Hiramanek v. Comm'r , 102 T.C.M. 546 ( 2011 )

T.C. Memo. 2011-280
UNITED STATES TAX COURT
KAMAL A. HIRAMANEK, Petitioner, AND
ADIL HIRAMANEK, Intervenor v.
COMMISSIONER OF INTERNAL REVENUE, Respondent
Docket No. 14912-10. Filed November 28, 2011.
Steven L. Walker, for petitioner.
Adil Hiramanek, pro se.
Audra M. Dineen, for respondent.
MEMORANDUM FINDINGS OF FACT AND OPINION
HAINES, Judge: Respondent determined a deficiency in
petitioner and intervenor’s Federal income tax of $27,222 and an
accuracy-related penalty of $5,444 for taxable year 2006 (year at
issue). In response to the notice of deficiency, petitioner
timely filed with this Court a petition for determination of
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relief from joint and several liability on a joint return. The
issues for decision after concessions1 are: (1) Whether
petitioner signed the 2006 joint Federal income tax return under
duress and therefore is not jointly and severally liable for the
2006 deficiency under section 6013;2 (2) whether petitioner is
entitled to relief under section 66(c) and therefore is not
subject to the general rule that community property is taxable
one-half to each spouse; and (3) whether petitioner is an
innocent spouse entitled to relief under section 6015.
FINDINGS OF FACT
Some of the facts have been stipulated and are so found.
The stipulation of facts is incorporated herein by this
reference. At the time petitioner filed her petition, she
resided in California. At the time intervenor filed his notice
of intervention, he resided in California.
Petitioner and intervenor were married on October 14, 1998.
They legally separated in March 2009, and on March 10, 2011, the
1
On Apr. 22, 2010, respondent revised the adjustments in the
notice of deficiency and mailed petitioner and intervenor a
revised examination report including Form 4549, Income Tax
Examination Changes, and Form 866-A, Explanation of Items.
Respondent determined a deficiency in petitioner and intervenor’s
Federal income tax of $26,405 and an accuracy-related penalty of
$5,281 for taxable year 2006.
2
Unless otherwise indicated, all section references are to
the Internal Revenue Code, as amended and in effect at all
relevant times, and all Rule references are to the Tax Court
Rules of Practice and Procedure. Amounts are rounded to the
nearest dollar.
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Superior Court of California, Santa Clara County, officially
dissolved their marriage effective December 6, 2010.
Intervenor obtained a master’s in business administration
from the University of Washington and is a certified public
accountant. During 2006 intervenor worked as a director of
finance for Fairchild Semiconductor International, Inc., and
Spansion, Inc. Petitioner obtained a bachelor of commerce degree
and during her marriage to intervenor worked as a preschool
teacher for Challenger School. Petitioner and intervenor had
three children during their marriage.
Throughout their marriage intervenor physically and verbally
abused petitioner. During 2007 the abuse included threats
against petitioner’s life, physical assaults, and verbal abuse.
Petitioner documented several instances of abuse in a handwritten
diary from December 13, 2005, to April 4, 2007.
In 2007 intervenor prepared a 2006 joint Federal income tax
return (joint return) for himself and petitioner. On the evening
of April 3, 2007, intervenor presented petitioner with a copy of
the joint return for her signature. Petitioner refused to sign
the return without first reviewing it. Intervenor initially
refused but, upon petitioner’s instance, allowed her a quick
glance at the return. Petitioner noticed that intervenor had
claimed a casualty loss deduction of $35,000 for a break-in to
their rental car while they were vacationing in Hawaii.
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Intervenor had overstated the amount of the casualty loss
deduction, and as a result, petitioner refused to sign the
return.
Petitioner’s refusal to sign the return angered intervenor.
He grabbed petitioner’s left arm and twisted it several times,
resulting in bruising. He then struck petitioner on the back of
the head with an open hand and pulled her hair with both hands.
Finally, intervenor pushed petitioner on the jaw. Petitioner
still refused to sign the return. Later that night, intervenor
cornered petitioner in the bathroom and shoved her against the
wall. He ordered her to the kitchen table and threatened her
with physical harm and threatened that she would never see her
children again if she did not sign the return. Petitioner,
fearing for her safety, placed a scribble in the signature line
of the return.
