Connie A. Washington v. Commissioner

120 T.C. No. 9UNITED STATES TAX COURT
CONNIE A. WASHINGTON, Petitioner v.
COMMISSIONER OF INTERNAL REVENUE, Respondent
Docket No. 1828-01. Filed April 21, 2003.
P and her then husband, H, filed a joint Federal
income tax return for 1989 showing tax owed; they did not
pay the tax with the return. R garnished P’s wages and
applied P’s overpayments of tax from 1992 and 1994-98 to
the unpaid 1989 tax liability. P requested relief under
sec. 6015(f), I.R.C. R denied P’s request for relief.
P then filed a petition in this Court seeking a review of
R’s determination and requesting (pursuant to sec.
6015(g), I.R.C.) a refund of her garnished wages and the
overpayments of tax from 1992 and 1994-98. R asserts
that even if P is entitled to relief under sec. 6015(f),
I.R.C., sec. 6015, I.R.C., does not apply to the portion
of the tax liability that was paid on or before July 22,
1998.
Held: P is entitled to relief under sec. 6015(g),
I.R.C. R’s denial of such relief was an abuse of
discretion.
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Held, further, P is entitled to a refund of her
wages garnished in June 1998 and the overpayment of tax
for 1996-98, which were applied to the unpaid 1989 tax
liability. Sec. 6015, I.R.C., applies to the full amount
of any preexisting tax liability for a particular taxable
year, if any of that liability remains unpaid as of the
date of enactment, and not just to portions of tax
liability that remain unpaid after July 22, 1998, the
date of enactment of Internal Revenue Service
Restructuring and Reform Act of 1998, Pub. L. 105-206,
sec. 3201(g)(1), 112 Stat. 740. Flores v. United States,
51 Fed. Cl. 49 (2001), followed.
Held, further, pursuant to sec. 6015(g)(1), I.R.C.,
P’s refund is limited to the time restraints for filing
refund claims under sec. 6511, I.R.C.
Connie A. Washington, pro se.
James R. Rich, for respondent.
JACOBS, Judge: Respondent determined that petitioner is not
entitled to relief from joint liability for tax under section
6015(f) for 1989 with respect to a joint return filed with Kenneth
Washington.1 Petitioner filed a petition under section 6015(e)(1)
seeking review of respondent’s determination.
The issues for decision are (1) whether respondent’s denial of
petitioner’s request for relief pursuant to section 6015(f) was an
abuse of discretion, and, if so, (2) whether petitioner is entitled
to a refund of all amounts paid/applied toward the tax shown as
owed on the 1989 joint return.
1
Unless otherwise indicated, all section references are to
the Internal Revenue Code in effect at all relevant times.
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FINDINGS OF FACT
Some of the facts have been stipulated and are so found. The
stipulation of facts and attached exhibits are incorporated herein
by this reference.
A. Background
Petitioner resided in Beaufort, South Carolina, on the date
the petition in this case was filed.
Petitioner and her former spouse, Kenneth Washington (Mr.
Washington), were married in 1970. Petitioner and Mr. Washington
permanently separated in 1992; they were divorced in 1997. During
their marriage, petitioner and Mr. Washington had two children who
at the time of trial in this case were ages 14 and 16. Petitioner
is a high school graduate. At all relevant times, she was employed
as a Government purchasing agent with the Marine Corps Air Station.
Petitioner has been employed by the Federal Government for
approximately 20 years.
At all relevant times, Mr. Washington was a self-employed
carpenter. Mr. Washington did not discuss his business or
financial dealings with petitioner.
B. The Unpaid 1989 Tax Liability
On April 15, 1990, petitioner and Mr. Washington jointly filed
a Form 1040, U.S. Individual Income Tax Return, for 1989 (the 1989
joint return) that was prepared by a tax return preparer.
Petitioner provided her Form W-2, Wage and Income Statement, to the
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tax return preparer and signed the 1989 joint return. Petitioner
had no other involvement in the preparation of the 1989 joint
return. On the 1989 joint return, petitioner and Mr. Washington
reported (1) wages of $16,160 attributable to petitioner’s
employment as a Federal purchasing agent, and (2) self-employment
income of $23,487 attributable to Mr. Washington’s carpentry
business. After applying the $1,943 withholding from petitioner’s
wages, there remained a $4,779 balance due for 1989 (the unpaid
1989 tax liability). The unpaid 1989 tax liability was not paid
when the 1989 joint return was filed.
No discussions took place between petitioner and Mr.
Washington about the preparation or filing of the 1989 joint
return. Nor did they discuss the payment of tax owed. Petitioner
believed that because the unpaid balance of the tax shown on the
1989 joint return resulted from Mr. Washington’s failure to pay
estimated tax on his business earnings, he alone was responsible
for the payment of, and would pay, the tax owed.
Petitioner and Mr. Washington were divorced in 1997.
Petitioner received no assets from the dissolution of the marriage.
Petitioner was given custody of the two children. Mr. Washington
did not pay spousal or child support to petitioner. The divorce
decree was silent as to whether petitioner or Mr. Washington should
pay the unpaid 1989 tax liability.
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Petitioner and her children reside in a small rental house.
Petitioner is the sole provider. She has the use of an automobile
but does not own it.
C. Collection Action on the Unpaid 1989 Tax Liability
Petitioner claimed a filing status of married filing
separately on her 1992 and 1994-95 Federal income tax returns and
head-of-household on her 1996-98 returns. On her 1992 and 1994-98
Federal income tax returns, petitioner reported overpayments of
tax; she requested refunds of those overpayments. The overpayments
of tax were not refunded to petitioner. Instead, the overpayments
were applied to the unpaid 1989 tax liability as follows: $694.30
from 1992 (applied April 15, 1993), $991.78 from 1994 (applied
April 15, 1995), $1,030 from 1995 (applied March 18, 1996), $523
from 1996 (applied March 10, 1997), $535 from 1997 (applied March
30, 1998), and $2,001 from 1998 (applied April 15, 1999).2
In addition to the aforementioned overpayments of tax for
years subsequent to 1989, respondent’s records reflect that on
September 30, 1992, and June 16, 1998, there were payments of $200
and $408.95, respectively, applied to the unpaid 1989 tax
liability. The $408.95 payment resulted from the garnishment of
petitioner’s wages; the record is silent as to the source for the
$200 payment.
2
An overpayment of tax with interest of $111.02 from 1988
was also applied to the 1989 tax liability.
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The Internal Revenue Service (IRS) issued to the Defense
Accounting Office a Notice of Levy on Wages, Salary, and Other
Income, Form 668-W(c) (the notice of levy), dated April 9, 1998,
and signed by Revenue Officer Barbara Whalen (Revenue Officer
Whalen), seeking to garnish petitioner’s wages. The notice of levy
showed that petitioner and Mr. Washington were liable for unpaid
taxes and additions totaling $70,305.23, of which $809.01 of unpaid
tax and $4,557.27 of statutory additions related to 1989. The
remaining amount was attributable to 1991 ($3,052.21), 1992
($32,255.95), 1993 ($25,578.40), and a civil penalty for 1988
($4,052.39). Mr. Washington’s name and address were typed below
“Name and Address of Taxpayer” on the notice of levy. However, his
name and address were crossed out, and petitioner’s name and
address were inserted.
