Rosalinda E. Alt v. Commissioner , 119 T.C. No. 19 ( 2002 )

119 T.C. No. 19UNITED STATES TAX COURT
ROSALINDA E. ALT, Petitioner v.
COMMISSIONER OF INTERNAL REVENUE, Respondent
Docket No. 2964-01. Filed December 17, 2002.
P filed joint tax returns for taxable years 1982
to 1988 with H. H filed a return in 1989 with the
filing status of “Married filing separate”. P did not
file a tax return in 1989. R determined deficiencies
against P and H for taxable years 1982 to 1988. P sent
R a Form 8857, Request for Innocent Spouse Relief, for
taxable years 1982 to 1989. R sent P a notice of
determination determining that P was not entitled to
relief under I.R.C. sec. 6015(b), (c), and (f) for
taxable years 1982 to 1988. R sent P a letter
determining that no relief under I.R.C. sec. 6015 was
available for 1989 because P did not file a joint
return.
Held: Pursuant to I.R.C. sec. 6015(e), we have
jurisdiction to review the denial of P’s request for
relief under I.R.C. sec. 6015 for taxable years 1982 to
1988, and we have jurisdiction to review R’s failure to
make a determination on P’s request for relief under
I.R.C. sec. 6015 for 1989.
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Held, further, P is not entitled to relief under
I.R.C. sec. 6015 for 1989 because she did not file a
joint return. Raymond v. Commissioner, 119 T.C. 191(2002).
Held, further, pursuant to I.R.C. sec.
6015(b)(1)(D), P is not entitled to relief under I.R.C.
sec. 6015(b) for taxable years 1982 to 1988 because,
taking into account all facts and circumstances, it is
not inequitable to hold P liable for the deficiencies.
Held, further, pursuant to I.R.C. sec.
6015(c)(3)(A)(i), P is not entitled to relief under
I.R.C. sec. 6015(c) for taxable years 1982 to 1988
because P and H are still married, have not separated,
and remained members of the same household during the
12-month period preceding the filing of the election by
petitioner.
Held, further, R did not abuse his discretion in
denying P relief under I.R.C. sec. 6015(f) for taxable
years 1982 to 1988 because we held that, taking into
account all facts and circumstances, it is not
inequitable to hold P liable for the deficiencies under
I.R.C. sec. 6015(b)(1)(D).
Rosalinda E. Alt, pro se.
A. Gary Begun, for respondent.
VASQUEZ, Judge: This case arises from a request for relief
under section 60151 with respect to petitioner’s taxable years
1982 to 1989 (years at issue). The issues for decision are: (1)
1
Unless otherwise indicated, all section references are to
the Internal Revenue Code in effect at all relevant times. All
Rule references are to the Tax Court Rules of Practice and
Procedure.
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Whether petitioner is entitled to relief under section 6015(b)
for the years at issue; (2) whether petitioner is entitled to
relief under section 6015(c) for the years at issue; and (3)
whether respondent abused his discretion in denying petitioner
relief under section 6015(f) for the years at issue.
FINDINGS OF FACT
On August 13, 2001, respondent filed a Motion to Show Cause
Why Proposed Facts In Evidence Should Not Be Accepted As
Established under Rule 91(f). Respondent attached to his motion
a proposed stipulation of facts and exhibits. On August 14,
2001, the Court issued an Order to Show Cause Under Rule 91(f),
requiring petitioner to respond as to why matters set forth in
respondent’s motion should not be deemed admitted. On November
1, 2001, the Court made absolute its Order to Show Cause Under
Rule 91(f), providing that the facts and evidence set forth in
respondent’s proposed stipulation of facts were deemed
established, and exhibits in the proposed stipulation of facts
were received into evidence and made a part of the record of the
case. The stipulation of facts, deemed admissions, and the
attached exhibits are incorporated herein by this reference.
At the time she filed her petition, petitioner resided in
Douglas, Michigan, and had a mailing address in Holland,
Michigan.
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At the time of trial, petitioner was 74 years old.
