Wednesday, December 18, 2002

Barely Risible

There are various "tests" used by lawyers to determine whether a proposed form of transaction is in some way troublesome--the "smell" test for instance. I believe that I have created a new test, the "barely risible" test. Yesterday, the Tax Court handed down an opinion in which the argument presented by the taxpayer failed that test.

In the case, Alt v. Commissioner, the taxpayer was the wife of a cardiologist. She lived what was, by most standards, a fairly opulent lifestyle. Aided and abetted by their daughter, the Alts embarked on a course of what some might term energetic tax avoidance, but which others (notably government prosecutors) termed conspiracy to commit tax fraud. (I hasten to point out that only Dr. Alt and the parties' daughter were actually indicted for tax fraud.)

Mrs. Alt argued that she deserved to be relieved of liability for federal taxes for the years in question because she was a "innocent spouse" entitled to relief under Section 6015 of the Internal Revenue Code.

Not cracking a smile, the Tax Court denied relief, noting that Mrs. Alt had shared (wallowed would be a better word) in the fruits of the parties' failure to pay taxes and that she never even bothered to argue that she was unaware of the underpayment. Moreover, she remains married to Dr. Alt and could not show that payment of the tax, penalty, and interest (around $2 million) would leave her destitute.

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