### IN THE UNI TED STAT ES COURT OFAPPEALS FOR THE FIF TH CIRCU IT

No. 12-60080

MARY E. HAGGERTY, Petitioner-Appellant
v. COMMISSIONER OF INTERNAL REVENUE, Respondent-Appellee

Appeal from the Decision of the United States Tax Court

(15589-09)

Before DAVIS, JONES, and SMITH, Circuit Judges. PER CURIAM: * Petitioner-Appellant Mary Hagger t y sought innocent spouse relief from j o i nt and several liability for the underpayment of taxes reflected on her 200 6 joint income tax return pursuant to I.R.C. § 6015(f). The Tax Court d e n i ed Haggerty’s request for innocent spouse relief, and Haggerty appeals that denial. For the following reasons, we AFFIRM the judgment of the Tax Court. U n i te d S ta te s C o u rt o f A p p ea l s

F i ft h C i rc u i t 

### F I L E D Janu ary3, 201 3 Lyle W . Cayce Clerk

Pursua nt to 5 T H C IR

. R. 47.5 , the cour t has d ete rm inedt hat this op inion s houldnot * be publ ish ed and is not pr ece dent excep t unde r the lim ite d cir cum st ance s se t forth in 5 T H C IR

. R. 47.5 .4. Case: 12-60080 Document: 00512099627 Page: 1 Date Filed: 01/03/2013No. 12-60080 I. Appella n t Mary Haggerty (“Ms. Haggerty”) was married to Timothy Haggerty (“Mr. Haggerty”) for 37 years before he died unexpectedly. Ms. Haggerty al l e g e s that her husband was a big, intimidating man and that he verbally abused her. S h e also alleges he was secretive about his finances and maintained several accounts which she knew nothing about. On October 21, 20 0 4 , M r . Haggerty, against Ms. Haggerty’s wishes, borrowed $70,952 using their homestead as collateral, creating a second lien against the home. Ms. Haggerty signed the promissory note because her name

was on the title, but she alleges she did not receive the loan proceeds or benefit in any way from the loan. On July 7, 2006, Mr. Haggerty liquidated a $73,530 IRA (after withdrawal charges and fees he received a net distribution of $67,711) without withholding
any federal inco m e t a x f rom the distribution. Ms. Haggerty had no knowledge of this “secret” transaction and di d not receive any funds from the liquidation. On July 12, 2006, Mr. Haggerty used the money he received from the IRA to pay off the balance of the second lien on the family home in the amount of $66,628. Ms. Haggerty did not learn that Mr. Haggerty had liquidated the IRA or that he had used the proceeds to pay off the second lien un t i l after the fact when she found a copy of the release of the lien in the mail in late August 2006. Mr. Haggerty died intestate on September 13, 2006, from a heart attack. After h i s d e a t h, Ms. Haggerty began receiving tax notices she did not understand, so she hired a CPA to prepare the spouses’ 2006 tax return. The CPA prepared a joint income tax return and did not advise Ms. Haggerty of the possibility of filing separate returns or maki n g a separate liability election. Because Mr. Haggerty had not withheld any taxes from the liquidation of the IRA, the 2006 joint income tax return reflected $25,343 due in taxes. Ms. Haggerty, relying on the CPA, signed the joint income tax return and submitted

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$5,300—the entire amount she received from the probate of Mr. Haggerty’s estate. On February 19, 2008, M s . Haggerty filed a Form 8857, Request for Innoce n t S p ouse Relief with the Internal Revenue Service (“IRS”), requesting relief from joint and several liability for the underpayment of 2006 taxes under I.R.C. § 6015(f). Where the form asked whether she was the vi c t i m o f s pousal abuse during the year in question, she checked “No”; she likewise checked “No” where the form asked whether s h e h a d any problems with her mental or physical health at the time of signing or at the present time. On March 26, 2009, the IRS denied Ms. Haggerty’s request for relief. Ms. Haggerty appealed and on December 5, 2011, the Tax Court issued an opinion sust a ining the Commissioner’s determination that Ms. Haggerty was not entitled to innocent spouse relief. We affirm. II. This court applies the same standard of review to decisions of the Tax Court as we apply to district court decisions. Cheshire v. Comm’r , 282 F.3d 326, 332 (5th Cir. 2002). Issues of law are reviewed de novo , and findings of fact are reviewed for clear error. Park v. Comm’r , 25 F.3d 1289, 1291 (5th Cir. 1994). We

