Martino v. Comm'r ( 2009 )

T.C. Memo. 2009-43
UNITED STATES TAX COURT
ANTHONY MARTINO, JR. AND MIKELIN MARTINO, Petitioners v.
COMMISSIONER OF INTERNAL REVENUE, Respondent
Docket Nos. 13912-06L, 8524-07L. Filed February 24, 2009.
Anthony J. Martino, Jr., pro se.
Kristina Rico, for respondent.
MEMORANDUM FINDINGS OF FACT AND OPINION
HAINES, Judge: These cases are before the Court
consolidated for purposes of trial, briefing, and opinion.
Respondent mailed petitioner Anthony Martino, Jr. (Mr. Martino),
and petitioner Mikelin Martino (Mrs. Martino) (collectively,
petitioners), a Notice of Determination Concerning Collection
Action(s) Under Section 6320 and/or 6330 for 1998, 1999, 2000,
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2001, and 2002 (first notice of determination), and for 2003 and
2004 (second notice of determination). Petitioners seek review
under sections 6320 and 6330 of respondent’s determinations.1
The parties’ controversy poses the following issues for our
consideration: (1) Whether respondent abused his discretion by
rejecting petitioners’ collection alternatives because of
petitioners’ failure to remain in compliance with their tax
obligations; (2) whether respondent abused his discretion by
determining that petitioners possessed sufficient funds to fully
pay their tax liability; and (3) whether respondent abused his
discretion in denying the requests of Mrs. Martino for innocent
spouse relief under section 6015(f) for the 1998 through 2004 tax
liabilities.
FINDINGS OF FACT
Some of the facts have been stipulated and are so found.
The stipulation of facts, together with the attached exhibits, is
incorporated herein by this reference. At the time petitioners
filed their petitions, they resided in Pennsylvania.
Mr. Martino is an attorney. From 1998 through 2004
petitioners derived their income from Mr. Martino’s partnership
1
Unless otherwise indicated, all section references are to
the Internal Revenue Code, as amended, 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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interest and employment in a small law firm that focused on civil
and criminal litigation.
I. Collection Alternatives
A. 1998 Through 2002
Petitioners filed joint Federal income tax returns for 1998
through 2002 but failed to pay the taxes reported on their
returns. Respondent assessed taxes for 1998 through 2002
commensurate with the sums petitioners reported on their returns
as follows:
Year Taxes Reported and Assessed
1998 $37,583
1999 45,776
2000 34,997
2001 31,453
2002 36,651
Total 186,460
On June 19, 2004, petitioners submitted an offer-in-
compromise of approximately $170,000 for liabilities incurred
from 1997 through 2002.2 Petitioners attached a Form 433-A,
Collection Information Statement for Wage Earners and Self-
Employed Individuals, to their offer-in-compromise which listed
petitioners’ sources of income and assets as follows: (i) Mr.
2
In docket No. 13912-06L, respondent filed a motion to
dismiss taxable year 1997 for mootness because petitioners had
already paid the liability due for that year. Respondent also
filed a motion to dismiss for lack of jurisdiction as to taxable
year 1997 as to the sec. 6015 determination and to strike. We
granted both motions on Oct. 5, 2007.
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Martino’s 20-percent interest in a law firm partnership3 valued
at $314,467; (ii) Mr. Martino’s legal job with a county; (iii)
Fleet Bank checking account with a balance of approximately
$3,000; (iv) Fleet Bank savings account with a balance of
approximately $100; (v) Merrill Lynch mutual fund with a value of
approximately $1,500; (vi) Northampton County Employees
Retirement Fund with a current value of approximately $16,000;
(vii) available credit from Citibank VISA of approximately
$1,500; (viii) available credit from First USA of approximately
$500; (ix) available credit from miscellaneous sources of
approximately $2,000; (x) 1999 Isuzu Trooper with current value
of approximately $16,000 and current loan balance of
approximately $15,390; (xi) 1995 Mercedes Benz with current value
of approximately $10,000 and current loan balance of
approximately $9,000; (xii) property located in Roseto,
Pennsylvania, with a value of approximately $235,000 subject to a
mortgage of approximately $100,000; (xiii) property located in
Roseto, Pennsylvania, with a value of approximately $140,000
subject to a mortgage of approximately $103,000; (xiv)
furniture/personal effects with a value of approximately $15,000;
and (xv) jewelry with a value of approximately $18,000.
