Kathryn Bernal v. Commissioner

120 T.C. No. 6UNITED STATES TAX COURT
KATHRYN BERNAL, Petitioner v.
COMMISSIONER OF INTERNAL REVENUE, Respondent
Docket No. 930-02. Filed February 20, 2003.
P filed individual Federal income tax returns as
married, filing separate, for the taxable years 1993,
1994, 1995, and 1996. During these years, P was
married and was domiciled in California, a community
property State. R issued notices of deficiency for the
years involved, and a timely petition was not filed. P
later made a request for relief from tax on community
property income pursuant to sec. 66(c), I.R.C. R
issued a notice of determination denying the request
for relief. P filed a petition seeking review of R’s
determination. R moved to dismiss for lack of
jurisdiction.
Held: Unlike sec. 6015(e), I.R.C., sec. 66,
I.R.C. (Treatment of Community Property Income), does
not provide for jurisdiction permitting a taxpayer to
file a “stand alone” petition in response to a denial
of a request for relief made pursuant to sec. 66(c),
I.R.C. Since we are without jurisdiction to review the
denial of the request for relief herein, and P did not
file a timely petition in response to the notices of
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deficiency, we shall grant R’s motion to dismiss and
strike so much of the petition as seeks review of the
denial of the request for relief made pursuant to sec.
66(c), I.R.C.
Kathryn Bernal, pro se.
David Jojola, for respondent.
OPINION
DAWSON, Judge: This case was assigned to Chief Special
Trial Judge Peter J. Panuthos, pursuant to the provisions of
section 7443A(b)(5) and Rules 180, 181, and 183.1 The Court
agrees with and adopts the opinion of the Chief Special Trial
Judge, which is set forth below.
OPINION OF THE SPECIAL TRIAL JUDGE
PANUTHOS, Chief Special Trial Judge: This matter is before
the Court on respondent’s motion to dismiss for lack of
jurisdiction and to strike as to the taxable years 1993, 1994,
1995, and 1996. As explained in detail below, we shall grant
respondent’s motion to dismiss.2
1
Section references are to the Internal Revenue Code, and
Rule references are to the Tax Court Rules of Practice and
Procedure.
2
The petition places in dispute the taxable year 1992 as
well as the taxable years 1993 through 1996. Respondent does not
seek dismissal with respect to 1992. Thus, the order will strike
references to all tax years other than 1992. As the record is
incomplete, we do not address jurisdictional issues with respect
to 1992 in this opinion.
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Background
Petitioner filed for divorce from her spouse in May 1998.
It is not clear from the record whether or when the divorce was
finalized.
Petitioner filed individual Federal income tax returns as
married, filing separate, for the taxable years 1993, 1994, 1995,
and 1996 in June 1998. Petitioner alleges that she filed the
returns after she learned of an outstanding Federal income tax
liability upon filing for bankruptcy under chapter 13 in or
around June 1998.
In a notice of deficiency dated October 26, 1998, respondent
determined that petitioner was liable for deficiencies of $4,483
and $6,749 for the taxable years 1993 and 1994 and failure to
file additions to tax under section 6651(a)(1) of $1,121 and
$1,687, respectively. In a notice of deficiency also dated
October 26, 1998, respondent determined that petitioner was
liable for deficiencies of $5,704 and $7,453 for the taxable
years 1995 and 1996 and failure to file additions to tax under
section 6651(a)(1) of $1,426 and $1,863, respectively. The
notices of deficiency indicate that the adjustments to income
resulted from a “community property split”. No petition was
filed with this Court in response to the notices of deficiency.
On June 29, 1999, petitioner filed with respondent Form
8857, Request for Innocent Spouse Relief, requesting relief from
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income tax liability on community property income for the taxable
years 1988 through 1998.3 Petitioner stated in an attachment to
Form 8857 that:
Code Section 6015 contains significant provisions
designed to protect married taxpayers from the misdeeds
of their spouses. Further, I understand that innocent
spouse relief is available under an apportioned basis.
My understanding is the IRS is authorized to provide
equitable innocent spouse relief to spouses in
community property states who do not file joint
returns. Additionally, divorced taxpayers and married
taxpayers who are legally separated or who have been
living apart for at least one year are permitted to
elect separate tax liability despite having filed a
joint return.
In the attachment to Form 8857, petitioner further alleged that
she lived separate and apart from her spouse for more than 1
year; her spouse was physically and mentally abusive; her spouse
lied to her about the filing of tax returns; her monthly gross
income was $750; and she would suffer undue and significant
hardship unless the requested relief was granted.
Respondent issued two final notices of determination to
petitioner, each dated August 13, 2001. The explanation of items
attached to the notice of determination for the 1992 year stated
as follows:
We have disallowed your claim for the 1992 tax year
because you have not met the requirements of I.R.C.
section 6015(f) for equitable relief as follows:
* You had reasonable belief that the tax was
3
Form 8857 does not appear to differentiate whether relief
is requested under sec. 66 or under sec. 6015.
