T.C. Mem o. 2 01 3- 12 0

UNITED STAT ES TAX COURT
JUDITH T. MARZULLO, Peti ti on er v . COMM ISSI ONER OF INTERNAL REVENUE, Resp on de nt

Doc ke t No . 36 20 -1 1. File d M ay 6, 2 01 3.

Je ffre y Lee Co he n, fo r pe ti ti on er. Bri an naB. Tay lo r, fo r res po nd en t.

MEMORANDUM FINDINGS OF FACT AND OPINION FOLEY, Jud ge : Th e is su e fo r de ci si on is whethe r pe ti ti on er, p ur su an t t o se ct io n 6 01 5, i s en ti tl edto in no cen t s po us e rel ie f rel at in g t o 2 00 3, 2 00 4, 2 00 5, an d 20 06 (y ears inis su e). 1
Unl es s o th erwi se in di cat ed , all sec ti on refe ren ces are t o the Int ern al 1 Rev enue Co de ineffe ctat a ll rel ev an t t im es , andall Ru le refe ren ces are t o the Tax (co nt in ue d...)- 2 -

[* 2] FINDINGS OF FACT In19 72 , pet it io ne r m arri edJo hn Marz ul lo an d, i n 1 97 4, M r. Mar zu ll o in co rp or at edMart o Dru g & Supp ly, In c. (Ma rto Drug ), whi chhe own edan d op erat ed . In ad di ti on , he s erv edas c hi ef ex ecu ti ve off ic er (C EO) anda ph arm aci st . Peti ti on er was th e ch ie f fi na nc ia l o ffi cer ( CFO) an d was res po ns ib le fo r as si st in g c us to m ers , com pi li ng sal es journ al s, an d wri ti ng ch eck s fr om Mart o Dru g’s b us in es s ac co un t. Durin g the ir m arri ag e, pe ti ti on er m ad e b an k d ep os it s, wro te ch eck s, an d p ai d h ou se ho ldex pe ns es th ro ug h ajoi ntm on ey m ark etacco un t (p ers on al acco un t) s he he ldwith M r. Mar zu ll o. In20 02 , Mr. Marzu ll o l os t h is ph arm aci st ’s li cen se . Peti ti on er an d M r. Mar zu ll o h ire d ane w ph arm aci st , bu t the bu si ne ss be ga n t o s uf fer s eri ou s fi na nc ia l di ffi cu lt ie s. Ina de sp erat e at te m ptto su st ai n the bu si ne ss , pet it io ne r an d M r. Mar zu ll o u se d wi th dr awal s fr om th ei r res pe ct iv e in di vi du al ret ire m en t ac co un ts (IRAs ) to pay

bu si ne ss ex pe ns es . In 2 00 2, 2 00 3, 2 00 4, an d 2 00 5 M r. Mar zu ll o withdrew $ 30 ,00 0, $ 10 0,0 00 , $2 90 ,00 0, an d $ 23 9,7 91 , res pe ct iv el y , fro m hi s IRAs . In 2 00 6, p et it io ne r withdrew $ 73 ,18 2 fr om on e o f he r IRAs . Peti ti on er an d Mr. Ma rzu ll o d idno t fi le Fed eral in co m e ta x re tu rn s re la ti ng to th e y ears inis su e. (...co nt inue d) 1 Co urt Ru le s o f Prac ti ce an d P ro cedur e.- 3 -

[* 3] Res po nd en t au di te d the tax y ears inis su e an d p rep aredsubs ti tu te s fo r returns rel at in g t o 2 00 2, 2 00 3, an d 2 00 4. In20 08 , pet it io ne r an d M r. Mar zu ll o u nt im el y fil edjoi ntFed eral in co m e ta x re tu rn s re la ti ng to 20 02 , 20 03 , 20 04 , 20 05 , 20 06 , an d 2 00 7. Pe ti ti on er an d M r. Mar zu ll o fa il edto pay th e fu ll am ou nt s o f th ei r Fed eral in co m e ta x l iabi li ti es rep orte d o n the se returns . On Se pt em

be r 3, 2 00 9, the Geor gi a Dep art m en t o f Rev enue sei zedMart o Dru g’s as se ts to sat is fy

m or e th an$7 00 ,00 0 o f ou ts tand in g e m pl oym en t t ax li ab il it ie s. OnSep te m

