TAX COURT OPINION

Case: Christopher L. Burgess & Victoria Burgess
Docket Number: 1711-15
Judge: Ashford
Opinion Type: bench
Filed: 01/13/2017
Pages: 19

UNITED STATES TAX COURT WASHINGTON, DC 20217 CHRISTOPHER L. BURGESS & VICTORIA BURGESS, Petitioners, v. COMMISSIONER OF INTERNAL REVENUE, Respondent. ) ) ) ) ) Docket No. 1711-15 ) ) ) ) ) ) ORDER Pursuant to Rule 152(b) of the Tax Court Rules of Practice and Procedure, it is hereby ORDERED that the Clerk of the Court shall transmit herewith to petitioners and to respondent a copy of the pages of the transcript of the proceedings in the above case before Judge Tamara W. Ashford at Boston, Massachusetts, containing her 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) Tamara W. Ashford Judge Dated: Washington, D.C. January 13, 2017 SERVED JAN 17 2017 Capital Reporting Company 3 1 2 Bench Opinion by Judge Tamara W. Ashford December 2, 2016 3 Christopher L. Burgess and Victoria Burgess v. 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 Commissioner Docket No. 1711-15 THE COURT: 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. THE ORAL FINDINGS OF FACT AND OPINION SHALL NOT BE RELIED UPON 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 of 1986, as amended, as Rule 152 of the Tax Court Rules of Practice and Procedure. Unless otherwise indicated, subsequent section references made in this bench opinion are to the Internal Reveñue Code of 1986 as amended and in effect for the years at issue, and Rule references are to the Tax 20 Court Rules of Practice and Procedure. All monetary 21 22 amounts have been rounded to the nearest dollar. Petitioners Christopher Burgess and 23 Victoria Burgess both appeared pro se. Nina Ching 24 25 appeared on behalf of respondent. When petitioners filed their petition, they resided in Pembroke, 866.488.DEPO www.CapitalReportingCompany.com Capital Reporting Company 4 1 Massachusetts. 2 3 4 5 6 7 8 9 On December 11, 2014, respondent mailed petitioners a notice of deficiency for the taxable years 2010, 2011, and 2012, in which he determined deficiencies in petitioners' Federal income tax of $91,266, $79,250, and $32,414 for 2010, 2011, and 2012, respectively, and accuracy-related penalties pursuant to section 6662(a) of $18,253, $15,850 and $6,483 for 2010, 2011, and 2012, respectively. 10 Petitioners timely filed a petition contesting 11 12 13 14 15 16 17 18 19 20 21 22 respondent's determinations. Thereafter, by separate stipulations of settled issues, each petitioner reached a resolution with respondent of certain issues raised by the pleadings filed in this case. In one stipulation of settled issues, Mr. Burgess and respondent agree that Mr. Burgess is liable for the following income tax deficiencies and penalties: for 2010, a deficiency of $41,427 and a penalty of $8,285; for 2011, a deficiency of $32,898 and a penalty or $6,580; and for 2012, a deficiency of $31,366 and a penalty of $6,273. In the other stipulation of settled issues, 23 Mrs. Burgess and respondent agree that Mrs. Burgess 24 25 is liable for these same deficiencies and penalties, before the application of section 6015(b), (c), or 866.488.DEPO www.CapitalReportingCompany.com Capital Reporting Company 5 1 (f). Mrs. Burgess and respondent also agree that 2 Mrs. Burgess is not entitled to relief from the 3 deficiencies and penalties for 2010, 2011, and 2012 4 with respect to the deductions claimed for 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 contributions to an Individual Retirement Account (IRA) in the amounts of $6,000 for those years. Finally, Mrs. Burgess and respondent agree that Mrs. Burgess is entitled to section 6015(f) relief and that after the application of section 6015(f), Mrs. Burgess is liable for the following income tax deficiencies (but not liable for any penalties): for 2010, a deficiency of $2,471; for 2011, a deficiency of $1,742; and for 2012, a deficiency of $1,680. Mr. Burgess does not agree that Mrs. Burgess is entitled to relief under section 6015(b), (c), or (f). Consequently, it remains for us to decide whether and to what extent Mrs. Burgess is entitled to relief under section 6015. Facts Mr. and Mrs. Burgess married in 1980. They have two children. In November 2015, Mr. and Mrs. Burgess separated, with Mrs. Burgess leaving the 23 marital home and filing for divorce. Their divorce 24 25 is currently pending. During the taxable years at issue, Mr. 866.488.DEPO www.CapitalReportingCompany.com Capital Reporting Company 6 1 2 3 4 5 6 7 Burgess was a steeplejack, who operated a Schedule C business rebuilding and restoring steeples of churches and other buildings. It was a business that had been in his