TAX COURT OPINION

Case: Linda S. Moharsky
Docket Number: 8871-09S
Judge: Colvin
Opinion Type: bench
Filed: 03/16/2010
Pages: 16

UNITED STATES TAX COURT WASHINGTON , DC 2021 71 LINDA S . MOHARSKY, Petitioner , v . ) Docket No . 8871-09S COMMISSIONER OF INTERNAL REVENUE , Respondent . O R D E R Pursuant to Rule 152(b), Tax Court Rules of Practice and Procedure, it i s ORDERED that the Clerk of the .Cour't shall transmit herewith to petitioner and to respondent a copy of the pages of the transcript of the proceedings in the above case before Judge Laurence J . Whalen at Philadelphia, Per containing his oral findings of fact and opinion rendered on February 9, 2010 . In accordance with the oral findings of fact and opinion, an appropriate decision will be entered .- (Signed ) Laurence J. Whalen Judg e Dated : Washington, D .C . March 16, 2010 iERVED MAR 1 7 2010 2 1 Bench Opinion by Senior Judge aurence J . Whale n 2 February 9, 201 0 3 Moharsky v . Commissioner Docket No . 8871-09 S 4 I . 5 The Court has decided to render oral 6 findings of fact and opinion in this case and th e 7 following represents the Court's oral findings of fac t 8 and opinion . 9 II . 10 This proceeding was heard as a small ta x 11 case pursuant to the provisions of Section 7463(f)(1) 12 of the Internal Revenue Code 4f 1986, as amended, and 13 Rules 170 through 179 of the ax Court Rules o f 14 Practice and Procedure . Herenafter, all section 15 references are to the Internal Revenue Code , as 16 amended and in effect for the taxable years in issue, 17 and all rule references are t the Tax Court Rules o f 18 Practice and Procedure . This bench opinion is made 19 pursuant to the authority granted by Section 7459(b) . 20 and Rule 152 . 21 III . 22 Andrew E . Finkle, Esquire, appeared o n 23 behalf of Petitioner, and Ms . Carrie L . Kleinjan , 24 attorney at law, appeared on behalf of Respondent . 25 IV . Heritage Reporting Corporation ( 202) 62814888 3 1 In her petition, Petitioner seeks relief 2 from a final appeals determination issued to her on 3 January 8, 2009, denying relief under subsections (b), 4 (c) and (f) of Section 6015 fo~ taxable years 2000 , 5 2001, 2002, 2003, 2005 and 200k (herein referred to as 6 the determination) . Pursuant to Section 6015(e), we 7 have jurisdiction to review Respondent's denial o f 8 relief to Petitioner in this case . 9 10 V . Respondent ' s counsel was unable to serve 11 notice of the filing of the petition on the other 12 party filing the joint return, as required by Rule 13 325(a), because the other party, Mr . Ralph J . 14 Moharsky, died before the petition was filed and he 15 left no estate or will . 16 VI . 17 Some of the facts h ve been stipulated an d 18 are so found . On April 13, 29 09, when Petitione r 19 filed her petition in this cane, she resided i n 20 Kingston, Pennsylvania .%--"Petitioner only obtained a 21 high school education . She ha s worked for Blue Cros s 22 of Northeastern Pennsylvani a or 39 years . Sinc e 23 2003, she has been employed a o a project manager for 24 the company, and prior to 2003, she worked in the 25 customer service department . Other than through her Heritage Reporting (202) 628-I Corporation 4888 z, 4 1 employment, she has no business or financial 2 experience . 3 On February 19, 2008, Petitioner's husband 4 of approximately 16 years, Mr . Ralph Moharsky, die d from a'malignant melanoma skin cancer . Mr . Moharsky's final illness began in August 2007 when Petitioner and Mr . Moharsky learned that the cancer had entered hi s 8 brain . From that time until is death, Petitioner was 9 consumed with her husband's Ore during his final 10 illness . She was distraught nd suffered from the 11 effects of lack of sleep ®At the end of December 2007 12 and early January 2008 , Petit', oner found that the 13 water at their home had been turned off . She also 14 started receiving telephone calls from creditors, an d 15, she learned that Mr . Moharsky had opened credit car d 16 accounts in his own name . Petitioner reviewed th e 17 checkbook for her account at Citizens Bank and 18 realized that her husband had not been paying all o f 19 their bills . 