be r 4, 2 00 9, M r. Mar zu ll o d ie d, l eav in g p et it io ne r as th e so le be ne fic iary

an d the ex ecu to r of

hi s es ta te . She be cam e Marto Drug ’s CEO
an d re cei ve d the fam il y

ho m e, Mr. M arzu ll o’s 1 00 % in te res t i n M art o Dru g, an d a 50 % in te res t i n areal est at e p artne rs hi p. Inad di ti on , Mart o Dru g re cei ve d $1 ,30 0,0 00 of l ife in suran ce p ro ceed s. On Dec em

be r 1, 2 00 9, re sp on de ntrece iv edpe ti ti on er’s Fo rm s 8 85 7, Reque stfor

Inn oc en t Sp ou se Rel ie f, inwhi ch , pu rs ua ntto sec ti on 60 15 , sh e reque st edrel ie f rel at in g t o the y ears inis su e. Inhe r reque st s, p et it io ne r as se rte d th atth e IRA fund s wer e withdrawnto pay Mart o Dru g’s b us in es s ex pe ns es an d th atMr. Ma rzu ll o h adass ur edhe r th atth e Fed eral in co m e ta x l iabi li ti es wou ldbe pa idwith apo rti on of t he IRA d is tri bu ti on s. Re sp on de ntde ni edpe ti ti on er’s reque st s fo r rel ie f.- 4 -

[* 4] On Fe brua ry

14 , 20 11 , pet it io ne r, whi le res id in g i n Geo rg ia , fil edhe r pe ti ti on with the Co urt. In20 11 , sh e unt im el y fil edhe r 20 08 an d 2 00 9 F ed eral in co m e ta x re tu rn s an d u nt im el y pa idhe r 20 09 Fed eral in co m e ta x l iabi li ty. OPINION Marrie d t ax pa y ers m ay

ele ctto fil e a joi ntFed eral in co m e ta x re tu rn . Sec. 60 13 (a). Each sp ou se fil in g areturn i s jo in tl y an d s ev eral ly liab le forth e acc ur acy of th e return andforth e en ti re t ax du e. Sec. 6 01 3( d) (3 ). Pet it io ne r un de rp ai d t ax rep orte d o n jo in t re tu rn s re la ti ng to th e y ears inis su e an d thu s i s n oteli gi bl e fo r rel ie f pu rs ua ntto sec ti on 60 15 (b ) or(c). See Hop ki ns v. Co m m is si on er, 1 21 T.C. 73 , 88 (20 03 ). She m ay , ho wev er, b e el ig ib le forrel ie f, pu rs ua ntto sec ti on 60 15 (f) i f itis in equi tabl e to ho ldhe r li ab le forth e unp ai d F ed eral in co m e ta x li ab il it ie s. See Rev . Pro c. 20 03 -6 1, s ec. 4 .03 , 20 03 -2 C.B. 2 96 , 29 8- 29 9. We
rev ie w res po nd en t’s d et erm in at io n d e n ov o, an d p et it io ne r be ars th e b ur de n o f pr oo f. See Ru le 14 2( a); Po rte r v. C omm is si on er, 1 32 T.C. 20 3, 2 10 (20 09 ). Fo r th e fo ll owi ng reas on s, p et it io ne r is no t el ig ib le forrel ie f. Fir st , pe ti ti on er re cei ve d asi gn ifi can t b en efi t (i .e., a be ne fitinex ces s o f no rm al supp ort) rel at in g t o the unpa idtax li ab il it ie s. See Terzi anv. Co m m is si on er, 7 2 T.C. 1 16 4, 11 72 (19 79 ); s ec. 1 .60 15 -2 (d ), In co m e Tax Reg s.; Rev . Pro c. 20 03 -6 1, s ec. 4.0 3( 2) (a)( v) , 20 03 -2 C.B. at29 9. Pe ti ti on er an d M r. Mar zu ll o fa il edto pay th ei r- 5 -

