TAX COURT OPINION

Case: Veronica M. Bilodeau
Docket Number: 2153-12
Judge: Gustafson
Opinion Type: bench
Filed: 11/29/2012
Pages: 23

SEC UNITED STATES TAX COURT WASHINGTON, DC 20217 VERONICA M. BILODEAU, Petitioner, v. COMMISSIONER OF INTERNAL REVENUE, Respondent ) ) ) ) ) Docket No. 2153-12. ) ) ) ) O R D E R Pursuant to the opinion of the Court as set forth in the pages of the transcript of the proceedings before Judge David Gustafson at Boston, Massachusetts, on October 17, 2012, containing his oral findings of fact and opinion, 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 Gustafson at Boston, Massachusetts, 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 in part for respondent and in part for petitioner, as follows: (a) Pursuant to respondent's concession, under I.R.C. section 6015(c) petitioner is entitled to relief from joint liability to the extent of $105,175 of the tax deficiency of $126,837. (b) Pursuant to this Court's opinion, petitioner is not entitled under section 6015(b), (c), or (f) to relief from joint liability as to the remaining $21,662 of that deficiency. entitled to relief from joint liability to the extent of $21,035 of the section 6662(a) accuracyrelated penalty of $25,367. And (d) pursuant to this Court's opinion, petitioner is entitled under section 6015(f) to relief from joint liability for the remaining $4,332 of section 6662(a) accuracyrelated penalty. (c) Pursuant to respondent's concession, under section 6015(c) petitioner is (Signed) David Gustafson Judge Dated: Washington, D.C. November 29, 2012 SERVED Nov 29 2012 Capital Reporting Company Veronica M. Bilodeau l0-17-2012 1 Bench Opinion by Judge David Gustafson 2 October 17, 2012 Veronica M. Bilodeau Docket No. 3 3 4 5 2153-12 THE COURT: The Court has decided to render the following, as its oral Findings of Fact and 6 Opinion in this case. It shall not be relied on as 7 precedent in any other case. 8 This Bench Opinion is made pursuant to the 9 authority granted by section 7459 (b) of the Internal 10 Revenue Code (26 U.S.C.), and Rule 152 of the Tax 11 Court Rules of Practice and Procedure. 12 13 14 By a Notice of Deficiency dated November 22, 2011 (Ex. 2-J), the Internal Revenue Service (IRS) determined against petitioner Veronica M. 15 Bilodeau and her deceased husband, for the year 2005, 16 a deficiency of Federal income tax in the amount of 17 18 $126,837 and a 20-percent accuracy-related penalty under section 6662 (a) in the amount of $25,367. Both 19 in that notice of deficiency and in a "Final Appeals 20 Determination" dated that same date, the IRS denied 21 22 23 the request of Mrs. Bilodeau, pursuant to section 6015, for relief from joint liability for that tax and penalty. She timely filed her petition in this 24 Court on January 23, 2012, seeking review of the 25 IRS's adverse determination. At that time she (866) 448 - DEPO . www.CapitalReportingCompany.com 2012 Capital Reporting Company Veronica M. Bilodeau 10-17-2012 resided in Massachusetts. 4 Trial of this case was conducted on October 15, 2012, in Boston. Petitioner was represented by 1 2 3 4 Timothy J. Burke, and respondent was represented by 5 Erika B. Cormier. The parties' Stipulation of Facts, 6 with Exhibits 1-J through 3-J, was admitted into evidence . 7 8 FINDINGS OF FACT 9 Mrs. Bilodeau's background 10 . Veronica Bilodeau was born in 1941. She finished 11 high school. She had no further education (including 12 13 no schooling in accounting or taxation), and her only further formal training was in key-punch operation. 14 After high school she got a job as a clerk in a 15 retail store. 16 In 1961, at age 20, she married David 17 Bilodeau. She stopped working outside the home 18 during the seventh month of her first pregnancy and 19 resumed working when her third child was 16 months 20 old. Mr. Bilodeau was self-employed as a general 21 contract or . 22 Mrs. Bilodeau had no involvement with Mr. 23 Bilodeau's business and no familiarity with the 24 company's books. Throughout their marriage, Mr. 25 Bilodeau prepared the couple's joint tax returns with (866) 448 - DEPO www.CapitalReportingCompany.com 2012 Capital Reporting Company Veronica M. Bilodeau 10-17-2012 1 2 the help of his accountant. Mrs. Bilodeau's only involvement with the tax returns was to give to Mr. 3 Bilodeau her Forms W-2 and 1099. Mrs. Bilodeau never 5 4 dealt directly with the accountant. 