Jones v. Comm'r , 2011 Tax Ct. Summary LEXIS 130 ( 2011 )

T.C. Summary Opinion 2011-135
UNITED STATES TAX COURT
RACHEL N. JONES, f.k.a. RACHEL N. PACE, Petitioner, AND
JOHN PACE, Intervenor v.
COMMISSIONER OF INTERNAL REVENUE, Respondent
Docket No. 8553-10S. Filed December 5, 2011.
Jessica C. Piedra, for petitioner.
John Pace, pro se.
Evan H. Kaploe, for respondent.
WELLS, Judge: This case was heard pursuant to the
provisions of section 7463 of the Internal Revenue Code in effect
when the petition was filed.1 Pursuant to section 7463(b), the
decision to be entered is not reviewable by any other court, and
1
Unless otherwise indicated, section references are to the
Internal Revenue Code of 1986, as amended.
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this opinion shall not be treated as precedent for any other
case.
In a final notice of determination dated January 21, 2010,
respondent denied petitioner’s claim for section 6015 relief from
joint and several liability arising from the 2007 joint Federal
income tax return filed by petitioner and intervenor. Intervenor
opposes allowing petitioner any section 6015 relief. We must
decide whether petitioner is entitled to relief from joint and
several liability under section 6015.
Background
Some of the facts and certain exhibits have been stipulated.
The parties’ stipulations of facts are incorporated in this
opinion by reference and are found accordingly. At the time the
petition was filed, petitioner and intervenor were both residents
of Missouri.
Petitioner and intervenor (sometimes referred to as the
couple) were married during 2003. Petitioner was a
schoolteacher, and intervenor was employed as a car salesman.
Intervenor also operated a lawn mowing business in his spare
time. The couple had joint checking and savings accounts into
which petitioner occasionally made deposits and on which she
wrote checks. For the most part, intervenor maintained control
over the couple’s finances. He instructed petitioner how much
she should spend when she went shopping, and he paid all of the
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couple’s bills and checked the balances in their accounts.
Intervenor normally used the Internet to access the couple’s bank
accounts, and he refused to give petitioner the passwords to the
accounts.
Intervenor spent a lot of time at work and frequently went
out with his friends in the evenings. Intervenor’s not always
informing petitioner of his whereabouts led to a number of
arguments. During some of those arguments intervenor would yell
and curse at petitioner. On two occasions petitioner initiated
physical contact with intervenor during these arguments by
covering his mouth with her hand. On one of those occasions
intervenor responded by putting his hand on petitioner’s throat
and pointing at her face while he screamed at her not to touch
him again. However, intervenor and petitioner are in agreement
that intervenor did not attempt to choke petitioner and that
intervenor never struck petitioner or used other physical
violence during their marriage.
The couple had apparently accumulated some debt. Both
petitioner and intervenor had school loans, which they
consolidated. They also had credit card debt. Additionally,
intervenor’s father had used intervenor’s Social Security number
to apply in intervenor’s name for a credit card which he
apparently used without intervenor’s permission.
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At some point during 2007 intervenor decided that the couple
should make a hardship withdrawal from his section 401(k)
retirement plan account (401(k) plan) of $22,000. The 401(k)
plan was funded by contributions from intervenor with matching
contributions from his employer. Petitioner understood that they
were making the withdrawal to pay some of their debts. The
401(k) plan was in intervenor’s name; but because petitioner was
a beneficiary, she also had to sign the request for the hardship
withdrawal. At intervenor’s urging, petitioner did sign the
request, and the couple withdrew $22,000 from the 401(k) plan.
The couple used that money to make student loan payments, to pay
some of their credit card debt, to pay some of the debt
intervenor’s father had accumulated in intervenor’s name, and to
do some renovations on their home.
As a result of the hardship withdrawal, the couple owed
income tax on the amount withdrawn, and they owed a 10-percent
additional tax for early withdrawal pursuant to section 72(t).
The couple timely filed a joint Form 1040, U.S. Individual Income
Tax Return, for their 2007 tax year. On their joint return, they
reported income tax due of $8,136. That tax liability was
largely due to the taxes associated with the couple’s withdrawal
of funds from intervenor’s 401(k) plan. The couple did not pay
the tax due. Before filing their joint return, the couple had
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agreed that intervenor would be responsible for the tax
liability.
During 2008, the couple went through divorce proceedings,
and they were officially divorced on November 17, 2008.
According to the terms of their marital settlement and joint
legal custody agreement (marital settlement agreement),
intervenor agreed to pay the couple’s tax liability.
