TAX COURT OPINION

Case: Nicholles Brooke
Docket Number: 5319-18S
Judge: Buch
Opinion Type: bench
Filed: 12/19/2018
Pages: 12

SYM UNITED STATES TAX COURT WASHINGTON, DC 20217 NICHOLLES BROOKE, Petitioner, v. ) ) ) ) Docket No. 5319-18S. 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 with this order to petitioner and respondent a copy of the pages of the transcript of the trial in this case before Judge Ronald L. Buch at Oklahoma City, Oklahoma, containing his oral findings of fact and opinion rendered at the trial session at which the case was heard. A decision will be entered in accordance with the oral findings of fact and opInlon. (Signed) Ronald L. Buch Judge Dated: Washington, D.C. December 19, 2018 SERVED Dec 21 2018 3 1 2 3 4 5 6 7 8 9 10 11 12 Bench Opinion by Judge Ronald L. Buch November 7, 2018 Nicholles Brooke v. Commissioner of Internal Revenue Docket No. 5319-18S THE COURT: The following represents the Court's oral findings of fact and opinion. The oral findings of fact and opinion may not be relied upon as precedent in any other case. This opinion is in conformity with Internal Revenue Code section 7459(b) and Rule 152(a) of the Tax Court Rules of Practice and Procedure. Any section references refer to the Internal Revenue Code or the Treasury regulations in effect during the year at 13 issue, and Rule references are to the Tax Court Rules of 14 Practice and Procedure. 15 This case was heard pursuant to section 7463. 16 Under section 7463(b), the decision to be entered in this 17 case is not reviewable by any other court, and this 18 opinion may not be treated as precedent for any other case. 19 20 In this case we are asked to decide whether 21 Nicholles Brooke is entitled to innocent spouse relief for 22 tax year 2013. The liabilities at issue result from both 23 deficiencies determined by the Commissioner and as a 24 result of underpaying the liability shown on the joint 25 return. Additionally, Mr. Brooke has moved for reasonable (cid:16)042(973j406-2250|ojetadnseescribers.net|wwwascribers.net 1 2 3 4 5 c 7 litigation costs pursuant to section 7430 and Rule 231. A Facts During 2013, Mr. Brooke was married to Ms. Shaw. When Mr. Brooke and Ms. Shaw filed their 2013 tax return, they inadvertently omitted nonemployee compensation of cGOR anA in&nence in-nma nf C71 hneh nf tahich 4tome nro attributable to Mr. Brooke. When the Commissioner made aa]ustments ror tnose two missing items, une commissioner 9 also disallowed $895 of student loan interest that Mr. 10 Brooke and Ms. Shaw had reported on their return. There 11 12 13 14 15 is nothing in the record delineating the allocation of that interest between Mr. Brooke and Ms. Shaw. When Mr. Brooke and Ms. Shaw filed their 2013 return, they did not pay their liability in full. Mr. Brooke and Ms. Shaw divorced in 2016. At 16 than time, they agreed that Ms. Shaw would pay their joint 17 18 income tax liabilities. They arranged to pay those liabilities through monthly automatic $150 payments out of 19 Mr. Brooke's bank account, with Ms. Shaw reimbursing him. 20 Ms. Shaw has reimbursed Mr. Brooke for the payments made 21 22 from his account. The 2013 tax liability has been paid. The 24 Brooke and Ms. Shaw's 2012 joint account and applied it to Zb taelr zuid 11an111ty. Tne commissioner also appilea a 1973)406-2250|operations@escribers etivrwwascn13ermet. 5 credit of $4,914 from Mr. Brooke's separate 2015 return to the 2013 joint liability. Shortly before trial, the Commissioner conceded that Mr. Brooke was entitled to relief from joint and pueral liabilitu in the amnimt nY $5.3RQ Discussion 1. Auuucent opuuse seriet A. General Rules Generally, married taxpayers may elect to file a 1 2 3 4 6 8 9 10 joint Federal income tax return. Sec. 6013(a). Upon 11 e_ecting to file jointly, each spouse is jointly and 12 severally liable for the entire tax due for that year. 13 Sec. 6013(d)(3). In certain circumstances, however, a 14 spouse who filed a joint return may seek relief from joint 15 and several liability under the procedures in section 16 17 18 19 6015. Sec. 6015(a). Section 6015(a) allows a spouse to seek relief from joint and several liability under subsection (b) or, if eligible, to allocate the liability according to 20 crovisions set forth in subsection (c). If a taxoaver 21 does not qualify for relief under either subsection (b) or 23 ze 25 under subsection (f). Except as otherwise provided in section culo, une taxpayer nears tne auraen or proving that he or she is entitled to section 6015 relief. Rule ønj40022sojapmtEnseescribers.nettwww.escrïbers.riet 6 142(a); Alt v. Commissioner, 119 T.C. 306, 311 (2002), aff'd, 101 Fed. Appx. 34 (6th Cir. 2004). Both the scope and standard of our review in cases