5 Mr. Bilodeau's health 6 7 8 9 Mr. Bilodeau had heart and lung problems that became worse after 2001. In 2005, the year at issue,the Bilodeaus built a ramp for his access into and out of their house and installed tubes from oxygen 10 tanks in the basement to three rooms in the house. 11 Mrs. Bilodeau cared for him, took him to doctors' 12 appointments and lab visits, and was aware of his 13 incurring substantial medical expenses (though she 14 was not aware of when the medical bills were or were 15 not paid) . 16 17 Mr. Bilodeau was hospitalized in November 2005 and was not released from rehab until about 5 18 months later. However, even then he insisted on 19 maintaining contro.1 of his business and financial 20 affairs, resorting to handwritten instructions when a 21 tracheotomy kept from him talking. 22 The 2005 return 23 Because of his health problems, Mr. Bilodeau 24 obtained an extension to file their joint return, and 25 then gave information for the 2005 return to his (866) 448 - DEPO www.CapitalReportingCompany.com 2012 Capital Reporting Company Veronica M. Bilodeau l0-17-2012 6 1 accountant by telephone and fax transmission, rather 2 than by visiting the accountant's office. As in 3 other years, Mrs. Bilodeau gave him her Forms W-2 and 4 1099 and left the return preparation to him and his 5 accountant, as he insisted. When the return had been 6 prepared, Mr. and Mrs. Bilodeau signed it and filed 7 8 9 it with the IRS' in September 2006. Several days later Mr. Bilodeau died. The Bilodeau's 2005 tax return duly 10 reported Mrs. Bilodeau's pension income of $17,404 11 and an IRA distribution of $100,010. The Schedule C 12 13 for Mr. Bilodeau's business, however, though it reported substantial revenues, also reported 14 substantial deductions and reflected net profit of 15 16 zero. The Schedule A to the Bilodeau's return reported medical expense deductions totaling $92,106. . 17 Because of the seriousness of Mr. Bilodeau's health 18 19 problems and Mrs. Bilodeau's first-hand knowledge of the building of the ramp, the installation of the 20 oxygen tubes, and the substantial medical expenses he 21 had been incurring, this amount did not seem 22 unreasonable to Mrs. Bilodeau. 23 The IRS examination and litigation position 24 The IRS later examined the return and 25 determined that it understated Mr. Bilodeau's business (866) 448 - DEPO www.CapitalReportingCompany.com 2012 Capital Reporting Company Veronica M. Bilodeau 10-17-2012 income, overstated his business expenses, and 7 the medical expenses claimed as itemized deductions on 1 2 3 Schedule A--all resulting in a deficiency of income 4 tax totaling $126,837, on which the IRS determined an 5 accuracy-related penalty to be due. Those 6 determinations per se are not in dispute here. That 7 is, petitioner effectively concedes that the 8 deductions were properly disallowed--in the case of 9 the disallowed portion of the medical expenses, that 10 they were properly disallowed for lack of 11 substantiation. 12 During the course of the examination Mrs. 13 Bilodeau requested innocent spouse relief under 14 section 6015--i.e., relief from joint liability for 15 tax and penalty. The IRS denied that relief. 16 However, during the course of this 17 litigation, the IRS reconsidered that determination 18 in part. The parties stipulate that "Respondent 19 concedes that petitioner is entitled to I.R.C. 20 6015(c) innocent spouse relief for all adjustments at 21 issue in this case, except for the Schedule A 22 itemized deductions adjustment and associated 6662(a) 23 penalty. " (Stip. 3. ) In their pretrial memorandum, 24 both parties state the remaining tax amount in 25 dispute--i.e., the portion of the deficiency (866) 448 - DEPO www.CapitalReportingCompany.com 2012 Capital Reporting Company Veronica M. Bilodeau 10-17-2012 1 allocable to Mrs. Bilodeau that is attributable to 2 disallowance of the medical expense deductions--as 3 4 $21,662, and both state the related penalty amount as $4,332. At trial neither party suggested any flaw 5 with the computation underlying these revised 8 6 figures, so we take them as undisputed. 