r e view the decision to deny equitable relief under § 6015(f) for abu s e o f discretion. Cheshire , 282 F.3d at 338.III. Internal Revenue Code § 6015(f) provides in relevant part that if “taking into account all the facts and circumst a n c e s , it is inequitable to hold the individual liable f

or any unpaid tax or any deficiency (or any portion of either)

. . . the Secretary may relieve such individual of such liability.” The 1

Becaus e Ms

. Ha ggerty’ s ret urn cor rec tly st ated the amo unt due but sho we d it as not 1 being full y paid , she wa s pot enti ally eligibl e for “inno cent sp ous e” reli ef only unde r § 6015(f)

. Relief unde r the othe r pr ongs of the st atut e, §§ 6015(b) and (c), is lim ite d to sit uatio ns wh ere 3 Case: 12-60080 Document: 00512099627 Page: 3 Date Filed: 01/03/2013No. 12-60080

Commissioner h a s issued revenue procedures to guide courts in determining whether a requesting spouse is entitled to relief from joint and several liability. Revenue Procedure 2003-61 at § 4.03 provides a list of eight nonexclusive factors to consider in deciding whether it w o u l d b e inequitable to hold a spouse requesting relief liable for the underpayment of t axe s . Rev . Pro c . 2 0 0 3-61, 2003-2 C.B. 296, 2003 WL 21708514. No single facto r i s d eterminative; all relevant factors are to be considered and weighed. Those listed factors are as follows: (1) Marital status, (2) Economic hardship, (3) Knowledge or r e a s o n t o know, (4) Nonrequesting spouse’s legal obligation, (5) Significant benefit, (6) Compliance

w i th income tax laws, (7) Abuse, and (8) Mental or physical health. I d

. T h e Taxpayer bears the burden of proving that she meets the conditions for innocent spouse relief. Cheshire, 282 F.3d at 332. The Tax Court concluded that (1) and (6) favored relief, while (2), (3), and (5) weighed against relief. The other factors—(4), (7), and (8)—were ne utral, and the Tax Court concluded it would be fair to hold Ms. Haggerty liable for the 2006 underpayment of taxes. (1) Marital Status: This factor considers whether the requesting spouse is separated or divorced from the nonreques t i n g spouse. The Tax Court found being widowed is tantamount to being separated or divorced. See, e.g. , Rosenthal

v. Comm’r , T.C. Memo. 2004-89, 2004 WL 5 9 6 1 11, at *8 & n.10. This factor favors Ms. Haggerty. (2) Economic Hardship: This factor considers whether the requesting
spouse will s uf

f er e c o no mic h ar d ship if relief is not granted. “Economic hardship” is the inability to pay reasonable basic living expenses if the requesting spouse is held liable for the tax owed. Treas. Reg. § 301.6343-1(b)(4). The Tax Court found this factor weighed against Ms. Haggerty.

the ret urn inco rre ctl y und ers tat est he coup le’s t rue tax liabil ity. 4 Case: 12-60080 Document: 00512099627 Page: 4 Date Filed: 01/03/2013No. 12-60080