Petitioner received a bachelor’s degree from Wayne State
University in 1948 and a master’s degree in education from the
University of Michigan in 1953. Petitioner worked as a first
grade teacher until her first child was born in 1955, when she
became a stay-at-home mother. Petitioner has four children who
are now adults: Nan, Karen, Robert, and Gretchen.
Petitioner married Dr. William J. Alt (Dr. Alt) in 1954, was
married to Dr. Alt during the years at issue, and is currently
married to Dr. Alt. Dr. Alt graduated from medical school at the
University of Michigan in 1953, began his medical practice in
Muskegon, Michigan, in 1959, and practices internal medicine with
a specialty in cardiovascular disease. Prior to the years at
issue, petitioner and Dr. Alt owned a 2,500-square-foot home.
From the beginning of Dr. Alt’s medical practice, petitioner
and Dr. Alt used a tax preparer, Mr. Ron Schultz (Mr. Schultz),
who was not a C.P.A. but worked with an accounting firm.
Petitioner would sign the tax returns without reviewing the
contents. In the early 1980s, Mr. Schultz retired, and
petitioner’s daughter, Karen, took over the financial affairs of
petitioner and Dr. Alt and would prepare their tax returns.
Karen’s corporation, K.L. Financial Management, was shown as the
tax preparer. Each year from 1975 through the years at issue,
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except for 1978, petitioner and Dr. Alt had deficiencies
determined on their jointly filed tax returns.2
Through K.L. Financial Management, Karen created over 40
corporations through which Dr. Alt’s income was funneled.
Petitioner’s family members were listed as the officers of these
corporations, and several of the corporations were nominees of
petitioner and Dr. Alt. Petitioner and Dr. Alt maintained no
personal bank accounts and paid their personal expenses
(household expenses, trips, shopping, and leased cars) through
the corporate bank accounts. During the years at issue,
petitioner paid the personal expenses and often made deposits
into the corporate bank accounts on behalf of Karen and Dr. Alt.
During the years at issue, petitioner and Dr. Alt purchased
several properties, including houses for their children and a
600-acre riverfront property upon which a Georgian mansion was
being built. Further, Dr. Alt had a pension fund of $500,000,
and Dr. Alt and petitioner borrowed $500,000 in order to purchase
a business for their son. Petitioner was able to purchase
valuable antiques. Petitioner and Dr. Alt also provided
2
On Apr. 29, 1985, petitioner and Dr. Alt filed a petition
with the Tax Court regarding a notice of deficiency for the 1981
taxable year. On May 27, 1986, the Court entered a decision in
which the parties agreed that petitioner and Dr. Alt owed taxes
in the amount of $83,655.40 plus additions to tax for the 1981
taxable year. Petitioner signed this decision document.
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financial assistance to their children and fully paid for their
children to attend undergraduate and graduate schools, including
medical school for Nan and law school for Karen.
Petitioner and Dr. Alt filed their tax returns for the years
1982 to 1988 with a filing status of “Married filing joint
return” (joint return). Respondent treated the tax return for
1989 as if Dr. Alt filed the return with a filing status of
“Married filing separate” because petitioner did not sign the
return. Respondent has no records indicating that petitioner
filed a tax return for 1989. Petitioner chose not to review the
tax returns prior to signing them, even though she was aware of
past problems with the IRS. Dr. Alt never forced petitioner to
sign the tax returns and never abused petitioner.
On April 5, 1989, respondent sent to petitioner and Dr. Alt
a notice of deficiency for the 1985 taxable year. Respondent’s
adjustments giving rise to the deficiency resulted largely from
disallowed deductions. Respondent also determined that
petitioner and Dr. Alt were liable for additions to tax for
negligence and substantial understatement of tax.
On October 10, 1991, respondent sent to petitioner and Dr.
Alt a notice of deficiency for the 1982, 1983, 1984, 1986, 1987,
and 1988 taxable years.3 Respondent determined that amounts
3
On the same date, respondent also sent to petitioner and
Dr. Alt a notice of deficiency regarding increases in the
(continued...)
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received from Dr. Alt’s medical practice (William J. Alt, M.D.,
P.C.) as corporate distributions were taxable income. Respondent
made other adjustments, including additions to tax for fraud.
