Bishop v. Comm'r

T.C. Summary Opinion 2008-33
UNITED STATES TAX COURT
DEBRA E. BISHOP, Petitioner,
AND DAVID L. BISHOP, Intervenor v.
COMMISSIONER OF INTERNAL REVENUE, Respondent
Docket No. 7595-06S. Filed March 31, 2008.
Barbara Lamar, for petitioner.
David L. Bishop, pro se.
Daniel N. Price, for respondent.
DAWSON, Judge: This case was heard pursuant to section 7463
of the Internal Revenue Code in effect when the petition was
filed.1 Pursuant to section 7463(b) the decision to be entered
1
Unless otherwise indicated, subsequent section references
are to the Internal Revenue Code, and all Rule references are to
the Tax Court Rules of Practice and Procedure.
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is not reviewable by any other court, and this opinion shall not
be treated as precedent for any other case.
This case arises from a request for relief from joint and
several liability under section 6015(f) with respect to
petitioner’s unpaid joint Federal income tax liabilities for
2000, 2001, and 2002. Respondent initially determined that
petitioner was not entitled to relief from joint and several
liability under section 6015(f). Petitioner timely filed a
petition seeking review of respondent’s determination. In a
postpetition and pretrial review of respondent’s initial
determination by the Austin, Texas, Appeals Office, reversing the
prior review by the Memphis, Tennessee, Appeals Office, it was
concluded that petitioner is entitled to relief. When the case
was called for trial, respondent’s counsel stated that petitioner
and respondent both agreed that “petitioner is entitled to
relief.” However, David L. Bishop (intervenor) objected and
would not consent to signing the decision document. Thus we must
decide, on the basis of the testimony and documentary evidence in
this record, whether petitioner is entitled to relief under
section 6015(f) for the years involved.
Background
At the time the petition was filed, petitioner resided in
Texas.
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On July 27, 2007, petitioner and respondent filed a joint
motion, pursuant to Rule 91(f), for intervenor to show cause why
the facts and evidence set forth in a proposed stipulation of
facts, together with attached exhibits, should not be accepted as
established for the purposes of this case. Intervenor filed a
response to the order to show cause, primarily on the ground that
he was not solely responsible for the unpaid taxes and that
petitioner should pay her share. At the trial the Court’s order
to show cause was made absolute in that the facts and evidence
set forth in the proposed stipulation of facts were deemed to be
established for the purposes of this case, and most of the
exhibits were received into evidence and made a part of the
record.
Petitioner and intervenor were married in 1982. They
continued to be married in 2000, 2001, and 2002. They separated
in 2003 and were divorced on January 9, 2004. They had two minor
children, a daughter and son, who were their dependents in 2000,
2001, and 2002.
Petitioner has a high school education. During the years at
issue, she was employed as a claims processor for a health
insurance company. Intervenor has a college degree in
accounting, and during the years at issue worked as an auditor
for the Texas Workforce Commission. He now performs auditing
services as a consultant on an hourly subcontract basis. He was
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previously a revenue agent who conducted income tax audits for
the Internal Revenue Service (IRS). In 1994, intervenor was
indicted for bribing a public official in 1992 and 1993. He pled
guilty to the charges. On January 6, 1995, U.S. District Court
Judge H.F. Garcia entered the judgment in the criminal case,
which imposed a special assessment of $50 on each of two counts
and a fine of $1,000 on each count and sentenced intervenor to 28
months of imprisonment in the custody of the U.S. Bureau of
Prisons. He was released from prison in 1997, at which time he
rejoined his wife and children. Sometime thereafter he began
working as an auditor for the Texas Workforce Commission.
On June 4, 1998, this Court entered a decision in the case
of Bishop v. Commissioner, docket No. 9641-97, that for 1992 and
1993 income tax deficiencies of $2,809 and $3,834 and section
6662(a) penalties of $562 and $626, respectively, were due from
him. He has paid the assessed deficiencies, penalties, and
interest in part.