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paid or going to be paid at the time you
signed the return.
* You would be unable to pay basic living
expenses if not relieved of the liability.
* Your spouse has a legal obligation to pay
the tax debt.
* You are in compliance with federal tax
laws.
The other notice of determination dated August 13, 2001,
relates to the taxable years 1993, 1994, 1995, and 1996. The
explanation of items attached to that notice stated as follows:
You have not established that you met the requirements
of I.R.C. section 66(c) for innocent spouse relief.
You have not met the following factors:
* You did not know or have reason to know
of your husband’s community income.
* You have economic hardship.
* Your ex-husband is legally obligated to
pay tax debt.
* You are in full compliance with federal
tax laws.
The notice of determination also stated in part as follows:
we cannot grant your request for innocent spouse relief
under Section 66(c) of the Internal Revenue Code from
the unpaid balance and/or understatement of the tax * *
*
* * * * * * *
You can contest our determination by filing a
petition with the United States Tax Court. You have 90
days from the date of this letter to file your
petition. * * *
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On January 14, 2002, petitioner filed4 a petition for
determination of relief with respect to the 1992, 1993, 1994,
1995, and 1996 tax years (petition) with the Court. Petitioner
disagrees with respondent’s determination that she is not
entitled to equitable relief from liability for the
understatement of tax under section 6015(f) (1992) and that she
has not met the requirements of section 66(c) (1993-96) for
innocent spouse relief. At the time she filed her petition,
petitioner resided in Riverside, California.
In response to the petition, respondent filed the motion to
dismiss at issue. Respondent contends that the Court lacks
jurisdiction to review respondent’s determination made pursuant
to section 66(c) and that, unlike section 6015, section 66(c)
does not provide for a “stand alone” proceeding whereby an
individual can petition the Tax Court in response to a
determination.
Discussion
All property, real or personal, wherever situated, acquired
by a married person during the marriage while domiciled in
California, is community property. Cal. Fam. Code sec. 760 (West
1994).
4
The envelope in which the petition was contained reflects
a U.S. Postal Service postmark of Nov. 5, 2001. We assume that
the delay in receipt resulted from the aftermath of the events of
Sept. 11, 2001. See sec. 7502(a)(1).
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Under a community property regime, each spouse is entitled
to file a separate Federal income tax return. If separate
returns are filed, then generally each spouse must report half of
the community income, and each spouse is liable for Federal
income taxes on that share. United States v. Mitchell, 403 U.S.
190, 196-197 (1971); Hardy v. Commissioner, 181 F.3d 1002 (9th
Cir. 1999), affg. T.C. Memo. 1997-97; Johnson v. Commissioner, 72
T.C. 340, 343 (1979).
Under certain circumstances, section 66 provides that a
taxpayer may be relieved of liability from Federal income tax on
community property income earned by a spouse. Section 66(a)
provides that community property income may be treated as the
income of the spouse who rendered the personal services when the
income is not transferred between the spouses and the spouses
live apart and do not file a joint return. Section 66(b) allows
the Secretary to disallow the benefits of community property laws
if the taxpayer acted as if he were solely entitled to the income
and failed to notify his spouse of the nature and amount of the
income before the due date for filing the return. Section 66(c)5
provides as follows:
5
Sec. 66(c), as amended by the Internal Revenue Service
Restructuring and Reform Act of 1998, Pub. L. 105-206, sec.
3201(b), 112 Stat. 739, as reflected above, is effective for any
liability for tax arising after July 22, 1998, and any liability
for tax arising on or before that date but remaining unpaid as of
that date.
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SEC. 66(c). Spouse Relieved of Liability in
Certain Other Cases.-- Under regulations prescribed by
the Secretary, if–-
(1) an individual does not file a
joint return for any taxable year,
(2) such individual does not include
in gross income for such taxable year an item
of community income properly includible
therein which, in accordance with the rules
contained in section 879(a), would be treated
as the income of the other spouse,
(3) the individual establishes that he
or she did not know of, and had no reason to
know of, such item of community income, and
(4) taking into account all facts and
circumstances, it is inequitable to include
such item of community income in such
individual’s gross income,
then, for purposes of this title, such item of
community income shall be included in the gross income
of the other spouse (and not in the gross income of the
individual). Under procedures prescribed by the
Secretary, if, 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) attributable to any item for which
relief is not available under the preceding sentence,
the Secretary may relieve such individual of such
liability.
The Commissioner has issued guidance concerning the factors
that he will consider when determining whether to grant equitable
relief to an innocent spouse under sections 66(c) and 6015(f).6
6
Sec. 6015(a) provides that an individual who has made a
joint return may elect to seek relief from joint and several
liability on such return. Because petitioner and her spouse did
not file joint returns for any of the years which are the subject
matter of the motion to dismiss, the provisions of sec. 6015 for
(continued...)