On January 10, 1992, petitioner and Dr. Alt filed a petition
with the Court to dispute the notices of deficiency for the 1982,
1983, 1984, 1986, 1987, and 1988 taxable years. On January 13,
1992, Dr. Alt filed a petition to dispute the notice of
deficiency for the 1989 taxable year. On February 22, 1993, the
parties filed a Stipulation of Settlement with this Court, in
which petitioner and Dr. Alt agreed that they were liable for the
following deficiencies and additions to tax4 for the 1982, 1983,
1984, 1986, 1987, and 1988 taxable years:5
Additions to Tax1
Sec. Sec. Sec.
Year Deficiency 6653(b)(1) 6653(b) 6661
1982 $78,510 $39,255 --- $19,628
1983 176,832 88,416 --- 44,208
1984 160,170 80,085 --- 40,043
1986 222,252 166,689 --- 55,563
1987 230,686 173,014 --- 57,671
1988 221,009 --- $165,756 55,252
1
Further additions to tax were applied to the
taxable years 1982, 1983, and 1984 under sec.
3
(...continued)
deficiencies for the 1987 and 1988 taxable years.
4
Amounts are rounded to the nearest dollar amount.
5
Within the Stipulation of Settlement, Dr. Alt also agreed
that he was liable for a $479,404 deficiency and a $359,553
addition to tax under sec. 6663 for the 1989 taxable year.
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6653(b)(2), and to the taxable years 1986 and 1987
under sec. 6653(b)(1)(B).
On April 27, 1993, the Court entered a decision pursuant to this
stipulation of settlement. In March 1994, on the basis of the
reversal of Dr. Alt’s criminal conviction,6 petitioner and Dr.
Alt filed a motion to vacate or revise this decision with the
Court. The Court denied the motion. Alt v. Commissioner, T.C.
Memo. 1994-313.
After serving 25 months in prison, Dr. Alt reestablished his
medical practice in 1995. After the IRS seized assets to pay
taxes owed by petitioner and Dr. Alt, petitioner began to work as
a receptionist at her daughter Nan’s and Dr. Alt’s offices,
Clinical Psychiatric Medicine and Clinical Cardiology-Internal
Medicine, respectively. Petitioner is a corporate officer of
Clinical Cardiology-Internal Medicine, P.C. Petitioner and Dr.
Alt earned the following amounts from Dr. Alt’s medical practice
and petitioner’s receptionist work:
6
In 1990, Karen and Dr. Alt were indicted on five counts
of Federal tax violations under sec. 7201, including attempted
evasion, and aiding and abetting in the attempted evasion, of
personal and corporate income taxes of Dr. Alt for the taxable
years of 1983 and 1984. Karen and Dr. Alt were both convicted
and sentenced to imprisonment and fined. In June 1993, the U.S.
Court of Appeals for the Sixth Circuit reversed the convictions
due to an improper jury instruction. In May 1994, Dr. Alt
entered into a plea agreement and pleaded guilty to a misdemeanor
under sec. 7203 in exchange for the dismissal of the indictment
and commutation of the sentence to time already served.
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Year Dr. Alt Petitioner Total
1997 $13,200 $39,375 $52,575
1998 35,246 105,655 140,901
1999 53,761 83,987 137,748
2000 100,800 74,154 174,954
Currently, petitioner and Dr. Alt financially support no one
other than each other.
On April 14, 2000, respondent received Form 8857, Request
for Innocent Spouse Relief, from petitioner for taxable years
1982 through 1989. On August 8, 2000, Revenue Agent Susan Carene
met with petitioner to discuss the request. On September 29,
2000, respondent sent petitioner a letter determining that she
was not entitled to any relief under section 6015(b), (c), and
(f) for the taxable years 1982 through 1988. The same day,
respondent sent petitioner a letter determining that no relief
under section 6015 was available for 1989 because petitioner did
not file a joint return for that year. On October 30, 2000,
respondent received a Form 12509, Statement of Disagreement, from
petitioner disputing the determinations. On December 8, 2000,
respondent sent petitioner a final notice of determination in
which respondent determined that petitioner was not entitled to
relief under section 6015(b), (c), and (f) for the taxable years
1982 through 1988.