Ms. Haggerty reported mont h l y i ncome of $8,682 ($3,331.12 monthly income and $5,350.96 pension payments from her husband’s retirement plan) and monthly expenses of $7,147 (which inc l u des, without further explanation, $2,550 for “credit cards”). This leaves over $1,500 in monthly income in excess of her expenses. As the Tax Court noted, she owns her home free and clear of any mortgages and has no delinquent accounts. Ms. Haggerty argu e s t h at her future wages may decrease due to the development of new procedures at the medical office where she works, but she failed to offer any evidence to quantify any changes to her income. She further argues that in order to pay t h e l iability she would have to either enter into an installment agreement or borrow against the equity in her home, either of which would cause her hardship. These arguments must fail, specifically in light of the fact that this factor applies if satisfac t i o n of the tax “in whole or in part will

cause an individual taxpayer to be unable t o p a y h i s o r her reasonable basic living expenses.” Rev. Proc. 2003-61, § 4.03(2)(a)(ii) (referencing § 4.02(1)(c), which in turn refers to Treas. Reg. § 301.6343-1(b)(4)) (emphasis added). There i s n o t hing to suggest Ms. Haggerty could not at least make periodic month l y payments to decrease her tax liability. This factor weighs against Ms. Haggerty. (3) Knowledge or Reason To Know: In an underpayment case—such

as here where the income tax liability was properly reported but not paid—this factor considers “whether the requesting spouse did not know and had no reason to know that the nonrequesting spouse would not pay the income tax liability.” Rev. Proc. 2003-61, § 4.03(2)(a)(iii)(A). The Tax Court found this factor weighed against Ms. Haggerty because she knew of the tax liability at the time the return was filed. As Ms. Haggerty frames the issue, this should favor relief because it was not until she “received, and signed, t h e completed 2006 income tax return

. . . that she knew, or had reaso n t o k n ow, Mr. Haggerty failed to withhold taxes

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from the liqu i d a t i o n of the IRA and spent the funds needed to pay the tax liability caused by the liquidation.” Thus, she argues the relevant fact here is 2 that she did not know or have rea s o n to know that Mr. Haggerty did not withhold taxes when he liquidated the IRA and did not keep sufficient money to pay the 2006 tax liability. The Commissioner argues that because Mr. Haggerty died seven months before Ms. Haggerty filed and signed the return, she obviously knew her late husband would not pay the tax liability. The Commission e r c o n tends that Mr. Haggerty’s exclusion of Ms. Haggerty from the finances during his life would be relevant only in an understatemen t o r deficiency case where the requesting

s pouse does not know about omitted income, but it is not relevant her e i n a n unde r payment case where the tax liability is correctly recorded but remains unpaid. Neither party ci t es any case in its briefs to support its interpretation of this factor. The most instructive discussion of this factor in a widowed spouse, underpayment cont ext th at has come to our attention is George v. Commissioner , T.C. Memo. 2004-261, 2004 WL 2601319. In George , a widowed wife argued she did not know or have reason to know when sh e s i gn e d her tax return that the taxes would not be paid because she “believed that Mr. George had settled the tax liability prior to his death.” Id. at *3. The Tax Court held that by “signing the joint returns, petitioner is charged with constructive knowledge of the amount shown on the returns as tax due” and that “[b]ecause Mr. George was deceased at the time petitioner signed the returns in 2000, petitioner at that time could

Of cour se prior to this Ms

. Ha ggerty did f i n d out that Mr

. Ha ggerty liquid ated the 2 IRA andus ed it to pay off t he se condli en. 6 Case: 12-60080 Document: 00512099627 Page: 6 Date Filed: 01/03/2013No. 12-60080

not have relied on her spouse to pay the liabi l i t y , ” a n d thus knew the liability would not be paid. Id. at *4, 6-7. 3 While it i s c l e a r t h a t M s . H a g g e r t y k new the tax liability had not been paid when she signed the return and she knew that her deceased husband would not pay the income tax liability, subsection (C) of this factor may provide some mitigation to a requesting spouse like Ms. Haggerty despite knowledge that the tax liability will not be paid by the nonrequesting spouse. For example, one of 4 the listed considerations is “the requesting spouse’s degree of involvement in the activity generating t h e income tax liability.” Rev. Proc. 2003-61, § 4.03(2)(a)(iii)(C). Based on the Ta x C ourt’s finding, Ms. Haggerty was not involved in the activit y generating the income tax liability—the liquidation of

See also Som me r v. Comm ’r , No. 4664-09 S, 2010 WL 5395628 , at *3- 4 (U .S

. Tax Ct. 3 De c. 28, 2010) (unp ublis hed) (“Mr s. Som me r sign e d the ret urn aft er her husb and die d.