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Notice 98-61, 1998-2 C.B. 756; Rev. Proc. 2000-15, 2000-1 C.B.
447; secs. 1.66-1 through 1.66-5, Proposed Income Tax Regs., 67
Fed. Reg. 2841 (Jan. 22, 2002). Rev. Proc. 2000-15, supra, also
provides that the taxpayer seeking equitable relief under section
66(c) must file Form 8857 or other similar statement signed under
penalties of perjury within 2 years of the first collection
activity against the requesting spouse. Under section 1.66-
4(g)(1), Proposed Income Tax Regs., supra, the requesting spouse
must file Form 8857 or other written request, signed under
penalties of perjury, indicating why such relief is appropriate
within the time period prescribed in paragraph (g)(2) of section
1.66-4, Proposed Income Tax Regs., supra.
The Tax Court is a court of limited jurisdiction, and we may
exercise our jurisdiction only to the extent authorized by
Congress. Sec. 7442; Judge v. Commissioner, 88 T.C. 1175, 1180-
1181 (1987); Naftel v. Commissioner, 85 T.C. 527, 529 (1985).
In a deficiency proceeding we may review a taxpayer’s
request for relief under section 66(c). In such circumstance, we
must decide whether the Commissioner abused his discretion. See
Hardy v. Commissioner, supra; Morris v. Commissioner, T.C. Memo.
2002-17; Beck v. Commissioner, T.C. Memo. 2001-198. The Court
6
(...continued)
relief from joint and several liability on joint returns are
inapplicable. See Raymond v. Commissioner, 119 T.C. 191, 195-196
(2002).
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also has jurisdiction to consider appropriate spousal defenses in
the context of a petition for review of a lien or levy action.
Sec. 6330(c)(2)(A)(i) and (d)(1)(A); sec. 301.6330-1(e)(2),
Proced. & Admin. Regs.
Unlike section 6015, section 66 does not specifically and
separately grant this Court jurisdiction over the Commissioner’s
denial of equitable relief under section 66(c). In Fernandez v.
Commissioner, 114 T.C. 324 (2000), we considered a petition filed
under the “stand alone” provisions of section 6015(e). We
pointed out in Fernandez that our jurisdiction depended upon the
specific provisions of section 6015(e)(1)(A). Id. at 329. In
fact, section 6015(e) sets forth specific and separate provisions
for filing a petition for review of the appropriate relief
available with respect to a claim for relief from joint and
several liability. While section 66(c) permits a spouse who does
not file joint returns to seek relief from the effects of
community income, said section does not contain a parallel
provision to section 6015(e) providing for review by the Tax
Court. Without such a parallel provision the conclusion is
evident, that we do not have jurisdiction to consider a “stand
alone” petition under section 66. As noted supra note 5, section
66(c) was amended at the same time as the enactment of section
6015. There is nothing in the statute or legislative history
from which we could conclude that Congress intended to provide
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independent (“stand alone”) review by the Tax Court of the denial
of a claim for relief under section 66.
Section 66(c) contemplates that petitioner be given the
opportunity to request administrative relief from liability for
income tax on community property income. Petitioner filed a Form
8857 and requested such relief. Although petitioner is
dissatisfied with respondent’s determination not to grant relief,
there is no provision in section 66(c) that would vest the Court
with jurisdiction to review respondent’s administrative
determination.7
As previously indicated, on October 26, 1998, respondent
issued petitioner two separate notices of deficiency, one with
respect to the 1993 and 1994 tax years, and the other with
respect to the 1995 and 1996 tax years. To the extent that the
petition in this case may be considered an attempt to commence a
deficiency proceeding, the petition is untimely. The petition in
this case was filed January 14, 2002, which is more than 3 years
after the mailing of the notices of deficiency. Petitioner has
7
Respondent’s erroneous statement in the notice of
determination that petitioner may challenge the determination by
filing a petition with the Court within 90 days is not a basis
for the Court to exercise jurisdiction, absent authorization by
statute. See Yuen v. Commissioner, 112 T.C. 123, 130 (1999)
(concluding that the Court lacks jurisdiction over an interest
abatement case because taxpayers’ original request for abatement
was filed and denied before effective date of statute); Odend’hal
v. Commissioner, 95 T.C. 617, 624 (1990); Kraft v. Commissioner,
T.C. Memo. 1997-476.
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not alleged that she did not receive the notices of deficiency in
sufficient time to timely petition, or that the notices of
deficiency are otherwise invalid. See Pietanza v. Commissioner,
92 T.C. 729, 735 (1989), affd. 935 F.2d 1282 (3d Cir. 1991).
Accordingly, we shall grant respondent’s motion to dismiss
this case for lack of jurisdiction with respect to the taxable
years 1993, 1994, 1995, and 1996.
To reflect the foregoing,
An order will be issued
granting respondent’s motion to
dismiss for lack of jurisdiction
and to strike as to taxable years
1993, 1994, 1995, and 1996.