TAX COURT OPINION

Case: Stacy N. Dennis
Docket Number: 2853-17
Judge: Buch
Opinion Type: bench
Filed: 03/01/2018
Pages: 10

UNITED STATES TAX COURT WASHINGTON, DC 20217 STACY N. DENNIS, Petitioner, v. ) ) ) SR ) Docket No. 2853-17. 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 and respondent a copy of the pages of the transcript of the trial in this case before Judge Ronald L. Buch at Birmingham, Alabama, containing his oral fmdings 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, a decision will be entered. (Signed) Ronald L. Buch Judge Dated: Washington, D.C. March 1, 2018 SERVED Mar 05 2018 3 1 2 3 4 5 6 7 8 9 Bench Opinion by Judge Ronald L. Buch January 10, 2018 Stacey N. Dennis v. Commissioner of Internal Revenue Docket No. 2853-17 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 10 Court Rules of Practice and Procedure. Any section 11 references refer to the Internal Revenue Code or the 12 Treasury regulations in effect during the year at issue, 13 and Rule references are to the Tax Court Rules of Practice 14 15 and Procedure. In this case we are asked to decide whether 16 Stacey Dennis is entitled to innocent spouse relief for 17 18 tax years 2007, 2008, 2009, and 2012. For 2007 through 2009, the liabilities at issue are as a result of 19 deficiencies determined by the Commissioner. For 2012, 20 the liability is as a result of underpaying the liability 21 22 23 24 25 shown on the joint return. Facts Stacey and Patrick Dennis married in 2001. They have three children, born in 2003, 2004, and 2006. In 2007 through 2009, Mrs. Dennis was a homemaker with a cribers (973)406-2250|operationseescrbetsnet|www.escribers.net 4 principal responsibility for managing the household and the young children. She was not familiar with and did nct pay attention to family finances. She was not involved jn preparing her and her husband's joint tax returns. Although she signed those returns, she did not review them before signing. Mr. Dennis is involved in construction. Durinc 2007 through 2011, he operated Weathershield Constructior. Since 2011 he has operated Summit Renovation. Mrs. Dennis has not been involved in either business. Weathershield was involved in repairing hail damage, roofing, and remodeling. Its best year was 2007, when in addition to 1 2 3 4 5 6 7 8 9 10 11 12 13 his other work, Mr. Dennis also purchased rental property. 14 15 On the joint 2007 tax return, the Dennises reported a substantial amount of income and an even more substantial 16 loss. That loss, however, was a paper loss that did not 17 18 reflect the true success of Weathershield. We will take judicial notice that the real 19 estate bubble burst in late 2007 or 2008. Mr. Dennis's 20 21 construction business took a downturn around that same time. In 2008, creditors began circling. In one day, 22 Mrs. Dennis heard both from a neighbor and from her mother 23 that creditors had contacted them about debts owed by the 24 Dennises. Later, the elementary school attended by the 25 Dennises' eldest child threatened not to allow the child cribers (973)406-2250loperationseescrRaersnet|www.escribers.net 1 2 3 4 5 6 7 8 9 10 11 12 13 to keep attending school because of nonpayment of tuitior. It appears that Mr. Dennis was not keeping up with his bills, which caught Mrs. Dennis by surprise. In 2009, tre Dennises filed for bankruptcy protection. To some extent, Mrs. Dennis began to take on some financial responsibility. In 2010 she took a job ir an orthodontist's office. In 2011 she began working witr a radiology group. In 2012 she began maintaining a separate bank account. For 2013, she began filing separate income tax returns. It was during this time that Mrs. Dennis was beginning to take on financial responsibility that she first learned of outstanding tax liabilities. In 2012, 14 Mrs. Dennis's wages began to be garnished for the payment 15 of tax debts. Although she was aware of the financial 16 17 18 19 20 21 22 troubles stemming from the construction business, it was not until the wage garnishment that Mrs. Dennis became aware of the tax debts. Discussion 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 (973)406-2250|operationseescrbersnet|www.esabersnet spouse who filed a joint return may seek relief from joirt and several liability under the procedures in section 6 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) cr (c), the taxpayer may be eligible for equitable relief 1 2 3 4 5 6 7 8 9 10 under subsection (f). Except as otherwise provided in 11 12 13 section 6015, the taxpayer bears the burden of proving that he or she is entitled to section 6015 relief. Rule 142(a); Alt v. Commissioner, 119 T.C. 306, 311 (2002), 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 23 24 liability are de novo. Porter v. Commissioner, 132 T.C. 203, 210 (2009). II. 