On April 16, 2012, Adam and Renee Tyler jointly filed a 2011 return that reported AGI of $68,240 ($20,500 attributable to Renee) and a tax liability of $3,050. They paid this amount in a timely fashion. On their return, the Tylers claimed a $18,405 deduction for Adam's distributive share of a partnership loss. If not for the loss, the Tylers' tax liability would have been $8,358. In the previous year, Adam had withdrawn $20,000 cash from the partnership, which he used to buy Renee a new car. Although Renee, a marketing consultant, is not active in the partnership business, she has worked for the partnership as a part-time receptionist.
Adam and his partner (who incidentally is Renee's brother) failed to file a partnership return for 2011. Upon audit, the IRS discovered that the 2011 partnership records were missing. In 2013, Adam had a heart attack. He remains in serious condition. Unable to reach Adam, the IRS sends Renee a 30-day letter proposing a $5,308 deficiency. She intends to protest. Your supervisor has asked you to write a memorandum discussing Renee's potential liabilities and defenses. In your memorandum, you should consult the following authorities:
• IRC Secs. 6013 and 6662
• Rebecca Jo Reser v. CIR, 79 AFTR 2d 97-2743, 97-1 USTC ¶50,416 (5th Cir., 1997)