Cheshire v. Commissioner
United States Court of Appeals for the Fifth Circuit
282 F.3d 326 (2002)
Kathryn Cheshire (plaintiff) and her then-husband David filed a joint 1992 tax return reporting a retirement distribution David received, which they used to pay off their marital home's mortgage and improperly deducted, after David falsely told Kathryn an accountant had confirmed the distribution was non-taxable. Kathryn later received the marital home in their divorce. The Commissioner (defendant) disallowed the deduction, and Kathryn sought innocent-spouse relief in Tax Court, which was denied; she appealed.
(1) Whether a spouse is entitled to relief from joint tax liability under § 6015(b) if she had actual knowledge of the underlying transaction and reason to know of the erroneous deduction. (2) Whether a divorced or separated taxpayer is entitled to relief under § 6015(c) if she had actual knowledge of the item giving rise to the deficiency. (3) Whether a spouse is entitled to equitable relief under § 6015(f) if she significantly benefited from the tax understatement.