On May 7, 1998, petitioner received a letter from the Defense
Finance and Accounting Service informing her that another notice of
levy had been issued on petitioner’s wages. The letter stated that
her wages would be subject to garnishment until the $70,305 debt
was collected. Petitioner was instructed to complete and return
parts 3 and 4 of the notice of levy. She was informed that failure
to do so would result in her receiving a biweekly check in the
amount of $240.38 (the personal exemption amount), with the
remainder (approximately $400) being forwarded to the IRS.
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On May 21, 1998, in a letter to the IRS Problem Resolution
Office, petitioner requested that the levy be released and that her
account be placed on an “uncollectible status”. In her letter,
petitioner enclosed a copy of Form 433-A (collection information
statement for individuals) and stated:
I do not owe these taxes, my ex-husband does. Here is my
situation, my husband and I are divorced. I have filed
my taxes every year in which every year my federal refund
is taken by the IRS.
When we were married, I filed jointly with him, not
knowing that it would affect my credit status like this.
He had a business and it failed and these taxes belong to
him not me in accordance with the wage levy.
If my wages are garnished because of this it would cause
an “ECONOMICAL HARDSHIP” on me and my children. * * *
On June 16, 1998, $408.95 attributable to the garnishment of
petitioner’s wages was applied to the unpaid 1989 tax liability.
On June 22, 1998, petitioner met with Revenue Officer Whalen. In
a followup letter to Revenue Officer Whalen, dated July 15, 1998,
petitioner again pleaded financial hardship for herself and her
family and inquired if anything could be done to place her account
on an “uncollectible status”. She also requested that the
penalties and interest assessed against her be abated, reiterating
that the taxes owed were attributable to her former husband.
On March 8, 1999, petitioner received a second letter from her
employer’s accounting department informing her that yet another IRS
notice of levy for $8,425.12 had been received. The 1999 notice of
levy was signed by Revenue Officer Whalen. As with the first
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notice of levy, below “Name and Address of Taxpayer”, Mr.
Washington’s name and address were typed in and crossed out, and
petitioner’s name and address were inserted. Of the total amount
sought, $400.06 of unpaid tax and $4,810.88 of statutory additions
related to 1989. The remaining $3,214.18 related to 1991. Again,
petitioner was instructed to complete the notice of levy and was
informed that failure to do so would result in her receiving a
biweekly check of $240.38 and the remainder (approximately $400)
being forwarded to the IRS.
Petitioner again met with Revenue Officer Whalen. In a letter
to Revenue Officer Whalen, dated March 13, 1999, petitioner
submitted the information that Revenue Office Whalen had requested
at their prior meeting. In the letter, petitioner stated:
As I stated in our last meeting and letters that I have
sent certified to you and the Problem Resolutions Officer
I CANNOT afford my pay to be garnished for over $400.00
every 2 weeks.
A payment of $240.38 every two weeks is not feasible for
myself and my 2 children to live on. This deduction
would cause a serious hardship financially on me. I have
cooperated as much as I could and told you I wasn’t
responsible for the amount being owed.
I have filed my taxes faithfully every year only to have
my taxes taken for something I was not responsible for.
I feel that this is not fair or should be my
responsibility.
Again, if you need anymore additional information, I
would be more than happy to help you out. My status has
not changed from the last time we have met.
Again, please don’t garnish my check because this is the
only income my family and I have to survive on.
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On April 26, 1999, Revenue Officer Whalen issued a Form 668-D,
Release of Levy/Release of Property from Levy, releasing
petitioner’s wages from levy.
D. Summary of Assessments and Credits
Form 4340, Certificate of Assessments, Payments, and Other
Specified Matters, Form 4340, dated June 7, 2001, lists the
following with respect to petitioner’s 1989 taxable year:3
Adjusted gross income - $38,849
Taxable income - $22,013
Assessment Payment, Assessment
Explanation Other Debits Credit Date (23C,
Date Of Transaction (Reversal) (Reversal) RAC 006)
4/15/1990 Return filed & tax
assessed $6,722.00 5/28/1990
07221-119-30596-0
199020
4/15/1990 Withholding credit &
excess FICA $1,943.00
Failure to pay tax
penalty 199020 47.79 5/28/1990
Interest assessed
199020 62.32 5/28/1990
4/15/1990 Overpaid credit
applied 100.00
1040 198812
9/24/1990 Interest overpayment
credit 11.02
1040 198812
10/25/1991 Federal tax lien
2/3/1992 Fees & collection costs 5.00
9/30/1992 Subsequent payment 200.00
4/15/1993 Overpaid credit applied 694.30
1040 199212
2/7/1991 Legal/Bankruptcy suit
pending
2/7/1994 Legal/Bankruptcy suit
3
The last entry on the Form 4340, Certificate of
Assessments, Payments, and Other Specified Matters, was Feb. 6,
2001. Petitioner maintains that the Form 4340 does not reflect
overpayments of $1,322 and $1,254 from her 1999 and 2000 Federal
income tax returns and a rebate check of $500 in 2001 that were
applied toward the outstanding balance.
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pending
12/16/1994 Legal/Bankruptcy suit
no longer pending
4/15/1995 Overpaid credit applied $991.78
1040 199412
3/18/1996 Overpaid credit applied 1,030.00
1040 199512
3/10/1997 Overpaid credit applied 523.00
1040 199612
3/30/1998 Overpaid credit applied 535.00
1040 199712
6/16/1998 Subsequent payment
miscellaneous payment 408.95
-/--/1999 Overpaid credit applied 2,001.00
1040 199812
Failure to pay tax
penalty 822.80
199918
Interest assessed 778.14 5/17/1999
199918
2/26/2001 Legal/Bankruptcy suit
pending1
5/28/1990 Notice of balance due
6/28/1990 Notice of intent to levy
5/15/1995 Notice of intent to levy
Assessed items balance due .00
1
The entries of 2/7/91 and 2/7/94 reflect bankruptcy suits
filed by petitioner and Mr. Washington which were subsequently
discharged on 12/16/94. The 2/26/01 entry reflects the legal
proceeding commenced in this Court by petitioner.
E. Petitioner’s Request for Relief From Joint Liability for Tax
Under Section 6015
On or about June 29, 1999, respondent received from petitioner
multiple Forms 8857, Request for Innocent Spouse Relief, in which
she sought relief from joint liability for the years 1995 through
1998. Attached to that form was a letter dated June 17, 1999, in
which petitioner requested tax refunds for each year, together with
interest. Petitioner stated that her credit had been impaired as
a result of the IRS liens. She requested that the liens be removed
and that she be relieved of all liability for taxes, interest,
penalties, and other accruing amounts.
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Although petitioner stated in her claim for relief that she
was seeking relief with respect to the 1995-98 tax years,
respondent treated petitioner’s claim as one for 1989. On November
13, 2000, respondent issued to petitioner a Notice Of Determination
Concerning Relief From Joint and Several Liability Under Internal
Revenue Code Section 6015 (notice of determination). In the notice
of determination, respondent determined that petitioner was not
entitled to relief from joint liability under section 6015(b), (c),
or (f) with respect to the 1989 tax liability. The following
explanation was given:
You do not qualify for relief under Internal Revenue Code
sections 6015(b) or 6015(c) because your request is a
request for relief for an underpayment of tax and not an
understatement of tax. Only Internal Revenue Code
section 6015(f) allows for relief in certain underpayment
situations.
You do not qualify for relief for the underpayment under
Internal Revenue Code section 6015(f) for tax year 1989
because you had knowledge that the tax underpayment was
not being paid when the return was filed. You have not
shown that your former husband intended to pay the
balance due at the time or had the ability to pay the
balance due at that time. You have also not shown that
it would be inequitable to hold you liable for the
balance due from the jointly filed 1989 income tax
return.