3
Mr. Martino is also a shareholder in a real estate holding
company established by the partnership.
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On August 24, 2004, respondent mailed each petitioner a
Notice of Federal Tax Lien Filing and Your Right to a Hearing
under IRC 6320 for their unpaid 1998 through 2002 tax
liabilities.
On August 26, 2004, respondent mailed each petitioner letter
1058, Final Notice of Intent to Levy and Notice of Your Right to
Hearing (first notice of levy) for their unpaid 1998 through 2002
tax liabilities.
On September 22, 2004, petitioners timely submitted a Form
12153, Request for a Collection Due Process Hearing, for the
years 1998 through 2002. In their request petitioners stated
that their offer-in-compromise was still pending and noted they
were willing to pay respondent $2,500 per month through an
installment agreement.
On March 23, 2006, respondent’s Appeals officer, Paula
Stanton (Ms. Stanton), sent petitioners a letter scheduling a
telephone conference for April 12, 2006.
On April 3, 2006, Mr. Martino sent respondent’s Appeals
Office a letter regarding the estimated tax payments that he made
in 2003, 2004, and 2005.
On April 12, 2006, Ms. Stanton held a telephone conference
with petitioners. Ms. Stanton informed petitioners that they had
made inadequate estimated tax payments for 2003 and 2004 and had
thus accrued income tax liabilities that were not included in the
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June 19, 2004, offer-in-compromise. Ms. Stanton notified
petitioners that if payment for the additional accrued income tax
liabilities was not remitted within a reasonable time, their
collection alternatives would be rejected. Petitioners did not
pay the additional liabilities or file an amended offer.
On June 15, 2006, Ms. Stanton sent petitioners a letter
rejecting their offer-in-compromise. Using the information
contained in the Form 433-A, respondent determined that
petitioners’ reasonable collection potential was $474,100.4
For purposes of calculating petitioners’ collection potential,
respondent did not include the value of Mr. Martino’s law firm
partnership interest.
On June 15, 2006, Ms. Stanton mailed petitioners the first
notice of determination wherein the Appeals Office determined
that it could not consider petitioners’ proposal for a collection
alternative because petitioners had accrued additional tax
liabilities for 2003 and 2004, that enforced collection action
was not more intrusive than necessary, and that the Internal
Revenue Service (IRS) should proceed with the collection action.
4
Respondent determined petitioners’ collection potential
using the published guidelines of Internal Revenue Manual pt.
5.15.1.3, 5.15.1.8, and 5.15.1.9 (May 1, 2004). These guidelines
establish certain national and local allowances for basic living
expenses and treat income and assets in excess of those needed
for basic living expenses as available to satisfy Federal income
tax liabilities.
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B. 2003 and 2004
Petitioners filed joint Federal income tax returns for 2003
and 2004 but failed to pay the taxes reported on their returns.
Respondent assessed taxes for 2003 and 2004 commensurate with the
sums petitioners reported on their returns as follows.
Year Taxes Reported and Assessed
2003 $51,608
2004 72,283
Total 123,891
On April 3, 2006, respondent mailed each petitioner a Notice
of Federal Tax Lien Filing and Your Right to a Hearing under IRC
6320 for their unpaid 2003 through 2004 tax liabilities.
On April 24, 2006, petitioners timely submitted a Form
12153 for the years 2003 and 2004. In their request petitioners
stated that their offer-in-compromise for their 1998 through 2002
tax liabilities was still pending and noted they were willing to
pay respondent $2,500 per month through an installment agreement.
On August 17, 2006, respondent’s settlement officer, Ms.
Stanton, wrote to petitioners scheduling a telephone conference
for September 13, 2006. Ms. Stanton also informed petitioners
that they would be required to submit proof of estimated tax
payments for 2005 and 2006 before respondent would consider any
collection alternatives.
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On September 13, 2006, Mr. Martino called Ms. Stanton to
reschedule the conference. Ms. Stanton rescheduled the
conference for September 21, 2006, and sent petitioners a letter
reflecting the new telephone conference date and time. Ms.
