The IRS denied Mrs. Villela-Wilcox relief under section 6015 because she "knew", or had "reason to know" of significant loss deductions taken on her and her husband's 1997 and 2000 joint tax returns. Mrs. Villela-Wilcox filed a petition in 2007 challenging the IRS's determination. At the time of this decision, the IRS had conceded Mrs. Villela-Wilcox was entitled to relief under 6015(c).
This case is interesting because Mr. Wilcox, petitioner's ex-husband, challenged the agreement between the IRS and Mrs. Villala-Wilcox (he can join the issue as an intervenor under rule 325 of the Tax Court Rules of Practice and Procedure). Mr. Wilcox re-asserts the IRS's original point; that she "knew" or had "reason to know" of the loss deductions taken on their 1997 and 2000 joint return. As such, Mr. Wilcox disputes Mrs.'s entitlement to any relief under section 6015.
The Tax Court agreed with Mr. Wilcox that the "evidence overwhelmingly would support a finding that Mrs. Villela-Wilcox had 'reason to know'." The Tax Court points out, however, that section 6015(c) requires "actual knowledge." Mr. Wilcox's evidence on balance, per the Tax Court, was not strong enough to overcome the agreement between the IRS and his ex-wife. Thus, the agreement stands.
It seems to me this case could have gone either way. This couple was separated in 2002 and were divorced in 2006. It means three years after their divorce they are still fighting! What is more, now that Mrs. Villela-Wilcox is entitled to relief, there needs to be an allocation under 6015(d). So, it is not over. Divorce is the gift that keeps on giving.