On February 7, 2001, petitioner timely filed a petition in
this Court seeking a review of respondent’s determination. As of
the date of trial, the assessed but unpaid 1989 tax liability,
consisting mainly of interest, was $3,500 to $4,500.
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OPINION
As a general rule, spouses filing joint Federal income tax
returns are jointly and severally liable for all taxes due. Sec.
6013(d)(3). However, under certain circumstances, section 6015
provides relief from this general rule.4
Section 6015 applies to any liability for tax arising after
July 22, 1998, and to any liability for tax arising on or before
July 22, 1998, but remaining unpaid as of such date. Internal
Revenue Service Restructuring and Reform Act of 1998 (RRA 1998),
Pub. L. 105-206, sec. 3201(g), 112 Stat. 685, 740. Section 6015
does not apply if the tax was paid in full on or before July 22,
1998. Brown v. Commissioner, T.C. Memo. 2002-187.
Section 6015 significantly relaxed the requirements for relief
from joint liability by providing three avenues for obtaining
relief to a taxpayer who has filed a joint return: (1) Section
6015(b) (which is similar to former section 6013(e)) provides
relief with respect to understatements of tax attributable to
certain erroneous items on the return; (2) section 6015(c) provides
relief for a portion of an understatement of tax for taxpayers who
are separated or divorced; and (3) section 6015(f) (potentially the
broadest of the three avenues and the avenue directly at issue in
4
Sec. 6015 was enacted as part of the Internal Revenue
Service Restructuring and Reform Act of 1998 (RRA 1998), Pub. L.
105-206, sec. 3201, 112 Stat. 685, 734. Prior to the enactment of
sec. 6015, relief from the imposition of joint and several
liability for spouses filing joint returns was available under sec.
6013(e).
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this case) confers upon the Secretary discretion to grant equitable
relief for taxpayers who otherwise do not qualify for relief under
section 6015(b) or (c).
Petitioner requested relief under section 6015 from liability
for the payment of the tax reported on the 1989 joint return that
was not paid when the return was filed. Respondent treated
petitioner’s request for relief under section 6015 as an election
under section 6015(b), (c), and (f), and determined that petitioner
was not entitled to the requested relief.
If a taxpayer’s request for relief under section 6015 is
denied, the taxpayer may petition this Court (pursuant to section
6015(e)(1)) for a review of such determination. Our jurisdiction
in cases brought under section 6015(e)(1) encompasses a review of
respondent’s determination with respect to all relief afforded by
section 6015. Ewing v. Commissioner, 118 T.C. 494, 497-507 (2002);
Fernandez v. Commissioner, 114 T.C. 324, 330-331 (2000); Butler v.
Commissioner, 114 T.C. 276, 289-290 (2000).
With regard to the case herein, petitioner seeks equitable
relief under section 6015(f) and requests the refund of all amounts
paid/applied toward the unpaid tax reported on the 1989 joint
return. To prevail, petitioner first must prove that respondent’s
denial of equitable relief from joint liability under section
6015(f) was an abuse of discretion. Jonson v. Commissioner, 118
T.C. 106, 125 (2002); Cheshire v. Commissioner, 115 T.C. 183, 198
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(2000), affd. 282 F.3d 326 (5th Cir. 2002); Butler v. Commissioner,
supra.
A. Whether Petitioner Is Entitled to Equitable Relief
Section 6015(f) provides:
SEC. 6015(f). Equitable Relief.–-Under procedures
prescribed by the Secretary, if–-
(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); and
(2) relief is not available to such
individual under subsection (b) or (c),
the Secretary may relieve such individual of such
liability.
Section 6015(b) provides a spouse relief from joint liability
for an “understatement” (as defined in section 6662(d)(2)(A)) of
tax attributable to erroneous items of the other spouse.5 With
regard to the case herein, petitioner does not seek relief from an
understatement of tax but rather from that portion shown on the
1989 joint return that was not paid when the return was filed.
Because there is no understatement of tax for 1989, relief is not
available to petitioner under section 6015(b).
Section 6015(c) provides relief from joint liability for
spouses who filed a joint return if they are no longer married, are
5
Sec. 6662(d)(2)(A) defines an understatement as the
excess of the amount of tax required to be shown on the return over
the tax imposed which is shown on the return, reduced by any
rebate.
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legally separated, or have lived apart for a 12-month period. Such
spouses may elect to be treated, for purposes of determining tax
liability, as if separate returns had been filed. Section
6015(c)(1) provides proportionate relief for any “deficiency which
is assessed with respect to the return”. Relief is not available
under section 6015(c) with respect to an unpaid liability for tax
reported on the return. As noted, in this case, petitioner is
seeking relief of the amount reflected as the balance due on the
1989 joint return. Because there is no “deficiency” for 1989,
relief is not available to petitioner under section 6015(c).
Consequently, the only avenue for relief available to petitioner is
section 6015(f).
As directed by section 6015(f), the Commissioner has
prescribed guidelines in Rev. Proc. 2000-15, 2000-1 C.B. 447, 448,
that the Commissioner will consider in determining whether an
individual qualifies for relief under section 6015(f). Section
4.01 of Rev. Proc. 2000-15, 2000-1 C.B. at 448, lists seven
conditions (threshold conditions) which must be satisfied before
the Commissioner will consider a request for relief under section
6015(f). Respondent agrees that in this case those threshold
conditions are satisfied.
Section 4.03 of Rev. Proc. 2000-15, 2000-1 C.B. at 448-449,
lists factors that the Commissioner will consider in deciding
whether to grant equitable relief under section 6015(f). Section
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4.03(1) of Rev. Proc. 2000-15, 2000-1 C.B. at 448-449, lists the
following six factors that the Commissioner will consider as
weighing in favor of granting relief for an unpaid liability: (1)
The requesting spouse is separated or divorced from the
nonrequesting spouse; (2) the requesting spouse would suffer
economic hardship if relief is denied; (3) the requesting spouse
was abused by the nonrequesting spouse; (4) the requesting spouse
did not know or have reason to know that the reported liability
would be unpaid at the time the return was signed; (5) the
nonrequesting spouse has a legal obligation pursuant to a divorce
decree or agreement to pay the unpaid liability; and (6) the unpaid
liability is attributable to the nonrequesting spouse. Section
4.03(2) of Rev. Proc. 2000-15, 2000-1 C.B. at 449, lists the
following six factors that the Secretary will consider as weighing
against granting relief for an unpaid liability: (1) The unpaid
liability is attributable to the requesting spouse; (2) the
requesting spouse knew or had reason to know that the reported
liability would be unpaid at the time the return was signed; (3)
the requesting spouse significantly benefited (beyond normal
support) from the unpaid liability; (4) the requesting spouse will
not suffer economic hardship if relief is denied; (5) the
requesting spouse has not made a good faith effort to comply with
Federal income tax laws in the tax years following the tax year to
which the request for relief relates; and (6) the requesting spouse
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has a legal obligation pursuant to a divorce decree or agreement to
pay the unpaid liability. In addition, Rev. Proc. 2000-15, sec.
4.03, 2000-1 C.B. at 448-449, states: “No single factor will be
determinative of whether equitable relief will or will not be
granted in any particular case. Rather, all factors will be
considered and weighed appropriately.” Furthermore, the list of
aforementioned factors is not intended to be exhaustive.
