TAX COURT OPINION

Case: Mary E. Haggerty
Docket Number: 15589-09
Judge: Wherry
Opinion Type: memo
Filed: 12/05/2011
Pages: 14

T. C. Memo. 2011-284 UNITED yTATES TAX COURT || ' MARY E. HAGGERTY, Petitioner v. COMMISSIONER OF INTERNAL REVENUE, Respondent Docket No. 15589-09. . Filed December 5, 2011. P filed a joint Federal income tax return with her for the 2006 tax year. Followirig H's husband (H) death, P seeks relief from joint and several liability under sec . 6015 (f) , tax liability. I . R . C. , with respect to (the 2006 Held: P is not entitled to re'lief from joint and several liability pursuánt with respect to her 2006 tax year. to sec. 6015(f) I.R.C., John Leeper, for petitioner. Jeffrey D. Heiderscheit, for respondent. 98WED DEC -5 2011 - 2 - MEMORANDUM FINDINGS OF FACT AND OPINION WHERRY, Judge: This case arises from a petition for judicial review of respondent's determination denying relief from joint and several liability under section 6015 for the 2006 taxable year.1 The issue for decision is whether petitioner is entitled to relief from joint and several liability under section 6015(f) for the 2006 taxablé year. FINDINGS OF FACT Some of the facts have been stipulated, and the stipulated facts and the accompanying exhibits are hereby incorporated by this reference. At the tim she filed her petition, petitioner resided in Texas. Petitioner and Timothy Haggerty (Mr. Haggerty) married in 1968. Mr. Haggerty unexpectedly passed away on September 13, 2006, and he did not leave a. will. Petitioner is a licensed vocational nurse and for the last 20 years has worked at Thomas Medical Associates. Petitioner and Mr. Haggerty had a tumultuous relationship during which he verbally abused her. Petitioner and Mr. Haggerty used a joint checking account in which her paycheck was directly deposited by her employer. 1Unless otherwise indicated, all section references are to the Internal Revenue Code of 1986, as amended, and all Rule references are to the Tax Court Rules of Practice and Procedure. - 3 - Petitioner paid all household bills out of this a count. Twice a month Mr. Haggerty deposited between $500 and $550 into the joint checking account. Petitione did not kno what r. Haggerty did with the rest of his paycheck. When she inquired, Mr. Haggerty became angry and told her that it was his money which he used to pay his bills. Petitioner explained that Mr. Haggerty "was very 11 secretive about his money and about you d n't question him. That's what he used to tell se. Don't qu stion Ee." Mr. Haggerty liked to gamble. On June 29; 1977, peti:tioner and Mr. Haggerty purchased a house for $43,500.and paid $15,000 as a downpayment and financed $28,500 of the purchase price with a 30-y ar mottgage. 11 Petitioner made the mortgage.payments out of the joint checking account each month. On October 21, 2004, petitioner and Mr. Haggerty took out a second loan against the house of $70,952. Petitioner did not want the second loan, nor did she directly benefit from any of its procþeds. On Ap il 17, 2006, the first loan against the house was paid off and tihe first mortgage was released. On July 25, 2006, the second mortgade was paid in full and the.lien against the house w s released. Because Mr. Haggerty had been making the second mortgage monthly payments, petitioner did not know until shortly before his death that he had paid off the second mortgage. When she confronted Mr. Ha gerty about how - 4 - he was able to×k) this, petitioner become distressed when he told her that he had used a portion oflhis retirement funds. Mr. Haggerty did not-ask.petitioner's|permission to withdraw part of his retirement funds, nor did she participate in the decision. Mr. Haggerty retired at the end of 2005 but received Form W- 2, Wage and Tax Statement, for 2006 which reported $19,735.93 of income from the payment for his accumulated leave. Mr. Haggerty began receiving distributions from his retirement plan accounts in 2006 and continued to deposit between $500 and $550 twice a month into the joint accountifor household expenses. Petitioner did not receive any additional funds from Mr. Haggerty's retirement plan distributions. " . After Mr. Haggerty's death, petitioner became aware of an account at the Government Employees Credit Union.. She also learned that Mr. Haggerty owed money to this credit union, which informed her it would exercise its setoff rights and take the money from Mr. Haggerty's account if she did not pay the bill. Petitioner paid