The next day, April 4, 2007, intervenor presented petitioner
with a new version of the return in which he had removed the
$35,000 casualty loss. Fearing for her safety, petitioner signed
the return without review. On or around April 10, 2007,
intervenor flew to Hong Kong on a business trip. That day,
petitioner’s friend drove her to the San Jose police station
where she filed a report about the April 3 abuse.
On April 19, 2007, petitioner filed a petition for
dissolution of marriage in the Superior Court of California,
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Santa Clara County, and also applied for a temporary restraining
order against intervenor. The superior court ordered intervenor
to complete a 52-week domestic violence program and ordered that
intervenor have supervised visitation of his children. On July
3, 2008, the superior court issued petitioner a restraining order
against intervenor. Shortly thereafter, petitioner and
intervenor reconciled.
In or around December 2008 respondent began examining
petitioner and intervenor’s 2006 joint return. Intervenor did
not allow petitioner to participate in the examination of their
2006 joint return. In March 2009 intervenor approached
petitioner and asked that she sign several documents that would
have removed the IRS agent assigned to their case and given
intervenor sole authority to communicate with respondent.
Petitioner refused to sign the documents. Upon hearing her
refusal, intervenor began yelling. A neighbor called the San
Jose police department, and intervenor was arrested. On March 3,
2009, petitioner obtained an emergency protective order against
intervenor. On March 5, 2009, petitioner filed a petition for a
dissolution of marriage for a second time with the Superior Court
of California, Santa Clara County. On March 10, 2011, the
superior court entered a judgement of dissolution, dissolving
petitioner and intervenor’s marriage effective December 6, 2010.
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On October 28, 2009, during examination of petitioner and
intervenor’s 2006 joint return, petitioner submitted a Form 8857,
Request for Innocent Spouse Relief, to respondent. On February
10, 2010, respondent mailed petitioner a letter containing Form
4549 and Form 866-A. As part of the Form 4549, respondent
acknowledged petitioner’s request for innocent spouse relief.
However, because of petitioner and intervenor’s conflicting
accounts as to domestic violence and the running of the statute
of limitations, respondent deferred ruling on petitioner’s
request for innocent spouse relief until after determining the
2006 deficiency. On March 30, 2010, respondent mailed petitioner
and intervenor a statutory notice of deficiency for taxable year
2006. On April 22, 2010, respondent revised the adjustments in
the notice of deficiency and mailed petitioner and intervenor a
revised examination report including Form 4549 and Form 866-A.
On June 30, 2010, petitioner timely filed a petition with
this Court, asking the Court to determine that: (1) She is
entitled to relief under the provisions of section 6015, and (2)
she is not liable for the deficiency due for 2006.3 On September
15, 2010, intervenor filed a Form 13, Notice of Intervention, and
3
At the time petitioner filed her petition with this Court,
she had sole custody of her three minor children. In 2010 she
worked as a preschool teacher, earning an annual income of
$19,710. Her monthly living expenses equaled $5,113. Intervenor
is not paying child support; thus petitioner receives no
financial help in raising their children.
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was added as a party to this case. The trial took place on May
23, 2011, in San Francisco, California. Thereafter, on September
14, 2011, petitioner filed a motion for leave to file an amended
petition to conform to the evidence, pursuant to Rule 41(b).
Petitioner lodged a proposed amended petition with the
motion for leave. In the proposed amended petition, petitioner
asked this Court to determine that: (1) She is an innocent
spouse entitled to relief under section 6015, (2) the 2006 tax
return does not constitute a joint return under section 6013
because petitioner’s signature was executed under duress, and (3)
she is entitled to relief under section 66(c) and therefore is
not subject to the general rule that community property is
taxable one-half to each spouse.4 By order dated September 28,
2011, the Court granted petitioner’s motion for leave to file an
amended petition.
OPINION
Petitioner does not dispute the deficiencies and penalties
respondent determined for the year at issue. Instead, she claims
that she signed the 2006 joint return under duress and that the
return is not a joint return under section 6013. Respondent
agrees. Respondent and petitioner stipulated that petitioner
4
In or around January 2011, petitioner submitted an
individual Federal income tax return to respondent with a filing
status of married filing separately for taxable year 2006.
