TAX COURT OPINION

Case: Lloyd Leon Eddings, Petitioner and Sherri L. Larson, Intervenor
Docket Number: 20545-05S
Judge: Colvin
Opinion Type: bench
Filed: 04/28/2008
Pages: 8

UNITED STATES TAX COURT WASHINGTON , D .C . 2021 7 LLOYD LEON EDDINGS PETITIONER AND SHERRI L . LARSON, INTERVENOR , RECORDED SERVIC E 22 CAL wM~ STAT . 4-T-. JUDGE FILE S Petitioner , V . Docket No . 20545-05 S COMMISSIONER OF INTERNAL REVENUE , Respondent . O R D E R Pursuant to Rule 152(b), Tax Court Rules of Practice and Procedure, it i 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 of the above case before Judge Diane L . Kroupa at Portland, Oregon on March 19, 2008, containing her oral findings of fact and opinion rendered at the conclusion of trial . In accordance with the oral findings of fact and opinion, an appropriate order of dismissal and decision will be entered for respondent . (Signed ) Diane L. Kroupa Judg e Dated : Washington, D .C . April 28, 2008 SERVED APR 2 8 2008 3 1 Bench Opinion by Judge Diane L . Kroupa 2 March 19, 200 8 3 Eddings, Larson v . Commissioner Docket No . 20545-05S 4 THE COURT : The Court has decided to render ora l 5 findings of fact and opinion in this case, and the following 6 represents the Court's oral findings of fact and opinion . 7 The oral findings of fact and opinion shall not be relied 8 upon as precedent in any other case . 9 This proceeding was conducted as a small tax case 10 under Section 7463 and Rules 170 through 175 . This benc h 11 opinion is made pursuant to the authority granted by Section 12 7459(b) and Rule 152 . All section references are to th e 13 Internal Revenue Code for 2001, and all rule references are 14 to the Tax Court Rules of Practice and Procedure . 15 No appearance was made by or on behalf o f 16 Petitioner Lloyd Eddings at the calendar call or at th e 17 trial . Respondent notified the Court that it will seek to 18 dismiss as to Petitioner Lloyd Eddings for lack o f 19 prosecution under Section 6015(b) and (f), which motion the 20 Court shall grant . 21 Sherri S . Larson, Intervenor, appeared on her own 22 behalf, and Kelley Blaine appeared on behalf of Respondent . 23 FINDINGS OF FAC T 24 Certain facts have been stipulated betwee n 25 Intervenor and Respondent . The stipulation of facts, with Heritage Reporting Corporation (202) 628-4888 4 1 accompanying exhibits, is incorporated by this reference . 2 The facts are so found . 3 Petitioner resided in St . Helens, Oregon at the 4 time he filed the petition, and Intervenor Sherri Larson 5 resided in Beaverton, Oregon at the time the petition wa s 6 filed . Petitioner at the time of trial was incarcerated at 7 the Snake River Correctional Institute in Ontario, Oregon . 8 Petitioner worked for a distribution company i n 9 2001 until he was laid off in September 2001 . Intervenor, 10 who was married to Petitioner during all of 2001, operated a 11 cleaning business whose major clients were landlord-typ e 12 individuals or entities who paid Intervenor $13 .50 an hour 13 to clean apartments, rentals, or commercial property after a 14 tenant left or was evicted . Petitioner worked with 15 Intervenor when he was off from work, such as evenings and 16 after he was laid off from his job . Petitioner's duties 17 included cleaning garages, external spaces, and whatever 18 other areas required cleaning . Petitioner was therefore a 19 regular participant in the cleaning business and knew the 20 regular clients of the cleaning business . Petitioner and 21 Intervenor, as husband and wife, frequently discussed the 22 financial aspects of their marriage and their business and 23 work relationships . Money was tight even before Petitioner 24 lost his job . 25 Petitioner filed a joint tax return with Intervenor Heritage Reporting Corporation (202) 628-4888 5 1 for tax year 2001 . The parties neglected to includ e 2 Petitioner's unemployment compensation and various payments 3 from clients of the cleaning business . An $800 refund was 4 payable to Petitioner and Intervenor for 2001 tha t 5 Petitioner used . Petitioner's wages had withholdings, but 6 Intervenor made no estimated tax payments regarding he r 7 cleaning business during 2001 . The cleaning busines s 8 clients reported payments they made to the cleaning business 9 via third-party information reports to Respondent . 10 Petitioner requested relief, in response to a 30- 11 day letter, that he was not liable for the deficienc y 12 asserted, claiming that he had been unaware of all of the 13 income the cleaning business generated . Responden t 14 subsequently issued a deficiency notice to Petitioner and 15 Intervenor, but Petitioner and Intervenor failed to file a 16 petition with the Tax Court to redetermine the deficiency . 17 During the meantime, Respondent considered granting 18 Petitioner partial relief, but Intervenor objected . Appeals 19 considered information in the file, including questionnaires 20 completed by both Petitioner and Intervenor regardin g 21 Petitioner's involvement in the cleaning business . 