TAX COURT OPINION

Case: John S. Puhoff, Petitioner and Olesya N. Puhoff, Intervenor
Docket Number: 26872-14
Judge: Kerrigan
Opinion Type: bench
Filed: 01/13/2016
Pages: 9

UNITED STATES TAX COURT WASHINGTON, DC 20217 PA JOHN S. PUHOFF, PETITIONER AND OLESYA N. PUHOFF, INTERVENOR, Petitioner(s), v. COMMISSIONER OF INTERNAL REVENUE, Respondent ) ) ) ) ) ) Docket No. ) ) ) ) 26872-14. ORD E R Pursuant to Rule 152(b), Tax Court Rules of Practice and Procedure, it is ORDERED that the Clerk of Court shall transmit herewith to petitioner, intervenor, and respondent a copy of the pages of the transcript of trial in the above case before Judge Kathleen Kerrigan at San Francisco, California, on December 9, 2015, containing her oral findings of fact and opinion rendered at the conclusion of the trial session at which the case was heard. In accordance with the oral findings of fact and opinion, a decision will be entered under Rule 155, Tax Court Rules of Practice and Procedure. (Signed) Kathleen Kerrigan Judge Dated: Washington, D.C. January 13, 2016 SERVEDJan 152016 Capital Reporting Company 3 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 Bench Opinion by Judge Kathleen Kerrigan December 9, 2015 John S. Puhoff, Petitioner and Olesya N. Puhoff, Intervenor v. Commissioner Docket No. 26872-14 THE COURT: The Court has decided to render in this case the following as its oral findings of fact and opinion, which shall not be relied upon as precedent in any other case. This bench opinion is made pursuant to the authority granted by section 7459(b) of the Internal Revenue Code and Rule 152 of the Tax Court Rules of Practice & Procedure. Unless otherwise indicated, all section references are to the Internal Revenue Code in effect at all relevant times, and all rule references are to the Tax Court Rules of Practice & Procedure. By notice of deficiency dated August 24th, 2014, the Internal Revenue Service determined a deficiency of $2621 in Petitioner and Intervenor's federal income tax for tax year 2012. Respondent contends that Petitioner received $125 of income from J. P. Morgan-Chase Bank, and Intervenor received unemployment compensation of 8550 from the State of 24 California. On August 12th, 2014, Respondent 25 received from Petitioner a form 8857, request for 866.488.DEPO www.CapitalReportingCompany.com Capital Reporting Company 4 1 2 3 4 5 6 7 8 9 10 11 12 13 innocent spouse relief, dated August 8th, 2014. Intervenor filed a notice of intervention on May 4, 2015. Petitioner concedes the $125 of income. Respondent concedes that Petitioner is eligible for innocent spouse relief, pursuant to section 6015(c), for the part of the deficiency related to Intervenor's unemployment compensation. The issue for our consideration is whether to grant Petitioner innocent spouse relief under section 6015(c) for the deficiency related to Intervenor's unemployment compensation. Trial of this case was conducted on December 7th, 2015, in San Francisco, California. 14 Petitioner represented himself. Intervenor 15 16 17 18 19 20 21 22 23 24 25 represented herself. Joseph E. Conley represented Respondent. The parties' stipulation of facts and attached exhibits were admitted into evidence. We find the following facts: FINDINGS OF FACT Petitioner resided in California when he filed the petition. Intervenor resided in California when she filed her notice of intervention. During 2012, Petitioner and Intervenor lived apart for most of the year. Petitioner had a serious 866.488.DEPO www.Capita1ReportingCompany.com Capital Reporting Company 5 1 accident which required multiple surgeries. He lived 2 with his parents for most of 2012. They assisted 3 Petitioner while he was recuperating. 4 5 6 7 8 9 10 11 12 13 14 Intervenor was unemployed for most of 2012. She had a contract position which lasted for approximately five weeks. Petitioner and Intervenor were divorced on May 7th, 2013. Petitioner and Intervenor filed timely a joint form 1040, US individual income tax return, for tax year 2012. The return did not include income of 8550 from the Employment Development Department in Sacramento, California (unemployment income). On June 2nd, 2014, Respondent mailed to 15 Petitioner and Intervenor a notice CP-2000 stating 16 17 18 19 20 21 22 23 24 25 that Respondent proposed to change their form 1040 for tax year 2012 by adding the unemployment and interest income. On August 12th, 2014, Respondent received from Petitioner a form 8857, request for innocent spouse relief, dated August 8th, 2014. On August 25th, 2014, before Respondent had reached a determination on Petitioner's form 8857, Respondent issued a notice of deficiency to Petitioner and Intervenor that included Intervenor's unemployment income for 2012. 866.488.DEPO www.Capita1ReportingCompany.com Capital Reporting Company 6 On October 1st, 2014, Respondent received from Intervenor a form 12508, questionnaire for non- requesting spouse, responding to Petitioner's request for innocent spouse relief. The form 12508 states that "[a]ll the income I had in 2012 was reported to John Puhoff to file a return" and "I provided form 1099 to John Puhoff, once I received it from my employer, to file a tax return." It also stated that "John Puhoff was well aware that I was unemployed for almost a whole year and did not have any income besides a short three-to-four-week contract that I had in August 2013 (sic). 