Petitioner reported only her income as a preschool teacher and
excluded intervenor’s income pursuant to relief under sec. 66(c).
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signed the return under duress and is therefore not liable for
the deficiency and penalty at issue. Intervenor disputes
petitioner’s claim of duress. As a threshold matter, we note
that “All concessions, including stipulated settlement
agreements, are subject to the Court’s discretionary review” and
may be rejected in the interests of justice. McGowan v.
Commissioner, 67 T.C. 599, 607 (1976).
I. Duress
Section 6013(a) permits a husband and wife to file jointly a
single tax return. Where spouses elect to file a joint return
for a taxable year, they are required to compute their tax for
the taxable year on the aggregate income of both spouses, and the
liability for that tax is joint and several. See sec.
6013(d)(3). However, where one spouse signs a return for a
taxable year under duress, it is not a joint return for that year
for purposes of section 6013, and the spouse who signed the joint
return under duress will not be held jointly and severally liable
for any deficiency in tax that the Commissioner determines. See
Stanley v. Commissioner, 81 T.C. 634, 637-638 (1983); sec.
1.6013-4(d), Income Tax Regs.
In order to prove that a taxpayer signed a joint return
under duress, the taxpayer must show (1) that the taxpayer was
unable to resist the demands of the taxpayer’s spouse to sign the
joint return and (2) that the taxpayer would not have signed the
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joint return absent the constraint that the taxpayer’s spouse
applied to the taxpayer’s will. Stanley v. Commissioner, supra
at 638. The determination of whether the taxpayer signed a joint
return under duress is dependent on the facts and is measured by
a wholly subjective standard. Id. We must therefore look
closely at the circumstances in which petitioner signed the 2006
return.
Intervenor claims that he did not force petitioner to sign
the 2006 return. He claims that he and petitioner together
prepared the joint return and both voluntarily signed the return.
We do not find intervenor’s testimony credible. Though we can
never truly know what happened on the night of April 3, 2007, we
are more inclined to believe petitioner’s version of the events
of that night. Petitioner submitted and we received evidence
showing bruising on her left arm. Petitioner also filed a police
report of the incident and obtained a restraining order against
intervenor. Finally, petitioner documented a pattern of abuse by
intervenor leading up to the night of April 3.
Under the first part of the test for duress, petitioner must
show that she was unable to resist the demands of intervenor to
sign the joint return. Petitioner demonstrated a pattern of
abuse by intervenor leading up to the signing of the return.
This abuse culminated in a night of violence on April 3, 2007, in
response to her refusal to sign the return. Duress may exist not
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only when a gun is held to one’s head while a signature is being
subscribed to a document. A long-continued course of mental
intimidation can be equally effective, and perhaps more so, as a
form of duress. Brown v. Commissioner, 51 T.C. 116, 119-120
(1968).
Under the second part of the test for duress, petitioner
must show that she would not have signed the joint return absent
the constraint that intervenor applied to her will. Petitioner
testified that she refused to sign the original return and only
after intervenor abused her and threatened her did she
reluctantly sign the return. On the record before us, we find it
more likely than not that petitioner signed the 2006 return under
duress. Therefore, we hold that the 2006 return is not a joint
return under section 6013 and that petitioner is not jointly and
severally liable for any deficiency arising from that return.
Instead, petitioner is required to file an individual Federal
income tax return with a filing status of married filing
separately for the 2006 taxable year.
II. Section 66(c)
California is a community property State, and under section
66, married couples who do not file joint tax returns “generally
must report half of the total community income earned by the
spouses during the taxable year” unless an exception applies.
Sec. 1.66-1(a), Income Tax Regs. Petitioner submitted an
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individual return to respondent in which she reported only her
income as a preschool teacher and excluded intervenor’s income
pursuant to her agreement with respondent that she qualifies for
relief from including community income under section 66(c).
Petitioner now asks us to conclude that she falls within the
section 66(c) exception.
We must now consider whether we have jurisdiction to
redetermine a taxpayer’s separate income tax liability when the
statutory notice of deficiency is based upon a joint return and
where we have decided that no joint return was filed. We have
previously considered this question, and we hold that we do have
jurisdiction to redetermine petitioner’s separate income tax
liability. See, e.g. Stanley v. Commissioner, supra at 638-639.
