Lifting a Financial Burden: Pro Bono Team Achieves Innocent Spouse Tax Court Victory

THE CHALLENGE:

After building a family and spending years as a stay-at-home mom of three children, Melody Smith* learned through local TV news coverage that her husband, Robert*, had been indicted for fraudulent and criminal activity related to the use of client investment funds. He ultimately pled guilty to wire fraud and money laundering and was sentenced to several years in prison. She filed for divorce.

Melody found herself in dire financial straits. Not only had she lost the means to support her children, Robert had kept tight control over the family’s finances, leaving her in the dark regarding their situation. When he went to jail, she learned that he had failed to meet the family’s tax obligations and hidden an IRS audit from her—and that the IRS had recently denied a request he submitted for innocent spouse relief to lift her burden.

Because Robert had not filed a petition with the Tax Court, and because the request for innocent spouse relief had been denied, both he and Melody faced a multi-million dollar assessment following the audit.

Melody asked the IRS to reconsider their denial of the request. She was told that she could reapply for relief once her divorce from Robert was finalized.

THE OBJECTIVE:

When the IRS again denied Melody relief following her subsequent post-divorce request, her legal aid tax lawyer recognized that the matter might require litigation. To help, the lawyer brought in a pro bono McDermott team led by Andy Roberson, with the goal of securing relief for Melody.

THE OUTCOME:

After several setbacks in the pursuit of an administrative solution, including a final determination letter from the IRS that continued to hold Melody culpable for her husband’s actions, the team prepared and filed a petition to the Tax Court. McDermott team member Evan Walters also engaged in additional legal research to bolster Melody’s position, all while communicating regularly with Melody to keep her updated on the status of the case.

Once the IRS filed its answer to the petition, the team took the opportunity to schedule a conference call with IRS counsel to discuss the matter. During that call, they explained Melody’s situation and laid out the facts and legal rationale behind their argument that she should be granted full relief. IRS counsel asked thoughtful questions and promised to respond within six weeks after reviewing the file in more detail.

In less than six weeks, the IRS conceded the case in full and granted the requested relief.

MAKE IT EASY:

The McDermott team delivered the good news to Melody through a Zoom video call.

“It’s difficult to express in words how wonderful it was to see Melody’s reaction to the news,” said McDermott Tax Partner Andy Roberson. “We could see the weight being lifted off her shoulders and the release of years of stress and uncertainty. These are the moments when you can see the results of giving back to others.”

The pro bono team’s dedication to Melody’s case and ongoing willingness to go above and beyond in conducting research, building legal support and diligently communicating with both the IRS and the client—along with their litigation skill and understanding of Tax Court procedure—helped them bring the case to a satisfying conclusion for Melody. She is now happily remarried and working as a licensed professional counselor helping others deal with abusive situations.

Learn more about our Tax Controversy capabilities and pro bono work.

*Names have been changed to protect client identities.