TAX COURT OPINION

Case: Jennifer Leigh Smelser
Docket Number: 20883-17
Judge: Goeke
Opinion Type: bench
Filed: 02/12/2019
Pages: 8

SR UNITED STATES TAX COURT WASHINGTON, DC 20217 JENNIFER LEIGH SMELSER, Petitioner(s), v. COMMISSIONER OF INTERNAL REVENUE, Respondent ) ) ) ) ) Docket No. 20883-17. ) ) ) ) ORDER 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 Joseph Robert Goeke at Birmingham, Alabama containing his oral findings of fact and opinion rendered at the trial session at which this case was heard. In accordance with the oral findings of fact and opinion, a decision will be entered for petitioner. (Signed) Joseph Robert Goeke Judge Dated: Washington, D.C. February 12, 2019 SERVED Feb 13 2019 3 1 2 3 4 5 6 7 8 9 Bench Opinion by Judge Joseph Robert Goeke January 8, 2019 Jennifer Leigh Smelser v. Commissioner of Internal Revenue Docket No. 20883-17 . 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 10 opinion is rendered pursuant to Rule 152 of the Tax Court 11 Rules of Practice and Procedure and section 7459(b) of the 12 Internal Revenue Code, as applicable to this case. 13 Section references after this are to the Internal Revenue 14 Code. 15 At the time the petition was filed the 16 petitioner was a resident of Alabama. This case was tried 17 before the Court and presented based upon a stipulation of 18 facts with attached exhibits, and the testimony of the 19 Petitioner. The case arises based upon a statutory notice 20 of determination, which disallowed petitioner's request 21 22 for innocent spouse relief under section 6015 for the years 2006, 2007, 2008, 2010, 2012, 2013, and 2014. 23 Petitioner timely filed a petition for review of the 24 denial of this relief, and that is the basis for our 25 jurisdiction. The parties have stipulated that 4 Petitioner's husband, Ricky Smelser, filed tax returns which were joint returns for the years in question. Petitioner testified that she acquiesced in Mr. Smelser's filing of these joint returns. All returns reflect a tax balance due, and the primary issue in the case is because neither petitioner, nor Mr. Smelser, have paid this liability. For the years 2012 and 2013 there is an understatement of tax, and respondent has agreed that 1 2 3 4 5 6 7 8 9 10 petitioner is only liable for her portion of that 11 12 13 14 understatement, pursuant to section 6015(b). Petitioner, however, seeks relief for the entire liability pursuant to section 6015(f) and seeks relief from all the other unpaid liabilities on the same basis. Before the years in 15 question, the petitioner and Mr. Smelser filed for joint 16 bankruptcies in 2001 and 2005. We found petitioner's 17 18 testimony to be credible, and it established the certain facts which are critical to the analysis in this case. 19 Petitioner is completely disabled. She can drive small 20 distances, but because she suffers from diabetes and 21 22 23 serious heart issues it is not possible for her now to be employed, and her health is precarious. She does receive social security/disability 24 benefits currently in the amount of $965. This appears to 25 be the only income which flows directly to her currently. (07314064250loperattameerrberutetlwwwewrbers.net 1 2 3 4 5 6 7 8 9 She has access to a joint account with her husband and has had access for all the years in question to this account. However, she does not make a practice of writing checks am this setern7 as it is controlled by her spouse. She remains married to Mr. Smelser, and they have been married for 25 years. Petitioner has significant health related expenses every month which currently consume in excess of 75 percent of the disability payments she receives. 10 Regarding the decisions petitioner made for the years at 11 issue in not filing a married filing separate return, we 12 believe she was on notice that Mr. Smelser was not likely 13 14 15 to pay the Federal income taxes reflected on the joint returns which he had prepared and filed on their behalf. She testified that she felt subservient to him and 16 subjected to his guidance on all business and financial 17 matters. However, she now has recently filed married 18 filing separately, and we believe she should have done 19 this in prior years. This factual determination,. however, 20 does not end the matter, as we must determine whether 21 petitioner is able to sustain an argument for relier 22 23 pursuant to section 4.01 of Revenue Procedure 2013-34, And in particular, whether the petitioner is entitled to 24 relief under the elements outlined in section 4.03 of that 25 Revenue Procedure, which is applicable to a determination Em 1973)406-2250]operationsøertheTsnet|wwy,.esaibersnet 6 1 