Before and after 2000, petitioner and intervenor began
living beyond their means, purchasing a new home, furniture, and
automobiles and incurring substantial expenses and debts.
Intervenor was a domineering person who controlled their
financial matters and prepared their Federal income tax returns.
During the years at issue he advised petitioner to decrease her
tax withholding by increasing her exemptions. He also decreased
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his own tax withholding. Those actions resulted in the
underpayments of tax for the years 2000 through 2002 and the
failure to make any payments on the unpaid tax liabilities after
they were assessed.
Petitioner did not sign the joint Federal income tax returns
for 2000 and 2001. Intervenor did not disclose or discuss with
petitioner the contents of those returns. However, petitioner
gave her Forms W-2, Wage and Tax Statement, to intervenor for
those years, and they were attached to the returns. Intervenor
did not file the return for either year until June 4, 2002. It
was not until late 2002 or early 2003 that petitioner became
aware that intervenor had made no payments on the unpaid taxes
for 2000 and 2001 of $2,532 and $4,685, respectively.
Petitioner did sign the joint Federal income tax return for
2002, which reported wages for intervenor and her. No Forms W-2
were attached to the return. The total underpayment of tax for
that year is $6,105.
Petitioner subsequently corrected her withholding and
entered into an installment agreement with the IRS to pay the
balance of her tax due for 2003. It appears that she is
presently current in paying her Federal income tax.
During 2007, in a final review and reversal of respondent’s
initial determination, Appeals Officer Handrick of the Austin
Office concluded that petitioner should be granted full equitable
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relief under section 6015(f) for 2000, 2001, and 2002. His
explanation and analysis contained in an Appeals case memorandum,
and approved by the Appeals team manager, states, in part, as
follows:
It appears that the Government will be able to show
that the petitioner had reason to know that Mr. Bishop
was not going to pay the unpaid tax liabilities.
Therefore, it does not appear that the petitioner
qualifies under the first opportunity.
The following are factors that may be relevant to
whether the Service will grant equitable relief under
the second opportunity.
(i) Marital status. Whether the requesting spouse is
separated (whether legally separated or living apart)
or divorced from the non-requesting spouse. A
temporary absence, such as an absence due to
incarceration, illness, business, vacation, military
service, or education, shall not be considered
separation for purposes of this revenue procedure if it
can be reasonably expected that the absent spouse will
return to a household maintained in anticipation of his
or her return. See Treas. Reg. section 1.6015-
3(b)(3)(i) for the definition of a temporary absence.
The petitioner is divorced. The MAC has determined
that this factor favors relief and I concur.
(ii) Economic hardship. Whether the requesting spouse
would suffer economic hardship (within the meaning of
section 4.02(1)(c) of this revenue procedure) if the
Service does not grant relief from the income tax
liability. According to the petitioner her monthly
income barely covers monthly expenses. The petitioner
is raising 2 children and is supposed to receive child
support from Mr. Bishop but has not received anything
since 2004. In addition, it should be noted that when
Mr. Bishop was in prison, the petitioner was
responsible for supporting her two children and
incurred a considerable amount of debt which she is
currently paying off. In fact the taxpayer was making
monthly payments in accordance with a Chapter 13
bankruptcy that was dismissed on September 12, 2003.
The MAC has determined that the petitioner will not
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incur an economic hardship if relief is not granted. I
disagree. It appears that the petitioner will incur an
economic hardship if relief is not granted. Therefore,
this factor does favor relief.
(iii) Knowledge or reason to know.
(A) Underpayment cases. In the case of an income tax
liability that was properly reported but not paid,
whether the requesting spouse did not know and had no
reason to know that the non-requesting spouse would not
pay the income tax liability. As previously stated, it
appears that the taxpayer had reason to know that her
ex-husband was not going to pay the liabilities in
question. Therefore, this factor weighs against
relief.