the credit union, and she sent the Internal Revenue Service the entire balance of this account with her 2006 tax return. She. also became.awaretof an account at El Paso Employees.Federal Credit Union which no longer had a balance but showed that a $7,404.65 loan·had been repaid on April 6, 2006. Petitioner received Forms 109 rR, Distributions From Pensions, Annuities, Retirement or Profit-Sharing.P.lans, IRAs, Insurance Contracts, etc., after Mr. Haggerty's death. She did not know what to do with them, found them threateni.ng, and hid them in a cabine t . In early 2007 petitioner gathered al of the documents she could find and hired an accountant, Michaël L. Schmidt of (! Schmidt, Nugent, Gano & Co., P.C., to prebare her tax return. . Mr. Schmidt prepared a joint return witho2t asking petitioner how she wished to file. Petitioner assumed that was correct because she had always filed joint returns. Petitioner became distraught when Mr. Schmidt informed her how much sh owed; he did not know that she would be liable for v$25,343 in tax. Petitioner signed and timely filed a joint Fortn 1040, U.S. Individual Income Tax Return, for the 2006 tax year, reporting axable income of :2 Source Form W-2 to petitioner, Thomas Medical Associates Form W-2 to Mr. Haggerty, City of El Paso Interest IRA distributions El Paso Firemen' s Pe sion Fund. El Paso Firemen's Pension Fund ING Life Ins. & Annuity Co. Gambling winnings Total income $ 6,105 9, 736 165 67, 726 O, 281 40,835 3,500 2, 900 251, 248 2All values have been ropnded to the neares dollar amount . 'On the return petitionér reported a tax liability of $57,636, withholding credits.of $28,533, estimated tax payments of $3,720, and a total tax due of $25,343. Petitioner included only $5,300 with the return. At the time petitioner filed the return she knew that there was a large amount due and that she did not have the money to páy it. Petitioner filed a Forà 8857, Request for Innocent Spouse Relief, which respondent receiVed on February 19, 2008. On this form p'etitioner stated that "My deceased husband received 1099s after his death reflecting his pension and annuity income for the year 2006. I was shocked when I saw the 1099s because I had no idea he had received that müch money and there wasn't enough money to pay the tax." On her request petitioner reported monthly income of $8,682 and monthly expenses of $7,147. Of this income $5,350.96 per month comes from Mr. Haggerty's retirement plan distribut1.ons. On March 26, 2009, respondent sent petitioner a final Appeals determination denying her request for relief from joint and several liability for the 2006 tax year. On June 26, 2009, petitioner filed a timely petition with this Court contesting the adverse determination. OPINION In general, married taxpayers may elect to file a joint income tax return. Sec. 6013(a). A surviving spouse may elect to file a joint return with a deceased s ouse for the taxable year of the deceased spoush's death. Se . 6013( ) (3). After making the election, each spouse general y is jo ntly and severally liable for the entire Federal ncome tax liability for that year, whether as repo ted on the jo nt income tax return or subsequently determined to be due. Sec. 6013(d) 3); see sec. 1.6013-4 (b), Income Tax Regs. A spouse or forme spouse may ' petition the Commissioner for relief fro Jolnt nd several liability in certain circumstances. See sec. 6015(a). The Commissioner may relieve a spouée or former spouse from joint and several liability if, taking ihto acco nt all the facts and circumstances, it would be inequitable to hold the taxpayer liable.for any unpaid tax or deficiency nd reli f is not available to such individuål under secti n 6015(b) or (c).3 Sec. 6015(f). We have held that the applicab e stand rd of review is de novo. Porter v. Commis ioner, 132 T. . 203, 10 (2009). Petitioner bears the burden of proving t at she s entitled to relief under section 6015(f). See Rule 42(a). The Commissioner has outlined procedures for determining hether a requesting spouse qualifies for equitable relief unner section 6015(f). See Rev. Proc. 2003-61, 2003-2 C.B. 296. 