20 On or about January 30, 2008, on the eve o f 21 Mr . Moharsky's final hospitalq zation, Petitione r 22 received a letter from the Internal Revenue Servic e 23 and she became aware for the irst time that there wa s 24 a problem with the couple's federal income taxes . Sh e 25 telephoned a representative of the Internal Revenue 5 1 Service who told her that she had to file the couple's 2 delinquent returns within 10 days and she had to pa y 3 the tax owed . Petitioner foun~ the representative to 4 be callous and threatening . She was in a confuse d 5 state of mind . When she found the returns that 6 already had been prepared and signed for 2000 throug h 7 and including 2003, as described below, she maile d 8 them to the Internal Revenue Service . She consulted 9 with no one before she did so . 10 Mr . Moharsky had a controlling personality 11 and he dominated the marriage . For example , he wrote 12 checks for all of the household bills from a checking 13- account that Petitioner held in her name at Citizens 14 Bank, the account mentioned above . Petitione r 15 accepted Mr . Moharsky ' s statement that thi s 16 arrangement would keep the couple ' s personal finances 17 separate from his business finances . Mr . Moharsky 18 took the statements for that account from the mail and 19 he kept them .ar . Moharsky a so undertook to have the 20 federal and state income taxed prepared by an 21 accountant . Every year he collected Petitioner's tax 22 information and gave all of tie necessary information 23 to the accountant for purposed of preparing thei r 24 joint returns . After the ret~, rns for the year had 25 been prepared , Mr . Moharsky obtained them from the Heritage Reporting Corporatio n (202) 628-,4888 6 1 accountant and he brought the eturns to Petitione r 2 for her signature, in time for them to be timely 3 filed . 4 Petitioner learned for the first time in 5 January 2008 that her joint re urns for taxable year 6 2000 through and including 200 had not been filed . 7 She learned that her 2004 retu n had been filed an d 8 the tax liability had been pai . Finally, she learned 9 that her joint returns for 200A and 2006 had bee n 10 timely filed, but the balance ue had not been paid . 11 Petitioner has received nothing to suggest that he r 12 state tax returns were not filed and paid . 13 Moharsky's career had been spent working in th e 14 hotel /restaurant business . During the late 1990s, h e 15 and two other individuals purc hased a Best Western 16 Hotel located in Scranton, Pennsylvania . Later, they 17 purchased another Best Western Hotel located i n 18 Harrisburg, Pennsylvania . At some point after Mr . 19 Moharsky and his business associates had acquired the 20 hotels they began experiencing cashflow problems . At 21 Mr . Moharsky's direction, Petitioner liquidated an IRA 22 account and the couple used credit cards to obtai n 23 funds in an attempt to save t1 e hotel business . 24 These efforts were unsuccessful . The hotels 25 were sold and Mr . Moharsky wa~ left with substantia l Heritage Reporting Corporation (202) 628-4888 7 1 indebtedness . As a result, in January 2004 , 2 Petitioner and her husband fil d a joint Chapter 7 3 bankruptcy petition . They red ived a discharge o n 4 August 27, 2004 ®Over the yeas, Petitioner and he r 5 husband took annual vacations in Florida . Circa April 6 2007, they conceived of the idea of purchasing a 7 retirement home in Florida . With that in mind, the y purchased a house in Boynton Beach, Florida, fo r 9 approximately $267,000 . They made a down payment o f 10 approximately $36,000 and obtained a mortgage for the 1-1 remainder . The house was titled in their joint names 12 but the down payment and othe expenses of th e 13 purchase were taken from Peti Toner's 401(k) .account . 14 The mortgage was in her sole name . At this time, the 15 house has depreciated in value and it is worth between 16 $185,000 to $200,000 . The balance of Petitioner' s 17 mortgage is approximately $230,000 . 