Monique E. Franco ( 2024 )

United States Tax Court
T.C. Summary Opinion 2024-21MONIQUE E. FRANCO,
Petitioner
v.
COMMISSIONER OF INTERNAL REVENUE,
Respondent
—————
Docket No. 33045-21S. Filed October 8, 2024.
—————
Ariana Bree Stamper-Gimbar, for petitioner.
Gretchen W. Altenburger and Inga C. Plucinski-Holbrook, for
respondent.
SUMMARY OPINION
LANDY, 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. Unless otherwise indicated, statutory
references are to the Internal Revenue Code, Title 26 U.S.C., in effect at
all relevant times, and Rule references are to the Tax Court Rules of
Practice and Procedure. All dollar amounts are rounded to the nearest
whole amount.
In a Notice of Deficiency dated July 13, 2021, respondent
determined a $22,248 deficiency relating to petitioner’s 2018 joint
return and a $17,069 section 6663 civil fraud penalty. Petitioner
conceded that she is liable for the deficiency, and respondent conceded
that petitioner is not liable for the fraud penalty. The sole issue is
whether petitioner is entitled to innocent spouse relief for 2018.
Served 10/08/24
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Background
Petitioner and Charles Bolgiani married in 2007. For part of their
marriage, petitioner and Mr. Bolgiani lived together in a home given to
her in 2011. Petitioner currently resides in that home and is the sole
registered owner. Petitioner’s only other asset is a 2013 Chrysler 300.
During the year in issue petitioner did not make any major purchases,
and she did not transfer any assets to Mr. Bolgiani.
Petitioner and her husband had a turbulent relationship because
Mr. Bolgiani was prone to violent outbursts resulting from his mental
health issues. Petitioner alleged that she filed an order of protection
against her husband after one such incident but could not remember the
year it occurred. Mr. Bolgiani had extramarital affairs and was
frequently away from the marital residence, spending time either at his
girlfriend’s home or in psychiatric institutions.
Both petitioner and Mr. Bolgiani contributed to the household’s
finances, and petitioner regularly made decisions regarding how the
money was spent. However, petitioner went through periods of
unemployment due to her physical and mental health issues.
Mr. Bolgiani was responsible for preparing and filing their yearly
income tax returns. Mr. Bolgiani typically presented the returns to
petitioner, and she signed without reviewing them. Petitioner alleged
that if she asked to review or refused to sign the returns, Mr. Bolgiani
would withhold money for food or physically assault her.
During the year in issue petitioner signed and filed a joint return
with Mr. Bolgiani. Petitioner neither prepared the return nor reviewed
it for accuracy. The refund for the year in issue was deposited into a
bank account that belonged solely to Mr. Bolgiani, and petitioner did not
receive any portion of that amount.
Respondent selected petitioner’s 2018 joint return for
examination. During the examination respondent determined, inter
alia, that petitioner and Mr. Bolgiani failed to report $97,174 of income.
The unreported items of income were attributable to both petitioner and
Mr. Bolgiani. On July 13, 2021, respondent issued to petitioner and
Mr. Bolgiani a Notice of Deficiency for 2018. On October 10, 2021,
petitioner, while residing in Arizona, timely filed her Petition and
attached Form 8857, Request for Innocent Spouse Relief, for 2017 and
2018. At trial the parties agreed that 2017 was not in issue. Therefore,
the Court will address only petitioner’s claim for 2018.
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Discussion
Married taxpayers may elect to file a joint return. § 6013(a). Each
spouse is jointly and severally liable for both the accuracy of the return
and the entire amount of the income tax liability reported on the return.
§ 6013(d)(3); see also Butler v. Commissioner, 114 T.C. 276, 282 (2000).
Pursuant to section 6015, a taxpayer may be relieved from liability if
she satisfies certain requirements. The parties have agreed that
petitioner is not eligible for relief pursuant to section 6015(b) or (c).
Petitioner may, however, be eligible for equitable relief pursuant to
section 6015(f).
We can provide relief from joint and several liability when,
considering all the facts and circumstances, it would be inequitable to
hold the requesting spouse liable for any unpaid tax or deficiency.
§ 6015(f)(1). The requesting spouse bears the burden of proving that she
is entitled to relief. Rule 142(a); see Porter v. Commissioner, 132 T.C.
203, 210 (2009). A spouse may raise section 6015 for the first time as an
affirmative defense to the Commissioner’s determination of a deficiency,
and our standard of review is de novo. See Butler, 114 T.C. at 287–89;
see also Porter, 132 T.C. at 210.
