DocketNumber: No. 12663-06S
Citation Numbers: 2008 T.C. Summary Opinion 119, 2008 Tax Ct. Summary LEXIS 119
Judges: \"Goldberg, Stanley J.\"
Filed Date: 9/9/2008
Status: Non-Precedential
Modified Date: 11/20/2020
PURSUANT TO INTERNAL REVENUE CODE SECTION 7463(b), THIS OPINION MAY NOT BE TREATED AS PRECEDENT FOR ANY OTHER CASE.
GOLDBERG,
This case arises from a request for relief from joint and several liability under
Some of the facts have been stipulated and are so found. The stipulation of facts and the exhibits received into evidence are incorporated herein by reference. When the petition was filed, petitioner resided in Maryland.
In September 2001 petitioner married David Skolnick (Mr. Skolnick). Petitioner worked and continues to work as a registered nurse. Mr. Skolnick was employed as an engineer by Zeta Associates, Inc. (Zeta), until June 2003 when his employer terminated his employment, but he found new employment by the end of 2003.
On December 13, 2003, Mr. Skolnick sold his stock holdings in Zeta for $ 99,899.91; no Federal income tax was withheld. Around March 2004 Mr. Skolnick deposited the check for the stock proceeds into his and petitioner's joint checking account. Although the joint account was used to deposit their paychecks and to pay household bills, petitioner was not allowed to open or to review the account statements.
Around *121 April 2004 Mr. Skolnick prepared and electronically filed a joint Form 1040, U.S. Individual Income Tax Return, for 2003. Petitioner's participation in the preparation of the Form 1040 was limited to providing Mr. Skolnick with her "W-2s". But petitioner was allowed to review the Form 1040 after Mr. Skolnick had filed it. Among other things, Mr. Skolnick reported the following:
Description | Amount |
Taxable income (line 40) | $ 205,171 |
Total tax (line 60) | 41,482 |
Withholdings (line 61) | 66,332 |
Excess Social Security | 1,831 |
Overpayment | 26,681 |
Third-party-payor records, however, showed withholdings totaling $ 36,331 ($ 3,795 was withheld on petitioner's wages and $ 32,536 was withheld on Mr. Skolnick's wages). Respondent determined that the Skolnicks had overstated their withholdings by $ 30,001, and he reduced their "Payments" by that amount. In May 2005 respondent issued a Notice CP2000, reflecting a "Proposed Balance Due" of $ 31,656.
In the interim Mr. Skolnick had left the marital home in January 2005. Petitioner left the marital home in March 2005. Mr. Skolnick and petitioner instituted divorce proceedings in 2005; the divorce was finalized in February 2006. In January 2006 petitioner and Mr. Skolnick *122 entered into a "Property And Support Settlement Agreement" (property settlement). In pertinent part, the property settlement provides: [t]he parties agree that they have potential joint tax liability for 2003 for at least [$ 31,656 * * * Mr. Skolnick paid $ 31,656 to the Internal Revenue Service (IRS), and petitioner paid half of the amount to him as her share of the liability. If there are additional tax liabilities for 2003, Mr. Skolnick agrees to pay them. If the IRS determines that any part of the 2003 tax liability is not due and refunds it, the parties agree to split it. If penalties or interest for 2003 are refunded, the parties agree that Mr. Skolnick is entitled to it].
While the divorce was pending, petitioner submitted a Form 8857, Request for Innocent Spouse Relief (And Separation of Liability and Equitable Relief), to the IRS in June 2005. 2 In August 2005 she submitted a Form 12510, Questionnaire for Requesting Spouse. The IRS issued a preliminary determination in November 2005. It denied relief under Information contained in your case indicates that you had knowledge and/or reason to know of the item that gave rise to the tax deficiency. *123 There was too much withholding claimed on the return and you did not review the return. You failed your duty of inquiry at the time of filing.
Petitioner appealed to the Appeals Office (Appeals) in December 2005. Appeals issued a notice of determination on March 30, 2006. It states that relief was denied because the item "leading to the understatement was not attributable" to Mr. Skolnick.
In the interim Mr. Skolnick had made a $ 31,656 payment on behalf of himself and petitioner in January 2006. On February 6, 2006, the IRS determined that petitioner and Mr. Skolnick were liable for a $ 3,000 addition to tax under
Except as otherwise provided in
To guide IRS employees in exercising their discretion, the Commissioner has issued revenue procedures that list the factors they should consider. The Court also uses the factors when reviewing the IRS's denial of relief. See
Petitioner contends that the claimed $ 30,001 of excess withholdings is attributable to Mr. Skolnick because he overstated their withheld amounts when he prepared and electronically filed their Form 1040.
Respondent contends that petitioner's request for relief seems to be based on the assumption that the overstated withholding credits are directly related to Mr. Skolnick's stock sale. According to respondent, Appeals determined that that was not the case: the overstated withholdings could have been a math error, a "typo when the electronic return *126 was computed using whatever computer software was used[,] * * * an inflated number pulled out of the air," or any one of a number of explanations.