18 As of March 6, 2008, Petitioner is paying 19 approximately $2,141 to satis y the mortgage, taxes, 20 insurance and utilities on th Florida home . She pays 21 approximately $926'per month or rent, utilities and 22 telephone with respect to her principal residence in 23 Pennsylvania . Her total monthly expenses ar e 24 approximately $7,180 . By letter dated March 6, 2008, 25 Petitioner submitted Form 885, Request for Innocent Heritage Reportin~ Corporation (202) 628-!4888 8 1 Spouse Relief, requesting relief under Section 6015(f) 2 from joint and several liability for the underpayment 3 of the joint income tax liabilities owed for taxable 4 years 2000, 2001, 2002, 2003, 005 and 2006 . By 5 letter dated May 2, 2008, Petitioner submitted a 6 second Form 8857, Request for Innocent Spouse Relief , 7 requesting relief for taxable rears 2000 through and 8 including 2003 because the Int rnal Revenue Service 9 had rejected the first request for those years a s 10 premature . 11 A representative of Respondent's appeal s 12 office denied Petitioner's request for relief for each 13 of the subject years . The determination states that 14 relief was denied because : "7he information we have 15 available does not show you meet the requirements for 16 relief . You did not show it would be unfair to hold 17 you responsible . A portion of the aggregate liability 18 for the above-referenced years is attributable to your 19 own tax liability . Relief is not allowed on tax you 20 owe on your own income or ded ctions . " 21 VII . 22 Respondent determind that Petitioner is not 23 entitled to relief under Section 6015(f) from th e 24 joint income tax liabilities or 2000, 2001, 2002, X25 2003, 2005 and 2006, the years in issue . The issue Heritage Reportin Corporation (202) 6284888 9 1 for decision is whether Petitioner is entitled t o 2 equitable relief under Section 6015(f) for all o f those years or for any of the m VIII . If a husband and wif file a joint federa l income tax return, they generally are jointly and 7 severally liable for the ta x ue . Section 6013(d)(3) ; 8 Butler v . Commissioner , 114 T . C . 276 . However, a 9 spouse may qualify for relief from joint and severa l 10 liability under Section 6015 ( or (c) if various 11 requirements are met . In thi case, the parties agree 12 that Petitioner does not qual' fy for relief under . 13 Section 6015 ( b) or (c) . 14 If relief is not av ilable under Sectio n 15 6015 (b) or (c ), the Commissio er may nevertheles s 16 relieve an individual of liability for any unpaid ta x 17 if, taking into account all the facts and 18 circumstances , it would be inequitable to hold the 19 individual liable . Section 6015(f) . Section 6015(e) 20 gives this Court jurisdiction to review the 21 Commissioner 's denial of equitable relief under 22 Section 6015 ( f)~"Yn cases br~ught under Sectio n 23 6015 ( f), we now apply a de no o standard of review, as 24 well as a de novo scope of re iew . Porter v . 25 Commissioner , 132 T . C . No . 11 Slip op . 5 . Heritage Reporting Corporation ( 202) 62814888 10 1 Under a de novo scop of review we take int o 2 account facts that are present d at trial that are no t 3 in Respondent's administrative record . See Porter v . 4 Commissioner , 130 T .C . 115 ; Ewing v . Commissioner , 12 2 5 T .C . 32 . Under a de novo stan~ard of review we tak e 6 into account all of the facts and circumstances and 7 determine whether it is inequi :able to hold the 8 requesting spouse liable for the unpaid tax or 9 deficiency . Porter v . Commissioner , 132 T .C . supra at 10 Slip op . 5 . 11 IX . 12 In Porter v . Commissioner, supra , the Court 13 weighed the factors identified in Rev . Proc . 2003-61, 14 2003-2 C .B . 296, in order to ~etermine whether th e 15 requesting spouse was entitle to equitable relief 16 under Section 6015(f) . We wi 1 follow the same 17 approach'in this case . Set out below is our 18 evaluation of each of those factors . 