TAX COURT OPINION

Case: Randal M. Mayer, Petitioner and Stacie Whetzel, Intervenor
Docket Number: 23397-17S
Judge: Buch
Opinion Type: bench
Filed: 07/16/2019
Pages: 9

UNITED STATES TAX COURT WASHINGTON, DC 20217 RANDAL M. MAYER, PETITIONER AND STACIE WHETZEL, INTERVENOR, v. ) ) ) ) Docket No. 23397-17S. COMMISSIONER OF INTERNAL REVENUE, Respondent ) ) ) ORDER Pursuant to Rule 152(b), Tax Court Rules of Practice and Procedure, it is ORDERED that the Clerk of the Court shall transmit with this order to petitioner, intervenor, and respondent a copy of the pages of the transcript of the trial in this case before Judge Ronald L. Buch at Anchorage, Alaska 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, decision will be entered for petitioner. (Signed) Ronald L. Buch Judge Dated: Washington, D.C. July 16, 2019 SERVED Jul 17 2019 Bench Opinion by Judge Ronald L. Buch June 19, 2019 Randal M. Mayer, petitioner and Stacie Whetzel, intervenor 3 v. Commissioner of Internal Revenue Docket No. 23397-17S THE COURT: The following represents the Court's oral findings of fact and opinion. The oral findings of fact and opinion may not be relied upon as precedent in any other case. This opinion is in conformity with Internal Revenue Code section 7459(b) and Rule 152(a) of the Tax Court Rules of Practice and Procedure. Any section references refer to the Internal Revenue Code or the Treasury regulations in effect during the year at issue, and Rule references are to the Tax Court Rules of 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 Practice and Procedure. 16 This is a contested innocent spouse case. Mr. 17 Mayer seeks relief from liability for taxes resulting from 18 the omission from income of a premature retirement 19 distribution made to his ex-wife, Stacie Whetzel. Mr. 20 Mayer is entitled to relief under both section 6015(b) and 21 22 23 24 25 (c); he is not eligible for relief under section 6015(f). Facts Mr. Mayer and Ms. Whetzel married in 2003, separated in 2015, and divorced in 2016. During their marriage, Ms. Whetzel controlled the family finances. Ms. Whetzel paid the bills out of her account. Mr. Mayer's share of familial expenses were 4 drawn from his separate account and paid into Ms. 1 2 3 4 Whetzel's account through what are identified on the bank 5 statement entries labeled "home banking transfer" from Mr. 6 Mayer's account. Although Mr. Mayer and Ms. Whetzel 7 dispute whether they had a joint account during the 8 marriage, the only account statement in the record shows a 9 10 11 separate account, and we find that they had separate accounts and that Ms. Whetzel initiated electronic transfers from Mr. Mayer's account to her account for 12 purposes of paying familial expenses. 13 Managing the family finances also included 14 preparing and filing the joint tax return. Ms. Whetzel 15 took primary responsibility for filing the couple's tax 16 returns, and Mr. Mayer paid little attention to the tax returns. 17 18 In 2014, at the same time they were having 19 marital difficulties, Mr. Mayer and Ms. Whetzel decided to 20 buy a house. Mr. Mayer borrowed against his retirement 21 account. Ms. Whetzel withdrew from her retirement 22 account. That withdrawal is at the heart of this dispute. 23 When filing their joint 2014 return, Ms. Whetzel 24 erroneously omitted her retirement withdrawal from the 25 joint return she prepared. Mr. Mayer was not aware that 5 it was omitted; he paid little or no attention to the return, and he did not know whether Ms. Whetzel had borrowed or withdrawn from her retirement account. The Commissioner issued a notice of deficiency, adjusting Mr. Mayer and Ms. Whetzel's 2014 joint Federal income tax return to include over $17,000 of income from a premature distribution from Ms. Whetzel's retirement account. All of the adjustments in the notice of deficiency resulted from the premature retirement 1 2 3 4 5 6 7 8 9 10 distribution. 11 Mr. Mayer requested innocent spouse relief 12 alternatively under section 6015(b), (c), and (f). The 13 Commissioner denied relief, and Mr. Mayer petitioned our 14 Court for relief. Ms. Whetzel intervened, opposing relief. 15 16 17 Discussion In this case, we are asked to decide whether Mr. 18 Mayer is entitled to innocent spouse relief under section 19 6015. We begin with a little background. 20 21 22 I. General Rules Generally, married taxpayers may elect to file a joint Federal income tax return. Sec. 6013(a). Upon 23 electing to file jointly, each spouse is jointly and 24 25 severally liable for the entire tax due for that year. sec. 6013(d)(3). In certain circumstances, however, a 6 SPouse who filed a joint return may seek relief from joint and several liability under the procedures in section 6015. Sec. 6015(a). section 6015(a) allows a spouse to seek relief from joint and several liability under subsection (b) or, if eligible, to allocate the liability according to provisions set forth in subsection (c). If a taxpayer does not qualify for relief under either subsection (b) or (c), the taxpayer may be eligible for equitable relief under subsection (f). Except as otherwise provided in section 6015, the taxpayer bears the burden of proving that he is entitled to relief under section 6015. Rule 142(a); Alt v. Commissioner, 119 T.C. 306, 311 (2002), 1 2 3 4 5 6 7 8 9 10 11 12 13 14 aff'd, 101 Fed. Appx. 34 (6th Cir. 2004). 