TAX COURT OPINION

Case: Richard Paladin Lott, Petitioner and Tisa Lott, Intervenor
Docket Number: 15863-10S
Judge: Whalen
Opinion Type: bench
Filed: 11/05/2012
Pages: 14

UNITED STATES TAX COURT WASHINGTON, DC 20217 RICHARD PALADIN LOTT, PETITIONER AND TISA LOTT, INTERVENOR, Petitioner, v. COMMISSIONER OF INTERNAL REVENUE, Respondent. ) ) ) ) ) ) ) ) ) ) ) ) ORDER Docket No. 15863-10S 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 proceedings in the above-case before the undersigned at Tampa, Florida, containing the oral findings of fact and opinion rendered on September 13, 2012. In order to take into account the concessions of the parties set forth in the Stipulation of Settled Issues filed September 10, 2012, and the oral findings of fact and opinion, decision will be entered under Rule 155. Dated: Washington, D.C. November 5, 2012 (Signed) Laurence J. Whalen Judge i SERVED NOV - 8 2012 Capital Reporting Company Richard Paldain Lott 09-13-2012 3 1 BENCH OPINION 2 Bench Opinion by Judge Laurence J. Whalen 3 Richard Paladin Lott Tisa Lott, Intervenor 4 September 10, 2012s'(Trial Date) 5 6 7 8 9 10 11 I. THE COURT HAS DECIDED TO RENDER ORAL FINDINGS OF FACT AND OPINION IN THIS CASE, AND THE FOLLOWING REPRESENTS THE COURT'S ORAL FINDINGS OF FACT AND OPINION. II. This proceeding was heard as a Small Tax Case 12 pursuant to the provisions of section 7463(f) (1) of the 13 14 Internal Revenue Code of 1986, as amended, and Rules 170 through 179 of the Tax Court Rules of Practice and 15 Procedure. Hereinafter all section references are to 16 the Internal Revenue Code, as amended and in effect for 17 the taxable years in issue, and all rule references are 18 to the Tax Court Rules of Practice and Procedure. The 19 decision to be entered in this case is not reviewable 20 by any other court, and this opinion should not be 21 cited as authority . Sec. 7463 (b) . 22 23 III. This bench opinion is made pursuant to the 24 authority granted by section 7459 (b) and Rule 152. 25 IV. (866) 448 - DEPO www.CapitalReportingCompany.com 2012 Capital Reporting Company Richard Paldain Lott 09-13-2012 Petitioner Richard Paladin Lott appeared in 4 these proceedings on his own behalf. Petitioner's former spouse, Tisa Lott, who intervened in these 1 2 3 4 proceedings pursuant to Rule 325(b), also appeared on 5 her own behalf. Mark J. Tober, Esquire, appeared on 6 behalf of Respondent. 7 8 V. On April 6, 2010, Respondent issued a Notice 9 of Deficiency to Petitioner and Intervenor in which 10 Respondent determined a deficiency in the joint tax 11 12 13 14 15 liability of the couple for 2006. Respondent further determined that Petitioner and Intervenor are liable for the accuracy- related penalty under section 6662 (a) . The deficiency is based, principally, on four 16 adjustments to the taxable income reported on the 17 couple's joint individual income tax return for 2006. 18 First, Respondent determined that the wage income 19 reported on the return was understated by $160. 20 Second, Respondent disallowed a loss of $38,635 21 reported on Schedule E, Supplemental Income and Loss, 22 of the return with respect to certain residential 23 24 rental real property. Third, Respondent disallowed expenses, in the aggregate amount of $28,694, claimed 25 on Schedule C, Profit or Loss from Business, of the (866) 448 - DEPO www.CapitalReportingCompany.com 2012 Capital Reporting Company Richard Paldain Lott 09-13-2012 5 1 2 return with respect to a sales business operated by Intervenor. Fourth, Respondent disallowed medical and 3 dental expenses claimed on Schedule A, Itemized 4 Deductions, in the amount of $24,927. 5 6 VI. At the start of trial, the parties filed a 7 Stipulation of Settled Issues in which they disposed of 8 all of the issues in the case, except for two. The 9 first remaining issue is whether Petitioner is entitled 10 to relief from joint and several liability with respect 11 12 13 14 15 16 17 to the joint return he filed with Intervenor for 2006. The second remaining issue is whether Petitioner and Intervenor are liable for the accuracy-related penalty under section 6662. These are the issues for decision in the case. VII. Some of the facts have been stipulated by the 18 parties. The Stipulation of Facts filed by the parties 19 and the exhibits attached thereto are hereby taken into 20 evidence. Petitioner resided in Orlando, Florida, at 21 the time is petition was filed with the Court. 