Ware v. Comm'r , 93 T.C.M. 1196 ( 2007 )

T.C. Memo. 2007-112
UNITED STATES TAX COURT
BEA-JAYE WARE, Petitioner v.
COMMISSIONER OF INTERNAL REVENUE, Respondent
Docket No. 21809-04. Filed May 1, 2007.
William J. Day and Austin B. Barnes III, for petitioner.
Alisha M. Harper, for respondent.
MEMORANDUM FINDINGS OF FACT AND OPINION
HAINES, Judge: Respondent determined that petitioner is not
entitled to relief under section 6015(f) for joint income tax
liabilities for 1997 through 1999 (the years in issue).1 The
1
Unless otherwise indicated, all section references are to
the Internal Revenue Code, as amended. Amounts are rounded to
the nearest dollar.
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issue for decision is whether respondent abused his discretion in
denying petitioner’s request for equitable relief under section
6015(f).
FINDINGS OF FACT
Some of the facts have been stipulated and are so found.
The stipulation of facts and the attached exhibits are
incorporated herein by this reference.2 At the time she filed
her petition, petitioner resided in Brunswick, Ohio.
Petitioner and David C. Crouch (Mr. Crouch) were married on
December 31, 1992. At the time of trial, petitioner and Mr.
Crouch remained married and continued to reside in the same
residence.
Petitioner and Mr. Crouch are graphic design artists.
During the years at issue, Mr. Crouch owned and operated Dave
Crouch Graphics. Mr. Crouch made no estimated tax payments on
income he received from Dave Crouch Graphics. During the years
at issue, petitioner was employed by Advanstar Communications,
Inc. (Advanstar). Advanstar withheld Federal income tax from
petitioner’s wages, and had she filed her returns as married
2
Respondent reserved relevancy objections to three
exhibits attached to the stipulation of facts and to all trial
testimony on the basis that such information was not available to
the Appeals officer when she made her determination in this case.
While the relevance of some of the disputed exhibits and
testimony is limited, the Court will give the evidence only such
consideration as is warranted by its pertinence to the Court’s
analysis of the instant case.
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filing separately, petitioner would have been entitled to a
refund.
Petitioner and Mr. Crouch filed their 1994 through 1996 tax
returns as married filing separately. Petitioner and Mr. Crouch
filed a joint 1997 Federal income tax return on May 7, 1999,
reflecting an amount owed of $33,423. The amount owed was
attributable solely to Mr. Crouch’s business activities.
Petitioner and Mr. Crouch included a $6,500 payment with their
1997 return and made an additional payment of $4,000 in August
1999. In October 2000, petitioner received notice that her wages
were to be garnished in order to pay her and Mr. Crouch’s 1997
outstanding tax liability. For pay periods ending November 3 and
17, and December 1 and 15, 2000, Advanstar withheld $557 from
petitioner’s pay as garnishment.3
On November 9, 2000, petitioner and Mr. Crouch filed joint
Federal income tax returns for 1998 and 1999, reflecting amounts
owed of $19,671 and $27,321, respectively. The amounts owed were
attributable solely to Mr. Crouch’s business activities. No
payments accompanied the 1998 and 1999 returns. Petitioner
voluntarily signed the returns on November 9, 2000. At the time
she signed the returns, she knew there was an outstanding tax
3
On Feb. 7, 2002, petitioner and Mr. Crouch’s 1997 joint
tax liability was discharged under 11 U.S.C. sec. 727, by the
U.S. Bankruptcy Court for the Northern District of Ohio.
Respondent has conceded that he will no longer attempt to collect
the discharged liability.
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liability for 1997, that her wages were being garnished to pay
the 1997 tax liability, and that petitioner and Mr. Crouch could
not pay the amounts due for 1998 and 1999.
On or about March 20, 2001, petitioner filed a Form 8857,
Request for Innocent Spouse Relief, requesting equitable relief
under section 6015(f). Along with the Form 8857, petitioner
submitted a letter explaining why she thought she was entitled to
equitable relief. The letter stated in part:
Our tax matters have always been handled by David. * *
* I had no knowledge that our Joint tax returns for tax
years 1997, 1998 and 1999 were not timely filed. I
became aware of this situation, last summer when * * *
[a revenue officer] placed her business card in the
door of our residence. I had no knowledge until this
happened; and then I only knew Dave was behind for
1997. When the Service levied my wages in December
2000; I became aware of the unfiled 1998 & 1999 tax
returns.
The underpaid taxes * * * are attributable solely to
David’s business * * * I have never been involved in my
husband’s business * * *. David maintained the books
and records of his business.
David & I retained the law firm of Roni Lynn Deutch, to
negotiate a payment plan on the delinquent tax returns.