[* 5] Fed eral in co m e ta x l iabi li ti es an d i ns te adus edall of t he ir f un ds to pay

li vi ng
an d b us in es s ex pe ns es . After M r. Mar zu ll o’s d eath, M art o Dru g re cei ve d $1 ,30 0,0 00 of l ife in suran ce p ro ceed s an d p et it io ne r rec ei ve d a10 0% i nt eres t i n th e b us in es s. See sec . 1.6 01 5- 2( d) , Inc om e Tax Reg s. (“ [I]f a reque st in g s po us e rece iv es pro pe rty (in cl ud in g l ife in su ran ce p ro ceed s) fro m th e n on reque st in g sp ou se th atis be y on d n orm al supp ort an d trace ab le to it em s o m it te d fr om gro ss in co m e th atare at tri bu tabl e to th e n on reque st in g s po us e, th e reque st in g s po us e wil l b e co ns id eredto have rece iv eda si gn ifi can t b en efi t fr om th os e it em s.”)
. Seco nd , pet it io ne r di d n otm ak e a g oo d- fai th effo rt t o c om pl y with F ed eral in co m e ta x l aws . See Re v. Pr oc . 20 03 -6 1, s ec. 4 .03 (2 )(a) (v i), 2 00 3- 2 C .B. at 2 99 . She
un ti m el y fil edhe r 20 08 an d 2 00 9 F ed eral in co m e ta x re tu rn s an d u nt im el y pa id he r 20 09 Fed eral in co m e ta x l iabi li ty. Thi rd , pet it io ne r wil l n otsu ffereco no m ic ha rd sh ip if d en ie d re li ef. See id . sec . 4.0 3( 2) (a)( ii ), 20 03 -2 C.B. at29 8. Fi na ll y , pe ti ti on er h adreas on to kn ow tha t M r. Mar zu ll o wo ul d n otpay th e 2 00 3, 2 00 4,
an d 2 00 5 F ed eral in co m e ta x l iabi li ti es . See i d. s ec. 4 .03 (2 )(a) (ii i). Pet it io ne r co nt en ds th atsh e b el ie ve d M r. Mar zu ll o wo ul d u se a po rti on of th e IRA d is tri bu ti on s t o p ay th e 2 00 3, 2 00 4, an d 2 00 5 F ed eral in co m e ta x li ab il it ie s. Her t es ti m on y insupp ort o f th is co nt en ti on was i nc on si st en t,
un rel iabl e, an d unc on vi nc in g. Durin g the ir 3 7- y ear m arri ag e, pe ti ti on er an d M r.- 6 -

[* 6] Mar zu ll o s ha redres po ns ib il ity forbu si ne ss an d p ers on al affa irs . Peti ti on er, Marto Drug ’s CFO, work edat M art o Dru g i n anu m be r of cap aci ti es , reg ul arl y wro te ch eck s o n b ot h the bu si ne ss an d p ers on al acco un ts , was aware o f Marto Dru g’s fi na nc ia l d iff

ic ul ti es , andwithd rew fu nd s fr om he r IRA t o s up po rt t he bu si ne ss . See i d. s ec. 4 .03 , 20 03 -2 C.B. at29 8- 29 9. Acco rd in gl y , res po nd en t’s de te rm in at io ns rel at in g t o 2 00 3, 2 00 4, an d 2 00 5 are s us ta in ed
. A tax pa y er i s i ne li gi bl e fo r se ct io n 6 01 5( f) rel ie f if th e li ab il ity

rel at es to an it em of t he reque st in g s po us e’s in co m e. See i d. s ec. 4 .01 (7 ), 20 03 -2 C.B. at29 7. The 20 06 li ab il ity

is att rib ut ab le to pe ti ti on er’s IRA wi th dr awal . Relyin g o n R ev . Pro c. 20 03 -6 1, s ec. 4 .01 (7 )(c) , pet it io ne r co nt en ds th atsh e is ne ve rth el es s en ti tl ed to rel ie f be cau se Mr. Ma rzu ll o m is ap pr op ria te d the fun ds de si gn at edforpaym en t of th e Fed eral in co m e ta x l iabi li ty. Pet it io ne r’s te st im on y insupp ort o f th is
co nt en ti on was n otcred ib le . Accor di ng ly, res po nd en t’s d et erm in at io n re la ti ng to 20 06 is su st ai ne d. Co nt en ti on s we h av e n otad dr es se d are i rrel ev an t, m oo t, o r m eri tl es s. To re fle ctth e fo reg oi ng , Deci si on wil l b e en te redfor
res po nd en t.