7 Mrs.Bilodeau's current circumstances 8 9 As of the time of trial, Mrs. Bilodeau is 71 years old. She receives Social Security benefits of 10 $1, 437 per month. She makes payments of $1, 408 per 11 12 on a home mortgage the unpaid balance of which is about $143,000. Several young adult.grandchildren live 13 with her and help her pay the mortgage. In the 14 winter she keeps the heat at 62 degrees and advises 15 the grandchildren to dress warmly in the house. She 16 receives some amount of retirement benefit from an 17 annuity. These sources of income are insufficient to 18 cover her expenses, so she works part-time as a 19 substitute lunch lady at a local school (for 3 hours 20 a day for as much as two days a week) and she cleans 21 a house for pay every other week. She has to "watch 22 my pennies--and I mean pennies." 23 OPINION 24 I.. Standard and scope of review 25 When determining whether a taxpayer is (866) 448 - DEPO www.CapitalReportingCompany.com 2012 Capital Reporting Company Veronica M. Bilodeau 10-17-2012 1 entitled to relief .under section 6015 (whether under 9 subsection (b), (c), or (f)), we conduct a trial de (\OY O in which we may consider evidence introduced at trial 2 3 4 which was not included in the administrative record. 5 Porter v. Commissioner, 130 T.C. 115, 117 (2008). 6 For all claims under section 6015 (including claims 7 for equitable relief under section 6015(f)), we do 8 not review for abuse of discretion but instead employ . 9 a de novo standard of review. Porter v. 10 Commissioner, 132 T.C.203 (2009). 11 12 13 14 II. Joint and several liability and section 6015 relief Section 6013 (d) (3) provides that if a joint return is filed, the tax is computed on the taxpayers' 15 aggregate income, and liability for the resulting tax 16 is joint and several. That is, each spouse is 17 responsible for the entire joint tax liability. 18 However, section 6015 provides for relief from joint 19 liability. Except as otherwise provided in section 20 6015, the taxpayer bears the burden of proof. See 21 22 sec. 6015 (c) (2) : Rule 142 (a) . Section 6015 grants relief for spouses who meet the conditions of 23 subsection (b) and for divorced and separated persons 24 under subsection (c), and provides equitable relief 25 in subsection (f) when the relief provided in (866) 448 - DEPO www.CapitalReportingCompany.com 2012 Capital Reporting Company Veronica M. Bilodeau 10-17-2012 1 subsections (b) and (c) is not available. Mrs. 2 Bilodeau requests relief under all three subsections. 10 3 4 5 A. Relief from liability for tax 1. Subsection (b) and (c) relief For purposes of determining relief under 6 either subsection (b) or subsection (c) of section A 7 the IRS essentially concedes that Mrs. Bilodeau meets 8 all the qualifications except that, it contends, the 9 attributable to the disallowed medical expenses is 10 properly allocated to her and therefore not 11 appropriate for relief. Consistent with the IRS's 12 contention, subsection (b) relieves liability 13 attributable to "erroneous items of 1 individual" 14 15 . (sec. 6015(b) (1) (B)), and subsection (c) likewise relieves liability that arises from an item that is 16 properly "allocated to one individual"--i.e., to the 17 non-requesting spouse (here, Mr. Bilodeau). Thus, to 18 the extent the tax is allocable to Mrs. Bilodeau 19 because it is attributable to her items, relief is 20 inappropriate. 21 One could observe that the medical expenses 22 are an "item of" Mr. Bilodeau's--spent by him and for 23 his benefit--and could argue that therefore Mrs. 24 Bilodeau ought not to bear any resulting tax 25 liability. Generally a deduction is allocated to a (866) 448 - DEPO www.CapitalReportingCompany.com 2012 Capital Reporting Company Veronica M. Bilodeau 10-17-2012 1 non-requesting spouse if the non-requesting spouse 2 would have claimed the deduction on his return had 11 3 4 5 6 7 8 9 the spouses filed separate returns. Sec. 6015 (d) (3) (A) . In this case, since the medical expenses were a result of Mr. Bilodeau's ailments, one could argue that those expenses, both the substantiated expenses and the unsubstantiated expenses, should be allocable to Mr. Bilodeau. However, in this case the excessive medical 10 expenses claimed in connection with Mr. Bilodeau's 11 ailments were taken as deductions from income earned 12 by (and otherwise taxable to) Mrs. Bilodeau. 