In the case of Asad and Akel v. Commissioner, TC Memo 2017-80 the IRS agreed each of the now divorced spouses should be liable for only a portion of the tax due, each qualifying for innocent spouse relief under IRC §6015 for tax liabilities arising from rental properties owned by the other spouse.

However, the taxpayers in this case, while accepting that neither should be liable for the entire balance due, argued that rather than using the allocation the IRS arrived at based on the ownership of the properties leading to the tax liability, each should be relieved of 50% of the liability. That is, they proposed to split the tax evenly.

The taxpayers argued for this result because it was the result provided for in their divorce decree. As the opinion notes:

In that divorce agreement, Asad and Akel had agreed that each would be liable for 50% of their tax liabilities from prior tax years, including tax years 2008 and 2009. The discussion of the divorce agreement at trial began with Asad proposing: “I would like to possibly see if my ex-spouse, Sam Akel, objects to it being 50/50 as we agreed on in the divorce decree.” After some discussion, Akel said: “I agree to split it 50/50.” Our interpretation of this discussion is that Asad and Akel thought that their willingness--at trial--to agree to a 50-50 split should permit their respective liabilities to the IRS to be reduced by 50%.

At first glance this certainly appears reasonable—the IRS still had the right to collect the entire balance due (the taxpayers did not dispute what was owed in total) and the ex-spouses had a court document (their divorce decree) providing for just such an even split.

But the Tax Court noted that the decree bound only those who were a party to it—and that did not include the IRS. As the Court commented:

The divorce agreement establishes Asad’s and Akel’s rights against each other under state law. See Rude v. Commissioner, 48 T.C. 165, 174 (1967). It may allow one to recover against the other through a right of contribution. See id. However, it does not control their liabilities to the IRS.

Rather, the Tax Court noted, each generally remained joint and severally liable for the tax due, with any reduction in their personal liability being governed by the innocent spouse provisions found at IRC §6015.

As the IRS did not consent to settle the case based on such a 50/50 split of the tax liability, the Court instead divided the liability based on the relative contribution of each spouse to the liability that arose, which was a 28%/72% split.

As the Court noted, if one of the spouses ends up paying 72%, that spouse would most likely have a state law claim against the other to recover the overpayment from the other spouse. But that spouse also takes on, rather than the IRS, the risk that any such judgment might prove uncollectible.