Sparing Spouses of Partner’s Tax Trickery

May 28, 2011  |  

(Wall Street Journal) — In 1999, Cathy Marie Lantz’s husband, Indiana dentist Richard Chentnik, earned $112,000—or so she thought when she signed their joint tax return. In 2000, Dr. Chentnik was arrested for Medicare fraud, convicted and imprisoned. In connection with the case, the Internal Revenue Service sent the couple a bill for $900,000 of tax, penalties and interest.  Does Ms. Lantz owe the tax debt her husband incurred? The IRS said yes, the Tax Court said no, and last summer the Seventh Circuit Court of Appeals said yes again, siding with the IRS.  The court’s reasoning: To be absolved of responsibility for the couple’s tax debts, Ms. Lantz would have had to ask the IRS for “innocent spouse” relief within two years of the agency’s sending a levy notice.  According to testimony, she said she didn’t do so because her husband told her he had taken care of the request. Dr. Chentnik did get the IRS form, according to testimony, but didn’t file it before dying in a halfway house in 2004—so the court held Ms. Lantz liable for the entire tax bill. Through one of her pro bono lawyers, Valparaiso University law professor Paul Kohlhoff, she declined to comment.

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