1099 form was provided to John by me to file a tax return." The form 12508 does not address the unemployment compensation paid to Intervenor. In her notice of intervention, Intervenor states that she "gave all tax-related documents to my former husband. " A. Section 6015 OPINION Generally, spouses who elect to file a joint federal income tax return are jointly and severally liable for the entire amount of tax reported on the return, as well as for any deficiency subsequently determined. Section 6013(d)(3). However, section 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 866.488.DEPO www.CapitalReportingCompany.com Capital Reporting Company 7 6015 provides three avenues of relief from joint and several liability. Of relevance here, section 6015(c) allows a separated or divorced spouse to request an allocation of liability to the non- requesting spouse if the requesting spouse did not have "actual knowledge" of the item giving rise to the understatement of tax. B. Relief under section 6015(c) Respondent has conceded that Petitioner is entitled to full relief from joint and several liability under section 6015(c) for Intervenor's unemployment income. Under section 6015(c)(1), if an individual who has made a joint return for any taxable year elects the application of this subsection, the individual's liability for any deficiency which is assessed with respect to the return shall not exceed the portion of the deficiency properly allocable to the individual under section 6015(d). The purpose of section 6015(c) is to allocate the tax liability between the individuals who filed a joint return in approximately the same way it wöuld have been had the individuals filed separately, and any determination for relief under section 6015 shall be made without regard to community property laws. Section 6015(a). 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 866.488.DEPO www.CapitalReportingCompany.com Capital Reporting Company 8 To be eligible for section 6015(c) relief, the electing spouse must establish that the spouses filed joint returns for the years at issue; at the time the election for relief was made, the spouses were legally separated or divorced or had not been members of the same household at any time during the previous 12 months; and the election for relief was made after a deficiency was asserted but no later than two years after the Commissioner began collection activities. None of the parties dispute that these requirements are satisfied. Relief under section 6015(c) is not available where the requesting spouse had "actual knowledge, at the time such individual signed the return, of any item giving rise to a deficiency **which is not allocable to such individual." Sec. 6015(c) (3)(C). The knowledge standard for purposes of section 6015(c)(3)(C) is "an actual and clear awareness (as opposed to reason to know) of the existence of an item which gives rise to the deficiency (or portion thereof)." Cheshire v. Commissioner, 115 TC 183, 195 (2000), aff'd, 282 F.3d 326 (5th Cir. 2002). In the case of omitted income, knowledge of the item includes knowledge of the receipt of the income. Sec. 1.6015-3(c) (2) (i)(A), Income Tax Regs. 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 866.488.DEPO www.Capita1ReportingCompany.com Capital Reporting Company 9 1 2 3 4 5 6 7 Petitioner testified credibly that he was not aware of Intervenor's unemployment income. He testified that he was aware that she received unemployment income in prior years but was not aware that she was still receiving it. Petitioner believed that Intervenor was no longer eligible for unemployment compensation and that he provided her 8 with money to support herself and the children. 9 Intervenor testified that she provided 10 Petitioner with a form 1099-G, certain government 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 payments for unemployment compensation. However, Intervenor did not provide any evidence to support this contention. We conclude that Petitioner had no actual knowledge that Intervenor received unemployment income during 2012. Accordingly, Petitioner is entitled to relief from liability to the extent the unemployment income is allocable to Intervenor under section 6015(d). We uphold Respondent's concession that Petitioner is eligible for innocent spouse relief under 6015(c). C. Allocation of deficiency under section 6015(d) If a requesting spouse qualifies for relief under section 6015(c), that spouse's liability for the deficiency is limited to the amount allocable to 866.488.DEPO www.CapitalReportingCompany.com Capital Reporting Company 10 him, as determined under section 6015(d). Section 6015 (d) (3) (A) provides that in general the items giving rise to the deficiency on the joint return are to be allocated to the individuals filing the return in the same manner as the items would have been allocated if the individuals had filed separate returns. In other words, "an erroneous item is allocated to the spouse to whom the erroneous item is attributed." Estate of Capehart v. Commissioner, 125 T,C, 211, 215 (2005) . Erroneous items of income are allocated to the spouse who was the source of the income. Section 1.6015-3(d)(2)(iii), Income Tax Regs. Here, the unemployment income is attributable to intervenor. Decision will be entered pursuant to Rule 155. This concludes the Court's oral findings of facts and opinions in this case. (Whereupon, at 2:39 p.m., the above- entitled matter was concluded.) 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 866.488.DEPO www.CapitalReportingCompany.com