Where plaintiff had extensive education, including law degree and M.B.A., and was involved in the running of husband’s law practice, Tax Court did not err in finding that she was not entitled to innocent spouse exception for tax liability.

The 7th U.S. Circuit Court of Appeals affirmed a decision by the United States Tax Court.

John and Frances Rogers, married since 1967, filed joint federal income tax returns for many years. During those years, the Rogerses underreported their tax obligations many times over. The misreporting was the product of a fraudulent tax scheme designed by John, a Harvard-trained tax attorney. John developed and marketed tax shelters, some of which involved a partnership’s acquisition and subsequent transfer of highly distressed or uncollectible accounts receivable from retailers located in Brazil. The point of the transfers was to convey interests in the receivables, assets with meaningful face value but no economic value in the hands of the Brazilian retailers, to U.S. taxpayers, who then deemed them uncollectable and used the concocted loss to reduce their tax liability.

Eventually, the IRS caught up to John’s tax shelters and began litigation. The Tax Court concluded in each instance that John perpetuated fraudulent tax avoidance over the course of multiple years. It thus imposed significant liability on the Rogerses. The Rogerses repeatedly appealed these adverse rulings, and the rulings were affirmed by the 7th Circuit each time.

In the present appeal, the appellate panel began by noting that the issue was not John’s fraudulent tax scheme, but his wife Frances’ liability for the couple’s personal income tax deficiencies for the years 2003, 2005 to 2007, and 2009 to 2012. The panel stated that married couples who file joint tax returns are generally jointly and severally liable for income tax liabilities. The panel continued, stating that the Tax Code also provides an exception, called innocent spouse relief, to protect against the injustice of requiring a spouse, who has no actual and meaningful responsibility for the underpayment, to bear the tax liability alone.

The panel stated that in 2018, it affirmed the Tax Court’s denial of Frances’ request for innocent spouse relief for the 2004 tax year. The panel noted that innocent spouse relief is only available if the petitioner had not participated meaningfully in the prior proceeding during which tax liabilities were resolved. The panel stated that because the Tax Court was on solid ground in finding that Frances meaningfully participated in the 2012 Tax Court trial conducted to resolve the disputed tax liability for 2004, she was not entitled to innocent spouse relief.

Frances returned to the Tax Court seeking innocent spouse relief for tax years 2003, 2005 to 2007, and 2009 to 2012. The Tax Court denied her relief for all years in separate opinions. Frances then appealed.

The panel stated that the Tax Court appropriately relied on and emphasized Frances’ extensive education, including her law degree and M.B.A., in finding her argument that she had no reason to know of the understatements not credible. The panel stated that Frances holds a master’s degree in biochemistry, a law degree, an M.B.A. and a doctorate in education. The panel stated that the Tax Court did not err in determining that Frances was capable of understanding complex financial, accounting and tax concepts. Next, the panel found that the Tax Court did not clearly err in discrediting Frances’ claims that she had no knowledge or involvement in her husband’s business or law practice. Finally, the panel found that the Tax Court did not clearly err when it concluded that nothing in the record supported a finding that John tried to deceive or hide anything from Frances. The panel noted that Frances had access to the family’s financial information and reviewed the tax returns prior to their being filed. The panel therefore affirmed the decision of the district court.

Frances L. Rogers v. Commissioner of Internal Revenue
Nos. 20-2789, 20-2790, 20-2791, 20-2869, 20-2870, 20-2871, 20-2872 & 20-2873
Writing for the court: Judge Michael Y. Scudder Jr.
Concurring: Judges William J. Bauer and Frank H. Easterbrook
Released: Aug. 17, 2021