3Petitioner seeks reliëf from a liability s e reported on her return, and therefore she is ineligi 6015(b) or 146 (2003). (c). See Washington v. Commissioner, 120 T.C. 137, le for elief under sec. I. Threshold Conditions - 8 - Rev. Proc. 2003-61,. sec..4.01, 2:003-2 C.B...at 297-298, sets forth seven threshold conditions that- must be satisfied before the Commissioner will consider a request for equitable relief under section 6015(f). Respondent concedes that petitioner satisfies the seven threshold conditions. , II. Safe Harbor Conditions If the threshold conditions are- met, the Commissioner ordinarily will grant equitable relief under section 6015(f) with respect.to an underpayment df income tax reported on a joint Federal income tax return, rovided.the following three safe harbor conditions are satisfied: .(i) On the date of the request for relief, the requesting spouse is no longer married to, or is legally separated from, the.nonrequesting spouse; (ii) on^the date the requesting spouse signed:the joint income tax return, the requesting spouse did not know, and had no reason to know, that the nonrequesting spous;e would not. pay the tax liability; and (iii) the requesting spoluse will suffer economic hardship if the Commissioner does not grant relief. Id. sec. 4.02, 2003-2 C.B. at 298. On the date that petitioner signed the joint income tax return, she knew that Mr. Haggerty was deceased and would not pay the tax liability. See George v. Commissioner, T.C. Memo. 2004- 261 (holding that the requesting spouse had knowledge that the nonrequesting spouse would not pay the t x liability because the nonrequesting spouse was~deceased at the time th requesting spouse filed the joint ret rn showing an amount ue) . Therefore she does not. satisfy the s cond conditio . Acco dingly, ·because petitioner does not meet all the require 1ents of the safe harbor, she does not qualify for relief under Rev. Proc. 2003-61, sec. 4.02. III. Facts and Circumstances Test A requesting spouse,- such as petitioner, who satisfies the threshold conditions but fails to satisf the safe harbor conditions under Rev. Procf. 2003-61,' sec. 4.02, is nevertheless eligible for relief under section 6015(f) if,«taking into account all the facts and circumstances, it is ihequitable to hold the requesting spouse liable for an underpayment. "Rev. Proc. 2003-61, sec. 4.03, 2003-2 C.B. at 298-2 9) - lists various nonexclusive factors to be considered in decidin whether to grant equitable relief und i section 6015(f). No single factor is determinative*, all factors are to be considered and weighed, and the ·list of factors is not intended o be ex austive. The or iginal Appeal s of f icer f ound f our f the f llowing f actor s weighed against relief and two weighed f r relie . Our analysis of -the relevant" factors and circumstances is as follows. A. Marital Status -s10 - When petiti.oner requested relief, Mr. Haggerty was deceased. "We view that circumstance, with.respect to petitioner, as tantamount to her being sep rated;or divorced. Therefore, we' conclude that that factor i favorabie." Rosenthal v. Commissioner, T.C. Memo. 20Ó4-89;j see also Capehart v. Commissioner, T.C. Memo. 20 4-268, affd. 204 Fed. Appx. 618 (9th Cir. 2006); George v. Commi sioner, supra. We note that the Appeals officer found that this factor weighed against relief, in direct.contradiction with this Court's opinions. At worst petitioner's widowhood may be a neutral factor, but we find it comp etely untenable that.this -factor. .- weighs against» relie f . B. Economic Hardship If- Relief Were Denied The second.factor unde Rev. Proc. 2003-61, sec. 4.03, is whether the requesting spouse will suffer economic hardship:if relief.is not granted. Eco omic hardship for these purposes is defined as the inability to pay reasonable basic living expenses if.the requesting spouse is held liable for.the·tax owed. See, sec: 301:6343-1(b) (4), Proc.ed. & Admin. Regs. The ability to pay reasonable basic living expdnses is determined-by considering: inter alia the following non xclusive factors: The. taxpayer's age, employment status, ability to earn, and number of dependents; the amount reaso ably necessary for food, clothing, - 11 - housing, medical expenses, and transportation; and any extraordinary circumstances.- Id. On her request for relfef., petition r repohted monthly 11 income of $8, 682 and monthly expenses of $7, 1471. Although petitioner explained that her income was decreasing because new medical technology made some of her services obs lete, she owns her own home f ree and clear of any mortg ges and I has no delinquent accounts. We also note that petition r included in her monthly expenses $1, 0 94 . 