13 Deduction items are allocable to a non-requesting 14 15 16 spouse only to the extent the non-requesting spouse has income to support those deductions. See Hopkins v. Commissioner, 121 T.C. 73, 83 (2003). After 17 considering all his other separate deductions, Mr. 18 Bilodeau did not report sufficient income to support .19 the medical expense deductions. Instead, it was Mrs. 20 Bilodeau's income on the 2005 return that was offset 21 by the excessive medical expense deductions. Insofar 22 as tax reporting is concerned, this makes the 23 deduction at item more logically attributed to Mrs. 24 Bilodeau. Consistent with this logic, section 25 6015 (d) (3) (B) explicitly provides that relief will (866) 448 - DEPO www.CapitalReportingCompany.corn 2012 Capital Reporting Company Veronica M. Bilodeau 10-17-2012 12 1 not be available where the requesting spouse 2 benefited from the wrongful deduction, as Mrs. 3 Bilodeau did, even if the erroneous item pertained to 4 5 6 the non-requesting spouse. To the same ultimate.effect, section 6015(b) (1) (D) restricts relief to circumstances in 7 which, "taking into account all the facts and 8 9 10 11 12 13 14 15 circumstances, it is inequitable to hold the other individual liable for the deficiency in tax for such taxable year attributable to such understatement". The whole purpose of section 6015 is to relieve a spouse from the effects of the Code's rules about joint liability--in effect, to allow the requesting spouse to pay no more tax than she would have owed if she had filed a separate return. See Pullins v. 16 Commissioner, 136 T.C. 432, 440 (2011). But in this 17 case, there is no suggestion that if Mrs. Bilodeau 18 had filed a separate return, she would somehow have 19 been entitled to deduct excessive, unsubstantiated 20 medical expenses of her husband. For purposes of 21 determining her entitlement to relief from tax on her 22 23 income, it only makes sense to treat these deductions as attributable to her since those deductions offset 24 he.r income (and not Mr. Bilodeau's). There is 25 therefore no warrant for granting relief from the tax (866) 448 - DEPO www.CapitalReportingCompany.com 2012 . Capital Reporting Company Veronica M. Bilodeau 10-17-2012 1 at issue here. 13 2 3 4 5 6 2. Equitable relief under subsection (f) Section 6015 (f) provides relief from joint liability if "taking into account all the facts and circumstances, it is inequitable to hold the individual liable for any unpaid tax or any 7 deficiency (or any portion of either)". We will say 8 more about section 6015(f) relief in connection with 9 the penalty, but in connection with the tax at issue, 10 it is sufficient to observe that under subsection 11 12 13 14 15 16 17 18 19 (f), as under (b), relief is available only where the liability is otherwise inequitable. But it is not inequitable--it is, on the contrary, completely reasonable--to hold.Mrs. Bilodeau liable for tax that she would have owed quite apart from being jointly liable with Mr. Bilodeau; and it would in fact be inequitable to allow her to reduce her separate tax liability by the benefit of erroneous deductions. We therefore sustain the IRS's denial of 20 relief as to $21,662 of the tax liability. 21 22 23 B. Relief from liability for penalty The IRS's pretrial memorandum shows how, as a mathematical matter, the tax at issue here is a 24 . "substantial understatement" that gives rise to the 25 accuracy-related penalty of section 6662 (a). (866) 448 - DEPO www.CapitalReportingCompany.com 2012 Capital Reporting Company Veronica M. Bilodeau 10-17-2012 1 Therefore, Mrs. Bilodeau is liäble for the penalty 14 2 unless she can show either a valid defense to the 3 penalty or grounds for relief under section 6015. 4 5 1. Defenses to the penalty A taxpayer who is otherwise liable for the 6 accuracy-related penalty may avoid the liability if 7 8 10 11 she successfully invokes one of three provisions: 1. First, section 6662 (d) (2) (B) provides that an understatement may be reduced where the taxpayer had substantial authority for her treatment of any item giving rise to the 12 understatement. There is no authority that would 13 warrant the excess1ve deduction of unsubstantiated 14 medical expenses. 