Cheshire vs. IRS

115 TC 183 (1992)
(Reviewed by the Court)

Summary

A taxpayer may seek relief from his or her spouse’s tax liability if the taxpayer did not know and should not know of the income that gave rise to the spouses’s tax liability.

In Cheshire, the wife was old by her husband incorrectly that he received a retirement plan distribution but it was not taxable since he rolled it over into an IRA.

In a major decision signed by all sixteen (16) judges, the U.S. Tax Court found she could not claim relief since she had actual knowledge of the distribution. The dissenting opinion held for relief arguing actual knowledge requires an item on the return be incorrect.

Many commentators have argued the U.S. Tax Court was incorrect and the law should be statutorily changed.