TAX COURT OPINION

Case: Amy Michelle Colyer
Docket Number: 24255-09
Judge: Colvin
Opinion Type: bench
Filed: 06/28/2010
Pages: 15

34W C-7o , UNITED STATES TAX COURT . WASHINGTON , DC 2021 7 AMY MICHELLE COI,YER, Petitione r V . COMMISSIONER OF INTERNAL REVENUE, -Respondent O R D E R Docket No . _.24255=09 . Pursuant to Rule 152(b), Tax,. Court Rules of Practice and Procedure, .iti s 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 beforervJudge Joseph Robert Goeke at Cincinnati, Ohio, on June-16, 2010, containing his oral findings of fact and opinion rendered at the conclusion of the trial . In accordance-with the oral findings of fact and opinion, a decision will be entered for respondent . (Signed) Joseph Robert Goeke Judge Dated : Washington, D .C . June 28, 2010 SERVED JUN 2 9 2010 1 BENCH OPINION BY JUDGE JOSEPH ROBERT GOEKE 2 AMY MICHELLE COLYER V . COMMISSIONE R 3 . .DOCKET NO . : '24255-09 DATE : June 16, 201 0 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 . 10 In this Bench Opinion, citations to the 11 Internal Revenue Code will be for the year at issue, 12 2006 . And citation to rules will be to the Tax Court 13 Rules of Practice and Procedure . This opinion i s .14 ..rendered pursuant to Section 7459(b) and rule-152 . 15 The Court reviews Respondent ' s determinatio n 16 in this case in a de novo manner pursuant to . pnr ar y 17 Commissioner , 132 TC 2003 (2009) . Petitioner has th e 18 burden of proof . Alt v Commissioner 119 .TC 306, 311 19 (2002), affirmed 101 Fed . . Appx . 34 (6th Circuit-2004) . 20 Petitioner, . Amy Michelle Colyer", challenge s 21 Respondent's determination that she is not entitled to 22 'complete relief under Section 6015(b), (c) and (f) fo r 23 2006 joint federal income tax liabilities . 24 At the time the petition was filed, M 25 Colyer resided in Kentucky . ; Ms . Colyer began,a Heritage Reporting Corporation ,(202) 628-4888 1 romance with Mark Colyer in'2005 and they were married 2' in 2006 . Mark Colyer'had previously been married and 3 his . first wife passed away in 2003 . He had two 4 children by his first marriage . They were mino r children in 2006 . During 2006 Mark Colyer withdrew taxable retirement income in the amount of $70,160 . This is not disputed by the parties . Both Ms . Colyer and her former spouse . acknowledge that some of this money was 10 used to pay'for their wedding, buy an-engagement rin g 11 . -,and finance their honeymoon,,., They also-acknowledge 12 that' at least $16, 0'00 of 'these retirement .funds were 13 used as a_down payment on a, new home they purchased 14, and had built in 2006 . This home was to be thei r 15 marital residence as well as the residence of Mr- . 16 Colyer's two children . 17 Ms . Colyer maintains that Mr . Colyer left 18 her with the . impression that the money . he used to pay 19 for the wedding and for the ;down payment for the new . . 20 home was ' savings' that he had accumulated prior to the 21 'marriage . 22 Mr . Colyer testified at trial and disagree s 23 with this characterization of the funds . He maintains 24 that Ms . Colyer well knew that these funds came from 25 his retirement account . . Heritage' Reporting Corporation (202) 62 :8-4888 The mortgage taken out on the new home wa s 2 in Ms . Colyer' s name because Mr . Colyer did not have a 3 sufficient credit rating at the time they built th e new home . The Internal Revenue Service issued a notice of deficiency to Mr. . and Mrs . Colyer on October 16th, 2008 . -A deficiency in the amount of $28,170 was determined and accuracy related penalties were also applied . This amount was based upon the unreporte d '10 retirement income'on the 2006 joint federal income tax 11 return and included some very small amounts o f 12 unreported dividend income as well . 1 3 14 Neither of the Colyers filed a petition to the United States Tax Court . .relative to this notice-of deficiency . This case arises under a request for . 16 innocent spouse relief under Section 6015 . And our . 17 jurisdiction relates only to the innocent, spous e 18 claim . 19 In July of 2008, Ms . Colyer left the home . 20 that was the marital residence of her and Mr . Colyer 21 that had been built in 2006 . . Subsequently, Mr . Colyer 22 and his children left the home and the °Colyer s 23 eventually obtained a divorce . 