TAX COURT OPINION

Case: Scott R. Bishop & Kellene E. Bishop, n.k.a. Kellene E. Vaile
Docket Number: 8716-13
Judge: Buch
Opinion Type: bench
Filed: 10/18/2017
Pages: 10

SEC UNITED STATES TAX COURT WASHINGTON, DC 20217 SCOTT R. BISHOP & KELLENE E. BISHOP, N.K.A. KELLENE E. VAILE, Petitioners, v. ) ) ) ) ) Docket No. 8716-13. 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 both petitioners and respondent a copy of the pages of the transcript of the trial in this case before Judge Ronald L. Buch at Columbus Ohio, containing his 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, decision will be entered under Rule 155. (Signed) Ronald L. Buch Judge Dated: Washington, D.C. October 18, 2017 SERVED Oct 19 2017 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 Bench Opinion by Judge Ronald L. Buch September 12, 2017 Scott R. Bishop & Kellene E. Bishop, n.k.a. Kellene E. 3 Vaile v. Commissioner Docket No. 8716-13 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 issue, and Rule references are to the Tax Court Rules of Practice and Procedure. In 2009, Mr. Bishop and Ms. Vaile filed a joint Form 1040, U.S. Individual Income Tax Return, reporting no income and no tax due. The Commissioner issued a notice of deficiency, and in the first half of a bifurcated trial, we held for the Commissioner as to the amount of the liability. The sole remaining issue in this case is whether Ms. Vaile is entitled to relief under section 6015(b), (c), or (f) from a deficiency in income tax. // cribers (973)406-2250loperations@escribers.netlwww.esaibersnet Facts 4 Ms. Vaile operated a variety of what principally were online businesses. She suffers from a variety of health issues, and she was able to successfully operate the online businesses despite her health issues. Ms. Vaile's businesses drove the household income, and the income was largely, if not entirely, attributable to her efforts. Ms. Vaile was married and in an emotionally difficult relationship. She claims she was not permitted to have a role in the family finances. Checks drawn on the family checking account, however, bear her signature. Likewise, she claims that she was not permitted to review the family tax return at issue and was only presented a signature page to sign. But that signature page for 2009, the year at issue, showed no income and no tax despite Ms. Vaile's business having generated income. In late 2014, Ms. Vaile and Mr. Bishop separated. In June 2015 Ms. Vaile submitted a claim for innocent spouse relief. In that claim, Ms. Vaile did not allege abuse. In 2015, Ms. Vaile and Mr. Bishop divorced. Ms. Vaile has relocated to Ohio and it is unclear what income she is earning today. She claims to be making an effort to become tax compliant by preparing tax returns for 2014 through 2016. Those returns are dated four days before the date of trial. 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 (973)406-2250lopentionseescribetsmet|www.escribersnet ( 5 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 I General Rules Discussion Generally, married taxpayers may elect to file a joint Federal income tax return. Sec. 6013(a). Upon electing to file jointly, each spouse is jointly and severally liable for the entire tax due for that year. Sec. 6013(d)(3). In certain circumstances, however, a spouse who filed a joint return may seek relief from joint and several liability under the procedures in section 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 the provisions set forth in subsection (c). If a taxpayer does not qualify for relief under either subsection (b) or (c), the taxpayer may be eligible for equitable relief under subsection (f). Except as otherwise provided in section 6015, the taxpayer bears the burden of proving that he or she is entitled to section 6015 relief. Rule 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 review in cases where the taxpayer requests relief from joint and several income tax liability are de novo. Porter v. Commissioner, 132 T.C. 203, 210 (2009). (973)406-2250)operations@escribe,s.netIwww.esaibersnet 6 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 II. 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 time of signing the return, the spouse seeking relief did not know and did not have reason to know of the understatement; (4) the requesting spouse sought relief within two years of the first collection activity relating 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 attributable to the understatement.· A taxpayer must satisfy all five requirements to qualify for relief. See Alt v. Commissioner, 119 T.C. 306, 313 (2002). Ms. Vaile does not meet the requirements for relief under section 6015(b). Ms. Vaile acknowledged at trial that a large portion of the joint income was due to her efforts. Additionally, at the time of signing the return, Ms. Vaile would have known or had reason to know of the understatement, given that no income and no tax was reported and she was the one producing the large portion of the income. Ms. Vaile has failed to meet the burden to prove she is entitled to relief under section 6015(b). (973)4002250|operationseescribersnet|www.escibers.net ( 7 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 III. Section 6015(c) Relief Under section 6015(c), a divorced or separated spouse may elect to limit liability for a deficiency on a joint return to the portion of the deficiency that is allocable to her under subsection (d). The election may be filed at any time after the deficiency is asserted but not later than two years after the Secretary has begun collection activities. Sec. 