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Taxes, Res Judicata, Innocent Spouse Relief and the First Circuit

By Tanya Roth, Esq. on July 06, 2012 | Last updated on March 21, 2019

Innocent spouse relief is one of the more interesting areas of tax law.

Earlier this week, First Circuit Court of Appeals affirmed a tax court's ruling in a case involving a tax liability based on the innocent spouse statute.

Before we get into the nitty gritty facts of the case, let's talk about what innocent spouse relief is.

You see, when you're married and filing taxes jointly, you need to be aware of what your spouse is filing. One day, if your spouse, (or ex spouse) is found to have been evading taxes, you could be on the hook, too.

The way around the liability is to establish that you were an innocent spouse, essentially that you had no knowledge -- nor did you have any reason to know -- of the offense.

Now, back to the First Circuit opinion.

The wife in this case said that she was entitled to innocent spouse relief with regard to her husband's tax liability.

The district court denied the innocent spouse claims on a very simple ground-- the good ol' statute of limitations. The rule was simple, the court said. The wife had two years from the date of the first collection action taken by the IRS.

The wife tried to raise the claim of innocent spouse relief again, in a subsequent Collection Due Process hearing (a.k.a. "CDP hearing"). This was not addressed in the CDP hearing and eventually, the claim made its way to the First Circuit, where it was shot down on res judicata grounds.

The wife then tried to lift the res judicata bar in the tax court, where it was affirmed.

Tax law carves out a narrow exception to res judicata when the plaintiff's claim was not an issue in the prior proceeding or if the plaintiff did not participate meaningfully in the prior proceeding.

The First Circuit didn't buy any of the plaintiff's res judicata arguments, finding not only that she had raised the issue in prior proceedings, but that she had also participated meaningfully in the prior proceedings.

For more on innocent spouse relief, have a look at our related resource links below.

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