15 2. Second, section 6662 (d) (2) (B) 16 provides that an understatement may be reduced where 17 the relevant facts affecting the item's treatment are 18 adequately disclosed and the taxpayer had a 19 reasonable basis for her treatment of that item. 20 Neither of these criteria is met here. 21 3. Third, section 6664 (c) (1) provides 22 that, if the taxpayer shows, first, that there was 23 reasonable cause for a portion of an underpayment 24 and, second, that she acted in good faith with 25 respect to such portion, then no accuracy related (866) 448 - DEPO www.CapitalReportingCompany.com 2012 Capital Reporting Company Veronica M. Bilodeau 10-17-2012 15 1 penalty shall be imposed with respect to that 2 portion. Whether the taxpayer acted with reasonable 3 4 cause and in good faith depends on the pertinent facts and circumstances. We are convinced that Mrs. 5 Bilodeau signed her return "in good faith"; but she 6 did not make a convincing showing of "reasonable 7 8 9 10 11 cause" for the erroneous deductions that she claimed. "Reasonable cause" can exist where a taxpayer relied on the advice of a tax professional, 26 C.F.R. sec. 1. 6664-4 (b) (1) , Income Tax Regs . ; and Mrs . Bilodeau appears to attempt to invoke this defense by 12 asserting her indirect reliance on the accountant's 13 advice given to her husband in the course of 14 preparing the return. However, Mrs. Bilodeau 15 evidently never spoke to the accountant, and our 16 record does not show whether Mr. Bilodeau disclosed 17 all the relevant facts to the accountant. Mrs. 18 Bilodeau relied not on a professional but on her 19 husband in signing the return. In that spousal 20 context, the "reasonable cause" argument should be 21 made under section 6015. See Rowe v. Commissioner, 22 T.C. Memo. 2001-325 (part VIII(C)). 23 24 25 2. Section 6015 relief a. .The intersection of 6015 and penalty For purposes of section 6015, "relief from (866) 448 - DEPO www.CapitalReportingCompany.com 2012 Capital Reporting Company Veronica M. Bilodeau 10-17-2012 1 penalties *** will generally be determined based on 16 2 3 4 the proportion of the total erroneous items from which the requesting spouse 1s relieved", 26 C. F. R. sec. 1. 6015-1 (h) (4) . The IRS considers that it has 5 vindicated this principle by eliminating the penalty 6 except as it arises from the tax deficiency that we 7 8 9 have upheld here. However, by the terms of the regulation, this proportional approach is only "generally" appropriate, so we must examine the 10 matter further. 11 12 Respondent's pretrial memorandum, evidently composed before the parties' contentions had been 13 well ventilated, addresses only relief under section 14 15 6015(c) and states, without elaboration, that the "Schedule A itemized deductions adjustment and 16 associated I.R.C. 6662 (a) penalty *** remain 17 allocable to petitioner". Lumping the tax and 18 penalty together in this fashion may be implicitly 19 20 suggested by IRS Notice 2012-8 (Jan. 6, 2012), which, like its predecessor (Rev. Proc. 2003-61, 2003-2 C.B. 21 296), provides that "the term 'tax' includes 22 penalties, additions to tax, and interest"--perhaps 23 thereby seeming to invite a one-size-fits-all 24 analysis. However, since the regulations provide 25 explicitly that "[p]enalties *** are not erroneous (866) 448 - DEPO www.CapitalReportingCompany.com 2012 Capital Reporting Company Veronica M. Bilodeau 10-17-2012 1 2 items", 26 C. F. R. sec. 1. 6015-1 (h) (4) , it is clear that penalties will sometimes need a separite 17 3 analysis . 4 5 A distinct analysis as to penalty is .especially necessary here, since it is critical to 6 determine to which spouse the penalty should be 7 allocated. The principle we invoked earlier to treat 8 Mr. Bilodeau's medical expenses as Mrs. Bilodeau's 9 "item" for tax purposes of relief from joint tax 10 liability--i.e., that she was the one who benefited 11 12 from the item by a lower reported tax liability--is awkward at best to apply to relief from joint penalty 13 liability. The excessive medical deductions are an 14 "item", but the penalty arising from them is not. 15 And while one can say that Mrs. Bilodeau improperly 16 benefited from the erroneous deductions with respect 17 to her reported tax liability, one cannot say that 18 Mrs. Bilodeau benefited from the error with respect 19 to her reported penalty liability, since one never 20 reports a liability for penalty; instead, she is at 21 22 23 risk of suffering from the error. b. Section 6015(b) and (c) However, we acknowledge that the penalty 24 now at issue arises from (indeed, is