family for several generations. During the taxable years at issue, Mrs. Burgess was a stay-at-home mother. In 2007, she was diagnosed with breast cancer and received chemotherapy treatments 8 until 2009. The chemotherapy treatments exacerbated 9 pre-existing arthritis she had and as a result, in 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 2013, she underwent knee replacement surgery on both her knees. For the taxable years at issue, petitioners used a paid return preparer to prepare and timely file their Forms 1040, U.S. Individual Income Tax Returns (joint returns). Respondent examined the joint returns and during this examination, respondent discovered that petitioners held additional bank accounts at other banks besides Bridgewater Savings Bank, which was the bank at which Mr. Burgess had a business account. Eventually, respondent identified that petitioners had five different bank accounts, and respondent performed a bank deposits analysis on each of the accounts. As a result of this analysis, respondent determined that for the taxable years at issue, petitioner had unreported Schedule C gross 866.488.DEPO www.CapitalReportingCompany.com 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 22 receipts from Mr. Burgess's steeplejack business and had overstated Schedule C expenses for cost of goods sold for purchases and other costs, as well as other expenses, pertaining to Mr. Burgess's business. Respondent also determined that for those years, petitioners were not entitled to claim deductions of $6,000 for IRA contributions. The notice of deficiency mailed to petitioners reflects those determinations, as well as the determination that petitioners should be liable for accuracy-related penalties under section 6662(a) for 2010, 2011, and 2012. Petitioners timely filed a petition with the Court, challenging all of respondent's determinations. The petition also raised Mrs. Burgess's entitlement to relief from joint and several liability under section 6015, although Mrs. Burgess had not yet filed a claim for such relief at the time. In November 2015, Mrs. Burgess filed a Form 8857, Request for Innocent Spouse Relief. According to the Form 8857, Mrs. Burgess attended the 23 University of Massachusetts in Amherst, 24 Massachusetts, for two years, but did not receive a 25 degree. On the form, Mrs. Burgess also states that 866.488.DEPO www.CapitalReportingCompany.com Capital Reporting Company 8 1 Mr. Burgess predominantly controlled all aspects of 2 3 4 5 the couple's income and expenses with Mr. Burgess having sole signature authority over the Bridgewater Savings Bank business account, which was Mr. Burgess's main business bank account. According to 6 Mrs. Burgess, this account contained all of the 7 8 9 10 11 12 13 14 15 earnings of the household, and thus at the end of each taxable year, she provided copies of the bank statements and a summary of checks written from this account to Mr. Burgess so that he could meet with the return preparer. She claimed that she was unaware that Mr. Burgess had any other bank accounts into which he directed income from his business. On the form, Mrs. Burgess states that she would need to request on a monthly basis, checks from 16 Mr. Burgess to be deposited into a joint checking 17 account so that the household expenses could be paid. 18 Mr. Burgess would routinely become angry and would 19 20 21 22 23 24 25 verbally lash out against her when she requested funds to pay these expenses, especially when he had been drinking. It is undisputed that during the years at issue, Mr. Burgess had a drinking problem. At trial, Mr. Burgess testified that in January of this year, he had an "incident" but that today he was "clean, sober and happy." Mrs. Burgess at trial 866.488.DEPO www.CapitalReportingCompany.com Capital Reporting Company 9 1 2 3 4 disputed that, testifying that his drinking caused him to assault her in August of this year and to fail a breathalyzer test in October of this year. Documentary evidence, consisting of Plymouth, 5 Massachusetts, district court criminal records and 6 7 8 9 10 11 12 13 14 15 16 17 probation violation records, indicates that the charges arising from these two incidents against Mr. Burgess are pending. On the form, Mrs. Burgess states she was just told to sign the joint returns, never being given an opportunity to fully review them, and that the return preparer never advised her that she had the option of filing separate returns. At trial, we found Mrs. Burgess generally speaking to be more credible than Mr. Burgess, and indeed her version of events is better supported by the record. 