The recent Tax Court memorandum decision in Lisa Marie Walsh v. Commissioner, T.C. Memo. 2025-91 (filed August 26, 2025), offers significant insights into the application of Section 6015 relief from joint and several liability, particularly concerning the doctrines of res judicata and the various factors considered for equitable relief. This article details the factual background, the taxpayer’s request, the court’s legal analysis, and the ultimate conclusions, providing a technical overview for tax professionals.

Factual Background

Lisa Marie Walsh (Petitioner) married Brendan Walsh in April 1999 and they had two children. While Ms. Walsh, a high school graduate, held a real estate agent’s license and operated a parasol business (Persolé, LLC) and an interior design business, Mr. Walsh was the primary income earner, making approximately $30,000 monthly from his insurance business. Ms. Walsh managed household utility and child-related expenses. The couple maintained an affluent lifestyle, residing in a $1.4 million home in Novato, California, being members of the Marin County Country Club, holding season tickets for San Francisco Giants baseball games, and owning a Maserati and a BMW. Their children attended private school.

During their marriage, the Walshes filed joint Forms 1040, U.S. Individual Income Tax Return, which were prepared by a Certified Public Accountant, Patrick J. Carlin. Ms. Walsh assisted Mr. Carlin by providing information related to her businesses, home mortgage interest statements, and property tax documents, and she granted him permission to electronically file their joint returns.

The Walshes had a history of federal income tax noncompliance, including failure to timely file returns, pay reported liabilities, and appropriately report income tax liabilities for 2012 and 2013, leading to both understatements and underpayments. While returns for 2011 and 2014-2016 were timely filed without understatements, there were significant underpayments for these years. The total amounts due for the years in issue (2011-2016) ranged from $20,170 to $74,049. The Internal Revenue Service (IRS) later determined that the amounts due for 2012, 2014, 2015, and 2016 were fully attributable to Mr. Walsh, while portions of the liabilities for 2011 ($37,387) and 2013 ($4,504) were attributable to Ms. Walsh.

In 2014, the IRS selected the Walshes’ 2011 return for examination, followed by the 2012 and 2013 returns in 2015. A Notice of Deficiency was issued in June 2016 for 2011-2013. The Walshes hired Edward I. Kaplan to represent them, and he timely filed a petition with the Tax Court. In September 2018, the IRS and Mr. Kaplan executed a Stipulation of Settled Issues, leading to a Tax Court decision in February 2019 related to 2011-2013. Notably, innocent spouse relief was not raised in this prior deficiency case. Ms. Walsh testified she was not involved with the examination or the prior court case, though Revenue Agent C. Kim testified to speaking with Ms. Walsh on multiple occasions during the examination.

Ms. Walsh separated from Mr. Walsh in January 2017 and filed for divorce in December 2017. The Superior Court of California entered a judgment of dissolution in June 2021, awarding Ms. Walsh spousal and child support, and dividing marital assets. The Superior Court also determined that the Forms 1040 liabilities were joint and several, to be divided equally between the parties, with an indemnification clause for any party paying more than their half. During the divorce proceedings, Ms. Walsh accepted responsibility for these liabilities. The Superior Court found that the Walshes’ failure to pay federal tax liabilities allowed them to maintain their lavish lifestyle.

Following her legal separation, Ms. Walsh filed Forms 1040 late for 2017-2020 and had outstanding tax liabilities for those years. She also omitted significant income from her 2021 return, including alimony payments and divorce equalization payments, and had not filed her 2022 return at the time of trial.

Taxpayer’s Request for Relief from Joint and Several Liability

On or around May 13, 2020, Ms. Walsh filed a request for innocent spouse relief. She indicated on Form 8857 that she did not know if the joint returns showed balances due and claimed she "doesn’t know how to read a tax return," becoming aware of the "extraordinary tax bill" only in January 2020. She also asserted that Mr. Walsh changed their IRS mailing address without her knowledge.

Ms. Walsh reported substantial monthly income ($11,851) and expenses ($10,639) when requesting relief. While she did not indicate domestic violence or physical abuse on Form 8857, she stated Mr. Walsh made her afraid to disagree due to his control of financial decisions. At trial, she alleged emotional and financial abuse by Mr. Walsh. Mr. Walsh, in response, stated Ms. Walsh provided tax information to their CPA, had full knowledge of and access to joint assets, paid bills from joint accounts, and signed e-file permissions.