involving relief from joint and several income tax l_ability are de novo. Porter v. Commissioner, 132 T.C. 203, 210 (2009). B. Section 6015(b) Relief Under section 6015(b), a taxpayer seeking relief from joint and several liability must meet five conditions: (1) a joint return was filed for the taxable year; (2) there was an understatement of tax attributable to an erroneous item of the taxpayer's spouse; (3) at the 1 2 3 4 5 6 7 8 9 10 11 12 14 not know and did not have reason to know of the lo unoerstatement; (9) Ene request1ng spouse sougnc rellet 16 within two years of the first collection activity relating 17 18 19 to the liability; and (5) taking into account all the facts and circumstances, it is inequitable to hold the spouse seeking relief liable for the deficiency in tax 20 actributable to the understatement. A taxpayer must 21 satisfy all five requirements to qualify for relief. See 22 Alt v. Commissioner, 119 T.C. 306, 313 (2002). 23 24 Mr. Brooke does not seek and is not eligible for relief under section 6015(b). Most notably, the record 25 does establish that any part of the understatement was @7 3406-2250|operationsøescribetsmett www.escríbersnet 1 2 3 4 5 7 attributable to erroneous items of Mr. Brooke's former spouse. C. Section 6015(c) Relief Under section 6015(c), a divorced or separated spouse may elect to limit liability for a deficiency on a allocable to him or her under subsection (d). The election may oe 111ea at any time arter une ueticiency is 9 asserted but not later than two years after the Secretary 10 has begun collection activities. Sec. 6015(c)(3) (B). 11 Additionally, the electing individual: (1) must no longer 12 13 be married to or must be legally separated from the individual with whom the joint return was filed or (2) 14 must not have been a member of the same household with the 15 16 individual with whom the joint return was filed during the 12-month period before the election was filed. Sec. 17 6015(c)(3)(A). 18 19 Subject to certain limitations, any item giving rise to a deficiency on a joint return is generally 20 allocated to the individuals filing the return in the same 21 manner as it would have been if the individuals had filed 22 separate returns. Sec. 6015(d)(3)(A). Two of the three La Atentò Luac gavc AAcc vv unc ucAAvAcuvy ulv uAAvvuvAv vv 24 Mr. Brooke. For the third item, the disallowed student 26 loan interest, tnere is insurr1clent inrormation in tne =mmam (973)406-2250}operations@escribersaet|wwwascriberseet record to allocate that interest between Mr. Brooke and O Ms. Shaw. Mr. Brooke failed to establish that he is entitled to relief under section 6015(c). D. Section 6015(f) Relief Section 6015(f)(1) gives the Commissioner several liability if, "taking into account all the facts and circumstances, it is inequitable to nold tne individual liable for any unpaid tax or any deficiency (or any portion of either)". This Court has jurisdiction to review respondent's denial of petitioner's request for 1 2 3 4 5 7 6 9 10 11 12 equitable relief under section 6015(f). See sec. 13 14 6015(e)(1). In doing so, we apply a de novo standard of review, as well as a de novo scope of review. Porter v. 15 Commissioner, 132 T.C. 203, 210 (2009). Petitioner bears 16 the burden of proving that he is entitled to relief under 17 secrion 6015(f). See Rule 142(a); see also Porter v. 18 Commissioner, 132 T.C. at 210. 19 The Commissioner has set forth guidelines for 20 determining whether a requesting spouse qualifies for 91 panirahlo rolipf under marrinn 6015(fi. We considor thnso 22 guidelines but we are not bound by them; our determination 24 circumstances. See Pullins v. Commissioner, 136 T.C. 432, 25 438-439 (2011); Porter v. Commissioner, 132 T.C. at 210. tiNEBEEE (9733406-2250|operationsøescribersnet|www.escribers.net 1 2 3 4 5 U 7 8 9 These procedures, set forth in Rev. Proc. 2013-34, sec. 4, begin with seven threshold conditions that a spouse must meet to qualify for relief under section 6015(f): (1) the reanestina snnusa filed a icint return for the taxable year for which relief is sought; (4/ L11C LC11CL 10 11UL QVQ11QUIC LU L11C LCyuCOL111g OpVuCC under section 6015(b) or (c); (3) the claim for relief is timely tiled; (4) no assets were transferred between the spouses as part of a fraudulent scheme; (5) the 10 nonrequesting spouse did not transfer disqualified assets 11 12 to the requesting spouse; (6) the requesting spouse did not knowingly participate in the filing of a fraudulent 13 joint return; and (7) absent certain enumerated 14 exceptions, the tax liability from which the requesting 15 spouse seeks relief is attributable to an item of the 16 nonrequesting spouse or an underpayment resulting from the 17 18 19 nonrequesting