TAX COURT OPINION

Case: Susan J. Anderson, Petitioner and Keith Anderson, Intervenor
Docket Number: 16323-17
Judge: Kerrigan
Opinion Type: bench
Filed: 11/14/2018
Pages: 11

SR UNITED STATES TAX COURT WASHINGTON, DC 20217 SUSAN J. ANDERSON, PETITIONER AND KEITH ANDERSON, INTERVENOR, Petitioner(s), v. ) ) ) ) ) ) Docket No. 16323-17. COMMISSIONER OF INTERNAL REVENUE, Respondent ) ) ) ) ORDER Pursuant to Rule 152(b), Tax Court Rules of Practice and Procedure, it is ORDERED that the Clerk of the Court shall transmit herewith to petitioner, intervenor, and to respondent a copy of the pages of the transcript of the trial in the above case before Judge Kathleen Kerrigan at Houston, Texas, containing her oral findings of fact and opinion rendered at the trial session at which the case was heard. In accordance with the oral findings of fact and opinion, a decision will be entered for respondent. (Signed) Kathleen Kerrigan Judge Dated: Washington, D.C. November 14, 2018 SERVED Nov 14 2018 3 1 2 3 4 5 6 7 8 9 Bench Opinion by Judge Kathleen Kerrigan October 30, 2018 Susan J. Anderson, Petitioner, and Keith Anderson, Intervenor v. Commissioner of Internal Revenue Docket No. 16323-17 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 10 the authority granted by section 7459(b) of the Internal 11 Revenue Code and Rule 152 of the Tax Court Rules of 12 Practice and Procedure. Unless otherwise indicated, all 13 section references are to the Internal Revenue Code in 14 effect at all relevant times, and all Rule references are 15 16 to the Tax Court Rules of Practice and Procedure. The issues for our consideration are whether 17 petitioner is entitled to innocent spouse relief for tax 18 year 2001 pursuant to section 6015(b), (c), or (f), or 19 pursuant to section 6015(f) for tax years 2006, 2007, 20 21 22 23 2008, 2009, 2010, 2011, 2013, and 2014. Trial of this case was conducted on October 29, 2018, in San Francisco, California. Petitioner represented herself. Intervenor represented himself. KK 24 Christi e C. Sanicola represented respondent. A The 25 parties' stipulation of facts and attached exhibits were ) cribers (973)406-2250|operationseescribers.net|wwwAsaibers.net 1 2 3 4 admitted into evidence. We find the following facts: FINDINGS OF FACT Petitioner resided in California when she timely filed her petition. Petitioner and intervenor were 5 married in 1992. They have two grown children. gg 6 7 8 9 10 11 12 13 Petitioner and intervenor separated in August 2014. The Superior Court of California entered a judgment for the dissolution of the marriage on or about June 15, 2015. Petitioner and intervenor filed joint Federal Income Tax returns for tax years 2001, 2006, 2007, 2008, 2009, 2010, 2011, 2013, and 2014. Their returns for tax years 2009, 2011, 2013, and 2014 were timely filed. Their returns for tax years 2001, 2006, 2007, 2008, and 2010 14 were delinquently filed. Petitioner signed a letter that 15 was submitted with the returns. 16 17 Petitioner's and intervenor's 2001 tax return claimed their children as dependents. The incorrect 18 Social Security number was included for one of their 19 children. Respondent disallowed this child as a 20 dependent, which resulted in an additional income due from 21 petitioner and intervenor. Petitioner and intervenor did 22 not pay the tax liabilities reported on their joint 23 Federal income tax returns for tax years 2001, 2006, 2007, 24 25 2008, 2009, 2010, 2011, 2013, and 2014. Intervenor prepared their joint tax returns. (973)406-2250|operationseescrbetsmet|www.escribersmet Petitioner reviewed the returns when she signed them. 5 Petitioner attended college and worked for most of her marriage to intervenor. She maintained a separate bank account for her earnings. Petitioner and intervenor sent their children to private schools. Since their divorce, petition has been compliant with her tax obligations. On her 2017 Federal Income Tax return, she reported wages of $92,782. On February 17, 2016, respondent received from 1 2 3 4 5 6 7 8 9 10 petitioner a Form 8857, Request for Innocent Spouse 11 Relief, for tax years 2006-14. On April 13, 2016, 12 respondent received from petitioner a Form 8857 for tax 13 year 2001. Petitioner did not have a Federal income tax 14 15 liability for tax year 2012. On May 4, 2017, respondent made a final 16 determination and denied petitioner innocent spouse relief 17 18 19 pursuant to 6015(b), (c), and (f) for tax years 2001, and pursuant to 6015(f) for tax years 2006, 2007, 2008, 2009, 2010, 2011, 2013, and 2014. Intervenor filed a Notice of 20 Intervention on September 13, 2017. 