Rev. Proc. 2013-34, 2013-43 I.R.B. 397, provides a three-step
analysis—section 4.01, 4.02, and 4.03—for evaluating whether a
requesting spouse qualifies for equitable relief pursuant to section
6015(f). While we are not bound by Rev. Proc. 2013-34, and our
determination ultimately considers all facts and circumstances, we will
evaluate petitioner’s request pursuant to the guidelines set forth
therein. See Pullins v. Commissioner, 136 T.C. 432, 438–39 (2011). Rev.
Proc. 2013-34, § 4.01, 2013-43 I.R.B. at 399–400, sets forth seven
threshold conditions that must be satisfied before the Commissioner
may consider granting relief.
If the requesting spouse satisfies the seven threshold conditions,
she may be entitled to a streamlined determination of relief. See id.
§ 4.02, 2013-43 I.R.B. at 400. Section 4.02 sets forth three conditions
that the requesting spouse must satisfy to be entitled to a streamlined
determination of relief. See id. The requesting spouse must establish
that she (1) is no longer married to the nonrequesting spouse; (2) would
suffer economic hardship if relief were not granted; and (3) did not have
knowledge or reason to know of the item giving rise to the deficiency.
See id.
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Finally, if the requesting spouse satisfies the threshold conditions
but is not eligible for a streamlined determination, Rev. Proc. 2013-34,
§ 4.03, 2013-43 I.R.B. at 400–03, sets forth a list of nonexclusive factors
that the Commissioner considers in determining whether relief should
be granted. The factors include: (1) marital status; (2) economic
hardship; (3) knowledge or reason to know of the item giving rise to the
deficiency; (4) legal obligation; (5) significant benefit; (6) compliance
with income tax laws; and (7) mental or physical health. See id. No
single factor is dispositive; therefore, “[t]he degree of importance of each
factor varies depending on the requesting spouse’s facts and
circumstances.” Id. § 4.03(2), 2013-43 I.R.B. at 400; see Pullins, 136 T.C.
at 448. While petitioner has demonstrated that she satisfies all seven
threshold conditions, she is not eligible for a streamlined determination
because she is still married to Mr. Bolgiani. Accordingly, we must weigh
all the relevant facts and circumstances to determine whether petitioner
is entitled to the requested relief.
Three factors are neutral: marital status; legal obligation; and
compliance with federal income tax laws. The first factor, marital status,
is neutral because petitioner is still married to Mr. Bolgiani. The second
factor, legal obligation, is neutral because their marital status mandates
that petitioner and Mr. Bolgiani are both legally obligated to repay the
outstanding liability. The third factor, compliance with federal income
tax laws, is neutral because, although respondent concedes that
petitioner has been in compliance with her tax obligations in the years
following 2018, neither party produced evidence showing whether her
returns were filed jointly with Mr. Bolgiani or separately. Therefore, the
Court is unable to weight this factor in petitioner’s favor.
There are two factors weighing in favor of relief. First, respondent
concedes that petitioner did not receive any significant benefit from the
unpaid income tax liability. Second, from the year in issue to the
present, petitioner has suffered from mental and physical health
problems. The remaining factors, economic hardship and knowledge, or
reason to know, of the items giving rise to the deficiency, however, weigh
against relief. Economic hardship exists “if satisfaction of the tax
liability in whole or in part will cause the requesting spouse to be unable
to pay reasonable basic living expenses.” Rev. Proc. 2013-34, § 4.03(2)(b),
2013-43 I.R.B. at 401. The Court will evaluate the requesting spouse’s
financial situation at the time of trial in determining whether economic
hardship exists. See Pullins, 136 T.C. at 446–47.
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The requesting spouse can demonstrate economic hardship by
showing that her annual income is below 250% of the federal poverty
guidelines or that her monthly income exceeds reasonable basic monthly
living expenses by $300 or less. Rev. Proc. 2013-34, § 4.03(2)(b). The
requesting spouse also must show that she does not have assets from
which she can make payments toward the tax liability and still
adequately meet her reasonable basic living expenses. Id.