In deciding whether respondent’s determination that petitioner
is not entitled to relief under section 6015(f) was an abuse of
discretion, we consider evidence relating to all the facts and
circumstances.
With regard to the case herein, respondent acknowledges that
the following two factors weigh in favor of granting relief to
petitioner: Petitioner is divorced, and the liability for which
relief is sought is attributable to petitioner’s former husband.
Respondent contends: (1) Petitioner knew or had reason to
know that her 1989 income tax was not paid at the time the return
was filed; (2) petitioner was not abused by her former husband; (3)
petitioner’s former husband did not have a legal obligation under
the divorce decree to pay the unpaid 1989 tax liability; and (4)
petitioner would not experience an economic hardship if she is not
relieved from the liability. Respondent asserts that these factors
weigh against granting relief to petitioner. We disagree with
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respondent’s contentions. We now address each of these factors
separately.
1. Requesting Spouse’s Legal Obligation Factor
Petitioner’s divorce decree does not place the legal
obligation to pay the unpaid 1989 tax liability on either
petitioner or her former husband. Respondent contends that the
fact that Mr. Washington does not have a legal obligation under the
divorce decree to pay the unpaid 1989 tax liability weighs against
granting relief to petitioner. Respondent’s contention is flawed.
Section 4.03(1)(e) of Rev. Proc. 2000-15, 2000-1 C.B. at 449,
indicates that if Mr. Washington had a legal obligation under the
divorce decree to pay the 1989 tax liability, then that fact would
weigh in favor of granting relief to petitioner; likewise, if the
divorce decree had placed the obligation to pay the tax on
petitioner, then that fact would weigh against granting relief to
petitioner as indicated in section 4.03(2)(f) of Rev. Proc. 2000-
15, 2000-1 C.B. at 449. But here, the divorce decree did not
establish whose (petitioner’s or Mr. Washington’s) obligation it
was to pay the unpaid 1989 tax liability. Therefore, this is a
neutral factor.
2. Abuse Factor
Petitioner does not assert that she was abused by Mr.
Washington or otherwise coerced into executing the 1989 joint
return. However, in response to questioning by respondent’s
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counsel at trial, petitioner testified that she had lodged a
complaint with the police with respect to her former husband’s
treatment of her. Respondent contends that the fact that
petitioner has proffered no evidence that her former husband
threatened, forced, or coerced petitioner into executing the 1989
joint return weighs against granting relief to petitioner. We
disagree. Lack of spousal abuse is not a factor listed in section
4.03(2) of Rev. Proc. 2000-15, 2000-1 C.B. at 449, that weighs
against granting equitable relief. Therefore, this factor is
neutral.
3. Economic Hardship Factor
Respondent contends that petitioner offered no evidence to
show that she would suffer an economic hardship if relief were
denied. Respondent asserts that pursuant to section 301.6343-
1(b)(4)(ii), Proced. & Admin. Regs.,6 an economic hardship exists
if satisfaction of a levy will cause a taxpayer to be unable to pay
his/her reasonable basic living expenses. Respondent maintains
that respondent’s collection activity did not leave petitioner
unable to pay her basic living expenses. In addition, respondent
6
Sec. 301.6343-1(b)(4)(ii), Proced. & Admin. Regs.,
provides factors that will be considered in determining whether
satisfaction of the levy will cause an individual taxpayer economic
hardship because she will be unable to pay her reasonable living
expenses. These factors include the taxpayer’s age, her employment
status and history, her ability to earn, the number of dependents,
any extraordinary circumstances, and any other factor that the
taxpayer claims bears on economic hardship and brings to the
attention of the director.
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asserts that petitioner provided no documentation to demonstrate an
economic hardship. We disagree.
Petitioner received no assets upon the dissolution of her
marriage. She does not own a house, does not take any vacations,
and although she possesses an automobile, she does not own it. The
IRS lien for the tax liability harms petitioner’s credit rating and
limits her ability to obtain a loan.
Petitioner receives no spousal or child support from her
former husband. To the contrary, she is the sole provider for her
two children. Petitioner’s wages are her only source of income and
provide a near poverty level existence for her and her two
children.7 Respondent’s levy against petitioner’s wages, had it
not been released, would have resulted in her receiving
approximately $240 biweekly to support herself and her two
children. A monthly income of $480 is substantially below the
poverty level for a family of three and is insufficient to pay rent
and other basic living expenses for petitioner and her two
children.
Based on the record before us and petitioner’s credible
testimony, we are persuaded that petitioner will suffer great
economic hardship if she is not relieved of the liability.
7
The 2002 Poverty Guidelines for the 48 Contiguous States
and the District of Columbia for a family of three is $15,020. U.S.
Dept. of Health and Human Services, The 2002 HHS Poverty
Guidelines, 67 Fed. Reg. 6931 (Feb. 14, 2002).
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4. Knowledge or Reason To Know Factor
In the case of a liability that was reported but not paid, the
fact that the requesting spouse did not know and had no reason to
know that the liability would not be paid is a factor weighing in
favor of granting relief. Rev. Proc. 2000-15, sec. 4.03(1)(d),
2000-1 C.B. at 449. By contrast, the fact that the requesting
spouse knew or had reason to know that the reported liability would
be unpaid is a strong factor weighing against relief. Rev. Proc.
2000-15, sec. 4.03(2)(b), 2000-1 C.B. at 449. Respondent contends
that petitioner did not prove that she did not know or did not have
reason to know that the unpaid 1989 tax liability would not be paid
at the time the return was filed. We disagree.
Petitioner filed a joint return for 1989 with her former
husband upon the advice of the tax return preparer. She was under
the impression that she was required to file a joint return because
she was married at the time. Petitioner provided her Form W-2 to
the tax return preparer. The tax return preparer provided her the
1989 joint tax return for signature, and she signed the return. No
discussions took place between petitioner and Mr. Washington about
the preparation and subsequent filing of the 1989 joint return or
about the payment of any tax owed. Petitioner credibly testified
that she believed Mr. Washington would pay the tax owed since it
resulted from his business operations.
- 22 -
During petitioner’s marriage to Mr. Washington, petitioner
paid the tax on her wages through withholding, and Mr. Washington
paid the taxes attributable to his business. Mr. Washington
controlled all aspects of his business, and he conducted his
business affairs without any assistance or involvement from
petitioner. The record and petitioner’s credible testimony
demonstrate that petitioner had no knowledge of, or involvement in,
her former husband’s business. (We found petitioner to be credible
after having observed her appearance and demeanor at trial.) We
conclude that petitioner had no knowledge or reason to know at the
time the returns were signed that the reported liability would not
be paid by Mr. Washington.
Assuming arguendo that petitioner had reason to know that the
reported 1989 tax liability would not be paid, other factors in
favor of granting petitioner equitable relief are unusually strong
in this case. And “when the factors in favor of equitable relief
are unusually strong, it may be appropriate to grant relief under
section 6015(f) in limited situations where the requesting spouse
knew or had reason to know that the liability would not be paid”.
Rev. Proc. 2000-15, sec. 4.03(2)(b), 2000-1 C.B. at 449. Thus,
even if petitioner knew or had reason to know that the reported
liability would not be paid, on the basis of all the facts and
circumstances of this case, we find that compelling reasons existed
for respondent to grant petitioner equitable relief.
- 23 -
5. Significant Benefit and Noncompliance
Respondent did not address the significant benefit factor and
the noncompliance with Federal law factor. We, however, shall do
so, and after due consideration, we find that neither of these
factors weighs against granting relief to petitioner.