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 year; (2) there was an understatement of tax attributable to an erroneous item of the taxpayer's spouse; (3) at the 25 time of signing the return, the spouse seeking relief did ß Cribers (973)406-2250|operations0escrasersnet|www.escribers.net 1 2 not know and did not have reason to know of the understatement; (4) the requesting spouse sought relief 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 11 12 13 14 For 2007 the parties agree that Mrs. Dennis dic not make a timely request for relief under section 6015(b). For 2012, the parties agree that there was no understatement of tax. For 2008 and 2009 we must apply the remaining factors to determine whether Mrs. Dennis iE 15 entitled to relief from joint liability under section 16 17 18 6015(b). The remaining factors are whether Mrs. Dennis knew or had reason to know of the understatement and 19 whether it would be inequitable to hold Mrs. Dennis liable 20 21 22 23 24 for deficiencies related to her husband's business. We find both factors in favor of Mrs. Dennis. There is no evidence that Mrs. Dennis was involved in any way with her husband's business. She is and was largely unfamiliar with the household finances, 25 and she had no knowledge of the finances of the (973)406-2250|operationseescribersmet|www.escribers.net construction business. She was unaware of any understatement of tax originating from the construction 8 business. Likewise, it would be inequitable to hold Mrs. Dennis liable for deficiencies related to her husband's business. One factor for us to consider is whether the requesting spouse, Mrs. Dennis, significantly benefitted from the understatement of tax. The regulations define s significant benefit largely by reference to transfers of 1 2 3 4 5 6 7 8 9 10 property to the nonrequesting spouse. Treas. Reg. 1.6015- 11 2(d). There is no evidence of any such transfers and no 12 13 14 15 16 17 18 19 20 evidence of a living a lifestyle beyond what the reportec income would have supported. Having satisfied all five factors under sectior 6015(b)(1), we find that Mrs. Dennis is entitled to relief under section 6015(b) for 2008 and 2009. III. Section 6015(c) Relief Under section 6015(c), a divorced or separated spouse may elect to limit liability for a deficiency on ê joint return to the portion of the deficiency that is 21 allocable to her under subsection (d). Mr. and Mrs. 22 Dennis remain married, and the parties agree that relief 23 24 25 is not available under section 6015(c). IV. Section 6015(f) Relief Even if a requesting spouse is ineligible for ) BElllilli (973)406-2250|operationseescrbers.net|www.escribers.net 9 1 2 3 4 5 6 7 8 9 relief under section 6015(b) or (c), the requesting spouse may be eligible for relief under section 6015(f). The parties agree that Mrs. Dennis is not eligible for relief under section 6015(b) for 2007 because she did not make a timely request for relief. Mrs. Dennis also is not eligible for relief under section 6015(b) for 2012 because there is no understatement, only an underpayment. In Revenue Procedure 2013-34, the Commissioner sets forth specific factors to be taken into account when 10 deciding whether to grant relief under section 6015(f). 11 Section 4.02 of that revenue procedure details seven 12 factors. . The parties seem to be in agreement as to many 13 of those factors. Marital status, legal obligation, 14 compliance with income tax laws, and mental or physical 15 health are all neutral. 16 The Commissioner hints at a lavish lifestyle, 17 which could amount to a "significant benefit". Revenue 18 Procedure 2013-34 sec. 4.02(e) considers something in 19 20 21 22 excess of "normal support" to be a significant benefit. "If, however, the nonrequesting spouse controlled the household and business finances ... such that the nonrequesting spouse made the financial decision on 23 spending funds for a lavish lifestyle, then this mitigates 24 25 this factor so that it is neutral." While we are not convinced that Mrs. Dennis received anything in excess of (973)406-2250|operationseescrbersnet|www.escribersnet 13 1 2 3 4 5 6 7 8 9 normal support, even if she did, it is abundantly clear that Mr. Dennis made the financial decisions on spending funds. This factor is neutral. The parties disagree about economic hardship. The revenue procedure asks whether the requesting spouse would be able to meet current living expenses. Here, we consider the requesting spouse's income and expenses and the requesting spouse's assets. In a situation where the requesting spouse and the nonrequesting spouse remain part 10 of the same household, this factor is difficult to apply. 11 Mrs. Dennis does not support the household but she also is 12 13 14 15 16 17 18 19 not responsible to pay the living expenses. We find this factor to be neutral. The remaining factor is knowledge or reason to know. That factor is different in understatement cases and underpayment cases, so we take 2007 and 2012 separately. For 2007 Mrs. Dennis did not know or have reascn to know of the understatement. The evidence is clear that 20 Mrs. Dennis was not involved in the business's finances, 21 and the understatement arose from Mr. Dennis's business. 22 23 24 The joint return filed by the Dennises did not reveal on its face that there was an understatement. We find this factor in favor of Mrs. Dennis. As a result, we find in 25 favor of relief as to 2007. (973)406-2250|operationseescribers.net|www.escribers.net By the time of filing the 2012 return, even if 1 Mrs. Dennis did not know of the household tax problems, she had reason to know. The Commissioner began garnishirg Mrs. Dennis's wages in 2012. Even if she was previously unaware of any tax problems, when the Commissioner began to collect past due tax liabilities directly from her, sPe was put on notice. She could no longer reasonably assume that Mr. Dennis would pay the liability reported on the return. We find against Mrs. Dennis for 2012. An order and decision will be forthcoming. (Whereupon, at 10:29 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 (973)406-2250|operationseescrbetsnet|www.escribers.net