Stanton also provided petitioners with the opportunity to provide
any additional information they wanted the Appeals Office to
consider.
On September 26, 2006, petitioners called Ms. Stanton to
cancel the conference. Ms. Stanton advised petitioners that
respondent’s Appeals Office would make a determination based on
the administrative file and the information that was previously
provided.
On October 10, 2006, respondent’s Appeals Office received an
undated letter from Mr. Martino to Ms. Stanton which had a
postmark date of October 6, 2006. In this letter Mr. Martino
indicated that while he wanted to reschedule the telephone
conference for a third time, the information previously provided
to respondent in response to the first notice of levy outlined
petitioners’ position and would have been reconfirmed during the
telephone conference.
On March 13, 2007, respondent mailed petitioners the second
notice of determination, wherein respondent determined that the
collection action should be sustained for taxable years 2003 and
2004. The Appeals Office determined that it could not consider
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petitioners’ proposal for a collection alternative because
petitioners were not current with estimated tax payments, that
enforced collection action was not more intrusive than necessary,
and that the IRS should proceed with the collection action.
II. Relief From Joint and Several Liability
A. 1998 through 2002
On September 24, 2004, Mrs. Martino sent respondent a Form
8857, Request for Innocent Spouse Relief, for 1998 through 2002.
On March 16, 2006, Ms. Stanton wrote to Mrs. Martino and
scheduled a telephone conference on April 5, 2006 to discuss her
innocent spouse relief request. Ms. Stanton also sent Mr.
Martino a letter regarding his wife’s request.
On April 6, 2006, Ms. Stanton sent Mrs. Martino a letter
enclosing a partially completed Form 12510, Questionnaire for
Requesting Spouse, and requesting that Mrs. Martino sign a Form
433-A.
On April 8, 2006, Mr. Martino sent respondent a completed
Form 12507, Innocent Spouse Statement.
On April 19, 2006, Mrs. Martino sent respondent’s Appeals
Office a completed Form 12510. Mrs. Martino did not submit a
signed Form 433-A.
On June 15, 2006, respondent sent Mrs. Martino a Notice of
Determination Concerning Your Request for Relief from Joint and
Several Liability under Section 6015 (section 6015 notice of
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determination) wherein respondent determined Mrs. Martino was not
eligible for relief under section 6015(f) for 1998 through 2002.
B. 2003 and 2004
On August 17, 2006, Ms. Stanton sent Mrs. Martino a
Form 8857 and Form 12510 for 2003 and 2004. On August 31, 2006,
Mrs. Martino sent respondent’s Appeals Office completed Forms
8857 and 12510.
On March 13, 2007, respondent sent Mrs. Martino a section
6015 notice of determination wherein respondent determined Mrs.
Martino was not eligible for relief under section 6015(f) for
2003 and 2004.
OPINION
I. Collection Alternatives
Petitioners make two arguments regarding respondent’s
rejection of their collection alternatives: (1) Petitioners lack
sufficient assets to satisfy the tax liabilities; and (2)
respondent abused his discretion by basing his determination to
reject petitioners’ collection alternatives on petitioners’
failure to establish that they made estimated tax payments.
When a lien is filed or levy is proposed to be made on any
property or right to property, a taxpayer is entitled to a notice
of lien or of intent to levy and notice of the right to a fair
hearing before an impartial officer of the Appeals Office. Secs.
6320(a) and (b), 6330(a) and (b), 6331(d). If the taxpayer
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requests a hearing, he may raise in that hearing any relevant
issue relating to the unpaid tax, the lien, or the proposed levy,
including challenges to the appropriateness of the collection
action and “offers of collection alternatives, which may include
the posting of a bond, the substitution of other assets, an
installment agreement, or an offer-in-compromise”. Sec.
6330(c)(2)(A). A determination is then made which takes into
consideration those issues, the verification that the
requirements of applicable law and administrative procedures have
been met, and “whether any proposed collection action balances
the need for the efficient collection of taxes with the
legitimate concern of the person that any collection action be no
more intrusive than necessary.” Sec. 6330(c)(3)(C).
Petitioners dispute respondent’s rejection of their proposed
offer-in-compromise and installment agreements. We review the
determinations for abuse of discretion because the underlying tax
liabilities are not at issue. See Lunsford v. Commissioner, 117
T.C. 183, 185 (2001); Nicklaus v. Commissioner, 117 T.C. 117, 120
(2001).