The Appeals officer's "Case Activity Record" states that the understatement was "caused by reporting withholding in relation to a 1099B. There was no withholding on the 1099B." The record further states: "She argues it was due to the 1099b. * * * [I told her] it had not been filed. I stated that there is nothing on the 1099b so that is just a guess." The record also states that he explained that withholding is "normally considered a joint and several liability because it normally cannot be allocated." The officer's "workpapers" state that the item was not attributable to either spouse because they had claimed too much withholding. Further, her arguments that the item should be attributed to Mr. Skolnick because he claimed the withholding in relation to a Form 1099 were "without merit and it would be inequitable to attribute the disallowed withholding to the NRS based upon an assumption."
The Court is not persuaded by respondent's arguments. In deciding the issue of to whom inaccurate, false, or "phony" deductions or credits are attributable, *127 the Court has attributed such deductions or credits to the spouse who wrongfully reported or claimed the item (with certain exceptions not applicable here). See
On the basis of the foregoing, the Court finds that the overstated withholding credits are attributable to Mr. Skolnick -- he prepared the return and wrongfully reported the overstated amounts. 4 Therefore, the Court also finds that petitioner has satisfied the seventh threshold condition of
Where the requesting spouse satisfies *129 the threshold conditions of
Petitioner was not divorced or legally separated from Mr. Skolnick when she requested relief. Additionally, petitioner and Mr. Skolnick resided together within the 6-month period preceding her request: she testified that he moved out in January 2005, while her Form 8857 is dated June 11, 2005. Thus, she fails requirement 1, and the Court need not discuss the others. Accordingly, petitioner does not qualify for relief under
Where the requesting spouse fails to qualify for relief under
The IRS will take into consideration whether the requesting spouse is divorced or separated (whether legally separated or living apart) from the nonrequesting spouse.
Petitioner and Mr. Skolnick were separated, i.e., living apart, when she requested relief. This factor weighs in favor of relief. See
The IRS will take into consideration whether the requesting spouse will suffer economic hardship *131 if relief is not granted.
In determining a reasonable amount for basic living expenses, the Court considers, among other things: (1) The taxpayer's age, employment status and history, ability to earn, and number of dependents; (2) an amount reasonably necessary for food, clothing, housing, medical expenses, transportation, current tax payments, and expenses necessary to the taxpayer's production of income; (3) the cost of living in the taxpayer's geographic area; (4) the amount of property available to satisfy the taxpayer's expenses; (5) any extraordinary circumstances; i.e., special education expenses, a medical catastrophe, or a natural disaster; and (6) any other factor bearing on economic hardship. See
The IRS has issued guidelines for allowable expenses. 5 "Necessary expenses are those that meet the necessary expense test; i.e., 'they must provide for a taxpayer and his or her family's health *132 and welfare and/or the production of income' and they must be reasonable."
Petitioner testified that she estimated the expenses on her Form 12510 for herself and her two children. With the exception of the $ 1,435 for monthly rent, she has not substantiated her expenses; i.e., by providing receipts or statements. Therefore, the Court will use the national and local standards.
The monthly national standard allows a family of three:
Expenditure | Amount |
Food | $ 626 |
Housekeeping supplies | 61 |
Apparel & services | 209 |
Personal care products & services | 58 |
Miscellaneous | 197 |
Out-of-pocket health care | 171 |
Total | 1,322 |
*133 Petitioner is allowed $ 217 as operating costs for her automobile (local standard). The Court has determined total expenditures of $ 2,974, while she claimed net wages of $ 3,088. Petitioner's net wages exceed her expenditures by $ 114. Although petitioner is supporting two children, she is gainfully employed as a nurse -- earning approximately $ 60,000 a year. In addition, there is no information in the record as to the costs of her children's private school tuition or the value of any assets that could be used to satisfy the liability (she testified that she has since moved and is making payments on a home). The Court also notes that petitioner may seek to enforce the terms of the property settlement against Mr. Skolnick for the additional penalties and interest. Consequently, the Court finds that petitioner has not shown that she will suffer economic hardship if she is not relieved of the liability. See
The IRS will also consider whether the requesting spouse did not know or had no reason to know that the nonrequesting spouse would not pay the liability.
Typically, in the case of a reported but unpaid liability, the relevant knowledge is whether the taxpayer knew or had reason to know when the return was signed that the tax would not be paid. See
Petitioner testified that: (1) Mr. Skolnick prepared and electronically filed the return; (2) she was not present when he filed it; (3) she was able to review the return but only after he filed it; and (4) she does not recall signing a signature page. 6*136
The Appeals officer's "Case Activity Record" states: "Knowledge -- The NRS e-filed the return. The RS did not review." His workpapers merely state that she did not review the return for accuracy, "she would also be charged with constructive knowledge of the item", and since the "withholding was reported on the return, she has actual knowledge of the item."