. . . Mr s. Som me r ass ert ed th a t s h e d i d not kno w that the tax wo uld not be paid beca use she
r e a s o n ab l y b elieved that her husb and had se t asi de fund s for that pur pos e. . . . Aft er Mr

. Som me r die d in June 2006, Mr s. Som me r ass ume d res pons ibili ty for fil ing the joint ret urn and rem itt ing paym ent for the 2005 tax liabil i t y . . . . [W] hile Mr s. Som me r may have init ially belie ved that t h e r e w e r e suf fic ient fund s to pay the 2005 liabil ity, so on aft er her husb and’ s dea th and bef

ore the signi ng and fil ing of the ret urn she mus t have dis cover ed that , in fac t, ther e we re ins uff

icie nt fund s. . . . Sinc e Mr s. Som me r wa s prim aril y res pons ible for the fil ing of the ret urn and in the bes t pos it i o n t o k n o w wh ethe r the tax wo uld be paid , this fac tor , kn ow led ge o r reas on to kn ow , favor s deni al of reli ef. ”)

.

4 (A) Unde rp aym ent cases . In the cas e of an inco me tax liabil ity that wa s pr ope rly rep ort ed but not paid , wh ethe r the requ es ting sp ous e did not kn ow and had no reas on to kn ow that the nonre ques t i n g s p o u se wo uld not pay the inco me tax liabil ity.

. . . . (C) Reason to know

. For pur pos es of (A)

. . . above, in det erm ining wh ethe r the requ es ting sp ous e had reas on to kn ow , the Service wi ll cons ide r the requ es ting sp ous e’s level of educ atio n, any dec eit or evas ivenes s of the n o n requ es ting sp ous e, the requ es ting sp ous e’s degr ee of involvem ent in the activity genera ting the inco me tax liabil ity, the requ es ting sp ou s e’s involvem ent in bus ines s and hous ehold fina ncial mat ter s, the requ es ting sp ous e’s bus ines s or fina ncial expe rti se , and any lavis h or unus ual expe ndit ures com par ed wi th pas t sp endi ng levels

. Rev. Proc

. 2003- 61, § 4 .03( 2)( a)(iii) (A, C)

.

7 Case: 12-60080 Document: 00512099627 Page: 7 Date Filed: 01/03/2013No. 12-60080

the IRA—and she did not know that Mr. Haggerty d e riv e d income from this liquidation when he received it. However, regardless of whether we view t h i s factor as neutral or as weighing against Ms. Haggerty, in l i gh t o f the other factors, particularly our conclusion that Ms. Haggerty did receive a significant economic benefit from the unpaid income tax liability (as di s c ussed below), the weight given this factor does not affect the outcome in this case. (4) Nonrequesting Spouse’s Legal O bligation To Pay the O utstanding Liability : The Tax Court found that there was n o l e g a l obligation on the part of Mr. Haggerty to p a y th e o u tstanding income tax liability under a divorce decree or agreement because the Haggertys remained married until he died. This factor is neutral. See, e.g. , B la n d v . Comm’r , T.C. Memo. 2011-8, 2011 WL 94742, at*5. (5) Significant Economic Benefit: T h i s f a ctor considers whether the requesting spouse received significant benefit beyond normal support from the unpaid income tax liability. The Tax Court found this weighed against Ms. H a ggerty because she received a significant economic be n ef it wh e n Mr . H a ggerty paid off the second mortgage against their h o m e . This court has stated that

“ [t] h e most important factor in determining inequity is whether the spouse seeking relief ‘significantly benefitted’ from t h e understatement of tax.” Cheshire , 282 F.3d at 338 (quo ting Reser v. Comm’r , 112 F.3d 1258, 1270 (5th Cir. 1997)). Ms. Haggerty argues that she did not receive a significant benefit from Mr. Haggerty’s paying off the second lien using the liquidated IRA funds. She says this was a “wash” and that the two transactions offset each other and as a whole actuall y de c reased her net worth because of the amount of the fees charged in the liquidation plus the amount of tax liability generated. This is unpersuasive