2 3 4 5 6 7 8 9 pursuant to section 6015(f). Section 6015(f) may be applicable to provide relief even when there's an underpayment of taxes shown on the return, Heedram v. Commissioner, T. C. Memo 2018-25. And Washington v. Commissioner, 120 T.C. 137 (2003). Petitioner argues that she was subject to abuse from Mr. Smelser, 'put she admits that there was no physical abuse. Generally, physical abuse is required in situations such as this, where the parties have filed a joint return and 10 there is a liability reflected on the return. This 11 situation is somewhat unique in that petitioner's heart 12 13 problems, which began before the years in question and led to her having heart attacks in 1994 and 2009, put her in a 14 position where she was not readily able to confront Mr. 15 Smelser about his financial decisions involving Income 16 Taxes. 17 18 19 We do not believe that these facts necessarily overcome the factor under Revenue Procedure 2013-43 regarding knowledge or reason to know, but they do 20 ameliorate the fact that petitioner was likely to know the 21 taxes would not be paid, but she nevertheless proceeded to | | 22 allow her husband to file a joint return on her behalf, 23 without submitting a married filing separately return. 24 Her poor health and his unwillingness to cooperate with 25 her regarding financial matters combine to offset to a pn)40&2250]operationseescribersattawwesalbersmt 1 2 3 4 S 6 7 8 9 large extent the fact that she had reason to know he was not going to pay the income taxes. Other factors to be considered are the parties' marital status, economic hardship, her legal obligation to pay, if any, whether she received a significant benefit, and whether she is currently in compliance with Income Tax laws. The final factor, mental or physical health, is also very important in this case, because, as we have stated, we find this fact that petitioner is in poor health and has significant 10 medical expenses, and potentially will have catastrophic 11 medical expenses in the future. This weighs not only on 12 13 14 the factor of petitioner's physical health, but also on the question of economic hardship, because we believe the imposition of joint liability for the tax liabilities in 15 question would impose a significant economic hardship on 16 petitioner because of the potential medical expenses she 17 18 19 faces. Petitioner testified that she and Mr. Smelser owned their home without a mortgage. However, there's no 20 evidence in the record as to what the value of that home 21 22 is, and whether they could, in fact, receive funds from that home which would allow her to pay the tax liabilities 23 or to offset significant medical expenses. Given Mr. 24 Smelser's general control of their financial assets, we 25 believe it is unlikely petitioner could achieve p73J406-2250|ope,ationsøescribers.net|www.escribennet significant enough benefit from the sale or mortgage of 8 their home to offset the economic hardships we've described. We note that petitioner is currently in compliance with Income Tax laws and respondent has conceded this is a favorable factor. The legal obligation factor is neutral, since the parties remain married, and their marital status is neutral because they remain 1 2 3 4 5 6 7 8 married. As we stated, petitioner had reason to know 9 that the liabilities wouldn't be paid, but for the reasons 10 we exPlained earlier, this factor is somewhat offset 11 12 because of the unique circumstances of this case. Finally, we find that there was no significant 13 benefit that petitioner received during any of the years 14 15 in question, and that, in fact, she's led a very modest life from a financial prospective throughout her marriage. 16 Weighing all these factors we determine that petitioner is 17 entitled to relief under section 6015(f) for all the years 18 in question. We realize that her behavior could have been 19 more reasonable had she acted sooner to file a married 20 21 filing separately return, but for the reasons we stated, we believe these circumstances are offset by the 22 significant economic hardship she would feel if the tax 23 24 liability was imposed, and by the significant potential damage to her health that the underlying tax labilities 25 may impose upon her. $73)406-2250|operationscextbermetlwwwasoibersmt Given our findings, a decision will be entered 9 for the petitioner in this case. This concludes the Court's oral findings of fact and opinion in this case. (Whereupon, at 9:53 a.m., the above-entitled matter was concluded.) 1 2 3 4 5 6 7 | 8 9 10 | 11 1 I 1 12 13 14 15 16 17 18 19 20 21 22 23 24 25 (973)406-2250|opentionspescrbm.net|www.escrbersnet