Petitioner did not significantly benefit, either during or
after the marriage, from the unpaid 1989 tax liability. During the
marriage, petitioner did not receive expensive jewelry, drive a
luxurious car, wear designer clothes, take expensive vacations, or
even own a home. Petitioner received no assets from the
dissolution of the marriage. Moreover, since the divorce, she has
received no spousal or child support. Petitioner rents a small
house, drives an automobile that she does not own, and does not
take vacations.
With respect to compliance with Federal tax laws, petitioner
has always filed timely Federal income tax returns. Petitioner is
not late or in arrears on any of her separate tax obligations.
Indeed, petitioner has overpaid her taxes each year since 1994, and
it is these overpayments for which petitioner seeks a refund
because they were applied to the unpaid 1989 tax liability.
6. Conclusion
No factors weigh against granting relief to petitioner. To
the contrary, all factors either weigh in favor of granting relief
to petitioner or are neutral. Consequently, taking into account
- 24 -
all the facts and circumstances, we conclude that (1) respondent’s
denial of relief under section 6015(f) was an abuse of discretion,
and (2) that it would be inequitable to hold petitioner liable for
the unpaid 1989 tax liability. See Ferrarese v. Commissioner, T.C.
Memo. 2002-249; August v. Commissioner, T.C. Memo. 2002-201; Foley
v. Commissioner, T.C. Memo. 1995-16; Klimenko v. Commissioner, T.C.
Memo. 1993-340; Hillman v. Commissioner, T.C. Memo. 1993-151.8
B. Whether Petitioner Is Entitled to Refunds for Amounts Paid on
or Before July 22, 1998
Since we have concluded that it would be inequitable to hold
petitioner liable for the unpaid 1989 tax liability, we now must
decide whether petitioner is entitled to the refund of amounts
paid on/applied to the unpaid 1989 tax liability.
8
Cases deciding whether a taxpayer was entitled to
equitable relief under sec. 6013(e)(1)(D) are helpful in deciding
whether a taxpayer is entitled to relief under sec. 6015(f).
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 roots in the equity test of former subparagraph
6015(b)(1)(D) carried forward into subparagraph 6015(b)(1)(D).”),
affg. T.C. Memo. 2002-332. In Cheshire v. Commissioner, 282 F.3d
326, 338 n.29 (5th Cir. 2002), affg. 115 T.C. 183 (2000), the U.S.
Court of Appeals for the Fifth Circuit stated:
Because the wording of § 6015(f)(1) is virtually
identical to that of former § 6013(e)(1)(D), case law
construing former § 6013(e)(1)(D) is helpful in
determining whether the Commissioner abused his
discretion in denying equitable relief to Appellant under
current § 6015(f)(1). See Butler v. Commissioner, 114
T.C. at 291 (applying the § 6013(e)(1)(D) standard to a
§ 6015(f) inquiry because ‘the language of sec.
6015(f)(1) does not differ significantly from the
language of former sec. 6013(e)(1)(D)’).
- 25 -
1. Positions of the Parties
Petitioner contends that she is entitled to a refund of all
amounts paid/applied on the unpaid 1989 tax liability including
those made on or before July 22, 1998, the date section 6015 was
enacted. Payments made/or applied on or before July 22, 1998,
include petitioner’s overpayments of tax for the years 1992 and
1994-97 in the following amounts: $694.30 for 1992 (applied April
15, 1993), $991.78 for 1994 (applied April 15, 1995), $1,030 for
1995 (applied March 18, 1996), $523 for 1996 (applied March 10,
1997), and $535 for 1997 (applied March 30, 1998). In addition,
petitioner contends that she is entitled to a refund of her levied
wages of over $800 (petitioner asserts that $408.95 was taken on
two separate occasions--in June of 1998 and March of 1999), a
refund of overpayments from her 1998-2000 tax returns ($2,001 for
1998, $1,322 for 1999, and $1,254 for 2000), and a $500 rebate in
2001.
Respondent concedes that if we find that petitioner qualifies
for relief under section 6015(f), she is entitled to a refund of
the $2,001 overpayment of her 1998 taxes that was applied to the
unpaid 1989 tax liability. Respondent asserts, however, that
petitioner is not entitled to a refund of any additional amounts
because they were either paid/applied on or before July 22, 1998,
or they were not applied to the 1989 tax liability.
- 26 -
2. The Statute
Section 6015(g) governs the allowance of credits and refunds
in cases where a taxpayer is granted relief under section 6015.
That section provides:
SEC. 6015(g). Credits and Refunds.--
(1) In general.--Except as provided in paragraphs
(2) and (3), notwithstanding any other law or rule of law
(other than section 6511, 6512(b), 7121, or 7122), credit
or refund shall be allowed or made to the extent
attributable to the application of this section.
(2) Res judicata.--In the case of any election
under subsection (b) or (c), if a decision of a court in
any prior proceeding for the same taxable year has become
final, such decision shall be conclusive except with
respect to the qualification of the individual for relief
which was not an issue in such proceeding. The exception
contained in the preceding sentence shall not apply if
the court determines that the individual participated
meaningfully in such prior proceeding.
(3) Credit and refund not allowed under subsection
(c).--No credit or refund shall be allowed as a result of
an election under subsection (c).
The exception in section 6015(g)(2) does not apply because
there have been no prior proceedings related to petitioner’s 1989
tax year. Nor does the exception in section 6015(g)(3) apply
because we have found that petitioner is entitled to relief under
section 6015(f), not under section 6015(c). Thus, any refund
available to petitioner is (1) limited to the extent attributable
to the application of section 6015, and (2) subject to any
limitation imposed by section 6511, 6512(b), 7121, or 7122.
- 27 -
a. Refund to the Extent Attributable to the
Application of Section 6015
In general, section 6015(g)(1) allows a credit or refund “to
the extent attributable to the application of this section.”
Section 6015 applies “to any liability for tax arising after the
date of the enactment of this Act [July 22, 1998] and any liability
for tax arising on or before such date but remaining unpaid as of
such date.” RRA 1998, sec. 3201(g), 112 Stat. 740.9 Respondent
interprets the term “remaining unpaid” so as to limit the benefits
of section 6015 in this case to the portion of the 1989 tax
liability that remained uncollected as of July 22, 1998, the date
of enactment of section 6015. We disagree with respondent’s
interpretation.
While the issue involved herein is one of first impression in
this Court, we are mindful that it has been addressed by the United
States Court of Federal Claims in Flores v. United States, 51 Fed.
Cl. 49 (2001). In Flores, the court granted relief under section
6015(f) with respect to the taxpayer’s entire tax liability,
including the portion of the tax liability that was paid on or
before July 22, 1998.
9
On July 17, 2002, respondent adopted regulations under
sec. 6015 that support respondent’s position. See sec. 1.6015-8,
Income Tax Regs. The regulations, however, are applicable for all
elections or requests for relief filed on or after July 18, 2002.
Sec. 1.6015-9, Income Tax Regs. Thus, the regulations do not apply
to petitioner’s request for relief, which was filed before that
date.
- 28 -
We agree with the analysis of the Court of Federal Claims in
Flores. We shall not engage in a detailed discussion of that
analysis. Rather, we confine ourselves to a summary of our
conclusions as to respondent’s arguments with some augmentation of
the analysis of the Court of Federal Claims.