21 22 23 OPINION Generally, married taxpayers may elect to file a joint Federal income tax return. Sec. 6013(a). After 24 making this election, each spouse is jointly and severally 25 liable for the entire tax due for the taxable year. Sec. A cribers (973)406-2250|operationseescrbertnet|www.escribers.net 6 6013(d)(3). A requesting spouse may seek relief from joint and several liability under section 6015(b) or, if eligible, may allocate liability under section 6015(c). Sec. 6015(a). If a requesting spouse is not eligible for relief under section 6015(b) or (c), a requesting spouse may be eligible for equitable relief under section 6015(f). Olson v. Commissioner, T.C. Memo. 2009-294, slip op. at 10-11. In order to be entitled to relief under section 1 2 3 4 5 6 7 8 9 10 6015(b), the requesting spouse must satisfy the following 11 12 conditions: (1) a joint return has been made for a taxable year; (2) on such return there is an 13 understatement of tax attributable to erroneous items of 14 15 the nonrequesting spouse; (3) the requesting spouse did not know and had no reason to know of the understatement 16 at the time the return was signed; (4) taking into account 17 all the facts and circumstances, it is inequitable to hold 18 19 20 21 22 the requesting spouse liable for that year's deficiency in tax attributable to such understatement; and (5) the requesting spouse timely elects relief under section 6015(b). Sec. 6015(b)(1). There is only an understatement of tax for tax 23 year 2001 so that is the only year that we need to 24 consider relief pursuant to Section 6015(b). Petitioner 25 is not entitled to relief because the understatement is (973)406-2250|operationseescribers.net|www.escribers.net not solely attributable to intervenor, the nonrequesting spouse. See sec. 6015(b) (1) (B); Golden v. Commissioner, T.C. Memo. 2007-299; aff'd 548 F. 3d 487 (6th Cir. 2008). 7 To be eligible for section 6015(c) relief, the spouse must establish that: (1) the spouses filed joint returns for the years at issue; (2) 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 1 2 3 4 5 6 7 8 9 10 (3) the election for relief was made after a deficiency 11 was asserted but no later than two years after the 12 Commissioner began collection activities. Sec. 13 14 6015(c) (3)(A)(i). We will only consider relief pursuant to section 6015(c) for tax year 2001 because that was the 15 only year with a deficiency. 16 17 18 Erroneous deductions unrelated to a business or investment are generally allocated 50% to each spouse, unless the evidence shows that a different allocation is 19 appropriate. Sec. 1.6015-3(d)(iv), Income Tax Regs. 20 Petitioner did not show why she woeid not be liable for 21 50% of the deficiency attributable to including the wrong 22 Social Security number for one of her children. 23 24 Section 6015(f) provides an alternative means of relief for a requesting spouse who does not otherwise 25 qualify under section 6015(b) or (c). Sec. 6015(f)(2). ) Em p733406-2250loperationseescribersmet|www.escdbers.net Section 6015(f)(1) permits relief from joint and several 8 liability if it would be inequitable to hold the requesting spouse liable for any unpaid tax or any deficiency. Under 6015(f) the Secretary may grant equitable relief to a requesting spouse on the basis of the facts and circumstances. Petitioner bears the burden of proving that she is entitled to equitable relief under section 6015(f). See Rule 142(a); Porter v. Commissioner, 132 T. C. 203, 210 (2009). This Court has jurisdiction to review respondent's denial of petitioner's request for equitable relief under Section 6015(f). See sec. 6015(e)(1). We apply a de novo standard of review as well as a de novo scope of review. See Porter v. Commissioner, 132 T.C. at 210. The Commissioner issued Rev. Proc. 2013-34, 2013-43 I.R.B. 397, modifying and superseding Rev. Proc. 2003-61, 2003-2 C.B. 296, to provide guidance for determining 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 whether a taxpayer is entitled to relief from joint and 19 several liability. 20 Rev. Proc. 2013-34, supra, provides a three-step 21 analysis to follow in evaluating a request for relief. 22 The first step consists of seven threshold conditions that 23 must be met. Respondent concedes that petitioner meets 24 these seven threshold conditions. 