I was not offered nor received counsel with respect to
my option of filing separately; from David, for the
unfiled years. * * *
If I had received knowledge of the tax situation by my
husband, our tax preparer, or Roni Lynn Deutch I would
have elected to file separate federal & state of Ohio
tax returns for 1997, 1998 & 1999.
On August 17, 2001, respondent notified petitioner that the Form
8857 had been received and requested additional information.
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On September 19, 2001, petitioner submitted to respondent a
Form 886-A, Innocent Spouse Questionnaire. Petitioner reported
monthly gross income of $3,715 and monthly expenses of $5,685.
Petitioner’s monthly expenses included, among other things, $300
for clothing, $700 for vehicle expenses, $240 for “pet care”, and
$400 in miscellaneous expenses.
On December 20, 2001, respondent issued petitioner an
initial determination letter. Respondent determined that
petitioner was not entitled to equitable relief under section
6015(f) for the years at issue, stating:
To qualify for relief under IRC Section 6015(f), you
must establish that you believed the tax would be paid
at the time of filing the return. Information in your
case file does not establish that you had belief that
the tax would be paid at the time of filing.
Therefore, your request for relief for the tax years *
* * [at issue] has been disallowed.
On March 4, 2002, respondent received from petitioner a Form
12509, Statement of Disagreement, in which petitioner repeated
her arguments set forth in her request for innocent spouse
relief.
On July 22, 2002, respondent advised petitioner that her
case had been received for consideration and identified Appeals
Officer Denise Neidermeyer (Ms. Neidermeyer) as the person
handling her case. Ms. Neidermeyer determined that “The taxpayer
knew or had reason to know that the tax would not be paid when
she signed the [1998 and 1999] returns. This is evidenced by the
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fact that her wages were garnished for prior-year joint
liabilities before she signed the 1998 and 1999 returns.” Ms.
Neidermeyer recommended that petitioner be denied equitable
relief under section 6015(f). On August 12, 2004, respondent
issued petitioner a notice of determination denying her request
for equitable relief under section 6015(f).
On November 15, 2004, petitioner filed her petition with
this Court. Petitioner contended that respondent abused his
discretion in denying her equitable relief under section 6015(f).
This case was called for trial on March 27, 2006.
On July 25, 2006, this Court issued Billings v.
Commissioner, 127 T.C. 7 (2006), holding that the Court does not
have jurisdiction to review the Commissioner’s denial of relief
under section 6015(f) in a case where no deficiency has been
asserted. Our holding in Billings was in accord with the Courts
of Appeal opinions in Bartman v. Commissioner, 446 F.3d 785 (8th
Cir. 2006), affg. in part and vacating T.C. Memo. 2004-93, and
Commissioner v. Ewing, 439 F.3d 1009 (9th Cir. 2006), revg. 118
T.C. 494 (2002). On September 1, 2006, respondent filed a motion
to dismiss for lack of jurisdiction contending that, in light of
Billings v. Commissioner, supra, the Court lacked jurisdiction
over this case.
In the Tax Relief and Health Care Act of 2006, Pub. L. 109-
432, div. C, sec. 408, 120 Stat. 3061, Congress reinstated our
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jurisdiction to review the Commissioner’s determinations under
section 6015(f) with respect to tax liability remaining unpaid on
or after December 20, 2006. Upon order of the Court, the parties
certified that petitioner’s liability for tax years 1998 and 1999
remained unpaid as of December 20, 2006.4 Accordingly, the Court
determined that it has jurisdiction over this case and denied
respondent’s motion to dismiss for lack of jurisdiction.
OPINION
If a husband and wife file a joint Federal income tax
return, they generally are jointly and severally liable for the
tax due. Sec. 6013(d)(3); Butler v. Commissioner, 114 T.C. 276,
282 (2000). However, a spouse may qualify for relief from joint
and several liability under section 6015(b) or (c) if various
requirements are met. The parties agree that petitioner does not
qualify for relief under section 6015(b) or (c).
If relief is not available under section 6015(b) or (c), the
Commissioner may relieve an individual of liability for any
unpaid tax if, taking into account all the facts and
circumstances, it would be inequitable to hold the individual
liable. Sec. 6015(f). This Court has jurisdiction to review a
denial of equitable relief under section 6015(f). Sec. 6015(e);
4
Petitioner’s 1997 tax year is no longer at issue. See
supra note 3.
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see also Farmer v. Commissioner, T.C. Memo. 2007-74; Van Arsdalen
v. Commissioner, T.C. Memo. 2007-48.
We review the Commissioner’s denial of relief for abuse of
discretion. Jonson v. Commissioner, 118 T.C. 106, 125 (2002),
affd. 353 F.3d 1181 (10th Cir. 2003); Farmer v. Commissioner,
supra; Van Arsdalen v. Commissioner, supra. The taxpayer seeking
relief has the burden of proof. Alt v. Commissioner, 119 T.C.