6015(c) (3) (B). Additionally, the electing individual: (1) must no longer be married to or must be legally separated from the individual with whom the joint return was filed or (2) must not have been a member of the same household with the individual with whom the joint return was filed during the 12-month period before the election was filed. Sec. 6015(c)(3)(A). Ms. Vaile and Mr. Bishop are no longer married. Subject to certain limitations, any item giving rise to a deficiency on a joint return is generally allocated to the individuals filing the return in the same manner as it would have been if the individuals had filed separate returns. Sec. 6015(d) (3) (A). An election under section 6015(c) is invalid with respect to all or part of a deficiency if it can be demonstrated that the individual making the election had actual knowledge, at the time of signing the return, of any item giving rise to the deficiency (or a portion (973)406-2250|operations@escribersnet|www scribers.net 8 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 thereof) that is not allocable to that individual under section 6015(d). Sec. 6015(c)(3)(C). Actual knowledge must be demonstrated by a preponderance of the evidence. Culver v. Commissioner, 116 T.C. 189, 196 (2001). - The actual knowledge standard is narrower than the "reason to know" standard applied under section 6015(b) and (f). McDaniel v. Commissioner, T.C. Memo. 2009-137. Actual knowledge in this sense refers to "knowledge of the receipt of the income." Treas. Reg. § 1.6015- 3(c) (2)(i) (B). Ms. Vaile does not meet the requirements for relief under section 6015(c). Ms. Vaile had actual knowledge of the deficiency because she was the one earning a large portion of the couple's income. At trial, Ms. Vaile acknowledged that she was the primary force in generating the household income. Further, Ms. Vaile knowingly signed the return reporting no income and she knew that there had been income for the year. Ms. Vaile's actual knowledge invalidates any election under 6015(b). IV. Section 6015(f) Relief The Commissioner has published revenue procedures outlining the factors normally considered in deciding whether section 6015(f) relief should be granted. See Rev. Proc. 2013-34, 2013-43 I.R.B. 397, modifying and superseding Rev. Proc. 2003-61, 2003-2 C.B. 296. Although (973)406-2250|operations@escribers.net j www.escríbers.net 9 1 2 3 4 5 6 7 8 9 not bound by the IRS revenue procedures, the Court can look to them for guidance. Johnson v. Commissioner, T.C. Memo. 2014-240, at *10. Rev. Proc. 2013-34 outlines seven threshold conditions that the requesting spouse must satisfy before the Commissioner will consider relief under section 6015. Rev. Proc. 2013-34, sec. 4.01. Based on the evidence in the record and her testimony at trial, Ms. Vaile satisfies the first six requirements. She and Mr. Bishop filed a joint return. Relief was not 10 available to Ms. Vaile under section 6015(b) or (c). The 11 ' claim for relief was timely. There is no evidence that 12 13 14 15 16 17 18 19 20 21 22 23 24 25 assets were transferred between she and Mr. Bishop, which takes care of two of the requirements. And while Ms. Vaile participated in the filing of a frivolous return, no one has argued that it was fraudulent. Focusing on the seventh requirement, which requires the deficiency to be attributable to the nonrequesting. spouse, it states: "The income tax liability from which the requesting spouse seeks relief is attributable (either in full or in part) to an item of the nonrequesting spouse or an underpayment resulting from the nonrequesting spouse's income." The record shows that most or perhaps all of Ms. Vaile's and Mr. Bishop's income was due to her efforts. Moreover, Ms. Vaile and Mr. Bishop have failed to provide evidence apportioning income between them. (973)406-2250|operations escribers.net|wwwasaibers.net 10 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 Ms. Vaile may still meet the threshold requirements even if it is her income that is at issue. Specifically, there is an exception for victims of abuse. The revenue procedure provides: "If the requesting spouse establishes that he or she was a victim of abuse prior to the time the return was filed, and that, as a result of the prior abuse, the requesting spouse was not able to challenge the treatment of any items on the return for fear of the ce (cid:16)042 nonrequesting spouse's retaliation, the Service will consider granting equitable relief even though the deficiency or underpayment may be attributable in part or in full to an item of the requesting spouse." On the record before us, we cannot conclude that Ms. Vaile meets the abuse exception. While it appears to be clear that the relationship was difficult, Ms. Vaile testified that she did not consider the relationship to be abusive at the time. And at the time of her innocent spouse claim, she likewise did not consider it to be abusive. Much like her returns prepared mere days before trial, the allegations 20 gappear to be motivated at least in part by a desire to 2.£/f 21 22 23 24 25 qualify for innocent spouse relief. In sum, Ms. Vaile has failed to meet the burden to prove she is entitled to relief under section 6015(f). Computations for entry of decision have already been filed, and a decision consistent with those computations 73)406-2250}opentionspescribersmet|www.escribersnet 1 will be entered for respondent. 11 2 3 4 5 6 7 8 9 10 11 12 13 14 15 1 6 17 18 19 20 21 22 2 3 2 4 25 (Whereupon, at 11:50 a.m., the above-entitled matter was concluded.) (973)406-2250|operations®escribers.net j www.escribers.net