03 f or "withholding f rom pens ion" . At trial she explained that this was because "I started having a 11 little bit more taken out of the pension and from my checks, just so I won't be in the position of paying taxes to the IRS." This factor weighs against petitioner because we find that she would not suffer economic hardship if relief was not granted. C. Knowledge or Reasón To Know That Spouse Would Not Ûay the Incomé Tax Iliability the Nonrequesting The third factor under Rev. Proc. 2.003-61,. sec. 4.03, is whether the requesting spouse did not know and had no reason to know that (cid:16)042thenonrequesting spouse would not pay the income tax liability. When determining whether the requesting spouse had . reason to know, among other things, we consider "the requesting spouse' s degree of involvement in the activity generating the income tax liability, the rëquesting spouse's involvement in business and household financial matters". Rev. Proc. 2003-61, sec. 4.03(iii) (C) . Petitioner did not know of Mf. Haggerty's - 12 - income at the time he receiÝed it and was not . involved in. the income-generating activity or the;expenditure of most of these funds. She was,.howevery b nefited by the expenditure of a large portion of the funds to pay off the second mortgage encumbering their home on July.26, 2006, shortly before Mr. Haggerty's death. Petitioner knew of the tax liability at , the time the· return was f iled; therefore, this . factor weighs against relief . r D.' Nonrequesting Spouse's Legal Obligation To- Pay the Outstanding Liability Because petitioner and Mr . Haggerty never divorced, this factor is neutral. Respond nt's Appeals officer found that this factor weighed against relief. C11stomarily we find that this factor is neutral if it does not weigh in favor of relief . See Akopian v. Commissioner, T.( . Memo. 2011-237; Bland v. Commissioner, T. C. Memo. 2011-8 (this factor was found to be neutral because the taxpayer was widowed) . (cid:16)042 E. Significant Econot ic Benefit A fifth factor is whether the requesting spouse received a significant economic benefit from the.unpaid,income tax liability insexcess of normal support. Petitioner did-receive a significant economic benefit when Mr. Haggerty paid off the substantial second mortgage against.. their home.. She also receives significant income each nonth from his.remaining retirement plan distributions. We note the similarit es of this ca e to Ch shire v. Commissioner, 115 T.C. 183 (2000), affd. 282 F.3 326 (5th Cir. 2002) . In Cheshire the requesting spouse' s husband received retirement plan distributions and used p rt of t e withdrawn funds to pay of f their mortgage of $99, 425 . Id . at 185 -186 . In this case, - there does not tppear to be a underl ing attempt to avoid the tax collector as there was in Cheshire We find that this factor weighs against petitioner. F.. Subsequent Compliance With Incóme Tax Laws A sixth factor is whether the reque ting sp use made a good.- faith effort to comply with Federal inco e tax 1 ws in subsequent years . At trial petitioner credibly exp ained t at she has complied with all Federal income tax-law since 2007. This factor weighs in favor of >etitioner. . . G. c Abuse A seventh factor is abuse of the re Iuesting spouse. - Mr. Haggerty was an imposing man who was sec etive about his money. He occasionally verbally abused petitionér and would get angry if she ever asked about his möney. Although of concern, there is not enough evidence to fini that this fa tor wei hs in favor of petitioner. It is neutral. H. Poor Health When Signing the R turn or Requesting Relief The final factor is whether the req esting pouse was in poor health when signing the return or r questin relief . The record does not indicate that petitioner was in poor. health when she signed the 2006 joint iricome tax return. Therefore, this factor is neutral. IV. Conclusion As indicated by the fo egoing..analysis, three factors are neutral. Two of the factor --marital status and compliance with, Federal income tax law --favor relief . Three of the factors--economic hardship, the. more important factor knowledge or reason to know, and significant .benefit--weigh against ^ relief. After weighing the testimony and other evidence, ive conclude. that petitioner is not entitled to equitable relief for the tax year at issue. . .. The Court has considered all of,petitioner' s contentions, arguments, requests, and statements. To the extent not discussed herein, we conclude that they are meritless, moot, or irrelevant . . To reflect the foregoing, Decision will be entered for respondent.