TAX COURT OPINION

Case: Pamela Annette Whitley, Petitioner and Jack G. Woods, Intervenor
Docket Number: 24236-09S
Judge: Ruwe
Opinion Type: summary
Filed: 06/01/2011
Pages: 8

JMP T.C. Summary Opinion 2011-63 UNITED STATES TAX COURT PAMELA ANNETTE WHITLEY, Petitioner, AND JACK G. WOODS, Intervenor v. COMMISSIONER OF INTERNAL REVENUE, Respondent Docket No. 24236-09S. Filed June 1, 2011. Pamela Annette Whitley, pro se. Jack G. Woods, pro se. Amber N. Becton, for respondent. RUWE, Judge: This case was heard pursuant to the provisions of section 74631 of the Internal Revenue Code in effect when the petition was filed. Pursuant to section 7463(b), the decision to Unless otherwise indicated,.all section references are to the Internal Revenue Code as amended. SERVED Jun 01 2011 - 2 - be entered is not reviewable by any other codrt, and this opinion shall not be treated as precedent for any other case. The only issue is whether petitioner is entitled to spousal relief under section 6015(f) regarding her joint tax liabilities for 2003 and 2004. Background Some of the facts have been stipulated and are so found. The stipulation of facts and the attached e hibits are incorporated herein by this reference. At the time the petition was filed, pe itioner resided in Tennessee. Petitioner and intervenor (herein sometimes referred to as the taxpayers) timely filed joint Federal iñcome tax returns for taxable years 2003 and 2004. Petitioner prepared the returns for both years. For taxable year 2003 the taxpäyers filed a Schedule C, Profit or Loss From Business, for petitioner on which they reported income of $13,546 and claimed expe ses of $68,302, resulting in a net loss of $54,756. The takpayers also filed a Schedule C-EZ, Net Profit From Business, for intervenor on which they reported income of $18,272 and claimed' no expenses. Petitioner and intervenor also reported early distributions from I their qualified retirement plans of $1,542 and $1,049, respectively, for 2003. - 3 - With their 2004 return the taxpayers filed a Schedule C for petitioner on which they claimed expenses of $28,243 and a net loss of $29,959. Respondent audited the taxpayers' 2003 and 2004 returns and issued them a statutory notice of deficiency with respect to their income tax liabilities for those years. In the notice of deficiency respondent disallowed part of the Schedule C expenses, exemptions, and itemized deductions the taxpayers claimed for 2003 and 2004. The disallowed deductions for both years were attributable to petitioner's Schedules C. Respondent also determined that the taxpayers were liable for the accuracy- related penalty under section 6662 for the 2003 and 2004 taxable years, as well as additional tax on early distributions from qualified retirement plans under section 72(t) for 2003. Petitioner and intervenor did not file a petition tolthe Court in response to the notice of deficiency. Subsequently, on January 10, 2007, following her bankruptcy attorney's advice, petitioner informed the Internal Revenue Service (IRS) that she was going to file for bankruptcy and requested that the IRS place a lien on her residence 2:U2 Knoxville, Tennessee, which she owned jointly with intervenor. Petitioner believed that if a lien were placed on the home before she filed for bankruptcy, any eventual sale would lead to the satisfaction of her income tax liabilities for 2003 and 2004. On February 2, 2007, petitioner filed a chapter 7 bankruptcy - 4 - petition. On April 25, 2007, the IRS filed à proof of claim listing $11,235.21 in unsecured priority claims for tax years 2002, 2003, and 2004 and $2,453.92 in unsecu ed general claims for penalties. As part of petitioner's bank uptcy proceeding, the jointly owned residence was sold. The r sidence was the only significant asset in the bankruptcy estate. After the outstanding mortgage on the property and the administrative expenses associated with the sale were paid, the proceeds were divided equally between petitioner's bankru tcy estate and intervenor. The IRS was to receive $2,630. 