18 Discussion 19 20 21 22 23 24 25 Generally, married taxpayers may elect to file a joint Federal income tax return. Sec. 6013(a). If a joint return is made, the tax is computed on the spouses' aggregate income, and each spouse is fully responsible for the accuracy of the return and is jointly and severally liable for the entire amount of the tax shown on the return or found 866.488.DEPO www.CapitalReportingCompany.com Capital Reporting Company 10 1 2 to be owing. Sec. 6013(d)(3); Butler v. Commissioner, 114 T.C. 276, 282 (2000). 3 Nevertheless, under certain circumstances, a spouse 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 who has made a joint return may seek relief from joint and several liability under procedures set forth in section 6015. Sec. 6015(a). If certain requirements are met, a spouse may be relieved of joint and several liability in one of three ways - (1) full or partial relief under subsection (b), (2) proportionate relief under subsection (c), and (3) if relief is not available under subsection (b) or (c), equitable relief under subsection (f). We apply a de novo scope and standard of review in determining the appropriate relief available under section 6015. Porter v. Commissioner, 132 T.C. 203, 210 (2009). Generally, the requesting spouse bears the burden of proving that he or she is entitled to section 6015 relief. See Rule 142(a); Porter v. Commissioner, 132 T.C. at 210; Alt v. Commissioner, 119 T.C. 306, 311 (2002), 21 aff'd 101 F. App'x 34 (6th Cir. 2004); Stergios v. 22 23 24 25 Commissioner, T.C. Memo. 2009-15. However, in an instance where, as here, respondent is no longer an adverse party and agrees to provide section 6015(f) relief but the nonrequesting spouse opposes that 866.488.DEPO www.CapitalReportingCompany.com Capital Reporting Company 11 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 relief, we may decide the matter according to the preponderance of the evidence. See Stergios v. Commissioner, T.C. Memo. 2009-15. In order to be entitled to relief under section 6015(b), the requesting spouse must satisfy the following conditions: (1) a joint return has been made for a taxable year; (2) on such return there is an understatement of tax attributable to erroneous items of the nonrequesting spouse; (3) the requesting spouse did not know and had no reason to know of the understatement at the time the return was signed; (4) taking into account all facts and circumstances, it is inequitable to hold the requesting spouse liable for that year's deficiency in tax attributable to such understatement; and (5) the requesting spouse timely elects relief under section 6015(b). ) Section 6015(c) permits a requesting spouse to seek relief from joint and several liability by electing to allocate to the nonrequesting spouse the portion of the deficiency attributable to the nonrequesting spouse if the following conditions are satisfied: (1) a joint return has been made for a taxable year; (2) at the time of the election, the requesting spouse was separated or divorced from the nonrequesting spouse or had not been a member of the 866.488.DEPO www.CapitalReportingCompany.com Capital Reporting Company 12 1 2 3 4 5 6 7 8 9 10 11 12 13 14 same household as the nonrequesting spouse at any time during the 12-month period ending on the date of the request for relief; (3) the requesting spouse did not have actual knowledge, at the time of signing the return, of the nonrequesting spouse's item or items giving rise to the deficiency; and (4) the requesting spouse timely elects relief under section 6015(c). At trial Mr. Burgess testified that Mrs. Burgess was "well informed" of his business activities - from her knowledge of the business checks to her knowledge of payments and deposits made relating to the business. Consistent with Mr. Burgess's testimony, Mrs. Burgess acknowledged during her testimony that she had access to at least one of 15 Mr. Burgess's business bank accounts, writing checks 16 17 18 19 20 21 22 23 24 25 from that account to pay his bills and in order to facilitate paying their personal bills, and that she compiled the bank records from that account for their return preparer. Additionally, as reflected in the stipulation of settled issues she executed with respondent, Mrs. Burgess agreed that she and Mr. Burgess did not have any IRA accounts. Consequently, the Court finds that Mrs. Burgess would have had reason to know of the understatements and, thus, is not entitled to relief under section 6015(b). 