Specifically at issue in this case, as well as in Flores, is
whether a tax liability “remaining unpaid” as of the date of
enactment of section 6015 (i.e., July 22, 1998), refers to (1) the
entire amount of the tax liability for the year if any portion
thereof has not been collected by July 22, 1998, or (2) only that
portion of the tax liability that has not been collected by July
22, 1998.
Respondent asserts that Flores v. United States, supra, was
wrongly decided because its holding renders the word “remaining”
excessive, thereby violating “‘a cardinal principle of statutory
construction’ that ‘a statute ought, upon the whole, to be so
construed that, if it can be prevented, no clause, sentence, or
word shall be superfluous, void, or insignificant’.” TRW, Inc. v
Andrews, 534 U.S. 19, 31 (2001) (quoting Duncan v. Walker, 533 U.S.
167 (2001)). Respondent asserts that the use of the word
“remaining” preceding “unpaid” implies that part [or all] of the
liability has not been paid and remains to be paid. This
implication merely reflects that the liability in question has not
been paid in full. In this regard, we have held that a taxpayer is
- 29 -
not entitled to relief under section 6015 if the liability was paid
in full on or before July 22, 1998. Miller v. Commissioner, 115
T.C. 582, 587 (2000), affd. 21 Fed. Appx. 160 (4th Cir. 2001);
Brown v. Commissioner, T.C. Memo. 2002-187.
For the reasons set forth below, we do not agree with
respondent’s position that only the portion of tax remaining
uncollected on July 22, 1998, is subject to the provisions of
section 6015(f).
In interpreting a statute, courts are guided by principles of
statutory construction, including the following: (1) Unless
otherwise defined, words will be interpreted as taking their
ordinary, contemporary, and common meaning; and (2) unless the
statute otherwise dictates, where Congress uses terms that have
acquired a settled meaning under the common law, a court must infer
that Congress means to incorporate the established meaning of the
terms. Moreover, we are mindful that section 6015 was designed “to
correct perceived deficiencies and inequities”, and it is well
settled law that “curative legislation should be liberally
construed to effectuate its remedial purpose.” Flores v. United
States, supra at 53.
The precise definition of the word “remain” varies somewhat
depending on its context. According to Webster’s Third New
International Dictionary (1993), the word “remain”, as a verb, can
mean “to be a part not destroyed, taken away, or used up : be still
- 30 -
extant, present, or available : be left when the rest is gone”.
The word “remain” can also mean “to be something yet to be shown,
done, or treated”. Remain also can mean “to stay in the same place
or with the same person or group”. Finally, remain can mean “to
continue unchanged in form, condition, status, or quantity”,
“continue to be”, or “stand”.
Respondent asserts that the word “remaining” is used
throughout the Internal Revenue Code “almost exclusively” to mean
that portion which is left over from the whole. We agree that the
word “remaining” often refers to what is left; i.e., the remaining
amount; e.g., sections 72(s)(1)(A), 74(c)(2), 170(l), 172(f)(5),
401(a)(9)(B)(i)(II), 414(k)(2), 671, 864(f)(1)(C), and 865(c)(1)(B)
refer to “the remaining portion”,10 and sections 169(a) and 194(a)
10
See also, sec. 25(a)(1)(B) (“the remaining principal”);
sec. 6861(f) (“any remaining portion”); sec. 451(h)(2)(A) (“a
qualified prize (or remaining portion thereof)”); sec. 148(f)(3)
(“the remaining balance”); sec. 6340(c)(3) (“the remaining balance
of such liability”); sec. 263A(d)(2)(B)(ii) (“any part of the
remaining equity interest”); sec. 408A(d)(3)(E)(ii) (“all remaining
amounts””); sec. 904(f)(3)(A)(i) (“the remaining amount”); sec.
996(a)(2) (“the remaining 1/17th of such amount”); sec. 565(f)(1)
(“all the remaining earnings and profits”); section 732(c)(1)(B)
(“to the extent of any basis remaining after the allocation”, “such
remaining basis”); sec. 1250(d)(4)(D)(ii) (“the remaining gain not
recognized on the transaction”); sec. 4254(a)(2) (“the remaining
items not included in any such group”); sec. 1082(a)(2)(G) (“all
other remaining property”); sec. 1250(f)(3)(C) (“the remaining
property”); sec. 1272(a)(6)(A)(i) (“all remaining payments”); sec.
4943(c)(1) (“the remaining holdings”); sec. 7507(c)(3) (“to the
extent of the remaining assets”); secs. 47(c)(2)(B)(vi),
147(f)(2)(E) (“the remaining term”); sec. 42(j)(6)(B) (“the
remaining compliance period”); sec. 412(b)(4) (“the remaining
amortization period”); sec. 192(c)(1)(B)(i) (“the average remaining
(continued...)
- 31 -
refer to “the number of months * * * remaining in the period”.11
10
(...continued)
working life”); sec. 418B(d)(3)(C)(ii) (“the average of the
remaining expected lives”); sec. 404(a)(1)(A)(ii) (“the remaining
future service”); sec. 447(f)(3),(i)(5)(C) (“the remaining taxable
years”); sec. 7702A(c)(3)(B)(ii) (“the remaining period”); secs.
1274(d)(1)(C)(i), 9501(c)(3), 9507(d)(3)(C), 9509(d)(3)(C)
(“remaining periods to maturity”); sec. 542(d)(1)(B) (“the
remaining maturity”); sec. 4980(d)(5)(C) (“the remaining
participants”); sec. 5123(d)(3) (“remaining partners”); sec.
7444(d) (“the remaining judges”); sec. 7448(h) (“any remaining
dependent child or children”); sec. 8002(c)(12) (“the remaining
members”); sec. 7702B(d)(3)(B) (“any remaining limitation”).
11
See, e.g., sec. 667(b)(1)(C) (“each of the 3 taxable
years remaining after the application of subparagraph (B)”); sec.
667(d)(1)(D) (“any of the three taxable years remaining after
application of subsection (b)(1)(B)”); sec. 178(a)(b) (“the period
of the term of the lease remaining on the date of its
acquisition”); sec. 401(h)(5) (“any amount remaining in such
separate account”); sec. 832(e)(5)(A) (“the amount (if any)
remaining which was added to the account”, “any amounts remaining
in such reserve”, “the entire amount remaining in such account”);
sec. 847(6)(A) (“the entire amount remaining in such special loss
discount account”); sec. 6342(a)(2),(3) (“the amount remaining
after applying paragraph (1)”, “The amount, if any, remaining after
applying paragraphs (1) and (2)”); sec. 7652(b)(3)(B) (“Any amounts
remaining”); section 732(c)(1)(B) (“to the extent of any basis
remaining after the allocation”); sec. 7518(f)(4) (“Any amount of
a withdrawal remaining after the application of the preceding
sentence”); sec. 404(a)(3)(B) (“total current and accumulated
earnings or profits remaining after adjustment for its contribution
deductible”); sec. 414(l)(2)(D)(iii) (“any other plan remaining
after the spin-off”); sec. 469(f)(1)(C) (“deduction or credit
remaining after the application of subparagraphs (A) and (B)”);
sec. 847(6)(B) (“any special estimated tax payment remaining after
the credit”); sec. 593(c)(2) (“treated as remaining in such
reserve”); sec. 7518(g)(5)(C) (“treated as remaining in a capital
construction fund at the close of any taxable year”); sec.
1368(c)(3) (“Treatment of remainder.--Any portion of the
distribution remaining after the application of paragraph (2)”);
sec. 2056A(b)(1)(B), (10)(A), (“property remaining in a qualified
domestic trust on the date of the death”); sec. 5143(d)(4) (“the
partner or partners remaining after death or withdrawal of a
member”); sec. 6342(b) (“Any surplus proceeds remaining after the
(continued...)