In understatement cases, knowledge or reason to know of the
items giving rise to the deficiency weighs against relief if the requesting
spouse knew or had reason to know of those items at the time the joint
return was filed. Id. § 4.03(2)(c)(i)(A), 2013-43 I.R.B. at 401. To
determine whether the requesting spouse had reason to know of the
understatement, the Court will consider the requesting spouse’s level of
education; the requesting spouse’s business or financial expertise; the
requesting spouse’s degree of involvement in the activity generating the
tax liability; the requesting spouse’s involvement in household financial
decisions; deceit or evasiveness by the nonrequesting spouse; and any
lavish or unusual expenditures compared with past spending levels.
Id. § 4.03(2)(c)(iii), 2013-43 I.R.B. at 402. “A taxpayer who signs a return
is generally charged with constructive knowledge of its contents.”
Porter, 132 T.C. at 211–12.
If the requesting spouse establishes that she was a victim of abuse
by the nonrequesting spouse, and because of that abuse, she was unable
to challenge the treatment of any items on the joint return, this factor
will weigh in favor of relief even if the requesting spouse knew or had
reason to know of the items giving rise to the deficiency. Rev. Proc. 2013-
34, § 4.03(2)(c)(i)(A), 2013-43 I.R.B. at 401. The requesting spouse must
provide corroborating evidence regarding any alleged abuse for this
exception to apply. See Pullins, 136 T.C. at 454 (weighing the abuse
factor as neutral because the taxpayer failed to corroborate her
testimony that she suffered spousal abuse).
Petitioner is the sole owner of her residence, which she testified
is valued at $313,000. Other than her home, she does not own any
assets. Petitioner has a high school diploma, and, at the time of trial,
she was employed, earning $3,500 a month, and receiving $550 a month
in rent from Mr. Bolgiani. Her husband does not otherwise contribute to
the household. Petitioner’s household consists of her and her 27-year-
old son whom she financially supports. Petitioner did not provide a pay
statement or any documentation to substantiate her monthly income.
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Petitioner provided conflicting testimony regarding her basic
monthly living expenses. She reported on Form 8857 that her monthly
expenses totaled $1,527. At trial, however, petitioner testified that her
monthly expenses exceeded $5,100, but she submitted no documentation
to substantiate that claim. When questioned by the Court why her
testimony differed from what was reported on Form 8857, petitioner
maintained that she filled out the form incorrectly because of her
learning disability; however, she later admitted that her accountant
prepared and submitted Form 8857 on her behalf.
The Court is unable to ascertain petitioner’s monthly income and
reasonable living expenses given her inconsistent testimony and lack of
substantiation. Accordingly, petitioner has not demonstrated that she
will suffer economic hardship if her request for relief is denied. On the
contrary, petitioner owns a residence that may be used to satisfy the
liability; therefore, this factor weighs against granting relief.
In addition, while petitioner testified that she did not have actual
knowledge of the items that were omitted from the joint return,
weighing all the facts and circumstances, we conclude that she had
reason to know of their existence. Respondent determined that
petitioner and her husband failed to report $97,174 of income. Several
of the omitted items, including $16,326 in gambling winnings, are
attributable exclusively to petitioner. Petitioner acknowledged on Form
8857 that she was involved in making decisions regarding household
finances, contributed financially to the household, and was not having
financial difficulties when the return was filed.
Petitioner has a long history of filing inaccurate tax returns.
Several of those returns, including the returns relating to 2012 and
2017, have been subject to examination by respondent. Indeed,
petitioner’s 2017 return included many of the same issues as the 2018
return. Petitioner was aware of those examinations and had requested
relief from joint and several liability relating to both 2012 and 2017.
Petitioner’s prior claim for relief pursuant to section 6015 relating to
2012, as well as a separate claim relating to 2011, was denied by
respondent.
Under these circumstances, petitioner, at minimum, was on
notice that there were issues with the 2018 return and should have
exercised due diligence in reviewing the return when she signed it.
Petitioner has not established, and the record does not support, a finding
that she was a victim of abuse and that she was unable to challenge the
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2018 return because of that abuse. Other than petitioner’s testimony,
which we determine is not reliable on this issue, she provided no
evidence to substantiate her contentions relating to Mr. Bolgiani’s
abuse. Without additional evidence to support her allegations, petitioner
has failed to meet her burden and the abuse exception does not apply.
Accordingly, this factor weighs against relief.
Taking into consideration the above circumstances, we conclude
that petitioner is not eligible for relief from joint and several liability
pursuant to section 6015(f). We have considered all the parties’
arguments and, to the extent they are not addressed herein, we find
them to be moot, irrelevant, or without merit.
To reflect the foregoing,
An appropriate decision will be entered.