a percentage of), 25 a substantial understatement of Mrs. Bilodeau's non- (866) 448 - DEPO www.CapitalReportingCompany.com 2012 Capital Reporting Company Veronica M. Bilodeau 10-17-2012 1 2 3 joint tax liability. For purposes of relief from joint tax liability, we concluded that it makes more sense to treat the medical expense deductions that 4 benefited Mrs. Bilodeau's reporting position as items 5 allocable to her. We therefore assume, for purposes 18 6 of sections 6015 (b) and (c), that the corresponding 7 penalty is also allocable to her, mechanically 8 9 speaking, and is therefore not eligible for relief under either of those sections. See also 26 C.F.R. 10 sec. 1. 6015-3 (d) (4) (iv) (B) ("Any accuracy-related or 11 fraud penalties under section 6662 or 6663 are 12 allocated to spouse whose item generated the 13 penalty") . We focus instead on relief under section 14 6015 (f ) . 15 16 c. Section 6015(f) The Tax Court has been given express 17 authority to review the IRS's denial of equitable 18 relief under section 6015(f). Section 6015(e) (1) 19 provides: 20 [I]n the case of an individual who requests 21 equitable relief under subsection (f)*** [i]n 22 addition to any other remedy provided by law, the 23 individual may petition the Tax Court (and the Tax 1 24 Court shall have jurisdiction) to determine the 25 appropriate relief available to the individual under (866) 448 - DEPO www.CapitalReportingCompany.com 2012 Capital Reporting Company Veronica M. Bilodeau l0-17-2012 1 this sectiön ***. That is, upon reviewing the IRS's 2 action, the Court "determine[s] the appropriate 19 3 4 5 6 relief". i. IRS analysis In accord with the statutory provision that section 6015 (f) relief is to be granted "[u]nder 7 procedures prescribed by the Secretary, " the 8 Commissioner has issued revenue procedures to guide IRS 9 employees in determining whether a requesting spouse 1s 10 entitled to relief from joint and several liability.See 11 12 IRS Notice 2012-8, modifying and superseding Rev. Proc. 2003-61, 2003-2 C.B. 296, modifying and superseding 13 Rev. Proc. 2000-15, 2000-1 C.B. 447. 14 The current guidelines provide a three-step 15 analysis for IRS employees to use in deciding whether 16 to grant relief. Section 4.01 lists seven threshold 17 conditions that must be met for any relief to be 18 granted; section 4.02 lists circumstances in which 19 relief will ordinarily be granted as to 20 underpayments; and section 4.03 sets out eight non- 21 exclusive factors to be considered in determining 22 whether equitable relief should be granted. 23 In "determin[ing] the appropriate relief", 24 this Court reviews the IRS's .three-step analysis 25 prescribed in its revenue procedure, see Washington (866) 448 - DEPO www.CapitalReportingCompany.com 2012 Capital Reporting Company Veronica M. Bilodeau 10-17-2012 20 1 2 v. Comniissioner, 120 T.C. 137, 147-152 (2003), but our review is not circumscribed by that matrix. 3 Rather, we consider "all the facts and circumstances" 4 5 in determining whether the taxpayer is entitled to "innocent spouse" relief. Sec. 6015(f) (1); see 6 Porter v. Commissioner, 132 T.C. 203 (2009); Lantz v. 7 Commissioner, 132 T.C. 131 (2009), rev'd on other 8 9 grounds, 607 F.3d 479 (7th Cir. 2010). In doing so, however, it is helpful to follow initially the IRS's 10 analys is . 11 12 13 ii. Threshold eligibility IRS Notice 2012-8 sets out, in section 4.01, seven threshold conditions that all requesting spouses 14 must meet in order for the IRS to grant relief pursuant 15 to section 6015 (f) . On our record, questions could be 16 17 18 19 raised only as to two of these conditions--the second and the seventh. Condition (2) is: "Relief is not available to the requesting spouse under section 6015(b) or 20 (c) . " At trial respondent contended that this 21 condition is not met because relief under subsection 22 (c) is available to Mrs. Bilodeau, and is being 23 granted to her, to the extent of all but $21, 662 of a 24 $126,837 deficiency, and all but $4,332 of penalty 25 determined in the total amount of $25, 367. However, (866)448 - DEPO www.CapitalReportingCompany.com 2012 Capital Reporting Company Veronica M. Bilodeau 10-17-2012 we see nothing in the statute, nor in the purposes of 21 section 6015, to support the assertion that if 1 2 3 partial relief is granted under