Innocent Spouse Relief Denied in Failure-to-File Case

By: National Association of Tax Professionals ·

Lavish lifestyle

The U.S. Tax Court recently addressed another case involving innocent spouse relief under IRC §6015. On August 26, 2025, the court ruled that Lisa Marie Walsh remained liable for a portion of the tax and penalties she and her ex-husband accumulated over six years, despite her claims for relief.

Case Background

Walsh argued that she did not understand the tax returns her then-spouse filed and only learned of the “huge tax bill” in 2020. She sought relief under the innocent spouse provisions of §6015, which allow a spouse to be relieved of certain tax liabilities if they meet specific requirements.

Years 2011–2013: Res Judicata Applied. Innocent Spouse Relief Denied in Failure-to-File Case

The first issue was whether res judicata barred her from seeking relief for earlier tax years. The court found that because Walsh had meaningful participation in prior litigation through her attorney, she could not re-litigate her liability for 2011–2013, even though she had not specifically requested innocent spouse relief at that time.

Years 2014–2016: Equitable Relief Considered. Innocent Spouse Relief Denied in Failure-to-File Case

For the remaining years, the court applied the equitable relief framework under Rev. Proc. 2013-34. This analysis weighs factors such as:

• Marital status (divorced or separated)

• Economic hardship

• Knowledge or reason to know of the underpayments

• Significant benefit received

• Post-divorce tax compliance

Only Walsh’s divorced status weighed in her favor. The court determined that she was aware of the underpayments, continued to enjoy a lavish lifestyle despite unpaid liabilities, and failed to comply with her tax obligations after the divorce. These factors weighed heavily against relief.

Court’s Decision

The court concluded that Walsh did not meet her burden of proof and denied relief for tax years 2014–2016. As a result, she remains responsible for the tax and penalties at issue.

Key Takeaways for Practitioners

• Res judicata matters: If a spouse participated in prior court proceedings, even indirectly through representation, that participation can prevent later attempts to seek relief.

• Divorce alone is not enough: While being divorced can weigh in favor of relief, it is rarely decisive without other supporting factors.

• Lifestyle and knowledge weigh heavily: Courts are reluctant to grant relief when the requesting spouse benefited from the unpaid taxes or maintained a high standard of living despite knowing about the liabilities.

• Burden of proof remains high: Under §6015(f), taxpayers must provide compelling evidence of hardship, lack of knowledge, or unfairness to prevail.

Innocent Spouse Relief Denied in Failure-to-File Case - This decision highlights the importance of carefully evaluating innocent spouse cases, both in terms of prior litigation history and the strength of equitable factors under Rev. Proc. 2013-34.