866.488.DEPO www.CapitalReportingCompany.com Capital Reporting Company 1 Less clear based on the record before us is 2 whether the greater weight of the evidence 13 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 establishes that, pursuant to section 6015(c), Mrs. Burgess had actual knowledge, at the time she signed the joint returns, of the items giving rise to the deficiencies that are otherwise allocable to Mr. Burgess. By his testimony and the copies of numerous checks from his business accounts that were admitted into the record, it is Mr. Burgess's claim that she did have that knowledge. In the Court's view, it is unnecessary to resolve whether Mrs. Burgess had the actual knowledge required in order for section 6015(c) to apply because we agree with respondent's determination that Mrs. Burgess is entitled to equitable relief under section 6015(f), as explained below. Thus, for the sake of our discussion below, we will presume that Mrs. Burgess is not eligible for section 6015(c) relief due to her having actual knowledge. Section 6015(f) grants the Commissioner discretion to relieve a requesting spouse who does not qualify for section 6015(b) or (c) relief of joint liability if, taking into account all the facts and circumstances, it would be inequitable to hold the requesting spouse liable for the unpaid tax or 866.488.DEPO www.CapitalReportingCompany.com Capital Reporting Company 14 1 2 3 4 5 6 7 8 9 10 11 deficiency or any portion thereof. Additionally, section 6015(f) authorizes granting such equitable relief "[u]nder procedures prescribed by the Secretary". For requests filed on or after September 16, 2013, and for requests pending in any Federal court on or after September 16, 2013, Revenue Procedure 2013-34, 2013-43 I.R.B. 397, prescribes the guidelines that respondent will consider in determining whether equitable relief is appropriate. Although we are not bound by them, since this case was filed and pending after September 16, 2013, with 12 Mrs. Burgess making her request for relief after this 13 14 15 16 17 18 19 20 21 22 23 24 25 case was filed, we will analyze whether she satisfies the requirements for relief under section 6015(f) under these guidelines. See Agudelo v. Commissioner, T.C. Memo. 2015-124; Work v. Commissioner, T.C. Memo. 2014-190. The revenue procedure begins by establishing threshold conditions that a requesting spouse must satisfy to be eligible for equitable relief. The threshold conditions are: (1) the requesting spouse filed a joint return for the taxable year for which relief is sought; (2) relief is not available to the requesting spouse under section 6015(b) or (c); (3) the claim for relief is 866.488.DEPO www.CapitalReportingCompany.com Capital Reporting Company 15 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 timely filed; (4) no assets were transferred between the spouses as part of a fraudulent scheme; (5) the nonrequesting spouse did not transfer disqualified assets to the requesting spouse; (6) the requesting spouse did not knowingly participate in the filing of a fraudulent tax return; and (7) absent certain enumerated exceptions, the tax liability from which the requesting spouse seeks relief is attributable to items of the nonrequesting spouse. Rev. Proc. 2013- 34, sec. 4.01, 2013-43 I.R.B. at 399-400. Mrs. Burgess meets all of the seven threshold requirements. First, petitioners filed a joint return for the taxable years at issue. Second, as discussed above, relief is not available to Mrs. Burgess under section 6015(b) or (c). Third, Mrs. Burgess timely filed her claim for relief. Fourth, there is no evidence before us of fraudulent transfer scheme between Mr. and Mrs. Burgess. Fifth, there is also no evidence before us of fraudulent transfers of disqualified assets to Mrs. Burgess. Sixth, there is no assertion by respondent or any evidence before us that petitioners' tax returns filed for 2010, 2011, and 2012 are otherwise fraudulent. Seventh, the income tax liability, except for the portion related to the IRA contribution deductions, is attributable 866.488.DEPO www.CapitalReportingCompany.com Capital Reporting Company 16 1 2 3 4 5 6 7 8 to Mr. Burgess's business. Once a requesting spouse meets these threshold requirements, the revenue procedure sets forth circumstances under which the Commissioner will make streamlined determinations granting equitable relief to the requesting spouse under section 6015(f). Rev. Proc. 2013-34, sec. 4.02, 2013-43 I.R.B. at 400. Because of our finding above that 9 Mrs. Burgess had reason to know of the 10 11 12 13 14 15 16 17 understatements, she is not eligible for a streamlined determination. See id. sec. 4.02(3) (a), 2013-43 I.R.B. at 400. Where, as here, the requesting spouse satisfies the threshold requirements but does not satisfy all of the requirements for a streamlined determination, the revenue