The IRS issued a final determination denying her request for relief in November 2021, which Ms. Walsh timely disputed by petitioning the Tax Court in February 2022.

Court’s Legal Analysis and Application to the Facts

The Tax Court has limited jurisdiction under Section 7442, and its jurisdiction to review a stand-alone innocent spouse relief petition is governed by Section 6015(e). For petitions filed on or after July 1, 2019, the scope of review is limited to the administrative record, newly discovered or previously unavailable evidence, and trial testimony, applying a de novo standard. The requesting spouse, Ms. Walsh, bears the burden of proving her entitlement to relief under Rule 142(a).

Relief for 2011-2013: Res Judicata

The Court first addressed Ms. Walsh’s request for relief for 2011-2013, considering whether it was barred by the doctrine of res judicata. Res judicata is an affirmative defense that prevents the relitigation of a cause of action once a court of competent jurisdiction has issued a final judgment on its merits. It applies to Tax Court proceedings, and an agreed or stipulated judgment is considered a judgment on the merits.

The four conditions for res judicata under Commissioner v. Sunnen, 333 U.S. 591, 597 (1948), were met in this case:

Identical Parties: Ms. Walsh was a petitioner in the prior deficiency case.
Competent Jurisdiction: The Tax Court had jurisdiction over 2011-2013 in the prior case.
Final Judgment on the Merits: The Court’s decision entered on February 14, 2019, was a final judgment on the merits.
Same Cause of Action: Ms. Walsh’s request for innocent spouse relief related to the same tax liabilities for the same taxable years as the prior proceeding.

Thus, res judicata generally barred relitigation of the 2011-2013 tax liabilities unless the exception under Section 6015(g)(2) applied. This exception allows a spouse to avoid res judicata if their claim for innocent spouse relief was not an issue in the prior proceeding and they did not participate meaningfully in that proceeding. Ms. Walsh did not raise innocent spouse relief in the prior case, so the determination hinged on whether she "participated meaningfully". Ms. Walsh bore the burden of proving she did not participate meaningfully.

The Court’s analysis of "meaningful participation" considers the totality of facts and circumstances, including:

Exclusive control over the prior proceeding.
Level of participation (e.g., signing documents, settlement negotiations).
Opportunity to raise a claim for relief.
Taxpayer’s level of education and sophistication.
Knowledge of the activities giving rise to the deficiency.
Representation by counsel and communication with counsel.

The Court found that Ms. Walsh participated meaningfully through her counsel, Mr. Kaplan, in the prior Tax Court proceeding. The Court highlighted that Mr. Kaplan filed the petition, executed joint stipulations, and negotiated a settlement that benefited Ms. Walsh, securing deductions for her interior design business expenses and reducing deficiencies. The 2013 deficiency was even attributable to Ms. Walsh’s business income. Ms. Walsh’s testimony that she had no knowledge of or involvement in the prior proceedings or the examination was deemed unconvincing and contradicted by the evidence, including RA Kim’s testimony of direct communication with Ms. Walsh during the examination. Furthermore, Ms. Walsh’s financial and business sophistication (operating businesses, holding a real estate license) indicated an understanding of such matters.

Given these facts, the Court concluded that Ms. Walsh meaningfully participated in the prior proceeding through legal counsel, and therefore, the Section 6015(g)(2) exception did not apply. Consequently, the doctrine of res judicata barred her claim for relief under Section 6015(b), (c), or (f) for 2011 through 2013.

Relief for 2014-2016: Section 6015(f) Equitable Relief

For the years 2014-2016, Ms. Walsh was eligible to seek equitable relief under Section 6015(f), as these years involved underpayments of income tax rather than understatements addressed by Section 6015(b) or (c). The Court analyzed her request under Rev. Proc. 2013-34, which provides a three-step analysis, though it is not strictly binding. Ms. Walsh bore the burden of proof.

The threshold requirements under Rev. Proc. 2013-34, § 4.01, were met:

Joint returns filed.
Relief unavailable under Section 6015(b) or (c).
Timely claim for relief.
No fraudulent asset transfers.
No disqualified asset transfers from nonrequesting spouse.
Requesting spouse did not knowingly participate in filing a fraudulent return.
Tax liability for 2014-2016 attributed to Mr. Walsh’s income.

