TAX COURT OPINION

Case: Cynthia Irene Spottswood, Petitioner and Anthony Edwin Jacobs, Intervenor
Docket Number: 6428-15
Judge: Morrison
Opinion Type: bench
Filed: 06/21/2016
Pages: 7

RS UNITED STATES TAX COURT WASHINGTON, DC 20217 CYNTHIA IRENE SPOTTSWOOD, Petitioner ) ) ) AND ANTHONY EDWIN JACOBS, Intervenor v. ) ) ) ) ) Docket No. 6428-15. COMMISSIONER OF INTERNAL REVENUE, Respondent ) ) ) ORDER OF SERVICE OF TRANSCRIPT Pursuant to Rule 152(b), Tax Court Rules of Practice and Procedure, it is ORDERED that the Clerk of the Court shall transmit herewith to petitioner and to respondent a copy of the pages of the transcript of the trial in the above case before Judge Richard T. Morrison, at Atlanta, Georgia, 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, an appropriate decision will be entered. (Signed) Richard T. Morrison Judge Dated: Washington, D.C. June 21, 2016 SERVED Jun 22 2016 Capital Reporting Company 3 1 2 Bench Opinion by Judge Richard T. Morrison May 5, 2015 3 Cynthia Irene Spottswood v. Commissioner 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 Docket No. 6428-15 The Court has decided to render Oral Findings of Fact and Opinion in this case. The following represents the Court's Oral Findings of Fact and Opinion, which shall not be relied on as precedent in any other case. This bench opinion is made pursuant to the authority granted by section 7459(b) of the Internal Revenue Code, and Rule 152 of the Tax Court Rules of Practice and Procedure. Unless otherwise indicated, all references to sections are to sections of the Internal Revenue Code as amended in effect for all relevant times. The respondent is referred to here as the IRS. We have jurisdiction under section 6015(e)(1) to review a final determination by the IRS denying petitioner Spottswood's request for innocent spouse relief of her joint federal income-tax liability for tax years 2006 and 2007. We hold that Spottswood is relieved of her liability for those years. Findings of Fact Spottswood was a resident of Georgia when 866.488.DEPO www.CapitalReportingCompany.com Capital Reporting Company 4 1 2 3 4 5 6 she filed her petition. Spottswood met her husband, Anthony Jacobs, in 1989. Jacobs has intervened in this case. In 1997, Spottswood bought a house in her name. Spottswood and Jacobs still live in the house. In 2002, Spottswood and Jacobs were 7 married. 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 On August 25, 2009, Spottswood and Jacobs filed a joint bankruptcy petition under chapter 7. On August 31, 2009, Spottswood and Jacobs filed joint returns for 2006 and 2007. The 2006 return reported tax due of $5,363. The 2007 return reported tax due of $4,940. Neither tax was paid. For years 2008 through 2011, Spottswood and Jacobs also filed joint returns. According to stipulations, they have no tax liability for those years. On February 25, 2014, Spottswood filed a request for innocent spouse relief with the IRS for tax years 2006 through 2011 (on Form 8857). However, Spottswood and Jacobs have no liability for the last four of these years (tax years 2008 through 2011). On January 12, 2015, the IRS determined that Spottswood should not be relieved of liability for 2006 and 2007. 866.488.DEPO www.CapitalReportingCompany.com Capital Reporting Company Opinion 5 There are three types of relief under section 6015. These are sections 6015(b), (c), and (f). Spottswood is not eligible for relief under section 6015(b) because the IRS did not determine that there was an understatement of tax on the returns for 2006 and 2007. Spottswood is not eligible for relief under section 6015(c) because she is still married to Jacobs. The test for relief under section 6015(f) is, in the words of the statute, whether "it is inequitable to hold the individual liable for * * * unpaid tax". To determine whether it is inequitable to hold a spouse liable for an unpaid tax for the purpose of section 6015(f), the Tax Court has applied the rules set forth by the IRS in Revenue Procedure 2013-34. Under the revenue procedure, the spouse must first meet seven threshold requirements for relief, all of which the IRS concedes Spottswood has met. See Rev. Proc. 2013-34, sec. 4.01. For a spouse who meets the threshold requirements, there is a series of nonexclusive factors to be considered to determine if it is inequitable to hold the spouse liable for a joint tax liability. See Rev. Proc. 2013-34, sec. 4.03. 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 866.488.DEPO www.CapitalReportingCompany.com Capital Reporting Company 6 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 It would favor relief if Spottswood and Jacobs were divorced or separated. However, Spottswood and Jacobs are still married and living together. One factor that weighs against relief is that Spottswood admittedly knew when she filed the returns that she and Jacobs would be unable to pay the joint liabilities. One factor that weighs in favor of relief is that Spottswood would suffer an economic hardship if she were to.pay the joint liabilities. The record reveals that Spottswood has no source of income. She receives her support from her husband, Jacobs. Her assets consist of a bank account with at most a few thousand dollars in it, a retirement account worth less than $10,000, an old vehicle worth very little, and a house with $10,000 of equity. To pay the liabilities would require her to liquidate one or 19 more of the assets. If she sold her house, she would 20 21 22 23 24 be deprived of a place of live, which would worsen her economic situation. If she paid the liability from her meager retirement accounts or her bank account, she would substantially diminish her life savings. This would be a hardship because she has 25 mental-health problems that make her unemployable. 866.488.DEPO www.CapitalReportingCompany.com sk Capital Reporting Company 7 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 She needs to have a modest retirement savings. Furthermore, Jacobs is an unreliable source of income. Although he currently earns more income than the couple's household expenses, he has only done so far for the last four months. It is possible that this is only a temporary situation. Jacobs's income, which is from land surveying, is uneven. Furthermore, he is thinking about divorcing her. We conclude that it would impose on Spottswood an economic hardship for her to pay the liability. We do not believe she received a significant benefit from the nonpayment of the liability. The amounts that would have paid the taxes went to normal household expenses rather than lavish expenditures. We do not find that Spottswood was intentionally noncompliant with the tax laws. Although the IRS points out she had a taxable distribution of over $11,000 in 2013 that triggered her responsibility to file an income tax return, and although she did not file a return for that year, 22 more likely than not she had a good-faith 23 misunderstanding about whether she had to file a 24 return. Thus, while noncompliance with the tax laws 25 might be a factor against relief in some cases, it is 866.488.DEPO www.CapitalReportingCompany.com Capital Reporting Company 8 1 2 3 4 5 6 7 8 not a reason to deny relief to Spottswood. In consideration of the various factors, we hold that it is inequitable for Spottswood to be liable for the 2006 and 2007 income tax liabilities. She is entitled to full relief from these liabilities under section 6015(f). In making our determinations, we reviewed the determination of the IRS on a de novo record and 9 with a de novo standard of review. Our findings of facts are supported by a preponderance of the evidence. A decision will be entered for the petitioner. That concludes the bench opinion; the trial session is concluded. (Whereupon, at 5:08 p.m., the above- entitled matter was concluded. ) 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 866.488.DEPO www.CapitalReportingCompany.com