19 A) Marital status . The nonrequesting 20 spouse is deceased . He is completely and permanently 21 separated from Petitioner . T is is not a temporary 22 absence . We believe that thi factor weighs in favor 23 of relief . 24 B) Economic hardsh .p . The question raised 25 by this factor is whether Petitioner would suffer Heritage Reporting Corporatio n (202) 62844888 1 1 2 Economic hardship is present i payment of the tax 3 would prevent the taxpayer from paying her reasonable 4 basic living expenses . See Se~tion 301 .6343 ( b)(4)(i) 5 and ( ii), Proced . and Admin . Rags . The determination 6 varies according to the unique circumstances of th e 7 taxpayer . Id . (TIn Petitioner ' s case, we cannot say 8 that payment of the subject tab liability woul d 9 prevent her from paying reasonable basic living 10 expenses . We do not agree with Petitioner that the 11 monthly expenses to maintain h r house in Florid a 12 should be considered among Pet itioner's basic livin g 13 expenses . Accordingly , we agree with Respondent that 14 this factor weighs against granting Petitioner relief . 15 C) Knowledge or re son to know . Thi s 16 factor raises the question whther the requesting 17 spouse had knowledge or reason to know that th e 18 nonre.questing spouse would not pay the subject income 19 tax liability . In Porter v . Commissioner , 132 T .C . 20 supra at Slip op . 6, we said : "A taxpayer who signs a 21 return is generally charged with constructiv e 22 knowledge of its contents . yman v . Commissioner , Ha l 23 992 F .2d 1256, affg . T .C . Memel . 1992 - 228 . Section 24 6015 does not protect a spouse who turns a blind ey e Heritage Reporting Corporation (202) 628-4888 12 1 Commissioner , 114 T . C . 333 ; Bo um v . Commissioner , [9 4 2 T .C . 126, 145 - 1461 supra . l In Such instances, we may 3 impute the requisite knowledge to the putativ e 4 innocent spouse unless she satisfies her duty o f 5 inquiry . Hayman v . Commission r , supra at 1262 ; Adams 6 v . Commissioner , 60 T .C . 300, 303 . " 7 In this case , Petitioner asserts that he r 8 deceased husband oversaw the reparation and filing of 9 the couple's tax returns , and when she signed each of 10 the subject returns from year to year she did no t 11 know, and she had no reason t know, that he would not 12 pay the income tax liability ~hown on the return . 13 Respondent points out that Pe itioner . filed th e 14 returns for 2000 through and Lcluding 2003 after her 15 husband had entered the hospi~al in January 2008 when 16 she could have had no reasonable belief that he would 17 pay the tax . In the case of tLhe returns for 2005 and 18 2006 which had been timely filed, Respondent argues 19 that the couple's bankruptcy ; iling in 2004 shoul d 20 have caused Petitioner to mak inquiries that would 21 have disclosed the fact that er husband had not paid 22 the tax for those years and h was not likely to pay 23 it . 24 We agree with Respondent that in the case o f 25 . the returns for taxable years 2000 through and Heritage Reporting Corporation (202) 628 11 4888 1 3 1 including 2003, because Petitioner both signed an d 2 filed the returns, the state of Petitioner's knowledge 3 should be evaluated as of the time the returns wer e 4 filed, February 2008 . At that time, however , 5 Petitioner was preoccupied with the imminent death of 6 her husband . She had been startled to learn that her 7 returns had not been filed, s e was frightened by her 8 conversations with a representative of the Interna l 9 Revenue Service and she sent the returns to th e 10 Internal Revenue Service without consulting anyone . 11 Given her poor state of mind at the time, we believe 12 this factor is neutral as to the returns for taxable 13 years 2000 through and including 2003 . 14 In the case of the eturns for taxable years 15 2005 and 2006, we agree with espondent . As to those 16 returns, we believe that the ankruptcy proceedin g 17 filed by Petitioner and her h sband in 2004 should 18 have put Petitioner on notice that her husband wa s 19 having financial difficulty and might not pay their 20 personal tax liabilities, con~rary to his assurances . 