Next, the Court considered if Ms. Walsh qualified for a streamlined determination under Rev. Proc. 2013-34, § 4.02. This requires meeting three conjunctive conditions:

Marital Status: Ms. Walsh was divorced from Mr. Walsh in 2021, which favored relief.
Economic Hardship: Economic hardship exists if paying the tax liability would prevent meeting reasonable basic living expenses. The Court found Ms. Walsh’s income (over $85,200/year from spousal support, plus retirement distributions and rental income) significantly exceeded 250% of the federal poverty guidelines for her household size ($49,300). Her claimed monthly expenses of $10,639 lacked sufficient corroboration. Therefore, Ms. Walsh did not establish economic hardship, and this condition for streamlined relief was not satisfied. Since Ms. Walsh failed to meet the economic hardship requirement, she was not entitled to a streamlined determination.

Finally, the Court proceeded to a full equitable relief analysis, considering seven nonexclusive factors under Rev. Proc. 2013-34, § 4.03(2). These factors are weighted, and no single factor is determinative.

The Court categorized the factors as follows:

Neutral Factors:
- Economic Hardship: As previously determined, Ms. Walsh did not prove economic hardship, so this factor was neutral.
- Legal Obligation: The divorce decree stipulated that both spouses had a legal obligation to pay one-half of the tax liability, making this factor neutral.
- Mental or Physical Health: Ms. Walsh was not suffering from poor mental or physical health when the returns were filed, when she requested relief, or at the time of trial, rendering this factor neutral.
Factor in Favor of Relief:
- Marital Status: Ms. Walsh being divorced from Mr. Walsh weighed in favor of relief.
Factors Weighing Against Relief:
- Knowledge or Reason to Know (Underpayment Cases): This factor assesses whether the requesting spouse knew or had reason to know the nonrequesting spouse would not or could not pay the tax liability within a reasonable time. Taxpayers have a duty of inquiry and cannot ignore information on returns they signed.
  - Ms. Walsh knew liabilities were owed but provided vague, uncorroborated testimony about Mr. Walsh’s installment plan.
  - Despite claiming she didn’t examine the returns, she signed them and was actively involved in providing information for their preparation.
  - Her financial and business sophistication meant she had a duty to inspect the returns.
  - She knew of Mr. Walsh’s history of deceit, hiding money from the IRS, and not paying debts (e.g., California Franchise Tax Board, attorney’s fees). She also knew he used his business account for personal expenses. These facts made it unreasonable for her to believe he would pay the tax liabilities.
  - Her general allegations of Mr. Walsh’s financial and emotional abuse were largely unsubstantiated or occurred after the marriage dissolved and did not outweigh her reason to know.
  - Therefore, this factor weighed against relief.
- Significant Benefit: This factor considers whether the requesting spouse significantly benefited from the unpaid tax liability by enjoying a lavish lifestyle beyond normal support.
  - The Walshes lived a lavish lifestyle between 2011 and 2016, supported partly by their failure to pay income tax for 2014-2016. The Superior Court had made a similar finding. The shared enjoyment of their expensive home, club membership, season tickets, luxury vehicles, and private school for children constituted a significant benefit.
  - This factor weighed against relief.
- Compliance with Income Tax Laws: This factor considers whether the requesting spouse complied with income tax laws in years following the divorce.
  - Ms. Walsh failed to timely file Forms 1040 for 2017-2020 and had outstanding tax liabilities for those years.
  - She omitted significant income from her 2021 return, including taxable alimony, despite the divorce decree indicating its taxability and her previously reporting it.
  - She had not filed her 2022 return at the time of trial.
  - She offered no credible reasons for her noncompliance.
  - This factor weighed against relief.

Conclusion

In summary, the Tax Court found that only one factor, Ms. Walsh’s divorced status, weighed in favor of granting relief. Her knowledge of the underpayments, the significant benefit she received from the nonpayment of tax liabilities, and her subsequent noncompliance with federal income tax laws all weighed against relief. The remaining factors were neutral.

After weighing all factors and reviewing the entire record, the Tax Court concluded that Lisa Marie Walsh failed to carry her burden of proof and was not entitled to relief under Section 6015(f) for 2014 through 2016.

Prepared with assistance from NotebookLM.