22 Respondent issued a notice of determination, dated Augus t 23 25, 2005, in which Respondent denied relief to Petitioner on 24 all grounds . Respondent denied relief under Section 6015(b) 25 and (c) because the evidence indicated that Petitioner ha d Heritage Reporting Corporation (202) 628-4888 6 1 actual knowledge of the unreported income, and denied relief 2 under Section 6015 ( f) because Petitioner had actua l 3 knowledge and because he had not established that he would 4 suffer economic hardship if relief was denied . 5 We are asked to decide whether Petitioner i s 6 entitled to relief under Section 6015 . Because Respondent 7 filed a motion to dismiss for lack of prosecution unde r 8 Section 6015(b) and (f), we consider only whether Petitioner 9 is entitled to relief under Section 6015(c) . 10 OPINION 11 Married taxpayers may elect to file a joint federal 12 income tax return with his or her spouse . Sec . 6013(a) . 13 Each spouse filing the tax return is jointly and severally 14 liable for the entire tax shown on the return or otherwise 15 determined to be due . Sec . 6013(d)(3) ; Cheshire v . 16 Commissioner , 115 T .C . 183, 188 (2000), affd . 282 F .3d 326 17 (5th Cir . 2002) . A taxpayer may seek relief, however, from 18 joint liability under Section 6015 . Section 6015 provides 19 for relief from the joint and several liability that arises 20 from a joint return in certain situations and subject to a 21 variety of exceptions . 22 Section 6015(c) limits an individual's liabilit y 23 for any deficiency to the portion of the deficiency properly 24 allocable to that individual under Section 6015(d) . I n 25 general , an item that gives rise to a deficiency on a joint Heritage Reporting Corporatio n (202) 628-4888 7 1 return will be allocated to the individuals who file the 2 return in the same manner as that item would have bee n 3 allocated had those individuals filed separate returns . See 4 Sec . 6015 ( d)(3)(A) . In this case, all of the unreporte d 5 income attributable to the cleaning business would b e 6 allocated to Intervenor unless Respondent demonstrates that 7 Petitioner , who seeks such relief , has actual knowledge a t 8 the time the individual signed the return of any item giving 9 rise to a deficiency . Sec . 6015(c)(3)(C) ; Culver v . 10 Commissioner , 116 T . C . 189 ( 2001 ) and cases cited therein ; 11 see Martin v . Commissioner , T .C . Memo . 2000-34 6 12 ("[Commissioner ] bears the burden of proof that . . . [ the 13 taxpayer ] had 'actual knowledge ,") . We thus must determine 14 whether Petitioner had actual knowledge of under-reporting 15 of the cleaning business . 16 During Respondent ' s cross-examination of Intervenor 17 and examination of Intervenor ' s two sons , Bryant Jones and 18 Andrew Smith, who each helped in the cleaning busines s 19 during 2001 , it became apparent to the Court that Petitioner 20 had actual knowledge of the under - reporting of the incom e 21 from the cleaning business . Money was tight even before 22 Petitioner lost his job . Money from the cleaning business 23 was the major money coming into the household . Petitioner 24 must have been aware that the cleaning business was paying 25 for a variety of household and personal expenses . Moreover , Heritage Reporting Corporation (202) 628-4888 8 1 Petitioner was a regular participant in the cleaning 2 business, knew the regular clients of the cleaning business, 3 and discussed the finances of the marriage, including th e 4 cleaning business, during the year 2001 . 5 We find that Respondent has demonstrated tha t 6 Petitioner had actual knowledge that the cleaning business 7 income was not properly reported on the joint return fo r 8 2001 . Consequently, Petitioner is not entitled to relief 9 under Section 6015(c) for 2001, regardless of how items 10 giving rise to the deficiency would be allocated unde r 11 Section 6015(d) . 12 In addition, we have reviewed the exhibits that are 13 part of the record, and find nothing in the recor d 14 inconsistent with our conclusion that Petitioner fails to 15 qualify for relief from joint and several liability under 16 Section 6015(c) for 2001 . We shall issue an order and 17 decision holding that Petitioner is not entitled to relief 18 under Section 6015(c) for 2001 . 19 Finally, Respondent filed a motion to dismiss for 20 lack of prosecution as to Petitioner Lloyd Eddings because 21 Petitioner failed to appear at the call of calendar or at 22 trial . We shall grant Respondent's motion to dismiss for 23 lack of prosecution as to Petitioner Lloyd Eddings under 24 Section 6015(b) and (f) for 2001 . 25 This concludes the Court's oral findings of fact Heritage Reporting Corporation (202) 628-4888 1 and opinion in this case . 2 (Whereupon , at 9 :15 a .m ., the bench opinion in the 3 above-entitled matter was concluded . ) 9 4 5 6 7 8 9 10 / / 11 12 13 14 15 16 17 18 19 20 21 22 23 2 4 25 Heritage Reporting Corporation (202) 628-4888