. Newkirk withdrew $144,205 from his pension during 2002.  They ended up selling their home in Florida and buying a new home in Utah.  Between this and that and the other thing, the pension money pretty much went.  When it came time to file their 2002 tax return, there was a balance due of $27,539.  Neither of them paid it.

The couple divorced in 2006.  (This being a Tax Court Summary decision we are left to fill in the intervening drama in our imagination).  The divorce agreement indicated that any debts incurred during the marriage should be the responsibility of the one who incurred the debt.  The agreement did not address the unpaid tax.

It may well be that the storm clouds of marital dissolution were not on the horizon in 2003, so my previous post on this issue would not seem relevant.  Nonetheless filing separately should have been considered. Presumably the liability on two separate returns was greater than the joint liability.  Does that really matter though ?  I have a theory that all amounts greater than you can conceivably pay will end up being equal to what somebody else thinks you can afford to pay.  Maybe another couple would have seen a way to pay the $27,539, the Newkirks did not.  By filing a joint return they were telling the IRS to get as much as it could up to $27,539 from both of them.  Had they filed separate returns they would have been telling the IRS to get as much as it could up to say $40,000 from Mr. Newkirk.

Here is the interesting wrinkle.  If it turned out that between both of them they could actually come up with $27,539, they could amend to a joint return at that point.

Filing a timely return even though you don't have the money to pay the tax is definitely the right thing to do.  When you are filing such a return, think before you make it a joint return.  If you are the part of the couple who doesn't have the income think three times.