A. Compliance With Tax Obligations
Respondent rejected petitioners’ collection alternatives for
their 1998 through 2002 tax liabilities because the Appeals
Office determined that petitioners had accrued additional unpaid
tax liabilities in 2003 and 2004. Respondent similarly denied
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petitioners’ collection alternatives for their 2003 and 2004 tax
liabilities because the Appeals Office determined that
petitioners had failed to make estimated tax payments for 2005
and 2006. Petitioners argue that respondent abused his
discretion in rejecting petitioners’ collection alternatives for
the above reasons.
Ms. Stanton’s consideration and rejection of petitioners’
collection alternatives in two separate hearings was reasonable
and not an abuse of discretion. With regard to the first notice
of determination, a taxpayer’s history of noncompliance is a
valid basis for the Commissioner’s rejection of a collection
alternative. See Londono v. Commissioner, T.C. Memo. 2003-99.
With regard to the second notice of determination, estimated tax
payments, intended to ensure that current taxes are paid, are a
significant component of the Federal tax system. Cox v.
Commissioner, 126 T.C. 237, 258 (2006), revd. 514 F.3d 1119 (10th
Cir. 2008). In fact, petitioners’ circumstances illustrate the
primary reason for requiring current compliance before granting
collection alternatives; namely, “the risk of pyramiding tax
liability.” See Schwartz v. Commissioner, T.C. Memo. 2007-155;
see also Orum v. Commissioner, 412 F.3d 819, 821 (7th Cir. 2005),
affg. 123 T.C. 1 (2004). Accordingly, we conclude that
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respondent’s rejection of petitioners’ collection alternatives
was not an abuse of discretion.5
B. Insufficient Funds
Petitioners argue that respondent erred in rejecting
petitioners’ offer-in-compromise because petitioners lack
sufficient assets to satisfy their tax liabilities.6
Respondent’s determination not to enter into an offer-in-
compromise agreement with petitioners was not an abuse of
discretion. Section 7122(a) authorizes the Secretary to
compromise any civil case arising under the internal revenue
laws. The regulations set forth three grounds for the compromise
of a liability: (1) Doubt as to liability; (2) doubt as to
collectibility; or (3) promotion of effective tax administration.
Sec. 301.7122-1(b), Proced. & Admin. Regs.; see sec. 7122(c)(1).
Doubt as to liability is not at issue in this case.
5
In Martino v. Commissioner, T.C. Memo. 2009-1, a case
involving the instant petitioners unsuccessfully contesting a
levy for 2005, we found that petitioners had not paid the taxes
due on their returns for 2005, 2006, and 2007. With a 10-year
record of noncompliance, petitioners give every indication of
being recidivists whose strategy is delay.
6
Respondent’s first notice of determination specifies that
petitioners’ offer-in-compromise was rejected because petitioners
had accrued unpaid tax liabilities for 2003 and 2004. However,
respondent’s Form 5402-c, Appeals Transmittal and Case Memo.,
specifies that respondent rejected the offer in part because
petitioners were determined to be capable of fully paying their
liability. Because both parties spent the lion’s share of their
briefs addressing this issue, we shall consider it here.
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The Secretary may compromise a liability on the ground of
doubt as to collectibility when “the taxpayer’s assets and income
are less than the full amount of the liability.” Sec.
301.7122-1(b)(2), Proced. & Admin. Regs. Additionally, the
Secretary may compromise a liability on the ground of “effective
tax administration” when: (1) Collection of the full liability
will create economic hardship; or (2) exceptional circumstances
exist such that collection of the full liability will be
detrimental to voluntary compliance by taxpayers; and (3)
compromise of the liability will not undermine compliance by
taxpayers with tax laws. Sec. 301.7122-1(b)(3), Proced. & Admin.
Regs.; see 2 Administration, Internal Revenue Manual (CCH), pt.
5.8.11.2, at 16,385-15 (Sept. 1, 2005) (taxpayer’s liability may
be eligible for compromise to promote effective tax
administration if not eligible for compromise based on doubt as
to liability or doubt as to collectibility and taxpayer has
exceptional circumstances to merit the offer).