(iv) Non-requesting spouse’s legal obligation. Whether
the non-requesting spouse has a legal obligation to pay
the outstanding income tax liability pursuant to a
divorce decree or agreement. This factor will not
weigh in favor of relief if the requesting spouse knew
or had reason to know, when entering into the divorce
decree or agreement, that the non-requesting spouse
would not pay the income tax liability. The divorce
decree appears to be silent with respect to the tax
liabilities. The MAC has determined that this factor
weighs against relief. I disagree. Where the divorce
decree is silent, this factor is a neutral factor. See
Connie Washington v. Commissioner, 120 T.C. 137.
Therefore, this factor is neutral.
(v) Significant benefit. Whether the requesting spouse
received significant benefit (beyond normal support)
from the unpaid income tax liability or item giving
rise to the deficiency. See Treas. Reg. section
1.6015-2(d). Where there is no significant benefit,
the Tax Court has ruled that this factor is neutral.
See Teresa J. Fox v. Commissioner, T.C. Memo. 2006-22.
The MAC has determined that this factor weighs against
relief. I disagree. Since the petitioner received no
significant benefit, this factor is neutral.
(vi) Compliance with income tax laws. Whether the
requesting spouse has made a good faith effort to
comply with income tax laws in the taxable years
following the taxable year or years to which the
request for relief relates. Tax compliance is a factor
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that the Commissioner will consider only against
granting relief. Ewing v. Commissioner, 122 T.C. 32.
The MAC has determined that this factor weighs in favor
of relief. I disagree. Based upon the Ewing case,
this factor is neutral.
Factors that, if present in a case, will weigh in favor
of equitable relief, but will not weigh against
equitable relief if not present in a case, include, but
are not limited to, the following:
Abuse. Whether the non-requesting spouse abused the
requesting spouse. The presence of abuse is a factor
favoring relief. A history of abuse by the non-
requesting spouse may mitigate a requesting spouse’s
knowledge or reason to know. The MAC has determined
that there was no physical abuse. However, abuse is
not limited to physical abuse.
There can also be verbal and mental abuse. According
to the petitioner, when she asked Mr. Bishop why there
wasn’t much income tax being withheld from her weekly
pay, he told her not to worry and trust him because he
worked for the IRS. When she persisted, Mr. Bishop
yelled at her and threatened her. The petitioner also
discovered that Mr. Bishop was accessing her bank
account to pay pornography sites.
When she confronted him about that, Mr. Bishop became
very agitated and began yelling at her. In addition,
the taxpayer feared that Mr. Bishop would retaliate
against their children. It wasn’t until the petitioner
discovered that Mr. Bishop was having an affair that
she decided to file for a divorce. Therefore, it
appears that this factor does favor relief.
* * * * * * *
In summation, it appears that three factors favor
relief, one weighs against relief and the rest are
neutral. Therefore, since the factors in favor of
relief outweigh the one factor against, the petitioner
is entitled to innocent spouse relief in accordance
with I.R.C. section 6015(f).
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Respondent’s counsel agrees with Appeals Officer Handrick’s
analysis and concedes that petitioner is entitled to full
equitable relief under section 6015(f).
Petitioner’s present income, reasonable living expenses, and
substantial debt create an economic hardship that would make it
exceedingly difficult and burdensome for her to pay the unpaid
income tax liabilities for 2000, 2001, and 2002.
While petitioner was not physically abused by intervenor,
she was mentally and emotionally abused by his rage and threats.
When petitioner was moving out of the family home during their
separation, intervenor’s threats caused such havoc that she
requested police protection and filed a report regarding his
conduct toward her. Their children were concerned and upset
about intervenor’s temperamental outbursts and verbal harassment
of their mother.
Intervenor has made no efforts to pay the assessed income
tax liabilities for 2000, 2001, and 2002.
Discussion
A predicate to relief under section 6015 is that a joint
income tax return was filed. Sec. 6015(a)(1), (b)(1)(A). Thus,
if the Court should find that petitioner did not file joint
returns for 2000 and 2001, we would be required to deny her claim
for section 6015 relief for those years. Raymond v.
Commissioner, 119 T.C. 191, 194-197 (2002).