subsection (c), the 4 5 6 7 8 9 claimant has thereby become ineligible for equitable relief as to the remainder under subsection (f). Condition (7) is: "The income tax liability from which the requesting spouse seeks relief is attributable (either in full or in part) to an item of the nonrequesting spouse or an 10 underpayment resulting from the nonrequesting 11 12 13 14 spouse ' s income . " This condition--which plainly relates to tax liability--is difficult to relate to a claim for relief from penalty liability, unless it states a rule that, though silent about penalty, 15 absolutely denies penalty relief when the 16 corresponding tax is attributable to the requesting 17 spousg But that is not how we have interpreted 18 section 6015(f). Rather, where an innocent spouse's 19 wage income was not reported because of the fault of 20 her husband, on whom she relied, she was excused from 21 penalty liability. See Rowe v. Commissioner, T.C. 22 Memo. 2001-325 (part VIII(C)). Under Notice 2012-8, 23 sec. 4.01(7) (e), even tax liability may be excused 24 where an income item attributable to.the requesting 25 spouse was omitted from the return as the result of (866) 448 - DEPO www.CapitalReportingCompany.com 2012 Capital Reporting Company Veronica M. Bilodeau 10-17-2012 1 2 3 fraud by the nonrequesting spouse. Thus, we do not acknowledge, as an absolute condition for relief from joint liability for penalty, a necessity that the tax 4 underlying the penalty arise from an item of the 22 5 nonrequesting spouse. 6 7 8 9 iii. Streamlined determination Where a claimant has satisfied the IRS's threshold requirements (as we believe she has, if they are rightly applied), then the IRS undertakes to 10 grant a "streamlined determination" of eligibility 11 for section 6015(f) relief if she: 12 13 14 15 16 17 18 (1) Is no longer married to the non- requesting spouse***; (2) Would suffer economic hardship if relief were not granted ***; and (3) Did not know or have reason to know that there was an understatement or deficiency on the joint return. [See Notice 2012-8, sec. 4.02.] 19 Mrs. Bilodeau meets these conditions and would 20 therefore, under the IRS's guidelines, be entitled to 21 relief from penalty liability. We therefore need not 22 engage in the IRS's seven-part (with subparts) facts- 23 and-circumstances test set out in section 4.03 of 24 Notice 2012-8. By the IRS's guidelines, ·Mrs. 25 Bilodeau should be granted relief under section (866) 448 - DEPO www.CapitalReportingCompany.com 2012 Capital Reporting Company Veronica M. Bilodeau 10-17-2012 23 1 2 6015(f) from joint liability for the penalty. More to the point, under our own simpler 3 analysis, she is entitled to that equitable relief. 4 All Mrs. Bilodeau's income was reported, and on our 5 record she committed no fault. On the contrary, Mrs. 6 Bilodeau gave all of her income information to her 7 8 husband, and that information was all passed along to the accountant and reported on their return. Mr. 9 Bilodeau insisted that she leave the couple's tax 10 matters up to him, and she complied. The medical 11 expense deductions that gave rise to the 12 understatement did not look unreasonable to Mrs. 13 Bilodeau, since the Bilodeaus had in fact incurred 14 conspicuous, substantial medical expenses for her 15 husband--though in amounts her husband failed to 16 substantiate. He died shortly after filing the 17 18 return and could not help her support the numbers on the return--but these shortcomings were a surprise to 19 her. On the facts and circumstances, it would be 20 inequitable to hold her liable for penalty. 21 In sum, we find that Mrs. Bilodeau is not 22 entitled to relief under section 6015 (b), (c), or (f) 23 from joint liability for ïncome tax for 2005 beyond 24 what the IRS has conceded, but that she is entitled 25 to relief under section 6015(f) from joint liability (866) 448 - DEPO www.CapitalReportingCompany.com 2012 Capital Reporting Company Veronica M. Bilodeau 10-17-2012 for the section 6662 (a) accuracy-related penalty at 24 issue. This concludes the Court's oral findings of 1 2 3 4 Fact and Opinion in this case. 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 2 0 21 22 23 2 4 2 5 (Whereupon, at 11:33 a.m., the bench opinion in the above-entitled matter was concluded.) (866) 448 - DEPO www.CapitalReportingCompany.com 2012