24 Ms . Colyerrfiled a Form 8857, Request fo r 25 Innocent Spouse Relief , on August 27th, 2008 . On tha t Heritage Reporting Corporation (202) 628-4888 1 form. she did not allege that Mr . Colyer :engaged in any 2 domestic abuse . But at trial she testified that on e 3 of the reasons she left their marital residence wa s 4 because of their disputes about theirpersan finances 5 She also maintained on her Form 8857 tha t 6 she believed the money thatxMr . Colyer had withdrawn 7 from the savings account was non-taxable and that sh e 8 was unaware the money came from his retirement account . 10 The parties have stipulated that while th e 11 Colyerswere still happily married in the early part 12 of 2007, they did receive a%Form .1099-R advising them 13 of the distribution' from the retirement account . 14 Mr . Colyer provided a response to th e 15 Internal Revenue Service questionnaire regarding Ms . 16 Colyer's request for innocent spouse relief . And he 17 contradicted her statement that she was not aware tha t 18 he was withdrawing money from his retirement account . '19 :Another witness at trial also contradicte d 20 Ms . Colyer's statement . She is the former sister-in- 21 law of Mr . ,Colyer, who was-the sister of .his decease d 22 first wife . She stated that in a gathering tha t 23 included .Ms . Colyer, discussions were made about the 24 withdrawal of the money from the retirement account .. 25 before the actual . marriage of Mr . and Mrs . Colyer i n Heritage' Reporting Corporation (202) 628-4888 20.06 . 2 The Internal Revenue Service in reviewing 3 Ms . Colyer's,claim .%for innocent spouse relie f 4 compromised the situation and provided her partial . 5 relief for the amount of the retirement benefit s 6 withdrawn, for the entire amount, with the exception 7 of $30,000, which :. was the estimate of the amount that 8 had been spent .for .the wedding,- the engagement ring, 9 the reception, the-honeymoon and . the down payment o n 10 the house . 11.Although-she does not dispute that thes e 12 amounts were spent from the funds provided by Mr . 13 Colyer, Ms . Colyer .maintains that she had no knowledg e 14 that these amounts were taxable income . 15 In response to the final determination by 16 Respondent providing her only ; partial innocent spouse 17 relief, . Ms . Colyer filed a timely petition in thi s -18 Court in October 20 :09 . 19 The divorce between Mr . and Mrs . Colyer 20 became final . in-February 2010 . 21 In general, taxpayers filing joint federa l 22 income tax returns- .,are each,responsible for th e 23 accuracy of'the .return and are jointly and severally 24 liable for the entire tax liability for the year o f 25 the returns . Section 6013 (d) (3) . Heritage Reporting Corporation (202) 62;8-4888 8 :n certain circumstances , however, a spous e may obtain relief from joint and several liability by satisfying the requirements , of Section 6015 . Sectio n 6015(a)(1) provides that a spouse who .made a joint return may elect to seek relief from joint and severa l liability under Section 6015(b), dealing with relief from liability for an understatement of tax on a joint return . Section 6015'(c) also provides relief unde r 10 defined circumstances . And' if relief is not available 11 under Section 6015(b) or (c), an individual may seek 12 equitable relief under Section 6015(f) . 13. Section.6015(b) provides that a taxpayer may 14 be relieved of liability for an under statement of .tax v 15 if (1) a joint return was filed for the taxable year L 16 in question ; (2) there is an unde tatement of ta x 17 attributable to erroneous items of Mr . Colver in thi s 18 instance ; (3) the taxpayer requesting relief did no t 19 know and had no reason to know that there was an under ,,_/ I Z 4- 20 statement of tax when she signed the return ; (4 ) 21 taking into account , all the facts and circumstances , 22 it would be inequitable to hold the taxpayer liabl e 23 for the deficiency attributable to the understatemen t 24 and the taxpayer-elects to seek Section 6015(b) relie f 25 within two years of the initial collection action . 9 In this case the contention by Respondent would relate to points 3 and 4 of Section 6015(b) a s outlined . 