Ms. Stanton reviewed petitioners’ submitted financial
information at the hearing and determined that an offer-in-
compromise was not appropriate. We received as exhibits the
financial information presented to respondent and find that Ms.
Stanton could have reasonably concluded that there are sufficient
income and assets to satisfy the tax liabilities. Accordingly,
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we conclude that respondent’s refusal to enter into an offer-in-
compromise was not an abuse of discretion.
II. Relief From Joint and Several Liability
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 determine whether a taxpayer is
entitled to equitable relief under section 6015(f). Sec.
6015(e); see also Farmer v. Commissioner, T.C. Memo. 2007-74; Van
Arsdalen v. Commissioner, T.C. Memo. 2007-48.
Petitioner bears the burden of proving that she is entitled
to equitable relief under section 6015(f). See Rule 142(a). The
Commissioner analyzes petitions for section 6015(f) relief using
the procedures set forth in Rev. Proc. 2003-61, 2003-2 C.B. 296.
See Banderas v. Commissioner, T.C. Memo. 2007-129. The parties
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have not disputed the application of the conditions and factors
listed in the revenue procedure.
The Commissioner generally will not grant relief unless the
taxpayer meets seven threshold conditions. Rev. Proc. 2003-61,
sec. 4.01, 2003-2 C.B. at 297. Respondent concedes that
petitioner meets these conditions. If a taxpayer meets the
threshold conditions, the Commissioner considers several factors
to determine whether a requesting spouse is entitled to relief
under section 6015(f). Id. sec. 4.03, 2003-2 C.B. at 298. We
consider all relevant facts and circumstances in determining
whether the taxpayer is entitled to relief. Sec. 6015(e) and
(f)(1). The following factors are relevant to our inquiry.
A. Petitioner’s Marital Status
Mrs. Martino and Mr. Martino were still married when Mrs.
Martino sought relief. This factor is neutral.
B. Significant Benefit
Receipt by the requesting spouse, either directly or
indirectly, of a significant benefit in excess of normal support
from the unpaid liability or the item giving rise to the
deficiency weighs against relief. Lack of a significant benefit
beyond normal support weighs in favor of relief. Normal support
is measured by the circumstances of the particular parties.
Estate of Krock v. Commissioner, 93 T.C. 672, 678-679 (1989).
The record does not indicate whether Mrs. Martino received a
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significant benefit from the unpaid liability. This factor is
neutral.
C. Compliance With Tax Laws
The record indicates that petitioners accrued unpaid
liabilities from 1997 through 2004. Additionally, petitioners
were unable to show proof of estimated tax payments from 2005 and
2006. This factor favors respondent.
D. 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. 2003-61, sec. 4.03(2)(a)(ii), 2003-2 C.B. at 298. 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. 2003-61, secs. 4.02(1)(c),
4.03(2)(a)(ii), 2003-2 C.B. at 298. As the record does not
indicate that Mrs. Martino would experience hardship from paying
the tax, this factor favors respondent.
E. Knowledge or Reason To Know
In the case of a properly reported but unpaid liability we
are less likely to grant relief under section 6015(f) if the
requesting spouse knew or had reason to know when the returns
were signed that the tax would not be paid. Washington v.
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Commissioner, 120 T.C. 137, 151 (2003). If the requesting spouse
did not know or have reason to know, we are more likely to grant
relief.
Mrs. Martino has not alleged that she was unaware that the
taxes reported on her Federal income tax returns would be left
unpaid, and the record does not indicate that she was unaware.
Accordingly, this factor favors respondent.
F. Whether the Underpayment of Tax Is Attributable to
the Nonrequesting Spouse
Respondent concedes that the underpayment of tax was solely
attributable to Mr. Martino’s business activities. This factor
favors relief.
The only factor favoring relief is that the underpayment of
tax was attributable to Mr. Martino’s business activities. This
factor is strongly outweighed by Mrs. Martino’s failure to
demonstrate economic hardship, her failure to demonstrate she was
unaware the taxes would not be paid, and petitioners’ history of
noncompliance with Federal tax laws. On the basis of the above,
we find that Mrs. Martino has failed to carry her burden of
showing that she is entitled to relief from joint and several
liability 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.
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To reflect the foregoing,
Decisions will be entered
for respondent.