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Married taxpayers may elect to file a joint Federal income
tax return. Sec. 6013(a). Generally, a joint return must be
signed by both spouses. Sec. 1.6013-1(a)(2), Income Tax Regs.
However, where both spouses intend to file a joint return, the
failure of one spouse to sign the return will not preclude its
treatment as a joint return. Estate of Campbell v. Commissioner,
56 T.C. 1, 12 (1971). Petitioner and intervenor agree that they
intended to file joint returns for 2000 and 2001, and respondent
has not challenged their right to do so. See Acquaviva v.
Commissioner, T.C. Memo. 1996-542.
In general, spouses who file a joint Federal income tax
return are jointly and severally liable for the full amount of
the tax liability shown or required to be shown on the return.
Sec. 6013(d)(3); Butler v. Commissioner, 114 T.C. 276, 282
(2000). However, a spouse may seek relief from joint and several
liability under section 6015 if certain requirements are met.
Petitioner seeks equitable relief under section 6015(f).
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.
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Because petitioner seeks relief from underpayments of tax rather
than understatements of tax, relief is not available to her under
section 6015(b) and (c). See Washington v. Commissioner, 120
T.C. 137, 145-147 (2003).
On December 20, 2006, Congress amended section 6015(e)(1) to
provide that this Court has jurisdiction over stand-alone section
6015(f) cases.2 Tax Relief and Health Care Act of 2006, Pub. L.
109-432, div. C, sec. 408(a), (c), 120 Stat. 3061, 3062.3
Respondent concedes that we have jurisdiction over this case
under section 6015(e) as amended.
2
Tax Relief and Health Care Act of 2006, Pub. L. 109-432,
div. C, sec. 408(c), 102 Stat. 3062, provides that “The
amendments made by * * * [sec. 408] shall apply with respect to
liability for taxes arising or remaining unpaid on or after [Dec.
20, 2006].”
3
Sec. 6015(e) now provides:
SEC. 6015(e). Petition for Review by Tax Court.--
(1) In general.--In the case of an individual
against whom a deficiency has been asserted and who
elects to have subsection (b) or (c) apply, or in the
case of an individual who requests equitable relief
under subsection (f)--
(A) In general.-- * * * the individual may
petition the Tax Court (and the Tax Court shall
have jurisdiction) to determine the appropriate
relief available to the individual under this
section * * * [Emphasis added.]
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The Commissioner uses guidelines prescribed in Rev. Proc.
2003-61, 2003-2 C.B. 296, to determine whether a taxpayer
qualifies for relief from joint and several liability under
section 6015(f).4
A. Rev. Proc. 2003-61, Sec. 4.01
Before the Commissioner will consider a taxpayer’s request
for relief under section 6015(f), the taxpayer must satisfy the
seven threshold conditions listed in Rev. Proc. 2003-61, sec.
4.01, 2003-2 C.B. at 297. The parties agree that petitioner
satisfies each of the conditions.
B. Rev. Proc. 2003-61, Sec. 4.02
1. In General
Rev. Proc. 2003-61, sec. 4.02(1), 2003-2 C.B. at 298,
provides that equitable relief will ordinarily be granted as to
unpaid liabilities if, in addition to the seven threshold
conditions, each of the following elements is satisfied:
(a) On the date of the request for relief, the
requesting spouse is no longer married to, or is
legally separated from, the nonrequesting spouse, or
has not been a member of the same household as the
nonrequesting spouse at any time during the 12-month
period ending on the date of the request for relief.
4
Rev. Proc. 2003-61, 2003-2 C.B. 296, supersedes Rev. Proc.
2000-15, 2000-1 C.B. 447, effective for requests for relief filed
on or after Nov. 1, 2003, and for requests for relief pending on
Nov. 1, 2003, for which no preliminary determination letter has
been issued as of that date. Rev. Proc. 2003-61, secs. 6 and 7,
2003-2 C.B. at 299. Petitioner’s request for relief was filed on
May 20, 2005.
