Patricia A. Price v. Commissioner of Internal Revenue

This appeal turns on interpretation of the defense to joint federal income tax liability known as the “innocent spouse” provision of the Internal Revenue Code. The wife-taxpayer asserts that the tax court erred by applying an incorrect standard in determining that she was ineligible for relief under this provision. She claims that she was “innocent” within the meaning of the provision at the time she signed the return, and thus should be shielded from liability as to the tax deficiency arising from a deduction as to which her husband-taxpayer had superior knowledge. We agree and reverse the judgment of the tax court.

I

Patricia Price (“Patricia”) married Charles Price (“Charles”) in 1969. During the marriage, which ended in divorce in 1986, Charles handled all of the family’s investment decisions and maintained a separate checking account for investments. Patricia and Charles also held a joint account that consisted primarily of Patricia’s earnings and was used to pay for household expenses as well as the mortgage on the Prices’ home. Patricia had to ask Charles for money when she needed to cover expenses exceeding her earnings and the amount in their joint checking account.

In…