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as the relevant i n qu i ry is whether the requesting spouse received significant benefit, not whether she ultimately received a net benefit. Further, our decision in Cheshire controls here. In Cheshire , the nonrequesting spouse used $99,425 in untaxed retirement distributions to pay off the mortgage on the family home and the requesting spouse received the home as part of the divorce settlement. Id. This court affirmed the Tax Court’s denial of innocent spouse relief, holding that the “Commissioner could have reasonably c o nclu de d up o n th e s e f act s th at Ap p ell ant received significant benefit from the tax understatement.” Id. Ms. Haggerty cites several Tax Court cases as standing for the proposition that making mortgage payments on a marital home rather than using the funds to pay taxes does not constitute a significant economic benefit beyond n o r m a l support. These cases, however, are not helpful to Ms. Haggerty as they discuss making routine, monthly mortgage payments during the tax years in question and do not discuss paying off a mortgage in a lump sum payment, as is the case here and was the case in Cheshire

. 5 Ms. Haggerty c o ntends that she “did not want Mr. Haggerty to take out the loan, did not receive any of the loan proc e e d s, [did] not know what Mr. Haggerty did with any of the loan proceeds and did not benefit from the loan in
any manner.” Although we sympathize with Ms. Hagge r t y’s situation, she did sign the promissory note used to obtain the loan, and it is difficult to argue that

See, e. g. , Wil li am s v. Com m’ r , T.C. Sum m. Op

. 2009- 19, 2009 WL 321 5 5 1 , a t * 6 5 (f indi ng “p ayme nt of the mo rtgage doe s not pr ovid e a bas is for find ing signi fic ant benef it to pet itio ner beyond norm a l s u p p o r t [w here ] the unpai d tax rep res ents only 4 mo nths of
mo rtgage paym ents ”) ; Ha ye s v . Com m’

r , T.C. Me mo . 1975- 223, 1975 WL 2843 (f indi ng pet itio ner did not benef it signi fic a n t l y wh en she rec eived the mar ital hom e upon wh ich
mo rtgage paym ents had been mad e dur ing the thr ee years of unpai d tax liabil ity) ; cf

. Mi tchel l
v. Com m’

r, 292 F.3d 800, 807 (D .C. Cir. 2002) (“ In this cas e, pet itio ner signi fic antly benef itt ed fr om the om itt ed i n c o m e . Amo ng othe r things , she mad e rep airs and im pr ovem ents to her
res ide nce; she pai d dow n the mo rtgage

. . . .” (quo ting Mi tchel l v. Comm ’r , T.C. Mem o. 2000

- 332, 200 0 WL 159 5695, at*6))

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she did not receive a significant benefit when paying off the lien allowed her to

own her home free and clear and absolved her of any pers o n a l l i ab ility on the loan. Thus, this factor weighs against Ms. Haggerty. 6 (6) Subsequent Com pliance with Income Tax Laws: This factor considers whether the requesting spouse made a good faith effort to comply with income tax laws in subsequent years. The Tax Court credited Ms. Haggerty’s testimony that she comp l i e d w i t h all federal income tax laws since 2007. This factor favors Ms. Haggerty. (7) Abuse: This factor considers wh e t h e r the nonrequesting spouse abused the requesting spouse. If so, the presence of abuse favors reli e f; i f n ot, this factor is neutral and will not weigh against relief. The Tax Court acknowledged that Mr. Haggerty “verbally abused [Ms. Haggerty] and would get angry if she ever aske d ab o u t his money,” but it found that “[a]lthough of
concern, there is not enough evidence to find that this factor weighs in favor of [Ms. Haggerty].” The Tax Court did not e rr in concluding that Ms. Haggerty failed to carry her burden in proving abuse: Ms. Haggerty was the only witness at trial and she did not testify about the verbal abuse with any specificity, she explicitly denied any physical abuse, and when she sign e d t h e tax return she

was under no duress and could not have feared retaliation from Mr. Haggerty because he was deceased at the time of signing. This factor is neutral. (8) Mental or Physical Health : This factor conside r s whether a requesting spouse was in poor mental or physical health on the date of signing the return or at the time of requesting relief. If so, this factor will weigh in favor of a requesting spouse; if not present this factor is neutral. Ms. Haggerty argues

