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proceedings and informed respondent that the bankruptcy trustee
would retain “certain IRA monies” to pay the 1998 joint
liability.
Payment of the 1998 Joint Liability
On petitioner’s separately filed 1999 Federal income tax
return, petitioner reported total wages in the amount of $80,100
and alimony in the amount of $29,700. The return showed a refund
due in the amount of $5,021. On September 4, 2000, respondent
applied petitioner’s 1999 refund to offset the 1998 joint
liability. At this time, petitioner’s IRA remained exempted from
the bankruptcy estate. Petitioner did not submit signed
instructions for liquidating the IRA and allocating the proceeds
until January 2001, several months after respondent applied
petitioner’s 1999 refund to the 1998 joint liability.
Petitioner’s Innocent Spouse Claim
On July 2, 2002, petitioner timely filed with respondent
Form 8857, Request for Innocent Spouse Relief. In her Form 8857,
petitioner asserted that “Since the 1998 income tax liability is
a community liability, it is inequitable to apply [the]
taxpayer’s separate property to its payment. Community assets
which are still available in the bankruptcy estate should instead
be used.” In a final notice dated August 14, 2002, respondent
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Last modified: May 25, 2011