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(b) On the date the requesting spouse signed the
joint return, the requesting spouse had no knowledge or
reason to know that the nonrequesting spouse would not
pay the income tax liability. The requesting spouse
must establish that it was reasonable for the
requesting spouse to believe that the nonrequesting
spouse would pay the reported income tax liability.
* * *
(c) The requesting spouse will suffer economic
hardship if the Service does not grant relief. * * *
Petitioner and intervenor were divorced at the time
petitioner filed her request for relief. Respondent has
determined that petitioner will suffer economic hardship if
relief is not granted, and we agree. Thus, the dispute is
whether petitioner had knowledge or reason to know that
intervenor would not pay the reported tax liabilities for 2000,
2001, and 2002.
2. Knowledge or Reason To Know
This element is satisfied if the requesting spouse did not
know or have reason to know when she signed the return that the
taxes would not be paid. Rev. Proc. 2003-61, sec. 4.02(1)(b).
Accordingly, petitioner must establish that it was reasonable for
her to believe that intervenor would pay the reported tax
liabilities.
Although petitioner may not have been aware of the tax
liabilities intervenor reported on the 2000 and 2001 returns
because the returns were not signed by or discussed with her and
she did not actually know that there were unpaid taxes until at
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least late 2002 or early 2003, we think petitioner should have
had reason to believe that those tax liabilities might exist
because of their mounting debts and severe financial situation.
Of course, petitioner knew there were unpaid taxes due for 2002
because she signed the return for that year and confronted
intervenor about the unpaid taxes due for that year as well as
for the 2 prior years. Furthermore, she knew about the tax
liabilities when she joined intervenor as a party in a chapter 13
bankruptcy proceeding in February 2003. Therefore, we conclude
that petitioner did not satisfy the knowledge or reason to know
element of Rev. Proc. 2003-61, sec. 4.02, and thus does not
qualify for equitable relief under that section of the revenue
procedure.
C. Rev. Proc. 2003-61, Sec. 4.03
Where the requesting spouse fails to qualify for relief
under Rev. Proc. 2003-61, sec. 4.02, the Commissioner may
nonetheless grant relief under Rev. Proc. 2003-61, sec. 4.03,
2003-2 C.B. at 298-299. Rev. Proc. 2003-61, sec. 4.03, provides
that where the seven threshold conditions have been satisfied and
the requesting spouse does not qualify for relief under Rev.
Proc. 2003-61, sec. 4.02, equitable relief may be granted under
section 6015(f) if, taking into account all facts and
circumstances, it is inequitable to hold the requesting spouse
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liable. Rev. Proc. 2003-61, sec. 4.03, lists factors that the
Commissioner will take into account in determining, on the facts
and circumstances, whether to grant full or partial equitable
relief under section 6015(f). As Rev. Proc. 2003-61, sec. 4.03,
makes clear, no single factor is determinative in any particular
case, all factors are to be considered and weighed appropriately,
and the list of factors is not intended to be exclusive.
Rev. Proc. 2003-61, sec. 4.03(2)(a), 2003-2 C.B. at 298-299,
lists the following factors that the Commissioner will weigh in
determining whether to grant equitable relief:
(i) Marital status. Whether the requesting spouse
is separated * * * or divorced from the nonrequesting
spouse. * * *
(ii) Economic hardship. Whether the requesting
spouse would suffer economic hardship (within the
meaning of section 4.02(1)(c) of this revenue
procedure) if the Service does not grant relief from
the income tax liability.
(iii) Knowledge or reason to know.
(A) Underpayment cases. * * * whether the
requesting spouse did not know and had no reason to
know that the nonrequesting spouse would not pay the
income tax liability.
* * * * * * *
(iv) Nonrequesting spouse’s legal obligation.
Whether the nonrequesting spouse has a legal obligation
to pay the outstanding income tax liability pursuant to
a divorce decree or agreement. * * *
(v) Significant benefit. Whether the requesting
spouse received significant benefit (beyond normal
support) from the unpaid income tax liability * * *
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(vi) Compliance with income tax laws. Whether the
requesting spouse has made a good faith effort to
comply with income tax laws in the taxable years
following the taxable year or years to which the
request for relief relates.