15 Both the scope and standard of our review in 16 cases involving relief from joint and several income tax 17 18 19 20 21 22 liability are de novo. Porter v. Commissioner, 132 T.C. 203, 210 (2009). 11. section 6015(b) Relief Under section 6015(b), a taxpayer seeking relief from joint and several liability must meet five conditions: (1) a joint return was filed for the taxable 23 year; (2) there was an understatement of tax attributable 24 to an erroneous item of the taxpayer's spouse; (3) at the 25 time of signing the return, the spouse seeking relief did 1 2 not know and did not have reason to know of the understatement; (4) the requesting spouse sought relief 7 3 within two years of the first collection activity relating 4 5 6 7 8 to the liability; and (5) taking into account all the facts and circumstances, it is inequitable to hold the SPouse seeking relief liable for the deficiency in tax attributable to the understatement. A taxpayer must satisfy all five requirements to qualify for relief. See 9 Alt v. Commissioner, 119 T.C. 306, 313 (2002). 10 Mr. Mayer meets all five conditions. He and Ms. 11 Whetzel filed a joint return. There was an understatement 12 of tax on that return, and the understatement was entirely 13 attributable to an item attributable to Ms. Whetzel. When 14 Mr. Mayer signed the return, he was not aware that there 15 was an understatement. Mr. Mayer timely sought relief. 16 And, taking into account all of the facts and 17 18 circumstances, it would be inequitable to hold him liable for an understatement wholly attributable to his ex-wife's 19 omitted item. In particular, it was Ms. Whetzel's income 20 and there is no indication that Mr. Mayer benefitted in 21 any way from that income. 22 23 24 25 Mr. Mayer is entitled to relief under section 6015(b). 111. section 6015(c) Relief Under section 6015(c), a divorced or separated 8 SPouse may elect to limit liability for a deficiency on a joint return to the portion of the deficiency that is allocable to him under subsection (d). The election may be filed at any time after the deficiency is asserted but not later than two years after the Secretary has begun collection activities. Sec. 6015(c)(3) (B). Additionally, the electing individual: (1) must no longer be married to or must be legally separated from the individual with whom the joint return was filed or (2) must not have been a 1 2 3 4 5 6 7 8 9 10 member of the same household with the individual with whom 11 the joint return was filed during the 12-month period 12 before the election was filed. Sec. 6015(c)(3)(A). These 13 latter two conditions are satisfied in that Mr. Mayer and 14 Ms. Whetzel are no longer married, and Mr. Mayer's claim 15 16 for relief was timely. Subject to certain limitations, any item giving 17 rise to a deficiency on a joint return is generally 18 allocated to the individuals filing the return in the same 19 manner as it would have been if the individuals had filed 20 21 22 separate returns. Sec. 6015(d)(3)(A). Because all of items that remain in dispute are attributable to the reporting of Ms. Whetzel's premature retirement 23 distribution, all of the items would have been reported on 24 Ms. Whetzel's return had she filed separately. 25 An election under section 6015(c) is invalid e cnners with respect to all or part of a deficiency if it can be demonstrated that the individual making the election had actual knowledge, at the time of signing the joint return, 9 of any item giving rise to the deficiency (or portion thereof) that is not allocable to that individual under section 6015(d). Sec. 6015(c)(3)(C). Actual knowledge must be demonstrated by a preponderance of the evidence. Culver v. Commissioner, 116 T.C. 189, 196 (2001). The actual knowledge standard is narrower than the "reason to 1 2 3 4 5 6 7 8 9 10 know" standard applied under section 6015(b) and (f). 11 McDaniel v. Commissioner, T.C. Memo. 2009-137. Actual 12 13 knowledge in this sense refers to "actual knowledge of the factual circumstances which made the item unallowable as a 14 deduction." King v. Commissioner, 116 T.C. 198, 204 15 16 (2001); see also Treas. Reg. 1.6015-3(c)(2) (B). Mr. Mayer was not aware that Ms. Whetzel took a 17 Premature distribution from a retirement account. He took 18 a loan from his account, and did not know that Ms. Whetzel 19 took a distribution. 20 21 22 23 24 25 Mr. Mayer satisfies all of the elements for relief under section 6015(c). 1v. section 6015(f) Relier A Person who is not eligible for relief under section 6015(b) or (c) may be eligible for relief under section 6015(f). But, if a person is eligible for relief a ne s under either section 6015(b) or (c), that person is ineligible for relief under section 6015(f). Sec. 6015(f)(2). Because Mr. Mayer is eligible for relief under both section 6015(b) and (c), he is ineligible for 10 relief under section 6015(f). Decision will be entered for Mr. Mayer. (Whereupon, at 9:11 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