Devlin v. Comm'r ( 2007 )

T.C. Summary Opinion 2007-201
UNITED STATES TAX COURT
PATRICIA H. DEVLIN, Petitioner v.
COMMISSIONER OF INTERNAL REVENUE, Respondent
Docket No. 8128-05S. Filed November 28, 2007.
Patricia H. Devlin, pro se.
Jack T. Anagnostis, for respondent.
COHEN, Judge: This case was heard pursuant to the
provisions of section 7463 of the Internal Revenue Code in effect
when the petition was filed. Pursuant to section 7463(b), the
decision to be entered is not reviewable by any other court, and
this opinion shall not be treated as precedent for any other
case. The trial was conducted by Special Trial Judge Carleton D.
Powell, who died after the case was submitted. The parties have
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declined the opportunity for a new trial or for supplementation
of the record and have expressly consented to reassignment of the
case for opinion and decision. Unless otherwise indicated, all
section references are to the Internal Revenue Code as amended.
The sole issue to be decided is whether petitioner is entitled to
relief under section 6015(f) for 1999.
Background
Some of the facts have been stipulated, and the stipulated
facts are incorporated into our findings by this reference.
Petitioner resided in New Jersey at the time that her petition
was filed. In the midst of personal and financial difficulties,
petitioner and her former spouse, Robert N. Collins (Collins),
separated in mid-1999. The couple formally divorced in May 2000.
On October 26, 2000, petitioner signed a joint Federal income tax
return for 1999, which was not prepared by petitioner and was
later filed by Collins. The return signed by petitioner reported
total tax of $20,850 and a withholding credit of $1,326.
Throughout 1999 and until March 2000, petitioner was
employed as a bookkeeper for Collins’s construction business.
She was aware of all financial information for 1999 regarding the
business. In March 2000, petitioner left her job with Collins’s
business because he wanted to hire his girlfriend. Petitioner
obtained a full-time job shortly thereafter and also received
some spousal and child support incident to the divorce from
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Collins. At the time that she signed the 1999 return, petitioner
was aware of the financial difficulties with Collins’s business
and did not know how Collins would be able to pay the tax
liability stated on the return. Petitioner’s father died in
November 2000.
At some point after his divorce from petitioner, Collins
filed for bankruptcy. In late 2003, petitioner completed,
signed, and filed with the Internal Revenue Service Form 8857,
Request for Innocent Spouse Relief, and Form 12510, Questionnaire
for Requesting Spouse. On Form 12510, petitioner reported net
income exceeding specified expenses by more than $1,000 per
month. Petitioner’s request for relief was denied in full on
March 31, 2005.
Discussion
Generally, married taxpayers may elect to file a joint
Federal income tax return. Sec. 6013(a). When a husband and
wife elect to file a joint Federal income tax return, they are
jointly and severally liable for the entire tax due on that
return. Sec. 6013(d)(3); Butler v. Commissioner, 114 T.C. 276,
282 (2000). However, section 6015 provides for relief for a
requesting spouse from joint and several liability in certain
circumstances. Because this case involves only an underpayment
of tax shown on a return, only section 6015(f) applies. Petrane
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v. Commissioner, 129 T.C. 1, 4 n.4 (2007); Washington v.
Commissioner, 120 T.C. 137, 147 (2003).
Section 6015(f) provides for equitable relief if, taking
into account all of the facts and circumstances, it is
inequitable to hold the requesting spouse liable for any unpaid
tax or deficiency. As directed by section 6015(f), the
Commissioner has prescribed guidelines under which a taxpayer may
qualify for equitable relief from liability on a joint return for
tax owed on income attributable to the nonrequesting spouse. See
Rev. Proc. 2003-61, 2003-2 C.B. 296. Rev. Proc. 2003-61, sec.
4.02, 2003-2 C.B. at 298, provides in relevant part that relief
ordinarily will be granted to a requesting spouse with regard to
underpayments of tax attributable to the nonrequesting spouse if
three criteria are met. The first criterion, that the requesting
spouse is no longer married to or is legally separated from the
nonrequesting spouse or is not a member of the same household at
any time during the 12 months prior to the request for relief, is
satisfied in this case.
The second criterion, that, at the time the joint return was
signed, the requesting spouse had no knowledge or reason to know
that the tax would not be paid and that it was reasonable to
believe that the nonrequesting spouse would pay the liability, is
not satisfied in this case. Petitioner and Collins were having
both personal and business financial difficulties throughout
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1999. At the time petitioner signed the 1999 return, she knew
that Collins’s business was in financial difficulty and had been
unable to cover expenses. She also was aware that Collins
personally spent more money than he made in 1999. Petitioner
testified that, at the time she signed the 1999 return, she did
not know how Collins could afford to pay the outstanding tax
liability reported on the return. Petitioner has not shown that
it was reasonable to rely on Collins to pay the tax due for 1999.