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On March 2, 2001, petitioner filed a petition with this
Court to dispute respondent’s denial of relief under section 6015
for taxable years 1982 through 1989.
OPINION
Generally, spouses filing a joint tax return are each fully
responsible for the accuracy of their return and for the full tax
liability. Sec. 6013(d)(3); Butler v. Commissioner, 114 T.C.
276, 282 (2000). Section 6015, however, provides various means
by which a spouse can be relieved of this joint and several
obligation. Petitioner makes her claim for such relief under
section 6015(b), (c), and (f). Except as otherwise provided in
section 6015, petitioner bears the burden of proof. Rule 142(a).
I. Jurisdiction
Our jurisdiction for taxable years 1982 to 1989 is dependent
on section 6015(e) because petitioner’s claim for relief was made
in a “stand alone” petition. Ewing v. Commissioner, 118 T.C.
494, 497 (2002). Respondent treated petitioner’s request for
relief under section 6015 as an election under section 6015(b),
(c), and (f). Further, petitioner timely filed her petition with
the Court for taxable years 1982 through 1988. We hold that we
have jurisdiction under section 6015(e) to review the denial of
petitioner’s request for relief under section 6015 for taxable
years 1982 through 1988.
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Further, section 6015(e) allows a spouse who has requested
relief to petition the Commissioner’s failure to make a timely
determination. Id. at 497. Respondent did not send petitioner a
notice of determination with regard to 1989. The absence of a
notice of determination does not bar this Court from having
jurisdiction under section 6015(e) as long as the petition is
filed on a date which is 6 months after the date the election is
filed. Sec. 6015(e)(1)(A)(i)(II). The petition for 1989 was
timely filed. We, therefore, hold that we have jurisdiction
under section 6015(e) to review respondent’s failure to make a
determination on petitioner’s request for relief under section
6015 for 1989.
II. 1989 Tax Return
Petitioner requested relief under section 6015 for her 1989
tax return. Respondent argues that petitioner is not entitled to
relief under section 6015 because she did not file a joint return
with her spouse for 1989.
Petitioner did not file a joint return for 1989. We have
held that a joint return must be filed in order for a taxpayer to
be granted relief under section 6015. Raymond v. Commissioner,
119 T.C. 191, 197 (2002). Petitioner, therefore, is not entitled
to relief under section 6015 because she did not file a joint
return for 1989.
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III. 1982 Through 1988 Tax Returns
Petitioner requests that the Court grant her relief from her
1982 through 1988 tax liabilities under section 6015(b), (c), or
(f). Petitioner contends that she relied on professionals to
prepare her tax return because the Federal tax laws are complex,
complicated, and confusing.
Respondent argues that petitioner is not entitled to relief
under section 6015(b), (c), or (f). Respondent contends that
petitioner failed to prove that she meets the requirements in
section 6015(b)(1)(B), (C), and (D). Further, respondent argues
that petitioner is not eligible for relief under section 6015(c)
because she is still married to Dr. Alt. Respondent also argues
that he did not abuse his discretion in denying relief under
section 6015(f) to petitioner because the factors in favor of not
granting relief under section 6015(f) outweigh the factors in
favor of granting relief to petitioner.
A. Relief Under Section 6015(b)
To qualify for relief from joint and several liability under
section 6015(b)(1), a taxpayer must establish that
(A) a joint return has been made for a taxable
year;
(B) on such return there is an understatement of
tax attributable to erroneous items of 1 individual
filing the joint return;
(C) the other individual filing the joint return
establishes that in signing the return he or she did
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not know, and had no reason to know, that there was
such understatement;
(D) taking into account all the facts and
circumstances, it is inequitable to hold the other
individual liable for the deficiency in tax for such
taxable year attributable to such understatement; and
(E) the other individual elects (in such form as
the Secretary may prescribe) the benefits of this
subsection not later than the date which is 2 years
after the date the Secretary has begun collection
activities with respect to the individual making the
election, * * *.