25 The second step of the analysis provides the (973)406-2250|operationscescrbers.net|www.escribers.net following three conditions that, if met, will qualify a 9 requesting spouse for a streamlined determination of relief under section 6015(f) with respect to an underpayment of a properly reported liability: (1) he or she is no longer married to, is legally separated from, or has not been a member of the same household as the other person at any time during the 12-month period ending on the date of the request for relief; (2) he or she would suffer economic hardship if relief is not granted; and (3) in a deficiency case he or she had no knowledge or reason to know when the return was filed that there was an understatement or deficiency. The requesting spouse must 1 2 3 4 5 6 7 8 9 10 11 12 13 satisfy all three conditions in order to qualify for a 14 15 streamlined determination. Rev. Proc. 2013-34, sec, 4.02, Kk. 2013-43 I.R.B. at 400. As discussed below, we find that 16 petitioner had reason to know of the understatement and 17 that she did not prove economic hardship. Therefore 18 petitioner is not eligible for a streamlined 19 determination. 20 21 The third step is available if the requesting spouse satisfies the threshold conditions but fails to 22 satisfy the conditions in Rev. Proc. 2013-34, sec, 4.02. A 23 requesting spouse may still be eligible for equitable 24 relief under section 6015(f) if, taking into account all 25 of the facts and circumstances, it would be inequitable to } (973)406-2250|operationseescrbetsmet|www.escribers.net 10 1 2 3 4 5 6 7 8 hold the requesting spouse liable for the underpayment. Id. sec. 4.03. Rev. Proc. 2013-43, sec. 4.03(2) lists the following nonexclusive factors that the Commissioner takes into account when determining whether to grant equitable relief: (1) marital status; (2) economic hardship; (3) in the case of deficiency, knowledge or reason to know of the item giving rise to deficiency; (4) legal obligation; (5) significant benefit; (6) compliance with tax laws; and (7) 9 mental or physical health. No single factor is 10 determinative; the IRS considers all factors and weighs 11 them appropriately. Id. Any indication of abuse or the 12 exercise of financial control by the nonrequesting spouse 13 14 is a factor that may impact the other factors. Id. Based on the evidence and testimony, mental or 15 physical health of the petitioner and abuse or financial 16 control by the nonrequesting spouse do not weigh in favor 17 18 of relief. The factors of knowledge and economic hardship also do not weigh in favor of relief. We conclude that 19 petitioner had reason to know of the understatement. This 20 21 22 factor is identical in all material respects to the knowledge requirement of section 6015(b) and (c). The requesting spouse must not have known or had reason to 23 know that the nonrequesting spouse would not or could not 24 pay the tax liability at that time or within a reasonable 25 period of time. If the requesting spouse knew or had } (973)406-2250|operationseestrbers.net|www.escribers et reason to know of the potential for underpayment, this factor will weigh against relief. Rev. Proc. 2013-34, sec. 4.03(c). petitioner reviewed the return and did not notice the error of the wrong Social Security number for 11 one of her children for tax year 2001. Petitioner and intervenor both testified that they experienced financial difficulties throughout their 1 2 3 4 5 6 7 8 marriage. A requesting spouse's knowledge of financial 9 difficulties deprives the requesting spouse of reason to 10 believe that the nonrequesting spouse has the ability to 11 12 pay. See Stolkin v. Commissioner, T.C. Memo. 2008-211. Economic hardship generally does not exist if 13 the requesting spouse's income exceeds 250% of the Federal 14 poverty guidelines and monthly income exceeds reasonable 15 basic monthly living expenses by $300. Rev. Proc. 2013- 16 34, sec. 4.03(2) (b). Petitioner's annual income was above 17 18 250% of the Federal poverty guidelines. Petitioner did not show that there was economic hardship. Her most 19 costly monthly expense was private school tuition for her 20 21 children, and private school tuition is not a necessary living expense. Karam v. Commissioner, T.C. Memo 2011- 22 230, aff'd 504 Fed. Appx. 416(6th Cir. 2012). This factor 23 does not weigh in favor of relief. 24 Petitioner received a benefit by not paying her 25 taxes. These funds were available for other expenses. 973)406-2250|operationsgescrbrsnet|www.escribersmet See Kelly v. Commissioner, T.C. Memo. 2010-267. 12 Balancing all of the facts and circumstances we find that the equities deny petitioner relief under section 6015(f) tax years 2001, 2006, 2007, 2008, 2009, 2010, 2011, 2013, and 2014. Any contention we have not addressed is irrelevant, moot, or meritless. We sustain the determination by respondent, and a decision will be entered for respondent. This concludes the Court's oral Findings of Fact and Opinion in this case. (Whereupon, at 9:01 a.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 2 4 25 (973)406-2250|operationseescribers.net|www.escribers.net