4 As we stated previously, the burden is on Colyer .to establish that she is entitled to relie f under Section 6015 . ' This case involves a deficiency stemmin g from the omission of an item of income . There's no 9 question that Ms . Colyer was aware of the amounts in . 10 question to the extent of at least $30,000, a s 11 determined by Respondent, she acknowledges funds were 12 spent for the benefit of her and her former spouse and 13 his children . Including personal items purchased fo r 14 her such as the engagement ring . 15 Because + the nature of the amounts spent 16 is what is in dispute in this case, .we believe that d 17 the standard adopte d in the, case of Price v . 18 Commi ssi one 887 F . 2d 959,'1963 (9th Circuit, 1989) i s 19 the appropriate standard to'apply in this case . 20 In Price v Commis sione r the Court of Appeal s 21 for the 9th Circuit held that a taxpayer meets the 22 standard for relief, if the taxpayer did not know or 23 did not have reason to know , that the erroneou s 24 deduction or credit' would give rise town under 25 statement , despite the presence of the amount i n Heritage Reporting Corporation (202) 62;8-4888 10 1 question on an income tax return . Here we don't hav e 2 a'deduction but .we have knowledge of the amounts in 3 question, which were not reported on the income tax 4 return . . What wedo not have is a clear record as to 5 whether Petitioner actually knew these amounts wer e taxable . 7 12 13 The Court-of Appeals for the 6th Circuit i s the likely venue for appeal~of this case . And in Greer v Commission , 595 F .3d 338 (6th Circuit, 201 0 A affirming TC Memo 2 ;009-20, the Court of .Appeal s applied Price v Commission a and the test as outlined Pricey Commissioner to'determine whether the knowledge of a requesting spouse was sufficient t o 14 grant relief . 15 The 6th(cid:127)aCircuithas embraced a test in thes e 16 circumstances which requires the examination of al l 17- facts and circumstances . S)aayy=Commissioner, 780 18 F . 3d 561_ (6th Circuit, 19861) . 19 Shay involved omissions of income and a n 20 analysis of the .facts"andcircumstances to determin e 21 whether a taxpayer had reason to know of the 22 omissions . 23 As stated previously, this case involves a 24 hybrid situation where there is knowledge of the 25 amounts in question but not ; knowledge clearl y Heritage Reporting Corporation (202) 62,8-4888 these amounts are subjec t In' .Shay , the Court of .Appeals for the .6th -Circui t adopted the description of the "reason t o know" tes t used in .Sanders Commission."-507 F .2d 16 2 1975) . That test involves reference t o agency, Section 9, comment D (1958 ) 'which reads as follows "A perso n has-reaso n to know of a fact if h e d information. from .which a person of ordinar y superior .. intelligenc e which such person may have , .would infer that-the fact in,question . exists or tha t 1 4 there is suc h a sub;stantiaichance of its existence , reasonable care with reference t o 16 the matter, ina ques t his-",action would be predicate d 17 upon the assumption °of itspossibl .e existence ." 50 9 1;8 F_,2d . At 167 . 20 test as outline d which face the person requesting relief and whether- a same position would infe r understatement of income had know-test is also explaine d at 965 : has-.reason to know of th e substantial unde statementiif a reasonable pruden t taxpayer in her .-poslition .atkthe.time she signed the tol.know that the return substantial ..undbrstatement . Factors t o in analyzing whether the alleged innocent reason to know of the substantial unde r (1) the spouse's level o f education ;. (2) the spouse''siinvolvement in the 10 : family' :s business and financial affairs ; (3) the 11 presence of expenditures that appear lavish or unusua l past levels of income , 13 standard of living ; and speiiding patterns ; and (4) th e culpable- spouses evasiveness and deceit concerning the, couple' s'(cid:127) f inance s reviewing- .whether Ms . Colyer had reason 17 to know of the underLfstatement of the $30,000 i n which is left in dispute . in this case , we wil l 21 business person and appear s financial matters . There's no 23 evidence in the ,record that she was specificall y 24 educated regarding tax . matter s in-financial affairs . Ms . Heritage Reporting Corporation !.