The requirements of section 6015(b)(1) are stated in the
conjunctive. Accordingly, a failure to meet any one of them
prevents a requesting spouse from qualifying for relief offered
therein. Respondent contends that petitioner failed to establish
the requirements of subparagraphs (B), (C), and (D). We need not
decide whether petitioner satisfies the requirements of
subparagraphs (B) and (C) because, taking into account all of the
facts and circumstances as required by subparagraph (D), we find
that it would not be inequitable to hold her liable for the
deficiencies in tax.
The requirement in section 6015(b)(1)(D), that it be
inequitable to hold the requesting spouse liable for an
understatement on a joint return, is virtually identical to the
same requirement of former section 6013(e)(1)(D);7 therefore,
7
Former sec. 6013(e)(1) provided:
SEC. 6013(e). Spouse Relieved of Liability in Certain
(continued...)
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cases interpreting former section 6013(e) remain instructive to
our analysis. Butler v. Commissioner, supra at 283.
Whether it is inequitable to hold a spouse liable for a
deficiency is determined “taking into account all the facts and
7
(...continued)
Cases.--
(1) In general.--Under regulations prescribed by
the Secretary, if--
(A) a joint return has been made under this
section for a taxable year,
(B) on such return there is a substantial
understatement of tax attributable to grossly
erroneous items of one spouse,
(C) the other spouse establishes that in
signing the return he or she did not know, and had
no reason to know, that there was such substantial
understatement,
(D) taking into account all the facts and
circumstances, it is inequitable to hold the other
spouse liable for the deficiency in tax for such
taxable year attributable to such substantial
understatement,
then the other spouse shall be relieved of liability
for tax (including interest, penalties, and other
amounts) for such taxable year to the extent such
liability is attributable to such substantial
understatement.
In order to make relief from joint and several liability more
accessible, Congress repealed sec. 6013(e) and enacted a new
provision (sec. 6015) in 1998 as part of the Internal Revenue
Service Restructuring and Reform Act of 1998, Pub. L. 105-206,
sec. 3201(a), 112 Stat. 734; H. Conf. Rept. 105-599, at 249
(1998), 1998-3 C.B. 747, 1003.
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circumstances”. Sec. 6015(b)(1)(D). The most often cited
material factors to be considered are (1) whether there has been
a significant benefit to the spouse claiming relief, and (2)
whether the failure to report the correct tax liability on the
joint return results from concealment, overreaching, or any other
wrongdoing on the part of the other spouse. Jonson v.
Commissioner, 118 T.C. 106, 119 (2002).
It is clear that the tax savings were beneficial to both
petitioner and Dr. Alt. Petitioner and Dr. Alt were able to
purchase various properties during the years at issue. For
example, petitioner and Dr. Alt purchased homes for each of their
children. Petitioner and Dr. Alt also purchased a 600-acre
riverfront property upon which a Georgian mansion was being
built. Further, petitioner and Dr. Alt were able to purchase a
business for their son and fully pay for their children to attend
undergraduate and graduate schools. Petitioner and Dr. Alt were
also able to indulge petitioner’s interest in antiques. These
purchases obviously benefited petitioner.
It is also clear that there was no concealment on Dr. Alt’s
part. Petitioner made deposits for Dr. Alt and Karen. Further,
petitioner was fully aware that Karen was involved in her
financial affairs. Petitioner presented no evidence that Dr. Alt
ever attempted to deceive her with respect to their financial
affairs.
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We have also considered other factors that are relevant to
whether it would be inequitable to hold petitioner liable. We
find that petitioner will not experience economic hardship if
relief from the liabilities is not granted given her current
level of income.8 See Von Kalinowski v. Commissioner, T.C. Memo.
2001-21; Walters v. Commissioner, T.C. Memo. 1998-111; Dillon v.
Commissioner, T.C. Memo. 1998-5. Petitioner did not present
evidence that demonstrated that she will be unable to pay her
reasonable basic living expenses if relief is not granted. Sec.
301.6343-1(b)(4), Proced. & Admin. Regs.
We also may consider whether the requesting spouse was
deserted, divorced, or separated. See Walters v. Commissioner,
supra. Petitioner and Dr. Alt remain married. The two have not
separated, and petitioner has not been left by her husband to
deal with the tax liabilities alone. Instead, petitioner
continues to enjoy the lifestyle and financial security that are
largely attributable to her husband’s assets and income. On the
basis of the facts and circumstances, we hold that it would not
be inequitable to hold petitioner liable for the deficiencies in
tax for taxable years 1982 to 1988. We, therefore, conclude that
petitioner is not entitled to relief under section 6015(b).