However, the Internal Revenue Service (IRS) subsequently
offset petitioner’s 2008 tax refund of $3,428 against the
couple’s 2007 joint liability. Because the IRS used petitioner’s
refund to pay part of the liability intervenor had assumed under
the terms of the marital settlement agreement, the couple agreed
that intervenor would reimburse petitioner by paying some of her
bills. Intervenor is currently paying off petitioner’s
undergraduate student loans. Intervenor is not obligated to pay
off petitioner’s undergraduate student loans under the terms of
the marital settlement agreement. Intervenor has entered into an
installment agreement with the IRS under which he is currently
paying off the couple’s tax liability.
Since her divorce, petitioner has remarried. Petitioner is
not currently experiencing any economic hardship, nor is she
suffering from any mental or physical health problems.
Petitioner timely filed a Form 8857, Request for Innocent
Spouse Relief, on April 16, 2009. On January 21, 2010, the IRS
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issued petitioner a final Appeals determination, which denied her
request for relief from joint and several liability. Petitioner
timely filed her petition in this Court.
Discussion
In general, spouses filing a joint return are jointly and
severally liable for the accuracy of the return and for the full
tax liability. Sec. 6013(d)(3); see also sec. 1.6013-4(b),
Income Tax Regs. However, pursuant to section 6015, a taxpayer
may be relieved from joint and several liability in certain
circumstances.
A taxpayer may be relieved from joint and several liability
pursuant to section 6015(f) if, taking into account all the facts
and circumstances, it would be inequitable to hold the taxpayer
liable for any unpaid tax or deficiency and the taxpayer does not
qualify for relief under section 6015(b) or (c).2 We have
jurisdiction to review respondent’s denial of petitioner’s
request for equitable relief under section 6015(f). See sec.
6015(e)(1). We apply a de novo standard of review and a de novo
scope of review. Porter v. Commissioner, 132 T.C. 203, 210
(2009); Porter v. Commissioner, 130 T.C. 115 (2008). The
2
Relief pursuant to sec. 6015(b) or (c) is premised on the
existence of a deficiency or an understatement of tax. Sec.
6015(b)(1)(B), (c)(1); Block v. Commissioner, 120 T.C. 62, 65-66
(2003). The instant case involves an underpayment of a properly
reported liability. Therefore, as the parties agree, relief
under sec. 6015(b) and (c) is not available to petitioner.
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requesting spouse bears the burden of proof. Porter v.
Commissioner, 132 T.C. 210.
As directed by section 6015(f), the Commissioner has
prescribed procedures for determining whether a taxpayer
qualifies for relief from joint and several liability. These
procedures are set forth in Rev. Proc. 2003-61, 2003-2 C.B. 296.
Rev. Proc. 2003-61, sec. 4.01, 2003-2 C.B. at 297, lists seven
conditions (threshold conditions) that must be satisfied before
the Commissioner will consider a request for relief under section
6015(f). Respondent concedes that petitioner satisfies the first
six threshold conditions but contends that petitioner does not
satisfy the seventh.
The seventh threshold condition requires that the income tax
liability from which the requesting spouse seeks relief be
attributable to an item of the nonrequesting spouse, unless one
of several exceptions applies. Rev. Proc. 2003-61, sec. 4.01.
The 401(k) plan was in intervenor’s name, and it was administered
by his employer. The 401(k) plan was funded with contributions
from intervenor and matching contributions from his employer. We
are not persuaded by respondent’s argument that the fact that
petitioner, as a beneficiary, also had to sign to agree to the
hardship withdrawal negates intervenor’s ownership of the 401(k)
plan. Moreover, respondent’s Appeals Office conceded that
petitioner had satisfied all seven threshold conditions.
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Accordingly, we conclude that all the threshold conditions have
been satisfied.
Rev. Proc. 2003-61, sec. 4.02, 2003-2 C.B. at 298, sets
forth circumstances in which relief will ordinarily be granted
under section 6015(f) with respect to an underpayment of a
properly reported liability. The parties agree that petitioner
does not satisfy the requirements of Rev. Proc. 2003-61, sec.
4.02, because she will not suffer economic hardship if she is not
granted relief.
Where, as here, a taxpayer fails to qualify under Rev. Proc.
2003-61, sec. 4.02, relief may be granted under Rev. Proc.
2003-61, sec. 4.03, 2003-2 C.B. at 298. Rev. Proc. 2003-61, sec.
4.03, provides a nonexhaustive list of factors to consider when
determining whether to grant equitable relief under section
6015(f). Those factors are: (1) Marital status; (2) economic
hardship; (3) whether the spouse seeking relief knew or had
reason to know that the other spouse would not pay the income tax
liability; (4) the other spouse’s legal obligation to pay the tax
liability; (5) whether the spouse seeking relief obtained a
significant benefit from the nonpayment of the tax liability; and
(6) whether the spouse seeking relief complied with Federal
income tax laws. We address below the application of the
foregoing factors to the facts and circumstances of the instant
case.