4 for its unsecured priority claim as a distribution from the bånkruptcy trustee. On June 19, 2007, an order of discharg was entered in petitioner's bankruptcy case. Petitioner a d intervenor divorced in July 2007. On October 10, 2008, petitioner submitted to respondent a Form 8857, Request for Innocent Spouse Relief, in which she requested relief from joint tax liabilities for 2003 and 2004. Respondent issued petitioner a preliminary determination, dated June 10, 2009, that she was not entitled to relief from the joint liabilities as an innocent spouse. In resppnse to respondent's preliminary determination, petitioner filedb a statement of Il disagreement with respondent. On July 16, 2009, respondent 11 issued a final Appeals determination denyinig petitioner's request I for relief. On October 13, 2009, petitioner filed a petition - 5 - with this Court. Discussion Petitioner's only argument is that she in entitled to r equitable relief under section 6015(f) because the I.RS should have filed a lien against her residence before she filed for bankruptcy. She alleges that had that been done, all or most of her unpaid tax liabilities would have been satisfied. Petitioner contends that respondent made affirmative misrepresentations to her regarding the existence of a tax lien on her home before its sale in bankruptcy and that those misrepresentations led to her home being sold by the bankruptcy trustee without her tax liabilities being fully satisfied. Petitioner argues that she is entitled to equitable relief because she requested that the IRS place a lien on her home before it was sold in.bankruptcy and the IRS incorrectly assured her that one had been put in place before the sale.2 Petitioner contends that as a result of respondent's misrepresentations her tax liabilities were. not satisfied by the sale and, therefore, respondent should be equitably estopped from collecting the liabilities. We must decide whether petitioner is 2At trial and on brief, petitioner did not contend that she meets the requirements to qualify as an innocent spouse under sec. 6015(b) or" (c) or make any other argument for equitable relief. - 6 - relieved from liability for the understatements of tax by equitable estoppel. Equitable estoppel is a judicial doctrine that precludes a party from denying his or her own acts or reyresentations which induced another to act to his or her detriment. Hofstetter v. Commissioner, 98 T.C. 695, 700 (1992); Graffi v. Commissioner, 74 T.C. 743, 761 (1980), affd. 673 F.2d 784 (5dh Cir. 1982). It i's well settled that the Government may not be gestopped "on the same terms as any other litigant." Office of Personnel Management v. Richmond, 496 U.S. 414, 419 (1990); Heckler dv. Cmty. Health Servs. Inc., 467 U.S. 51, 60 (1984). Equitáble estoppel should be applied "against the Government with utmóst caution and restraint". Schuster v. Commissioner, 312 É.2d 311, (9th Cir. 1962), affg. in part and revg. in part 32 T.C. 998 (1959). Any successful attempt to invoke equitable estoppel against the Commissioner must outweigh the policy consideration in favor of "an efficient collection of the public revenue". Id. In order to invoke the doctrine of equitable estoppel against the Government, petitioner must satfisfy the following. il conditions: "(1) A false representation od wrongful, misleading silence by the party against whom the oppoding party seeks to invoke the doctrine; (2) an error in a statement of fact and not in an opinion or statement of law; (3) ignorance of the true facts; (4) reasonable reliance on the acts or statements of the - 7 - one against whom estoppel is claimed; and (5) adverse effects of the acts or statement of the one against whom estoppel is claimed." Norfolk S. Corp.,v. Commissioner, 104 T.C. 13, 60 (1995),.affd. 140 F.3d 240 (4th Cir. 1998); see also Miller V. Commissioner, T.C. Memo. 2001-55. In addition, estoppel requires at least a minimum showing of some affirmative misconduct by a Government agent. United States v. Guy, 978 F.2d 934, 937 (6th Cir. 1992). To establish affirmative misconduct, the party claiming equitable estoppel against the Government must establish "'more than mere negligence, delay, inaction, or failure to follow an internal agency guideline'". Fisher v. Peters, 249 F.3d 433, 445 (6th Cir. 2001) (quoting Ingalls Shipbuilding, Inc. v. Office of Workers' Comp. Programs, U.S. Dept. of Labor, 976 F.2d 934, 938 (5th Cir. 1992)). Even if the Court were to accept petitioner's testimony as to respondent's misrepresentations regarding the status of the lien, we conclude that petitioner has not established the elements necessary for estoppel because she failed to show that respondent's misrepresentations amounted to affirmative misconduct. It is well settled that a Government agent's providing inaccurate information does not constitute affirmative misconduct. See Socop-Gonzalez v. INS, 272 F.3d 1176, 1184 (9th Cir. 2001) (negligently providing misinformation or incorrect - 8 - advice is not affirmative misconduct); United States v. Manning, 787 F.2d 431, 437 (8th Cir. 1986). On the basis of the foregoing, we hold ghat the doctrine of equitable estoppel cannot be invoked to relieve petitioner from liability for the understatements of tax for the years at issue. To reflect the foregoing, Dec9sion will be entered 11 for respdndent.