8
Petitioner and Dr. Alt’s combined annual income was over
$150,000 in 2000, see supra p. 8.
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B. Relief Under Section 6015(c)
We conclude that petitioner is not entitled to relief under
section 6015(c) for taxable years 1982 to 1988. At the time
petitioner filed her election for relief under section 6015,
petitioner and Dr. Alt were married, had not separated from one
another, and had remained members of the same household during
the 12-month period preceding the filing of the election by
petitioner.9 Sec. 6015(c)(3)(A)(i).10
C. Relief Under Section 6015(f)
Respondent argues that he did not abuse his discretion in
denying petitioner equitable relief under section 6015(f).11
9
We note that Dr. Alt was released from prison some time
earlier than 1995, and petitioner filed her election for relief
under sec. 6015 on Apr. 14, 2000.
10
Sec. 6015(c)(3)(A)(i) grants relief to individuals only
if:
(I) at the time such election is filed, such
individual is no longer married to, or is legally
separated from, the individual with whom such
individual filed the joint return to which the election
relates; or
(II) such individual was not a member of the same
household as the individual with whom such joint return
was filed at any time during the 12-month period ending
on the date such election is filed.
11
Sec. 6015(f) provides:
SEC. 6015(f). Equitable Relief.--Under procedures
prescribed by the Secretary, if--
(1) taking into account all the facts and
(continued...)
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Respondent’s denial of relief is reviewed under an abuse of
discretion standard. Cheshire v. Commissioner, 115 T.C. 183, 198
(2000); Butler v. Commissioner, 114 T.C. at 292.
Considering the facts and circumstances of this case, we
held under section 6015(b)(1)(D) that it is not inequitable to
hold petitioner liable for the deficiencies. The language of
section 6015(f)(1), “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)”
does not differ significantly from the language of section
6015(b)(1)(D), “taking into account all the facts and
circumstances, it is inequitable to hold the other individual
liable for the deficiency in tax for such taxable year
attributable to such understatement”.12 Butler v. Commissioner,
11
(...continued)
circumstances, it is inequitable to hold the individual
liable for any unpaid tax or any deficiency (or any
portion of either); and
(2) relief is not available to such individual
under subsection (b) or (c),
the Secretary may relieve such individual of such liability.
12
Additionally, the language in both sections is similar
to the language in former sec. 6013(e)(1)(D), “taking into
account all the facts and circumstances, it is inequitable to
hold the other spouse liable for the deficiency in tax for such
taxable year attributable to such substantial understatement”.
Butler v. Commissioner, 114 T.C. 276, 291 (2000); see Mitchell v.
Commissioner, 292 F.3d 800, 806 (D.C. Cir. 2002) (“Subsection (f)
has no statutory antecedent as a stand alone provision, but has
(continued...)
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supra at 291. Further, the equitable factors we considered under
section 6015(b)(1)(D) are the same equitable factors we consider
under section 6015(f).13 As a result, we hold that respondent
did not abuse his discretion in denying petitioner relief under
section 6015(f) for taxable years 1982 to 1988.
In reaching our holdings, we have considered all arguments
made by the parties, and, to the extent not mentioned above, we
conclude they are irrelevant or without merit.
To reflect the foregoing,
Decision will be entered
for respondent.
12
(...continued)
roots in the equity test of former subparagraph 6013(e)(1)(D)
carried forward into subparagraph 6015(b)(1)(D).”), affg. T.C.
Memo. 2000-332.
13
The Commissioner has announced a list of factors in Rev.
Proc. 2000-15, sec. 4.03, 2000-1 C.B. 447, 448, that the
Commissioner will consider in deciding whether to grant equitable
relief under sec. 6015(f). The revenue procedure takes into
account factors such as marital status, economic hardship, and
significant benefit in determining whether relief will be granted
under sec. 6015(f). Rev. Proc. 2000-15, sec. 4.03, 2000-1 C.B.
at 448.