For your assignment, you should submit a tax research memo for your files along with a letter to Kelley. For this assignment, ignore federal taxes and focus on state tax issues.

Ian McClendon is a restaurateur. From 2005 until 2017, he was married to Kelley Murphy. In 2011, Ian opened several new pubs. Kelley assisted her husband in the management of the pubs. During 2012, Ian and Kelly purchased a new home costing approximately $1,200,000. They obtained a loan to finance a significant portion of the cost of the home. On the mortgage application they submitted, Ian and Kelley indicated their joint annual income was $400,000 in 2010 and $425,000 in 2011. However, on their 2010 joint federal income tax return, they reported a loss from the pubs of $(40,000) and no salary or wage income. On their 2011 joint federal income tax return, they reported that Ian earned a salary of $30,000 and the pub had a net loss of $(80,000).

Upon moving into their new home in 2012, they realized it needed furnishing as it was larger than their prior home. Furthermore, some of their existing furnishings did not fit the style of the new home. Therefore, they spent approximately $150,000 between 2012 and 2014 to furnish the home. Additionally, they spent an additional amounts to lease luxury automobiles, take numerous extravagant vacations and purchase jewelry for Kelley.

Ian and Kelley were indicted in late 2016 for filing false tax returns for tax years 2010 and 2011. Unsurprisingly, this led to the demise of their marriage. They were divorced in 2017. Additionally in 2017, Ian pleaded guilty to the charges while Kelley signed a deferred prosecution agreement and admitted to filing false tax returns. The IRS issued a notice of deficiency for the 2010 and 2011 returns in July 2018. Kelley timely filed a petition (pro se) in Tax Court in which she requested relief from join and several liability for the 2010 and 2011 income taxes. In a timely manner, Ian filed a Notice of Intervention as he desired to intervene in Kelleys tax court lawsuit pursuant to IRC Section 6015. Kelley and the IRS agreed to send the matter to appeals. In late 2019, an IRS appeals officer determined that Kelley did not qualify for innocent souse relief under IRC Section 6015(f).

Kelley seeks your opinion she is entitled to innocent spouse relief despite the IRS Appeals Officers position. She also inquires as to her options the event that she is unsuccessful in obtaining innocent spouse relief as she has no means to pay the deficiency.