22 Petitioner and intervenor were married on or 23 before September 24, 1998, in Orlando, Florida. Two 24 children were born to them, the first on February 22, 25 1999, and the second on February 3, 2003. Their (866) 448 - DEPO www.CapitalReportingCompany.com 2012 Capital Reporting Company Richard Paldain Lott 09-13-2012 6 1 marriage ended by Final Judgment of Dissolution of 2 Marriage entered August 12, 2008 by the Circuit Court 3 4 for Orange County, Florida. The terms of the divorce are set forth in a Marital Settlement 5 Agreement dated July 8, 2008, that was approved in the 6 Final Judgment. Under that settlement agreement, 7 Petitioner and Intervenor were given "shared parental 8 responsibility" of their children, but the primary 9 physical residence of the children was to be with 10 11 12 13 14 Intervenor. In March of 2009, Petitioner was awarded sole custody of the children. The claims of Petitioner and Intervenor to two parcels of real estate were settled in the agreement. As to the marital home located on 15 Carisbrooke Street in Ocoee, Florida, Intervenor 16 remained the sole owner of the property, she assumed 17 18 two mortgages that were secured by the property, and she agreed to make an equalizing payment in the amount 19 of $30,000 to Petitioner within 12 months of the Final 20 Judgment . 21 Under the settlement agreement, Petitioner 22 received a condominium unit located on Robert Trent 23 Jones Drive in Orlando, Florida, and he assumed a 24 mortgage secured by that property. 25 The settlement agreement provided that each (866) 448 - DEPO www.CapitalReportingCompany.com 2012 Capital Reporting Company Richard Paldain Lott 09-13-2012 1 party would file an individual income tax return for 2 taxable year 2008, and it directed how income from non- 3 marital property and marital property should be 4 5 6 7 8 9 10 11 12 reported for year 2008. The settlement agreement, however, made no provision with respect to the tax liability of Petitioner and Intervenor for any other taxable year. The Schedule E filed as part of Petitioner's and Intervenor's joint return for 2006 refers to "residential rental 1104 Timor Avenue, Orlando, FL 32804". However, neither Petitioner nor Intervenor owned that property during taxable year 2006. They 13 both had signed an individual warranty deed on November 14 10, 2005, transferring that property to an unrelated 15 individual. It appears that the return preparer had 16 misidentified the property and that the Schedule E 17 should have referred to the condominium unit located on 18 Robert Trent Jones Drive in Orlando, Florida. 19 Petitioner's petition asked the Court to 20 redetermine the deficiency determined by Respondent in 21 the Notice of Deficiency for taxable year 2006. Among 22 other things, the petition stated Petitioner's 23 24 25 intention "to file a Spousal Relief Petition". Intervenor did not sign the Petition. After the petition was filed, Respondent (866) 448 - DEPO www.CapitalReportingCompany.com 2012 Capital Reporting Company Richard Paldain Lott 09-13-2012 8 1 referred the case to an office of the Internal Revenue 2 Service that specialized 1n cases involving relief 3 4 5 under section 6015, the Cincinnati Centralized Innocent Spouse Operation ("CCISO") . Petitioner did not respond to a letter from that office dated September 28, 2010, 6 asking Petitioner to file Form 8857, Request for 7 8 9 10 11 12 13 14 Innocent Spouse Relief. Accordingly, the office concluded that it did not have enough information with respect to Petitioner's potential claim, and it rejected the claim. Later, on or about May 17, 2011, Petitioner filed Form 8857 with Respondent's attorney who, in turn, forwarded Petitioner's Form 8857 and the Final Judgment of Dissolution of Marriage to CCISO for 15 consideration. On December 1, 2011, CCISO concluded 16 that Petitioner would not have had knowledge of the 17 disallowed deductions of $28,694 that were claimed on 18 19 20 21 22 the Schedule C for Intervenor's business. Accordingly, the second time that CCISO considered the case, it approved partial relief for Petitioner under section 6015 (c) . At the same time, CCISO concluded that it 23 would not be inequitable to hold Petitioner liable for 24 the tax. It further concluded that Petitioner had 25 reason to know of the deductions claimed on Schedule E (866) 448 - DEPO www.CapitalReportingCompany.com 2012 Capital Reporting Company Richard Paldain Lott 09-13-2012 1 with respect to a residential rental property. 