Tax Court denies innocent spouse relief for California taxpayer

Walsh v. Commissioner, T.C. Memo. 2025-91, No. 4460-22., 2025 BL 302504, Court Opinion

On August 26, 2025, the U.S. Tax Court in Walsh v. Commissioner held that Lisa Marie Walsh was not entitled to innocent spouse relief under Internal Revenue Code § 6015(b), (c), or (f) for tax years 2011–2016.

Walsh sought relief from joint and several liability on taxes owed with her former husband, Brendan Walsh.

The Court found she participated meaningfully in prior proceedings, benefited from unpaid taxes, and remained noncompliant after separation.

Why It Matters

The ruling reinforces how the doctrine of res judicata can bar a later claim for innocent spouse relief when the taxpayer took part—directly or through counsel—in a prior deficiency case covering the same years. It also underscores that lavish spending and continued noncompliance weigh heavily against equitable relief.

Key Facts

• Parties: Lisa Marie Walsh (petitioner) v. Commissioner of Internal Revenue (respondent)

• Years at issue: 2011 – 2016

• Relief sought: Innocent spouse relief under § 6015(b), (c), (f)

• Residence: Newport Beach, California

• Prior proceeding: Walsh v. Commissioner, No. 19641-16 (T.C. 2019)

• Marital background: Married 1999; separated 2016; divorced 2021

• Household income: Mr. Walsh earned ≈ $30,000 per month; Ms. Walsh operated small businesses (real estate, design, Persolé LLC)

• Lifestyle: $1.4 million Novato home, country-club membership, private schools, Maserati and BMW

• Tax liabilities: Unpaid balances for 2011–2016 totaling ≈ $289,000

• IRS determination: Liabilities largely attributable to Mr. Walsh; partial to Ms. Walsh

• Prior settlement: Tax Court deficiency case settled 2019; no innocent-spouse claim raised

• Relief denied: All years 2011–2016

Timeline

• 2006: Walshes purchase Novato home for ≈ $1.4 million

• 2011–2016: Joint returns filed late; unpaid taxes accumulate

• June 2014 – Feb 2015: IRS audits 2011–2013 returns

• June 9 2016: IRS issues notice of deficiency

• Sept 6 2016: Petition filed in Tax Court (Walsh v. Commissioner, No. 19641-16)

• Feb 14 2019: Tax Court enters decision on stipulated deficiencies

• May 13 2020: Ms. Walsh files Form 8857 requesting relief

• Nov 15 2021: IRS denies relief

• Feb 11 2022: Ms. Walsh petitions Tax Court for review

• Aug 26 2025: Tax Court denies relief for all years

Court Findings

• Jurisdiction: Court had authority under § 6015(e) to review the stand-alone petition.

• Res judicata: Applied because Ms. Walsh was a petitioner in the 2016 deficiency case; judgment on merits entered 2019; same years and liabilities.

• Meaningful participation: Found through counsel—Ms. Walsh benefited from representation that reduced her 2011 deficiency to zero.

• No abuse exception: Evidence insufficient to show financial or emotional abuse during marriage.

• Economic hardship: Denied; her ≈ $85,000 annual income exceeded 250 percent of federal poverty guidelines.

• Knowledge: She knew or should have known of unpaid taxes; signed returns prepared from her own data.

• Significant benefit: Enjoyed lavish lifestyle maintained by not paying taxes.

• Compliance: Filed later returns late; underreported 2021 income; unfiled 2022 return.

Judgment Details

• Years barred by res judicata: 2011 – 2013

• Equitable-relief denial years: 2014 – 2016

• Total unpaid balances (rounded):

  • 2011 – $67,186

  • 2012 – $74,049

  • 2013 – $20,170

  • 2014 – $38,474

  • 2015 – $63,050

  • 2016 – $26,054

• Outcome: Relief denied under § 6015(b), (c), and (f); decision entered for Commissioner.

The Takeaway

The case highlights how a taxpayer’s prior participation, financial awareness, and continued noncompliance can defeat claims of “innocent” spouse relief.

Even when liabilities stem primarily from the other spouse’s income, equity will not excuse a partner who shared in the benefits and ignored clear signs of unpaid tax.

Citations

• 26 U.S.C. § 6015: Governs relief from joint and several liability.

• 26 U.S.C. § 6013(d)(3): Defines joint liability for married taxpayers.

• Rev. Proc. 2013-34: IRS guidance for § 6015(f) equitable relief analysis.

• Commissioner v. Sunnen, 333 U.S. 591 (1948): Sets res judicata standards.

• Deihl v. Commissioner, 134 T.C. 156 (2010): Applies res judicata to Tax Court cases.

• Harbin v. Commissioner, 137 T.C. 93 (2011): Defines “meaningful participation.”

• Pullins v. Commissioner, 136 T.C. 432 (2011): Discusses burden of proof for relief.

• Rev. Proc. 2013-34 § 4.03: Lists equitable-relief factors.

Each citation was relied upon to define jurisdiction, interpret § 6015 relief standards, or establish procedural limits like res judicata and taxpayer participation.