Tammy Thompson has been married to her husband, Carl, for 20 years and they have lived in South Ogden for about 15 years. Until the occurrence of recent events, they had a good and happy marriage. Tammy works as a history teacher at Bonneville High School and Carl was an accounting manager at Local Bank. They did reasonably well for themselves, but generally maintained a modest lifestyle.

In early 2019, that began to change. Tammy reported that Carl had been acting very strangely with respect to the family finances. While Tammy was always in charge of paying bills and making sure the checking account was balanced, Carl began making large purchases with money that Tammy could not account for in their monthly paychecks. Over the course of 2019, the purchases became more extravagant and expensive. First he bought a Harley-Davidson motorcycle. Then he bought a large boat for water-skiing on the weekends. Finally, when Carl pulled up in the driveway with a brand new Porsche 911 GTS, Tammy began questioning Carl about where he was coming up with money to pay for these items. He brushed off her concerns with a smile by simply replying, "Don't worry about, it's taken care of."

Late last year (2020), the authorities knocked on the Thompsons' door and placed Carl under arrest for embezzlement. It turns out that Carl embezzled $250,000 from his employer, Local Bank, during the year 2019. Of course Tammy was shocked that her husband could have done such a thing and is now coping with the results of Carl's crime. Last month, Carl took a plea bargain and pleaded guilty to embezzlement in exchange for a commuted sentence of five years in prison.

To compound Tammy's anxiety, the folks at the IRS were watching the headlines and saw the story of Carl's misdeeds reported in the Standard-Examiner. The IRS assessed additional tax (with interest and penalties) on Tammy and Carl's jointly filed 2019 tax return for the $250,000 that Carl embezzled in 2019, but failed to report as gross income. She came to me to see if there is a way she can avoid liability for the income that Carl hid completely from her. She has made it clear that she had no knowledge of the embezzled income when she signed her return and is willing to sign an affidavit to that effect. She has also made clear that with Carl in jail, and her modest income as a teacher, she is unable to even pay a small percentage of the tax, interest, and penalty assessed by the IRS for the $250,000. I would like you to research Tammy's problem and prepare a research memorandum communicating your results.

Sources

Internal Revenue Code--6013(d)(3) and 6015(b)

Patricia Barranco, TC Memo 2003-18

Your memo should not exceed three pages in length. Please single-space your memo and double-space in between paragraphs. The following format would be appropriate for this assignment:

Date:

From:

Facts: Summarize the relevant facts

Issue:Phrased as a single question what is the research issue?

Conclusion:Provide a conclusion for each research issue identified; generally, the conclusion is a sentence or two

Analysis: Discuss relevant tax law and how it applies to the transaction be sure to cite your primary sources!