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The parties agree that the first factor, marital status,
weighs in favor of granting relief because petitioner is now
divorced.
The parties stipulated that petitioner is not suffering
economic hardship. Accordingly, the second factor weighs against
granting relief.
With regard to the third factor, the parties disagree about
whether petitioner knew or had reason to know intervenor would
not pay the tax liability. Petitioner never testified that she
believed intervenor would pay the tax liability. She and
intervenor had discussed their tax obligation before filing their
tax return; and intervenor had agreed to assume responsibility
for the debt, which he did assume as part of their marital
settlement agreement. Petitioner did not give a direct answer to
her attorney’s question about whether petitioner believed the tax
obligation would be paid. Rather, she responded: “I believed
that that legal document was all I needed to not be held
responsible for it.” We construe “that legal document” to mean
the marital settlement agreement. The fact that the couple had
agreed that intervenor would assume responsibility for their 2007
tax liability as part of the marital settlement agreement
suggests that petitioner was aware that the tax liability would
not be paid when the couple filed their tax return. Moreover,
petitioner bears the burden of proving that she is eligible for
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relief, and she failed to testify or present other evidence that
she did not know or have reason to know that intervenor would not
pay the couple’s tax liability. Accordingly, we conclude that
petitioner knew or had reason to know that intervenor would not
pay the couple’s tax liability at the time he filed their tax
return. The third factor therefore weighs against granting
relief.
As to the fourth factor, intervenor has an obligation to pay
the couple’s tax liability under the terms of the marital
settlement agreement. At the time the couple entered into the
marital settlement agreement, petitioner had no reason to believe
that intervenor would not fulfill his obligation to pay the tax
liability. Intervenor has two jobs and an income that would
enable him to pay the tax liability without much difficulty.
Indeed, intervenor has entered into an installment agreement with
the IRS, and he is currently paying off the couple’s tax
liability under the terms of that agreement. Accordingly, the
fourth factor weighs in favor of granting relief.
With regard to the fifth factor, the parties agree that
petitioner did not receive a significant benefit beyond normal
support from the unpaid income tax liability. Accordingly, the
fifth factor weighs in favor of granting relief.
Petitioner is in compliance with income tax laws.
Accordingly, the sixth factor weighs in favor of relief.
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Petitioner contends that an additional factor, abuse, also
weighs in favor of granting relief. Both petitioner and
intervenor testified that intervenor was never physically abusive
during their marriage.3 However, petitioner contends that
intervenor’s angry outbursts during their marriage, which
included cursing, show that there was a history of abuse in the
marriage. We disagree. Although it is clear that the couple had
a bad marriage, the couple’s frequent arguments do not rise to
the level of abuse.
In conclusion, four of the six factors weigh in favor of
granting relief and two weigh against.
Petitioner and intervenor have agreed that intervenor is
liable for the remaining portion of the couple’s 2007 tax
liability, and intervenor is currently paying off that liability
under the terms of an installment agreement with the IRS. At
trial intervenor made it clear that he objected to granting
petitioner relief from joint and several liability because he had
already compensated petitioner for the portion of her 2008 tax
refund that the IRS offset against the couple’s 2007 joint tax
liability. Intervenor is apparently concerned that granting
3
In her brief, petitioner contends that intervenor once
“choked” her. However, this characterization is inconsistent
with petitioner’s testimony. During her testimony petitioner was
careful to say that intervenor only put his hand on her throat.
During cross-examination she denied that she had testified that
intervenor choked her.
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relief to petitioner will obligate him to pay the IRS that
amount. However, petitioner has not contended that she is
entitled to a refund of the offset, and granting relief to
petitioner for the unpaid portion of the couple’s liability will
not obligate intervenor to pay that offset amount. Rather,
granting petitioner relief will only affirm what intervenor has
already agreed to under the terms of the marital settlement
agreement.
Considering all of the facts and circumstances of the case,
including the six factors listed in Rev. Proc. 2003-61, sec.
4.03, we conclude that it would be inequitable to hold petitioner
jointly and severally liable for the unpaid portion of the
couple’s tax liability. Accordingly, we hold that petitioner is
entitled to relief under section 6015(f) for the unpaid portion
of the couple’s 2007 tax liability.
In reaching these holdings, we have considered all the
parties’ arguments, and, to the extent not addressed herein, we
conclude that they are moot, irrelevant, or without merit.
To reflect the foregoing,
Decision will be entered
for petitioner.