306, 311 (2002), affd. 101 Fed. Appx. 34 (6th Cir. 2004). To
prevail, the taxpayer must show that the Commissioner’s
determination was arbitrary, capricious, or without sound basis
in fact or law. Butler v. Commissioner, supra at 291-292; Farmer
v. Commissioner, supra; Van Arsdalen v. Commissioner, supra.
The Commissioner promulgated a list of factors in Rev. Proc.
2000-15, sec. 4, 2000-1 C.B. 447, 448-449, that the Commissioner
considers in determining whether to grant equitable relief under
section 6015(f).5 First, the Commissioner will not grant relief
unless seven threshold conditions have been met: (1) The
taxpayer must have filed joint returns for the taxable years for
which relief is sought; (2) the taxpayer does not qualify for
5
Respondent’s determination was subject to Rev. Proc.
2000-15, 2000-1 C.B. 447. Rev. Proc. 2000-15, supra, was
superseded by Rev. Proc. 2003-61, 2003-2 C.B. 296, for requests
for relief under sec. 6015(f) that were filed on or after Nov. 1,
2003, or if pending on Nov. 1, 2003, for which no preliminary
determination letter had been issued as of Nov. 1, 2003. While
petitioner’s request was pending on Nov. 1, 2003, a preliminary
determination letter was issued before Nov. 1, 2003.
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relief under section 6015(b) or (c); (3) the taxpayer must apply
for relief no later than 2 years after the date of the
Commissioner’s first collection activity after July 22, 1998,
with respect to the taxpayer; (4) the liability must remain
unpaid; (5) no assets were transferred between the spouses filing
the joint returns as part of a fraudulent scheme by such spouses;
(6) there were no disqualified assets transferred to the taxpayer
by the nonrequesting spouse; and (7) the taxpayer did not file
the returns with fraudulent intent. Rev. Proc. 2000-15, sec.
4.01, 2000-1 C.B. at 448. Respondent concedes that petitioner
meets these conditions.
Rev. Proc. 2000-15, sec. 4.03, 2000-1 C.B. at 448-449, lists
two factors which, if true, the Commissioner treats as favoring
relief: (1) The taxpayer is separated or divorced from the
nonrequesting spouse; and (2) the taxpayer was abused by the
nonrequesting spouse. Rev. Proc. 2000-15, sec. 4.03, 2000-1 C.B.
at 449, also lists two factors which, if true, the Commissioner,
treats as not favoring relief: (3) The taxpayer received
significant benefit (beyond normal support) from the unpaid
liability or the item giving rise to the deficiency; and (4) the
taxpayer has not made a good faith effort to comply with Federal
income tax laws in the tax years following the tax year to which
the request for relief relates. See Ferrarese v. Commissioner,
T.C. Memo. 2002-249. The Commissioner generally does not
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consider the absence of any of the factors (1), (2), (3), or (4)
as weighing in favor of, or against, whether to grant relief
under section 6015(f). Rev. Proc. 2000-15, sec. 4.03, 2000-1
C.B. at 448-449.
Rev. Proc. 2000-15, sec. 4.03, lists the following four
factors which, if true, the Commissioner treats as favoring
relief, and which, if not true, the Commissioner treats as not
favoring relief: (5) The taxpayer would suffer economic hardship
if relief were denied; (6) in the case of a liability that was
properly reported but not paid, the taxpayer did not know and had
no reason to know that the liability would not be paid; (7) the
liability for which relief is sought is attributable to the
nonrequesting spouse; and (8) the nonrequesting spouse has a
legal obligation pursuant to a divorce decree or agreement to pay
the outstanding tax liability (weighs against relief only if the
requesting spouse has the obligation). Rev. Proc. 2000-15, sec.
4.03, also states that no single factor is controlling, all
factors will be considered and weighed appropriately, and the
list of factors in Rev. Proc. 2000-15, sec. 4, is not exhaustive.
1. Petitioner’s Marital Status
Petitioner and Mr. Crouch were still married when petitioner
sought relief. This factor is neutral.
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2. Spousal Abuse
Petitioner did not allege that she suffered from spousal
abuse. This factor is neutral.
3. Significant Benefit
Respondent determined that petitioner received significant
benefit beyond normal support from the unpaid tax liability.
During the years at issue, petitioner and Mr. Crouch failed to
pay self-assessed taxes of nearly $70,000, excluding any
penalties or interest. While the outstanding tax liability arose
solely from Mr. Crouch’s business activities, petitioner does not
allege that Mr. Crouch secreted his earnings that would otherwise
have been used to pay the taxes due. The record establishes that
petitioner’s and Mr. Crouch’s failure to pay the taxes due
increased their expendable income. Further, petitioner testified
that her husband’s income allowed her to meet the monthly
expenses in excess of her own income. Petitioner’s monthly
expenses included $300 for clothing, $700 for vehicle expenses,
$240 for pet care, and $400 in miscellaneous expenses. While
neither petitioner nor respondent has elaborated on what “normal
support” is in this case, the above-described expenses certainly
go beyond normal support. Because the underpayment of tax
allowed petitioner to meet these expenses, we find that
petitioner received significant benefit beyond normal support
from the unpaid liability. This factor weighs against relief.