See Do sek v. Com m’

r , T.C. Me mo . 1971- 160, 1971 WL 2246 (ho ldi ng that the dis char ge 6 of inde bted nes s wa s of signi fic ant dir ect benef it to the requ es ting sp o u s e b e c a u se she wa s liable in her individual cap acit y unde r the pr om iss ory note s evide ncing suc h indebted nes s and fol low ing the execut ion of the dis char ge of the inde bted nes s agree me nt her liabil ity unde r the pr om iss ory note s ceas ed)

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the Tax Court err e d i n f inding this factor neutral because she was distraught and grieving over her husband’s death and in a “weak and vulnerable mental state.” The Tax Court had ample grounds for concluding Ms. Haggerty failed to carry her burden in proving she was in poor mental health: she checked “No” on her IRS form requesting relief where the f o r m asked whether she had any problems with her mental or physical health at the time of signing or at the present time; she did n ot introduce any evidence of any mental illness or any mental health treatment; and she admitted on cross examination that she is in good health. Because she failed to prove she suffered from poor mental health, this factor is neutral. We find that the Tax Court did not err in c o n c l u di ng that Ms. Haggerty

was not entitl e d t o r elief as two factors favor relief, three of the factors are neutral, and two factors weigh against relief. Notably, the Significant Benefit 7 factor—which this c ourt has held is “the most important factor”—weighs against relief. Finally , M s. Haggerty argues that we should apply an IRS Notice (“Notice”) issued on January 5, 2012, proposing a new Reve nu e Pro c e dure(Notice 2012-8, 2012-4 I.R.B. 309, 2012 WL 29100) with revised factors, intended to update and supersede Revenue Procedure 2003-61. While the Tax Court decision here was filed on December 5, 2011, and the Notice was not issued until January 5, 2 0 1 2 , Ms. Haggerty nevertheless argues that the Notice, which provides updated guidance for considering and weighing the equitable factor s, should apply. On similar facts the Sixth Circuit in Karam v. Commissioner rejected this

same argument: “The Notice does not instruct or suggest th a t t h e proposed update to Rev. Proc. 2003-61 be retroactively applied to a case already decided

And the Kn ow led ge or R e a s o n T o Kn ow fac tor is eit her a neut ral fac tor or one 7
we ighing agains t reli ef. 11 Case: 12-60080 Document: 00512099627 Page: 11 Date Filed: 01/03/2013No. 12-60080

by the tax court and on appeal t o a c i r c u it court.” No. 11-2633, 2012 WL 5395172, at *3 n.4 (6th Cir. Nov. 5, 2 012). 8 We agree with the Commissioner that there is good reason not to apply the proposed Revenue Procedure here as it is still a work in progress and neither the IRS nor the Tax Court has had the opportunity to apply the proposed Revenue Procedure to the facts of this case. IV. For the reasons discussed above, we AFFIRM the judgment of the Tax Court.

And in Sri ra m v. Com mi ssi oner , the Tax Court cont inued to app ly the fac tor s in Rev.

8 Proc

. 2003- 62 “in view of the fac t that the Not ice’ s pr opo se d revenu e pr oce dur e is not fina l and beca use the com me nt per iod unde r the noti ce only rec entl y clos ed. ” T.C. Me mo . 2012- 91, 2012 WL 1021315 , at *3 n.7. See also De ihl v. Com m’ r , T.C. Me mo . 2012- 176, 2012 WL 2361518 , at *10 (f ollo wi ng Sri ra m ); Hu dgins v. Com m’ r , T.C. Me mo . 2012- 260, 2012 WL 3964890 , at *4- 5 (s ame); Yos ins ki v. Com m’ r , T.C. M em o. 2012- 195, 201 2 WL 286 5808, at*4n. 9 ( sam e).

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