2 Accordingly, CCISO did not approve relief for 3 Petitioner under Section 6015 (b) or (f) . After further 9 4 5 6 7 8 9 10 11 12 review, following the issuance of Notice 2012- 8, CCISO concluded that no change should be made in the relief to be provided to Petitioner. VIII. The issue for decision is whether Petitioner is entitled to relief from the entire deficiency for taxable year 2006 under section 6015 (b), (c), or (f) . IX. In general, spouses who elect to file a joint 13 Federal income tax return are jointly and severally 14 15 liable for the entire amount of tax reported on the return, as well as for any deficiency subsequently 16 determined. Sec. 17 18 6013 (d) (3) . However, section 6015 provides three avenues of relief from joint and several 19 liability: (1) section 6015 (b) permits relief if the 20 requesting spouse establishes, inter alia, that in 21 signing the return she "did not know, and had no reason 22 to know" that there was an understatement of tax 23 attributable to the erroneous items of the other 24 spouse; (2) section 6015(c) allows a separated or 25 divorced spouse if the requesting spouse did not have to request an allocation of liability to the nonrequesting spouse (866) 448 - DEPO www.CapitalReportingCompany.com 2012 Capital Reporting Company Richard Paldain Lott 09-13-2012 10 1 "actual knowledge" of the items giving rise to the 2 understatement of tax; and (3) section 6015(f) allows 3 4 the IRS or the Court to confer equitable relief depending on the particular facts and circumstances but 5 only in situations where relief under section 6015 (b) I 6 7 8 and (c) is not available. The spouse requesting relief generally bears the burden of proof in section 6015 cases. Rule 9 142(a); Alt v. Commissioner, 119 T.C. 306, 311 (2002), 10 aff'd, 101 Fed. Appx. 34 (6th Cir. 2004); Young v. 11 Comm'r, T.C. Memo. 2012-255. An exception is found in 12 13 14 section 6015 (c), which places upon the Commissioner the burden of proving that a spouse electing relief under subsection (c) had actual knowledge at 15 the time of signing the return of any item giving rise 16 to the deficiency . Sec. 6015 (c) (3) (C) . 17 The standard of review in determining whether 18 relief is warranted under subsection (b), (c) or (f) of 19 section 6015 is de novo. Porter v. Commissioner, 132 20 T.C.203, 210 (2009). Under a de novo standard of 21 review, we take into account all the facts and 22 circumstances and determine whether it is inequitable 23 24 25 to hold the requesting spouse liable for the unpaid tax or deficiency. Porter v.Commissioner, supra. X. (866) 448 - DEPO www.CapitalReportingCompany.com 2012 Capital Reporting Company Richard Paldain Lott 09-13-2012 11 1 Petitioner's position is that the problems 2 which lead to the Notice of Deficiency in this case, 3 began in 2004 when Intervenor got a high-paying job 4 working in a sales position for a real estate company. 5 According to Petitioner, Intervenor's new job, required 6 her to work six days per week, but it paid very well, 7 8 9 10 and Intervenor became the principal wage earner for the family. To accommodate this situation, Petitioner stayed home to look after the couple's two children. With Intervenor's new job, according to 11 Petitioner, Intervenor ad pted a new lifestyle away 12 13 from the family, she became secretive, she took over the financial affairs of the family, including the 14 filing of the couple's tax returns, she purchased a 15 house and rental real property that she put in her own 16 name, and she started abusing alcohol. Petitioner 17 asserts that in 2006 Intervenor had to go to an alcohol 18 rehabilitation center, but, by the end of the year she 19 had relapsed and moved out of the family home. 20 According to Petitioner, Intervenor "did the taxes 21 taxable year 2006] . . . on her own, stopped by my 22 place with the paperwork and told me to sign and I 23 did." 24 During her testimony, Intervenor did not deny 25 having alcohol problems. Other than that, Intervenor's (866) 448 - DEPO www.CapitalReportingCompany.com 2012 Capital Reporting Company Richard Paldain Lott 09-13-2012 12 1 testimony was quite different. She contradicted most 2 of the factual assertions made by Petitioner. For 3 4 5 example, she testified that she did not take over the family finances. She pointed out that she was working too many hours and Petitioner had a "banking 6 background". She testified that she did not purchase 7 8 real property in her own name, and asserted that all deeds were in both names. She explained that the 9 mortgages on the properties were put in her name 10 11 