- 32 -
There are other sections, however, where the word “remaining”
is used in a different context as a copula12 or linking verb. When
used as a copula the word “remaining” links the word that precedes
it to the word that follows it;13 e.g., the income remaining
undistributed. In those sections, the word “remaining” means that
the preceding word “continues to be unchanged” in the “form,
condition, or status” described by the word that follows. We
believe that within the context of the effective date provisions of
section 6015 a tax liability “remaining unpaid” on or after July
22, 1998, means that the liability continues to be unpaid after
July 22, 1998.
The applicability of section 6015 to the issue before us thus
turns on the meaning of the word “unpaid”. The primary definition
11
(...continued)
application of subsection (a)”); sec. 7608(c)(3) (“such proceeds or
the balance of such proceeds remaining at the time”); sec. 9008(f)
(“moneys remaining in the account * * * moneys so remaining”); sec.
9038(b)(3) (“that portion of any unexpended balance remaining in
the candidate’s accounts”).
12
Copulas are verbs that link a predicate (adjective, noun,
etc.) to the subject. I Curme, A Grammar of the English Language,
par. 12.3, 66 (1986). Copulas often indicate a state, continuance
in a state, or entrance into a state. Id. par. 12.3, 68. The verb
“remain” is among the most common copulas and indicates a
continuance in a state. II Curme, A Grammar of the English
Language, par. 6.B, 27-28.
13
See, e.g., sec. 411(b)(1)(A) (“benefits * * * shall be
treated as remaining constant”); sec. 9704(i)(1)(B) (“the expenses
accrued (and remaining unpaid)”); sec. 4942(a) (“the amount of
such income remaining undistributed at the beginning of such second
(or succeeding) taxable year”); sec. 7448(j)(3) (“Any accrued
annuity remaining unpaid”).
- 33 -
of “unpaid” is “not paid”. Webster’s Third New International
Dictionary (1993). The word “paid” is a form of the word “pay”,
which “is a general term, usually lacking particular connotation”.
Id. The word “paid” can mean “gave a recompense”, “made payment”,
or “discharged an obligation”; it can be synonymous with
“compensated”, “remunerated”, “satisfied”, “reimbursed”,
“indemnified”, “recompensed”, or “repaid”. Id.
We believe that, when used to describe the continuing state of
a liability for tax in the provision under consideration, the word
“paid” means “satisfied” and that the word “unpaid” means “not
satisfied”. Id. A liability for tax “remaining unpaid as of the
effective date” is a liability for tax that continues to be
unsatisfied as of the applicable date. A liability is not
satisfied until it is paid in full, id.; ergo, a liability remains
unsatisfied or unpaid until it is paid in full.
Other provisions of section 6015 indicate that Congress
intended the expanded relief provided by section 6015 to apply
retroactively to the entire preexisting liability, rather than to
the portion of a preexisting liability that had been uncollected as
of the date of enactment. Flores v. United States, 51 Fed Cl. at
54. For example, section 6015(b) provides that if a spouse elects
and qualifies for relief under that section, then the spouse “shall
be relieved of liability for tax (including interest, penalties,
and other amounts) for such taxable year to the extent such
- 34 -
liability is attributable to such understatement.” (Emphasis
supplied.) That language clearly relieves the spouse of all
liability for the taxable year attributable to the understatement;
it suggests that Congress intended that the provision “should apply
to the entire taxable year and the entire tax liabilities
associated therewith”. Flores v. United States, supra at 55.
Further, there is solid precedent in decisions that treat an
income “tax liability for a particular year as being unitary and
‘paid’ only when fully collected.” Id.; see, e.g., Union Trust Co.
v. United States, 70 F.2d 629, 630 (2d Cir. 1934) (“the entire tax
liability is unitary and not discharged until paid in full”); see
also Flora v. United States, 362 U.S. 145 (1960) (income tax is
imposed on a unitary basis that precludes suits based on partial
payment). We see no reason why RRA 1998, section 3201(g), should
not be similarly interpreted, “particularly in light of * * * [the]
court’s obligation to construe liberally the innocent spouse
amendments as curative legislation.” Flores v. United States,
supra at 56.
Further, we note that section 6015(f) provides that if “it is
inequitable to hold the individual liable for any unpaid tax * * *
the Secretary may relieve such individual of such liability.” The
legislative history indicates that “unpaid tax” referred to in
section 6015(f) does not refer to the amount that is not paid when
- 35 -
relief is requested; rather it refers to a tax reported on the
return, but not paid with the return.
The Senate amendment would have permitted the separate
liability election (section 6015(c)) to apply “in situations where
the tax shown on a joint return is not paid with the return.” S.
Rept. 105-174, 58 (1998), 1998-3 C.B. 537, 594. The conference
committee report, H. Conf. Rept. 105-599, 1998-3 C.B. 747,
explained that, although the conference agreement did not include
that portion of the Senate amendment, the conferees intended that
the Secretary consider using the grant of authority to provide
equitable relief (section 6015(f)) to avoid the inequitable
treatment of spouses in situations where tax was shown on the joint
return, but not paid with the return. Thus, it is clear from the
legislative history that the term “unpaid tax” in section 6015(f)
includes a tax that was shown on a joint return, but not paid with
the return.
Section 6015(g) permits a refund where relief from liability
for unpaid tax is granted under section 6015(f). If the word
“unpaid” has the meaning urged by respondent, then a taxpayer
seeking equitable relief under section 6015(f) for an unpaid tax
could obtain relief only for that portion of the tax that has not
been collected and would not be permitted any refund of tax. Such
an interpretation would conflict with the legislative history.
Furthermore, section 6015(g) is very specific with respect to the
- 36 -
limitations placed on a refund; section 6015(g) specifically
provides that no refunds can be made with respect to relief granted
under section 6015(c). There is no such restriction for relief for
an unpaid tax granted under section 6015(f).
Respondent contends that the court’s holding in Flores v.
United States, supra, leads to a result that Congress did not
intend. Respondent notes that a taxpayer who paid the entire
liability would not be entitled to relief. Respondent asserts that
only under a “strained interpretation” could Congress have intended
this result. Therefore, respondent contends, Congress’s intent
must have been to allow relief only with respect to amounts that
remain uncollected after July 22, 1998. We disagree.
Congress obviously had to set a cutoff for claims for relief
under section 6015; otherwise, claims for refunds could go back for
decades. We believe that Congress wanted to grant the broadest
relief, while providing for certainty in the settlement of tax
refund claims. In setting the cutoff for claims for relief,
Congress treated claims related to liabilities for taxes that were
satisfied as of the date of enactment as settled as of that date.
Section 6015 relief is available for all claims related to tax
liabilities that were not settled as of July 22, 1998. Further,
the disparity in the treatment of taxpayers who have paid the
liability in full as of July 22, 1998, and those who have partially
- 37 -
paid is somewhat mitigated in that a refund available under section
6015(g)(1) may be limited by section 6511, 6512(b), 7121, or 7122.
b. Limitations of Section 6511
Respondent argues that should this Court follow the holding in
Flores v. United States, supra, then petitioner’s refund for
amounts paid on the unpaid 1989 tax liability would be limited by
sections 6015(g)(1) and 6511.