21 When Petitioner signed the joint returns for 2005 an d 22 2006 shortly before each of t . em was filed we do not 23 believe that Petitioner could simply rely on her 24 husband' s assurances that the taxes would be paid . As 25 to those years, we conclude t at the knowledge facto r Heritage Reporting Corporation (202) 62844888 14 1 weighs against relief . 2 D) Nonrequesting spouse's legal obligatio n 3 to pay the outstanding tax liability under a divorc e 4 decree or separation agreement Petitioner' s deceased 5 husband had no liability under a divorce decree o r 6 agreement to pay the tax . Th i factor is neutral . 7 E) Significant ben e it from the unpaid 8 income tax liability . Receipt by the requesting 9 spouse, either directly or in d irectly, of a 10 significant benefit in excess f normal support from 11 the unpaid liability or the it em giving rise to the 12 deficiency weighs against reli ef . Lack of a 13 significant benefit beyond nod al support weighs i n 14 favor of relief . Normal suppdrt is measured by the 15 circumstances of the particul r parties . Estate of 16 17 Krock v . Commissioner , 93 T .C . 672 . In this case, we find that Petitioner di d 18 not derive a significant benefit from the unpaid 19 income tax liability . Petitioner's lifestyle was 20 modest . We do not believe that Petitioner' s 1 21 acquisition of the house in Florida with funds from 22 her 401(k) account was a significant benefit . In our 23 view, this factor favors reli f . 24 F) Compliance with income tax laws . 25 Petitioner has complied with income tax laws in Heritage Reportin~ Corporation (202) 628-4888 15 1 subsequent years . This factor favors relief . 2 G) Abuse . There is no evidence of abuse i n 3 this case . 4 H) Mental or physic Li health . Whether the 5 requesting spouse was in poor ental or physica l 6 health when the joint returns ere signed or when the 7 request for relief was made . As discussed above, w e 8 believe that Petitioner was in poor mental or physica l 9 health when she mailed the returns for taxable years 10 2000 through and including 2003 to the Interna l 11 Revenue Service . 12 X . 13 Conclusion . In the case of the returns for 14 taxable years 2000 through an including 2003, th e 15 factors favoring relief are t at Petitioner and Mr . 16 Moharsky are no longer togeth r, that she did not 17 receive a significant benefit beyond normal support 18 and that she diligently compl'ed with income tax laws 19 in subsequent years . We do not believe tha t 20 Petitioner should be charged with knowledge or a 21 reason to know that Mr . Mohar ky did not pay the tax 22 bec use of her poor mental liability for those year s 23 state when she mailed the returns to the Internal 24 Revenue Service . We conclude that the factors 25 favoring relief outweigh the ~ne factor against Heritage Reportin~ Corporatio n (202) 62814888 44 1 6 1 relief, lack of economic hardship . 2 In the case of the Turns for 2005 an d 3 2006, our conclusion is differ nt . As to those 4 returns, we believe that Petitioner failed to satisf y 5 her duty .of inquiry that arose following th e 6 bankruptcy proceeding in 2004 . 7 8 XI . We hold that Petiti o er has shown that under 9 the facts and circumstances of this case she i s 10 entitled to equitable relief u nder Section 6015(f-) 11 with respect to taxable years 2000 through and 12 including 2003 . We further h ld that Petitioner has 13 failed to show that under thel facts and circumstance s 14 of this case she is entitled o equitable relief under 15 Section 6015(f) with respect Lo taxable years 2005 and 16 2006 . An appropriate order will be issued reflecting 17 those holdings . 18 XII . 1 9 This concludes the !ourt' s oral findings o f 20 fact and opinion in this cas e 21 (Whereupon, at 3 :48 p .m ., the bench opinion 22 in the above-entitled matter was concluded .) 2 3 2 4 25 Heritage Reporting Corporation (202) 628L4888