Section 66(c) offers two types of relief--“traditional” and
“equitable”. See Lantz v. Commissioner, 132 T.C. 131, 142
(2009), revd. on other grounds 607 F.3d 479 (7th Cir. 2010); Felt
v. Commissioner, T.C. Memo. 2009-245, affd. 433 Fed. Appx. 293
(5th Cir. 2011). To qualify for traditional relief under section
66(c), petitioner must satisfy all four conditions provided in
paragraphs (1)-(4) of section 66(c).5 Petitioner does not
5
In particular, sec. 66(c) provides:
SEC. 66(c). Spouse Relieved of Liability in
Certain Other Cases.--Under regulations prescribed by
the Secretary, if--
(continued...)
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qualify for traditional relief as she does not satisfy the
section 66(c)(3) requirement that she establish that she did not
know of, and had no reason to know of, the item of community
income.
A taxpayer’s knowledge of an item of community income must
be determined with reference to her knowledge of the particular
income-producing activity. See McGee v. Commissioner, 979 F.2d
5
(...continued)
(1) an individual does not file a joint
return for any taxable year,
(2) such individual does not include in
gross income for such taxable year an item of
community income properly includible therein
which, in accordance with the rules contained
in section 879(a), would be treated as the
income of the other spouse,
(3) the individual establishes that he
or she did not know of, and had no reason to
know of, such item of community income, and
(4) taking into account all facts and
circumstances, it is inequitable to include
such item of community income in such
individual’s gross income,
then, for purposes of this title, such item of
community income shall be included in the gross income
of the other spouse (and not in the gross income of the
individual). Under procedures prescribed by the
Secretary, if, taking into account all the facts and
circumstances, it is inequitable to hold the individual
liable for any unpaid tax or any deficiency (or any
portion of either) attributable to any item for which
relief is not available under the preceding sentence,
the Secretary may relieve such individual of such
liability.
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66, 70 (5th Cir. 1992), affg. T.C. Memo. 1991-510; Hardy v.
Commissioner, T.C. Memo. 1997-97, affd. 181 F.3d 1002 (9th Cir.
1999). Petitioner was aware that intervenor was employed by
Fairchild Semiconductor International, Inc., and Spansion, Inc.,
and was aware that his wages were used to pay their household
living expenses. While petitioner may not have known the precise
amount of intervenor’s salary, she knew of his employment.
Accordingly, we find that petitioner knew, or had reason to know,
about intervenor’s wages.
We now consider whether petitioner is entitled to equitable
relief under section 66(c). Respondent determined that
petitioner was entitled to equitable relief, but intervenor
challenges that determination. Under regulations prescribed by
the Secretary, if taking into account all facts and
circumstances, it is inequitable to include an item of community
income in a spouse’s gross income, then such item of community
income shall be included in the gross income of the other spouse
(and not in the gross income of the individual). Sec. 66(c)(4);
sec. 1.66-4(b), Income Tax Regs.
The Commissioner has outlined procedures the Commissioner
will follow in determining whether a requesting spouse qualifies
for equitable relief under section 66(c). See Rev. Proc. 2003-
61, 2003-2 C.B. 296. The requesting spouse must meet five
threshold conditions before the Commissioner will consider a
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request for relief. Id. sec. 4.01, 2003-2 C.B. at 297.
Respondent concedes that petitioner has met the preliminary
requirements for relief. We agree.
A. Balancing Test for Determining Whether Section 66(c)
Equitable Relief Would Be Appropriate
Where, as here, the requesting spouse meets the five
threshold conditions set forth in Rev. Proc. 2003-61, sec. 4.01,
we employ a balancing test to determine whether, taking into
account all the facts and circumstances, it would be inequitable
to hold the requesting spouse liable for all or part of the
unpaid liability. The Commissioner has listed factors the
Commissioner considers in determining whether a taxpayer
qualifies for relief. See id. sec. 4.03, 2003-2 C.B. at 298.