Rev. Proc. 2003-61, sec. 4.03(2)(b), 2003-2 C.B. at 299,
lists two positive factors that the Commissioner will weigh in
favor of granting equitable relief. They are:
(i) Abuse. Whether the nonrequesting spouse
abused the requesting spouse. * * *
(ii) Mental or physical health. Whether the
requesting spouse was in poor mental or physical health
on the date the requesting spouse signed the return or
at the time the requesting spouse requested relief.
* * *
Before we consider and apply the above factors, we will
comment on the testimonial credibility of the two key witnesses,
petitioner and intervenor. In many respects their testimony is
critical to our disposition of the issue involved herein. Their
testimony boils down essentially to a “she said/he said”
situation.
In Kropp v. Commissioner, T.C. Memo. 2000-148, we stated
that “As a trier of fact, it is our duty to listen to the
testimony, observe the demeanor of the witnesses, weigh the
evidence, and determine what we believe.” In Diaz v.
Commissioner, 58 T.C. 560, 564 (1972), we observed similarly that
the process of distilling truth from the testimony of witnesses,
whose demeanor we observe and whose credibility we evaluate, is
the daily grist of judicial life. We are not required to accept
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testimony if it is improbable, unreasonable, or questionable.
MacGuire v. Commissioner, 450 F.2d 1239, 1244-1245 (5th Cir.
1971), affg. T.C. Memo. 1970-89.
We find that petitioner’s testimony was credible in material
respects. By contrast, we find that intervenor’s testimony was
not credible. Having observed intervenor and evaluated his
demeanor as a witness, we reject certain aspects of his
testimony, not merely because we sometimes found it inconsistent,
vague, evasive, or misleading, but because we simply do not
believe it.
We turn now to weighing the factors in considering whether
petitioner qualifies for equitable relief under Rev. Proc. 2003-
61, sec. 4.03.
1. Marital Status
Petitioner and intervenor separated in 2003 and divorced in
2004. This factor weighs in favor of granting relief.
2. Economic Hardship
As previously found and for the reasons stated, we conclude
that petitioner has established to our satisfaction that she will
suffer economic hardship if she is not granted equitable relief.
This factor weighs in favor of granting relief.
3. Knowledge or Reason To Know
For the reasons stated in our analysis of this factor under
Rev. Proc. 2003-61, sec. 4.02, we conclude that petitioner has
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failed to establish that she did not have reason to know that
intervenor would not pay the income tax liabilities for the years
at issue. This factor weighs against granting relief.
4. Nonrequesting Spouse’s Legal Obligation
The divorce decree did not contain a provision as to which
spouse had a legal obligation to pay the outstanding income tax
liabilities for 2000, 2001, and 2002. This factor is neutral.
5. Significant Benefit
Petitioner did not receive significant benefit beyond normal
support from the unpaid income tax liabilities. This factor is
neutral.
6. Compliance With Income Tax Laws
Tax compliance is a factor considered by the Commissioner
only against granting relief. Respondent does not contend that
petitioner did not make a good faith effort to comply with her
Federal income tax obligations in years subsequent to 2002. And
respondent does not contend that this factor applies.
Consequently, this factor is neutral.
7. Abuse
As previously indicated, while petitioner was not physically
abused by intervenor, respondent determined, and we agree, that
there was mental and emotional abuse sufficient to support
relief. Thus, this factor weighs in favor of granting relief.
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Conclusion
There are three factors that favor granting equitable
relief, one that weighs against granting it, and the remainder
that are neutral. Accordingly, after considering all the facts
and circumstances, we conclude that it would be inequitable to
hold petitioner liable for the underpayments of tax for 2000,
2001, and 2002. Therefore, petitioner is entitled to relief
under section 6015(f).
To reflect the foregoing,
Decision will be entered
for petitioner.