The third criterion under section 4.02 of Rev. Proc. 2003-61
is that the requesting spouse will suffer economic hardship if
relief is not granted. Economic hardship for these purposes is
defined as the inability to pay reasonable basic living expenses
if the requesting spouse is held liable for the tax owed. See
sec. 301.6343-1(b)(4), Proced. & Admin. Regs. On the Form 12510,
she reported monthly income in excess of monthly expenses.
Petitioner has not shown that she will suffer economic hardship
if relief is not granted; thus, the third criterion is not met.
Rev. Proc. 2003-61, section 4.03, 2003-2 C.B. at 298,
provides an alternative test for equitable relief if a taxpayer
does not meet the requirements of Rev. Proc. 2003-61, section
4.02. Rev. Proc. 2003-61, section 4.03, lists several relevant
factors that the Commissioner considers and weighs in making a
determination about whether section 6015(f) relief should be
granted. Those factors include:
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(i) Whether the requesting spouse is separated or divorced
from the nonrequesting spouse;
(ii) whether the requesting spouse will suffer economic
hardship if relief from the liability is not granted;
(iii) whether the requesting spouse had knowledge or reason
to know either of the item giving rise to a tax deficiency or
that the nonrequesting spouse would not pay the tax liability;
(iv) whether the nonrequesting spouse has a legal obligation
pursuant to a divorce decree or agreement to pay the outstanding
liability;
(v) whether the requesting spouse has significantly
benefited (beyond normal support) from the unpaid liability or
item giving rise to a deficiency; and
(vi) whether the requesting spouse has made a good faith
effort to comply with Federal income tax laws in the tax years
subsequent to the years to which the request for relief relates.
Rev. Proc. 2003-61, sec. 4.03(2)(a).
Although petitioner is divorced from Collins and has not
failed to comply with Federal income tax laws individually in tax
years subsequent to 1999, several of the other Rev. Proc. 2003-
61, section 4.03, factors weigh against granting her relief from
joint and several liability. We have already concluded that
petitioner has not shown that she will suffer economic hardship
if relief is not granted. We have also concluded that petitioner
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knew or had reason to know that Collins would not pay the tax
liability shown on the joint return for 1999 that she signed.
Both of these factors weigh against granting petitioner relief.
Petitioner argues that, as part of their divorce settlement,
she and Collins agreed that Collins would be responsible for all
personal and business bills. Petitioner acknowledges that the
agreement did not specifically include the tax liability, which
was not then known. There is no reliable evidence that Collins
has a legal obligation pursuant to the divorce decree to pay the
entire joint tax liability for 1999; thus, this factor does not
favor granting petitioner relief from liability.
Petitioner did not, however, benefit beyond normal support
from the underpayment in tax for 1999. In mid-1999, petitioner
separated from Collins and moved into a modest apartment with her
daughter. She continued to work as the bookkeeper for Collins’s
business until March 2000, at which time she left her job because
Collins wanted to hire his girlfriend to work for the business.
Petitioner received spousal and child support from Collins after
leaving the business, and she found other employment shortly
thereafter. For the most part, petitioner has supported herself
since she left Collins. She has not benefited substantially
beyond basic reasonable support from the underpayment in taxes.
Finally, respondent acknowledges that petitioner has complied
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with Federal income tax laws since 1999. These factors favor
granting petitioner relief.
Rev. Proc. 2003-61, sec. 4.03(2)(b), 2003-2 C.B. at 299,
lists two additional factors that may weigh in favor of equitable
relief under section 6015(f) but that will not weigh against
relief if not present:
(i) * * * Whether the nonrequesting spouse abused
the requesting spouse. The presence of abuse is a
factor favoring relief. A history of abuse by the
nonrequesting spouse may mitigate a requesting spouse’s
knowledge or reason to know.
(ii) * * * Whether the requesting spouse was in
poor mental or physical health on the date the
requesting spouse signed the return or at the time the
requesting spouse requested relief. * * *
Petitioner reported on her Form 12510 that she had never
been abused by Collins, and she did not report that she was
suffering from a mental or physical ailment at the time she
signed the joint return. Petitioner did report that her father
was ill and dying at the time that she signed the return in
October 2000. Although the Court recognizes the difficulties
inherent in divorce and death, petitioner has not asserted and we
do not find that she was suffering from poor mental or physical
health at the time she signed the joint return or at the time she
requested relief. Thus, these additional factors do not weigh in
favor of relief for petitioner.
Taking into account all of the facts and circumstances,
particularly petitioner’s extensive knowledge regarding Collins’s
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financial situation and the lack of economic hardship in this
case, we are not persuaded that it is inequitable to hold
petitioner liable for the underpayment for the year in issue or
that it was an abuse of discretion for respondent to deny
petitioner relief under section 6015(f). In reaching our
holding, we have considered all arguments made, and, to the
extent not mentioned, we conclude that they are irrelevant, moot,
or without merit.
To reflect the foregoing,
Decision will be entered
for respondent.