spouse's income. Here, the items omitted from income are of the requesting spouse, Mr. Brooke, or in the case of the 20 student loan interest, he failed to establish that it is 71 an item of the non-reanestinn snnuse. Rn unless Mr. 22 Brooke falls within one of the enumerated exceptions, he 24 The Commissioner may grant relief regardless of 25 whether the understatement, deficiency, or underpayment is attributable to the requesting spouse if any of the following exceptions apply: (a) attribution of the 10 property solelv due to the operation of community property law; (b) nominal ownership; (c) misappropriation of funds; There is nothing in the record to indicate that any or tnese exceptions appiles. In sum, Mr. Brooke does not qualify for relief under section 6015(f) because the items were either 1 2 3 4 6 / 8 9 10 attributable to him or, in the case of the student loan 11 interest, he failed to establish that it was not 12 attributable to him. As for the limited situations in 13 which relief can be granted where the item is attributable 14 15 16 17 18 19 to the requesting spouse, Mr. Brooke failed to establish that he falls within any of those limited situations. B. 6015(g) Credits and Refunds Section 6015(e)(1) gives the Tax Court jurisdiction to determine the appropriate relief available to a taxpayer under section 6015, including a credit or 20 refund, to the extent not time barred, under section 21 6015(g). See Washington v. Commissioner, 120 T.C. 137, 00 c c 1R7_1RA /OAA7\. Dnnbn *v A s s A s7 i c v vs j f nvvn.o v . enmm4 en4 nnav vvuuuA o o A vuca. , m P Mamn .r. r2cittv . . v . 23 ze 25 2004-127. A credit or refund is not allowed to the requesting spouse it re11er is grantea unaer section 6015(c). (973)406-(cid:0)575250[operahescribers.netwww.escñbersiet In this case the Commissioner conceded that Mr. 11 Brooke is entitled to section 6015(f) relief for the 2013 underpayment to the extent of $5,389. Mr. Brooke has not established that he is entitled to any greater relief. Because the underpayment has been satisfied, Mr. Brooke 1 2 3 4 5 6 will be entitled to a refund (or credit) for the portion 7 8 9 10 11 12 .- 17 of the relief granted that is not otherwise applied to liabilities. See, e.g., Minton v. Commissioner, T.C. Memo. 2018-15, at *15-*16. II. Costs To recover administrative and litigation costs under section 7430(a), a taxpayer must establish that it: s., .~- -~~----- .... .....3 ym._,, .- -.~ e.-. /1) ie the nrox72ilinn naves7. /91 hoe ovhnnctoA tho , 14 available administrative remedies; (3) has not 10 unreasonaoly protractea une proceealngs; ano (91 nas 16 claimed reasonable costs. Sec. 7430(a), (b)(1), (2), (3), 17 and (c)(4). 18 Taxpayers can prove that they are the prevailing 19 party in two ways: (1) by establishing that they 20 substantially prevailed or (2) by establishing that they 21 made a qualified offer and that the Court's judgment was 22 equal to or less than that offer. Sec. 7430(c)(4)(A), 23 (E), and (g); Haas & Assocs. Accountancy Corp. v. 24 Commissioner, 117 T.C. 48, 59 (2001), aff'd, 55 F. App'x 25 476 (9th Cir. 2003). In either situation, however, they -(973)406-2250loperations@escribertnetlwvá,ascribers.net must establish that they meet the applicable net worth requirements. A taxpayer who does not meet the net worth requirements cannot be considered a prevailing party for purposes of section 7430. Sec. 7430(c)(4)(A)(ii). There 12 is nothing in the record that establishes Mr. Brooke's net worth, and as a result, we cannot conclude that he is a prevailing party as that term is defined by statute. Accordingly, we deny his request for $70.15 of costs. An order and decision will be forthcoming. 1 2 3 4 5 6 7 8 9 10 (Whereupon, at 9:01 a.m., the above-entitled 11 matter was concluded.) 12 ll 14 16 17 18 19 20 21 22 23 24 25 733406-225D[operationsøescribers.net|www.escribers.net 13 1 2 3 4 5 6 7 8 9 CERTIFICATE OF TRANSCRIBER AND PROOFREADER CASE NAME: Nicholles Brooke v. Commissioner DOCKET NO.: 5319-18S We, the undersigned, do hereby certify that the foregoing pages, numbers 1 throuah 13 inclusive, are the true, accurate and complete transcript prepared from the verbal recording made by electronic recording by Roger Meyers on November 7, 2018 before the United States Tax Court at its session in Oklahoma City, OK, in accordance 10 with the applicable provisions of the current verbatim 11 12 reporting contract of the Court and have verified the accuracy of the transcript by comparing the typewritten 13 transcript against the verbal recording. 14 15 16 17 18 19 20 21 23 24 25 Meribeth Ashley, CET-507 Transcriber 11/19/18 Date . Jessica Hernandez Proofreader 11/19/18 Date $733406-2250{operations@escribersaet[v,wwascribers.net