Section 6015(g)(1) provides, in pertinent part, that
“notwithstanding any other law or rule of law (other than section
6511, 6512(b), 7121, or 7122), credit or refund shall be allowed or
made to the extent attributable to the application of this
section”. Since we have held that section 6015 applies to the
entire liability and that petitioner is entitled to relief with
respect to the entire liability, the only limitations on the refund
are those set forth in sections 6511, 6512(b), 7121, and 7122. The
only limitation applicable in this case is section 6511.14 As
relevant to this case, section 6511 requires that a claim for
credit or refund of an overpayment of any tax in respect of which
the taxpayer is required to file a return must be filed within 3
years from the time the return was filed or 2 years from the time
the tax was paid, whichever of such periods expires later.
14
Sec. 6512(b) limits the amount of a refund in a
deficiency proceeding. Sec. 7121 applies to cases involving
closing agreements, and sec. 7122 applies to cases involving
compromises.
- 38 -
A claim for a tax refund (1) must inform the IRS that a claim
for a tax refund is being asserted, (2) detail each claimed ground
for the refund, and (3) provide sufficient facts so that the IRS
can adequately examine the merits of the claim. See Chicago
Milwaukee Corp. v. United States, 40 F.3d 373, 375 (Fed. Cir.
1994); Evans v. United States, 618 F. Supp. 621, 622-623 (E.D. Pa.
1985), affd. sub nom. Colonial Tire Serv. of West Chester, Inc. v.
United States, 787 F.2d 581 (3d Cir. 1986); sec. 301.6402-2(b)(1),
Proced. & Admin. Regs.15 This includes refund claims that are
submitted in Federal income tax returns in accordance with section
301.6401-3(a)(5), Proced. & Admin. Regs. See, e.g., Hefti v. IRS,
8 F.3d 1169, 1173 (7th Cir. 1993) (amended tax return lacked
statement of necessary factual basis for refund as required under
sec. 301.6402-2(b)(1), Proced. & Admin. Regs.); Levitsky v. United
States, 27 Fed. Cl. 235, 240 (1992).
15
Sec. 301.6402-2(b)(1), Proced. & Admin. Regs, provides:
No refund or credit will be allowed after the expiration
of the statutory period of limitation applicable to the
filing of a claim therefor except upon one or more of the
grounds set forth in a claim filed before the expiration
of such period. The claim must set forth in detail each
ground upon which a credit or refund is claimed and facts
sufficient to apprise the Commissioner of the exact basis
thereof. The statement of the grounds and facts must be
verified by a written declaration that it is made under
the penalties of perjury. A claim which does not comply
with this paragraph will not be considered for any
purpose as a claim for refund or credit.
- 39 -
In this case, the basis of petitioner’s claim for a refund of
amounts applied to the unpaid 1989 tax liability is petitioner’s
claim for relief under section 6015(f). Petitioner’s 1992 and
1994-97 tax returns (which were timely filed on or before April 15,
1998) could not have adequately notified the IRS of the basis of
petitioner’s claim for a refund, because the returns were filed
before section 6015 was enacted on July 22, 1998. Further, since
petitioner did not submit her 1998 tax return to the Court, we
cannot discern whether that return adequately notified the IRS of
her claim for relief under section 6015 for refund of the 1998
overpayment.
Respondent contends that petitioner’s claim for relief under
section 6015(f) was filed on June 29, 1999, when petitioner filed
Form 8857. Since June 29, 1999, is more than 3 years after the
filing of the joint 1989 return,16 respondent further contends that
petitioner’s refund is limited to the amounts paid/applied within
the 2-year period preceding petitioner’s filing Form 8857.
Respondent concludes, therefore, that petitioner’s refund is
limited to amounts paid/applied on or after June 29, 1997; i.e.,
petitioner is entitled to a refund only for payments of $535 and
$2001 made after June 29, 1997. We disagree with respondent’s
contention that petitioner filed her claim for relief on June 29,
16
The joint 1989 return was filed Apr. 15, 1990; 3 years
after that date is Apr. 15, 1993.
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1999; we believe such refund claim was filed earlier than that
date.
In a letter to Revenue Officer Whalen, dated July 15, 1998,
petitioner pleaded financial hardship and asked whether anything
could be done to place her account on an “uncollectible status”.
Moreover, she requested that the penalties and interest assessed
against her be abated, reiterating that the taxes were attributable
to her former husband’s business. Another letter to Revenue
Officer Whalen, dated March 13, 1999, referenced earlier meetings,
indicating that petitioner’s discussions with Revenue Officer
Whalen were ongoing. In that letter, petitioner stated that
garnishment of her wages would cause her a serious financial
hardship and asked to be relieved of the 1989 tax liability. She
specifically stated: “I have filed my taxes faithfully every year
only to have my taxes taken for something I was not responsible
for.” On June 29, 1999, petitioner filed Form 8857 in which she
sought relief from joint liability for the years 1995-98.
Petitioner requested tax refunds with interest for each of the
years 1995-98 in a letter she attached to the Form 8857.
We are satisfied that petitioner’s letters of July 15, 1998,
and March 13, 1999, constitute a request for relief within the
purview of section 6015. The ongoing nature of petitioner’s
request, and the proximity of the July 15, 1998, letter to the July
22, 1998, enactment date of section 6015, lead us to conclude that
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petitioner requested relief as of the date of enactment of section
6015 (i.e., July 22, 1998). The Form 8857 sent by the IRS to
petitioner was the result of petitioner’s prior written and oral
requests for relief from liability for the 1989 tax liability.
Further, since refunds are included in the relief provided under
section 6015, we believe that a request for relief under section
6015 encompasses a request for a refund of tax to the extent
permitted under section 6015. We find, therefore, that petitioner
requested a refund of amounts paid/applied on the unpaid 1989 tax
liability as of July 22, 1998. Consequently, petitioner is
entitled to all amounts paid/applied on or after July 22, 1996.
The IRS credited petitioner’s 1992 and 1994-98 overpayments
against the 1989 tax liability as follows: $694.30 for 1992
(applied April 15, 1993), $991.78 for 1994 (applied April 15,
1995), $1,030 for 1995 (applied March 18, 1996), $523 for 1996
(applied March 10, 1997), $535 for 1997 (applied March 30, 1998),
and $2,001 for 1998 (applied April 15, 1999). As a result, claims
for refund for the 1992 and 1994-98 overpayments would have to have
been filed by the following dates:
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Taxable Year of Date Applied to Last Date for
Overpayment 1989 Liability Filing Refund
1992 Apr. 15, 1993 Apr. 15, 1995
1994 Apr. 15, 1995 Apr. 15, 1997
1995 Mar. 30, 1996 Mar. 30, 1998
1996 Mar. 10, 1997 Mar. 10, 1999
1997 Mar. 30, 1998 Mar. 30, 2000
1998 Apr. 15, 1999 Apr. 15, 2001
To conclude, we hold that petitioner is entitled to a refund
of her 1996-98 overpayments. In addition, she is entitled to a
$408.95 refund of wages garnished on June 16, 1998.
A final note. In her brief, petitioner indicates that wages
of $408.95 garnished in March 1999, overpayments from her 1999 and
2000 tax returns ($1,322 for 1999 and $1,254 for 2000), and a $500
rebate from 2001 were applied to her 1991 tax liability. Since
neither petitioner’s 1991 tax liability nor any of those payments
were mentioned in petitioner’s request for relief under section
6015(f), they are not now properly before us.17
To reflect the foregoing,
Decision will be
entered under Rule 155.
17
Petitioner must file a separate request for relief with
respect to the 1991 tax liability.