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4. Compliance With Tax Laws
Petitioner complied with Federal income tax laws after 1999,
the last year in issue. This factor is neutral.
5. Economic Hardship
A factor treated by the Commissioner as weighing in favor of
relief under section 6015(f) is that paying the taxes owed would
cause the requesting spouse to suffer economic hardship. Rev.
Proc. 2000-15, sec. 4.03(1)(b), 2000-1 C.B. at 448. The
Commissioner considers the taxpayer to suffer economic hardship
if paying the tax would prevent the taxpayer from paying
reasonable basic living expenses. Sec. 301.6343-1(b)(4)(i),
Proced. & Admin. Regs.; Rev. Proc. 2000-15, secs. 4.02(1)(c) and
4.03(1)(b), 2000-1 C.B. at 448-449.
Respondent determined that petitioner failed to allege that
economic hardship would arise if she were denied relief.
Petitioner did not allege in her request for innocent spouse
relief, at trial, or in her opening brief that she would suffer
economic hardship if denied relief. Petitioner’s first and only
mention of economic hardship is in her reply brief, where she
states: “It is simply baffling that respondent cannot determine
for itself that petitioner would suffer economic hardship if
relief from joint and several liability is not granted when it
was garnishing $557.45 from her paychecks leaving her a paltry
$356.55 for two (2) weeks take home pay.” While the garnishment
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certainly reduced petitioner’s expendable income in November and
December of 2000, it does not establish that payment of the
outstanding tax liability would prevent petitioner from paying
reasonable basic living expenses. Petitioner has presented no
evidence, either to respondent or to the Court, that she would
suffer economic hardship if denied relief. Common sense suggests
that payment of the outstanding tax liability would put
petitioner in a less-than-desirable financial situation.
However, based on petitioner’s complete lack of proof, we have no
choice but to conclude petitioner would not suffer economic
hardship if she were denied relief. This factor weighs against
relief.
6. Knowledge or Reason To Know
In determining whether a taxpayer qualifies for equitable
relief under section 6015(f), the Commissioner considers whether
the requesting spouse knew or had reason to know that the
reported liability would be unpaid at the time the return was
signed. Rev. Proc. 2000-15, sec. 4.03(2)(b), 2000-1 C.B. at 449.
Respondent determined that petitioner knew or had reason to
know that the reported liability would be unpaid when the 1998
and 1999 returns were filed. Petitioner argues that she was
unaware of the tax problems surrounding Mr. Crouch’s business
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activities and that she had no reason to know their 1998 and 1999
reported tax liabilities would be unpaid.6
Prior to signing and filing the 1998 and 1999 tax returns,
petitioner’s wages were garnished by respondent to pay
petitioner’s and Mr. Crouch’s joint 1997 tax liability. At the
least, this put petitioner on notice of the tax problems she and
Mr. Crouch were facing. Even more detrimental to her argument,
petitioner testified that she knew they could not pay the amount
due when she signed the returns. We find petitioner knew or had
reason to know that the reported liability would be unpaid at the
time she signed the returns. This factor weighs against relief.
7. Whether the Underpayment of Tax Is Attributable to the
Non-Requesting Spouse
Respondent concedes that the underpayment of tax was solely
attributable to Mr. Crouch’s business activities. This factor
favors relief.
8. Legal Obligation To Pay
Because there is no decree or agreement imposing such
obligation, this factor is neutral.
The only factor favoring relief is that the underpayment of
tax was attributable to Mr. Crouch. This factor is strongly
6
In support of her argument, petitioner cites Browda v.
Commissioner, T.C. Summary Opinion 2004-16. Under sec. 7463(b),
summary opinions are not treated as precedent for any other case,
and we do not consider further petitioner’s argument as it
relates to Browda.
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outweighed by the significant benefit petitioner received from
the underpayment, her knowledge or reason to know that the
reported liability would be unpaid, and her failure to
demonstrate economic hardship. Based on the above, we find that
petitioner has failed to carry her burden of showing respondent
abused his discretion in denying her equitable relief under
section 6015(f).
In reaching our holding herein, we have considered all
arguments made, and, to the extent not mentioned above, we
conclude that they are moot, irrelevant, or without merit.
To reflect the foregoing and respondent’s concession
regarding petitioner’s 1997 tax year,
An appropriate
decision will be entered.