Petitioner and Mr. Skolnick's Form 1040 showed an overpayment for 2003 on account of overstated withholdings -- not taxes due. Petitioner was not alerted to the fact that there was a $ 31,165 "Proposed Balance Due" until she received the Notice CP2000 in May 2005. Moreover, with respect to the
Arguably, weighing against petitioner is the officer's conclusion that "the 2003 refund was way out of line with prior years. This should have triggered something." Although the 2002 and 2003 returns are not in evidence, respondent represented that $ 10,743.61 of the claimed $ 26,681 overpayment for 2003 was applied to their joint liability for 2002. 7
Without the 2002 and 2003 returns, the Court is hesitant to agree with the officer's conclusion that the claimed $ 26,681 refund for 2003 "should have triggered something." There is nothing in the record establishing what that $ 10,743.61 liability for 2002 consists of (i.e., a deficiency, interest, or penalties). In addition, 2002 was the first year that the Skolnicks had filed a joint return; thus, there was no real filing history by which petitioner could have tested the 2003 refund for accuracy. *138 The January 2006 property settlement indicates they were going to claim a $ 2,047.03 overpayment for 2002 by January 31, 2006, which corroborates petitioner's testimony that she did not learn about the issues with the 2002 return until after the issues with the 2003 return had come to light. On the basis of the evidence in the record, it does not appear that "the 2003 refund was way out of line with prior years" such that petitioner should have had reason to know that Mr. Skolnick had overstated their withholdings for 2003.
On the basis of the foregoing, the Court finds that this factor is neutral. See, e.g.,
The IRS will also consider whether the nonrequesting spouse has a legal obligation to pay the outstanding income tax liability pursuant to a divorce decree or agreement. See
The property settlement provides that Mr. Skolnick agreed to pay any additional liabilities for 2003. There is nothing in the record indicating that petitioner knew or should have known when she entered into the agreement that Mr. Skolnick would not pay the liability -- he paid his half of the $ 31,656 liability when they entered into the agreement in January 2006, and respondent did not determine the addition to tax until February 2006. This factor weighs in favor of relief. See
The IRS will consider whether the requesting spouse received significant benefit beyond normal support as a result of the unpaid tax liability.
On petitioner's Form 12510, she claimed that she believed that the refund was used to pay the Skolnicks' household expenses. There is no evidence indicating that she received significant benefit as a result of the unpaid tax liability. Therefore, the Court concludes that this factor weighs *140 in favor of relief. See
The IRS will take into consideration whether the requesting spouse has made a good faith effort to comply with the Federal tax laws in the succeeding years. See
This factor is neutral because no evidence or argument was presented as to the issue. See
The IRS will also consider whether the nonrequesting spouse abused the requesting spouse. See
Petitioner testified that Mr. Skolnick was "not necessarily physically abusive." Therefore, this factor is neutral. Id. (the presence of abuse weighs in favor of relief while *141 lack of abuse does not weigh against relief); see also
The IRS will take into consideration whether the requesting spouse was in poor mental or physical health on the date she signed the return or at the time relief was requested. See
There is no evidence in the record that petitioner's mental or physical health was poor; therefore, this factor is neutral. See
Petitioner has presented a strong case for relief from joint and several liability. Three factors weigh in favor of relief, one, economic hardship, weighs against relief, and four factors are neutral. While the economic hardship factor weighs against her, it does not outweigh the other factors. Accordingly, petitioner is entitled to relief under
Petitioner has requested a refund of amounts paid towards the 2003 tax liability.
In pertinent part,
Respondent has represented that petitioner and Mr. Skolnick's 2003 return was timely filed; the filing date is deemed to be April 15, 2004. See
In conclusion, the Court holds that petitioner is entitled to relief from joint and several liability under
To reflect the foregoing,
1. Although petitioner requested relief under
2. Mr. Skolnick was notified that petitioner was seeking relief from joint and several liability and that he had a right to intervene in the matter. He did not respond to letters from the IRS or exercise his right to intervene in petitioner's Tax Court case.↩
3. Although these cases arose under former
4. In addition, there is a strong implication that Mr. Skolnick was the culpable person since he: (1) Accepted responsibility for any additional liabilities in their property settlement; and (2) has not contested petitioner's assertions or otherwise intervened in the matter, see
5. The guidelines are published on the IRS's Web site at
6. Whether petitioner failed to sign the 2003 Form 1040 necessarily implicates issues regarding whether she filed a joint return and whether she is entitled to relief under
7. At trial respondent asserted that he did not include a copy of the 2003 return because it was not part of the administrative record, although he could have obtained one.↩
8. Petitioner's Form 8857, received by the IRS on June 20, 2005, is a claim for a refund. See