12 13 because she was able to get a lower interest rate. She says that she did not bring the 2006 return to his house to get it signed because they were living together at the time. In addition, on cross 14 examination, she testified that Petitioner actually 15 managed the renovation of the rental property that was 16 reported on the Schedule E etitioner's case is built 17 entirely around his testimony at trial. He introduced 18 no documents of any kind to corroborate or support his 19 testimony, such as deeds to show Intervenor's purchase 20 of property in her own name, loan applications to show 21 his dire financial position, records from the divorce 22 proceeding to document his claims that Intervenor 23 24 failed to make payments required under the divorce settlement, or the like. Similarly, he called no 25 witness to corroborate or support his testimony, such (866) 448 - DEPO www.CapitalReportingCompany.com 2012 Capital Reporting Company Richard Paldain Lott 09-13-2012 as the testimony of the return preparer to show Intervenor's control of the family's financial and tax 13 records. It is evidence that Petitioner and Intervenor engaged, and are engaging, in a divorce proceeding 1 2 3 4 5 6 which is both unpleasant and vitriolic. It is not 7 possible for the Court, on the basis of the record 8 presented by the parties, to resolve the factual 9 differences in Petitioner's and Intervenor's testimony. 10 For example, we have no deeds for the Schedule E rental 11 property and cannot determine whether both of their 12 names were on the deed. Similarly, it is not possible 13 with this record to determine how the couple's 2006 tax 14 15 return was prepared. Two comments on Petitioner 's testimony 16 denying knowledge about the 2006 return are 17 appropriate. First, we do not credit Petitioner's 18 assertion that he did not review the 2006 return, but 19 signed the return because Intervenor told him to sign. 20 Moreover, in Porter v. Commissioner, 132 21 T.C. supra at 211-212, we said, 22 "A taxpayer who signs a return is generally charged 23 with constructive knowledge of its contents. Hayman 24 v. Commissioner, 992 F.2d 1256, 1262 (2d Cir. 1993), 25 affg. (866) 448 - DEPO www.CapitalReportingCompany.com 2012 Capital Reporting Company Richard Paldain Lott 09-13-2012 T.C. Memo. 1992-228. * * * Section 6015 14 does not protect a spouse who turns a blind eye to facts readily available to her. Charlton v. Commis sioner, 114 T . C. 333, 340 (2000) ; Bokum v. Commissioner, 1 2 3 4 5 6 affd. 992 F.2d 1132 (11th Cir.1993)] supra. In such 7 instances, we may input the requisite knowledge to the 8 putative innocent spouse unless she satisfies her duty 9 of inquiry. Hayman v.Commissioner, supra at 1262; 10 11 12 13 14 Adams v. Commissioner, 60 T.C. 300, 303 (1973) ." Second, we do credit Intervenor's testimony that Petitioner took charge of the renovation of the rental property on Robert Trent Jones Drive. Based on that testimony, we believe that Petitioner was fully 15 aware of the rental property reported on the couple's 16 Schedule E. 17 18 XI. After reviewing the record in this case, we 19 find that Petitioner has not established eligibility 20 for relief under section 6015 (b) because he has not 21 established that in signing the return he did not know, 22 and had no reason to know, that there was an 23 understatement with respect to the expenses claimed on 24 Schedule E . See sec. 6015 (b) (1) (C) . 25 Furthermore, Petitioner did not prove that (866) 448 - DEPO www.CapitalReportingCompany.com 2012 Capital Reporting Company Richard Paldain Lott 09-13-2012 15 1 the deficiency attributable to the expenses claimed on 2 Schedule E are not allocable to him for purposes of 3 4 sec. 6015(c). See sec. 6015(c) (2). Thus, Petitioner has not 5 established that he is entitled to any relief under 6 section 6015(c) beyond the partial relief already 7 provided to him under that subsection. Finally, 8 Petitioner has not established eligibility for relief 9 under section 6015(f) because he has not established 10 that, taking into account all of the facts and 11 circumstances of the case, it would be inequitable to 12 hold Petitioner liable for the portion of the 13 deficiency determined by Respondent. See sec. 6015(f). 14 15 XII. An appropriate order will be issued 16 reflecting the above findings. 17 18 XIII. (Whereupon, THIS CONCLUDES THE COURT'S ORAL FINDINGS 19 OF FACT AND OPINION IN THIS CASE.) 20 21 22 23 24 25 (866) 448 - DEPO www.CapitalReportingCompany.com 2012