(202) 628-488 8 Colyer has a reasonably hig h level .of employment and significant business activities . However, there's-:no evidence tha t she ha d 1 3 the tax law . in standard of living . This is , an .unusual case for the application of this tes t were just married in 2006 . Colyer was aware tha t made fromMr . Colyer'sfunds in the determined by Respondent of approximatel y 1.1 $30,000 . There! s . no disput e about this in the record . dispute is really relative to whether thes e amounts were taxable='or Ms .iColyer should have bee n Colyer does not sugges t was,deceitfia.l , but rather that h e simply did, not explain to her the source funds . The problem with her position i n 20 °is -the .stipulated existence of the Form .l099- R .' She 21 did not provide an adequate explanation why this di d .22 not'give her sufficient' knowledge of the amounts i n 23 question n applying the Price , f actors, the Court o f 14 it's not simply a mathematical application of th e number of factors which,proyide for relief versu s ,those that do not provide for relief, but rather a n overall fact and circumstances test analyzing th e factors . Analyzing these factors, we find that i n this . situation Ms . Colyer should have at least made further inquiry-of Mr . Colyer as to the taxable natur e the $30,000 received . Given Mr . Colyer' s was unreasonable entire amount„-that he provided to help purchase th e 13 home, buy heran engagement ring, pay for thei r -14 wedding and pay for their honeymoon was not subject t o 15 income taxation . Especially upon the receipt of th e Form 1099-R at their home , she should have at leas t 17 inquired as to whether ; any portion of that amoun t 18 .,might have been taxable . . Give n find that she has failed t o 20 establish-that -she had n o reason to know that there 21 was an undetatement on the joint federal income ta x return . Accordingly, she is not entitled to relief { 23 under Section 6015(b), nor would she be entitled t o 24 . relief beyond . that allowed,-,by-,Respondent under Sectio n 6015 (c) X forth the factors to b e 4 .03' 2003- making a'determination in a case understatement of tax for a request mad e ro when the taxpayer has requested relief from Respondent : This-Court has-previously applied those factors in analyzing Respondent's determinations unde r 10 Section 6015(f) . We would apply those factors in th e 11, present cas e Regarding % . the marital status, since th e parties-have,been divorced, this factor is favorabl e .14 to Ms . Colyer . Regarding economic hardship, there' s showing that Respondent's determinations in thi s 16 case would result in economic hardship and, therefore , 17 this factor is negative to Ms . Colyer . Regarding-the reason to .know .e€ knowledg e r e~ 19 factor, we find that this factor is negative to Ms . 20 Colyer for,the reasons explained previously . .Regarding the legal obligation of the no n 22 requesting sp .ouse, ;..there isno such obligation in thi s 23 case and this actor is neutral . Regarding the significant benefit factor, w e 25 find ..that'at least to the extent of the engagemen t Heritage Reporting Corporation (202)° „628-4888 ring and the honeymoon , there was a significan t benefit . given the standard of. .living of Ms . Colyer an d Colyer and that this factor is negative to Ms . Colyer . 1 6 5 6 7 8 9 Regarding ,,compl'iance with the tax laws, w e -find that this factor is favorable to Ms . Colyer . . .There's also consideration of other factor s .which -may -weig in,-,f avor of . relief . There does no t appear to be any significant other factors in th e 10 current situation - In summary , we find . that these factors are :sufficiently- -negative .to .Ms Colyer that there is n o basis, based upon our independent review of the facts , to provide that Section 6015 relief should be grante d under subsection (f ) -Given the above aralysis, a decision will b e entered for . Respondent This ends theCourt ' s oral findings of fac t 12 13 .14 15 16 17 18 19, . and-opinion in this-case . . THE COURT : We'11t-take a brief recess . THE . CLERK All rise . (Whereupon,, at 9 :42 a .m ., the bench opinion in the above-entitled matter was concluded . ) / / 20 21 22 23 24 25 Heritage_Reporting Corporation (20:2)' 628 :-4888