procedure sets forth seven nonexclusive factors to be considered in determining 18 whether a requesting spouse is entitled to equitable 19 20 21 22 23 24 25 relief under section 6015(f): (1) marital status; (2) economic hardship; (3) in the case of an understatement, knowledge or reason to know of the item or items giving rise to the understatement or deficiency; (4) legal obligation; (5) significant benefit; (6) compliance with the income tax laws; and (7) mental or physical health of the requesting 866.488.DEPO www.CapitalReportingCompany.com Capital Reporting Company 17 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 spouse. Rev. Proc. 2013-34, sec. 4.03(2), 2013-43 I.R.B. at 400. All of these factors are to be weighed appropriately, and no one factor is determinative. See Pullins v. Commissioner, 136 T.C. 432, 448 (2011); Kellam v. Commissioner, T.C. Memo. 2013-186. Accordingly, we will consider each in turn. With respect to the marital factor, Mr. and Mrs. Burgess both acknowledged during their testimony that they are currently in the midst of divorce proceedings and that Mrs. Burgess has been living apart from Mr. Burgess for at least the past 12 months. The marital factor weighs in favor of relief. With respect to the economic hardship factor, Mrs. Burgess testified that she is currently 17 working three part-time jobs to support herself and 18 19 20 21 22 23 24 25 her daughter, who is in college. And on her Form 8857, she estimated her monthly income as $1,000 and her monthly expenses as $6,000. Thus, we find Mrs. Burgess would suffer an economic hardship if she was denied relief. The economic factor weighs in favor of reli·ef. With respect to the knowledge factor, as previously noted, although Mrs. Burgess may have 866.488.DEPO www.CapitalReportingCompany.com Capital Reporting Company 18 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 actually known, or she certainly had reason to know, about some of the items giving rise to the understatements or deficiencies, Mrs. Burgess credibly testified regarding Mr. Burgess's control of the household finances and the extent to which she was subject to verbal and physical abuse by Mr. Burgess on account of his abuse of alcohol. Documentary evidence supports her account of the abuse. Thus, her knowledge does not weigh against her and at the very least the knowledge factor is neutral. With respect to the legal obligation factor, Mr. and Mrs. Burgess have not finalized their divorce and no legally binding agreement has been made regarding the allocation of the tax liabilities here, except for the executed stipulations of settled issues. The legal obligation factor is neutral. With respect to the significant benefit . 19 . factor, there is no evidence that Mrs. Burgess 20 21 22 23 24 25 realized any significant benefit from the understatements beyond normal support. The significant benefit factor is neutral. With respect to the compliance factor, the evidence shows that Mrs. Burgess has complied with the tax laws for the taxable years after the taxable 866.488.DEPO www.CapitalReportingCompany.com Capital Reporting Company 19 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 years at issue. The compliance factor weighs in favor of relief. With respect to the health factor, Mrs. Burgess's physical health has been impaired since being diagnosed with breast cancer in 2007. Mrs. Burgess testified that around the taxable years at issue, she finished her chemotherapy treatment to treat the cancer, and that this treatment dramatically impaired her physical and mental faculties at the time. She further testified that since completing chemotherapy, she has dealt with residual complications, particularly an exacerbation of her pre-existing arthritis, causing her to undergo knee replacement surgery on both of her knees. Mrs. Burgess has also suffered mentally as a result of the effects of Mr. Burgess's alcoholism. The health factor weighs in favor of relief. Finding that all factors weigh in favor of relief or are neutral, we hold that Mrs. Burgess is entitled to equitabl.e relief under section 6015(f) to the extent agreed upon with respondent. We have considered the remaining arguments made by the parties, and to the extent not discussed above, we conclude those arguments are irrelevant, 25 moot, or without merit. 866.488.DEPO www.CapitalReportingCompany.com Capital Reporting Company To reflect the foregoing, the Court will enter an appropriate decision. THIS CONCLUDES THE COURT'S ORAL FINDINGS OF FACT AND OPINION IN THIS CASE. 20 (Whereupon, at 11:20 a.m., the above- entitled matter was concluded.) 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