The factors include whether the requesting spouse: (1) Is
separated or divorced from the nonrequesting spouse, (2) would
suffer economic hardship if relief were denied, (3) had knowledge
or reason to know that the nonrequesting spouse would not pay the
income tax liability, (4) received significant economic benefit
from the unpaid income tax liability, (5) complied with income
tax laws in years after the year at issue, (6) was abused by the
nonrequesting spouse, and (7) was in poor health when signing the
return or requesting relief; and whether the nonrequesting spouse
had a legal obligation to pay the outstanding tax liability. Id.
sec. 4.03(2). The list is nonexhaustive, and no single factor is
determinative. Id. We address each of the factors in turn.
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1. Marital Status
We first consider marital status. This factor weighs in
favor of the requesting spouse if she is separated or divorced
from the nonrequesting spouse. Id. sec. 4.03(2)(i). The parties
agree that petitioner is divorced from intervenor. This factor
weighs in favor of relief.
2. Economic Hardship
The second factor is whether the requesting spouse would
suffer economic hardship if relief were denied. A denial of
section 66(c) relief imposes economic hardship if it prevents the
requesting spouse from being able to pay her reasonable basic
living expenses. Sec. 301.6343-1(b)(4)(i), Proced. & Admin.
Regs. Reasonable basic living expenses are based on the
taxpayer’s circumstances but do not include amounts needed to
maintain a luxurious standard of living. Sec. 301.6343-
1(b)(4)(i), Proced. & Admin. Regs. Relevant circumstances
include the taxpayer’s age, ability to earn an income, number of
dependents, and status as a dependent. Sec. 301.6343-
1(b)(4)(ii)(A), Proced. & Admin. Regs.
Petitioner is a part-time teacher. In 2010 she earned
$19,710. She has sole custody of her and intervenor’s three
minor children and is solely responsible for their support
because intervenor is not paying child support. Her monthly
expenses equal $5,113.
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On the record, we find that petitioner would suffer economic
hardship if relief is not granted. This factor weighs in favor
of relief.
3. Knowledge or Reason To Know That Nonrequesting
Spouse Would Not Pay Liability
A third factor focuses on whether the requesting spouse knew
or had reason to know of the item as to which section 66(c)
relief is sought. We find that petitioner knew or had reason to
know of the community income. This factor weighs against relief.
4. Nonrequesting Spouse’s Legal Obligation To Pay
Liability
A fourth consideration is whether the nonrequesting spouse
had a legal obligation to pay the tax liability. Intervenor does
not have a legal obligation to pay the income tax liabilities
pursuant to a divorce decree or other agreement. Therefore,
respondent determined that this factor is neutral, and we have no
information to conclude otherwise.
5. Economic Benefit From Items Giving Rise to
Liability
A fifth consideration is whether the requesting spouse
received significant benefit from the community income.
Petitioner credibly testified that she received no gifts or other
benefits beyond normal support. This factor weighs in favor of
relief.
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6. Subsequent Compliance With Income Tax Laws
A sixth consideration is whether the requesting spouse made
a good faith effort to comply with income tax laws in subsequent
years. Respondent stipulates that petitioner has been in
compliance with the income tax laws since 2006. Therefore, this
factors weighs in favor of relief.
7. Abuse by Nonrequesting Spouse
As discussed above, we find that intervenor abused
petitioner. Therefore this factor weighs in favor or relief.
8. Poor Health When Signing Return or Requesting
Relief
Petitioner did not allege that she was in poor health when
she signed the return or when she requested relief. Therefore,
respondent determined that this factor is neutral, and we have no
information to decide otherwise.
B. Conclusion
In summary, five factors weigh in favor of relief, one
factor weighs against relief, and two factors are neutral. After
weighing the testimony and evidence in this fact-intensive and
nuanced case, we find that petitioner is entitled to relief under
section 66(c).
III. Section 6015
Having found that petitioner signed the 2006 joint return
under duress, we need not address petitioner’s section 6015 claim
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for relief because a return signed under duress is not a joint
return. See Brown v. Commissioner, 51 T.C. 120-121.
In reaching our holdings, we have considered all arguments
made, and, to the extent not mentioned, we conclude that they are
moot, irrelevant, or without merit.
To reflect the foregoing,
Decision will be entered
for petitioner.