TAX COURT OPINION

Case: Pamela W. Robinson
Docket Number: 10548-14
Judge: Gustafson
Opinion Type: bench
Filed: 07/01/2015
Pages: 18

UNITED STATES TAX COURT WASHINGTON, DC 20217 MN PAMELA W. ROBINSON, Petitioner, v. ) ) ) ) Docket No. 10548-14. COMMISSIONER OF INTERNAL REVENUE, Respondent ) ) ) ORDER Pursuant to the opinion of the Court as set forth in the transcript of the proceedings at Philadelphia, Pennsylvania, on June 17, 2015, 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 the undersigned judge at Philadelphia, Pennsylvania, containing his oral fimdings 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 granting petitioner partial relief under section 6015(c) only to the extent conceded by respondent. (Signed) David Gustafson Judge Dated: Washington, D.C. July 1, 2015 SERVED Jul 01 2015 Capital Reporting Company 3 1 2 3 4 5 6 7 8 9 Bench Opinion of Judge David Gustafson June 17, 2015 Pamela W. Robinson v. Commissioner Docket No. 10548-14 THE COURT: The Court has decided to render the following, as its oral Findings of Fact and Opinion in this case. It shall not be relied on as precedent in any other case. This Bench Opinion is made pursuant to the authority granted by section 10 7459(b) of the Internal Revenue Code (26 U.S.C.), and 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 Rule 152 of the Tax Court Rules of Practice and Procedure. By two "Final Determinations" dated March 26, 2014, issued by the Internal Revenue Service (IRS) in response to a request for innocent spouse relief submitted by petitioner Pamela W. Robinson, the IRS determined that for the tax years 2009, 2010, and 2011, Ms. Robinson is entitled to only partial relief under section 6015(c) and no relief under section 6015(b) or (f). Pursuant to section 6015(e)(1)(A), Ms. Robinson timely filed her petition in this Court on May 12, 2014, seeking our determination that she is entitled to further relief under section 6015. At that time she resided in New Jersey ) (Stip. 1). 866.488.DEPO twww.CapitaIReportingCompany.com SEBVED JUL -12015 Capital Reporting Company 4 1 2 3 4 5 6 7 8 The trial of this case was held in Philadelphia on June 15, 2015. At the trial Ms. Robinson represented herself, and respondent was represented by Kathleen K. Raup. After considering the evidence and arguments presented, we hold that Ms. Robinson is not entitled to further relief under section 6015. FINDINGS OF FACT 9 Petitioner's background 10 11 12 Ms. Robinson is a high school graduate. (Stip. 3.) She went to college for 2-1/2 years and studied accounting, after which she worked at 13 Merrill-Lynch for 12 years. In 1989 Ms. Robinson 14 married Albert L. Robinson (Stip. 4), and 15 16 17 18 19 20 21 22 23 24 25 children were born to them in 1992 and 1997 (Stip. 5). In 2003 she obtained her realtor's license and began to work for a Century 21 agency called "Action Plus". In 2005 she obtained her appraiser's license and thereafter worked as an independent contractor for Central State Appraisal Company. Mr. Robinson did not have a realtor's license or an appraiser's license. The Robinsons' finances The couple had a joint savings account, and a joint checking account into which both spouses 866.488.DEPO twww.CapitalReportingCompany.com Capital Reporting Company 1 deposited their paychecks and from which both spouses 2 wrote checks for household expenses. (Stip. 11). The 5 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 bank statements were mailed to the house, and Ms. Robinson had access to them. Mr. Robinson did not hide the family's financial information from Ms. Robinson nor prevent her from having access to it. Both Mr. and Ms. Robinson were employed during their marriage. Mr. Robinson earned wage income from his employers during all relevant years. Ms. Robinson was a homemaker for several years but generally worked throughout their marriage. (Stip. 6). Ms. Robinson's work prior to the years at issue was principally as a realtor and appraiser, but by 2009 that work had dwindled, and for 2009 through 2011 she was generally unemployed. She maintained her realtor's license and made some efforts to generate real estate business (such as going to some 18 meetings and viewing some homes), but she had no 19 20 21 22 23 sales during those years. Her appraiser's license was more expensive to renew than her realtor's license, and in 2008 she let the appraiser's license lapse without renewing it. She had no income from appraisals in 2009 through 2011. 24 Marital home 25 Mr. and Ms. Robinson purchased a home in 866.488.DEPO twww.CapitalReportingCompany.com Capital Reporting Company 6 1 2 3 4 5 6 7 about 1999 in which they lived during the three years at issue, 2009 through 2011. (Stip. 7). They paid the mortgage on the house from the joint bank account. At the end of each year, the mortgage company sent them a Form 1099 that showed, among other things, their mortgage interest and real estate taxes paid. 8 Rental properties 9 10 11 12 In 2003 and 2005, Mr. and Ms. Robinson purchased two properties to be used as rental properties. (Stip. 8-9). The deeds were in both their names. They managed the properties together, 13 with both spouses involved in depositing rent into 14 15 16 17 18 the joint account and paying rental expenses from it. Ms. Robinson prepared and signed leases and obtained tenants' signatures on leases. The Robinsons' tax returns Throughout their marriage, Mr. Robinson was 19 principally responsible for preparing the couple's 20 21 22 23 joint tax returns. Ms. Robinson maintained a folder into which she put forms, receipts, and other papers relevant to their taxes, and when the deadline for filing a return approached, she gave the folder to 24 Mr. Robinson. Early in their marriage Mr. Robinson 25 hired an accountant to prepare their tax returns; but 866.488.DEPO twww.CapitalReportingCompany.com Capital Reporting Company 7 1 2 in about 2005 he began preparing the returns himself using TurboTax software on their home computer (to 3 which Ms. Robinson had access). He prepared the 4 5 6 7 8 9 returns during late hours, and Ms. Robinson did not assist him. She did not examine the returns either before or after he submitted them electronically. With each of the returns for years 2009 through 2011 (Exs. 10-J to 12-J), Mr. Robinson prepared a Schedule C for "Real Estate Busines" (sic) or 10 "Realitor"(sic) and a Schedule C for "Appraisal". 11 All these forms reported zero gross receipts and 12 13 14 15 16 17 18 19 20 21 22 reported expenses yielding losses, which Mr. Robinson carried over to line 12 of Form 1040. Five of these six Schedule Cs reported losses of less than $3,000, but the 2009 "Appraisal" Schedule C reported a loss of over $27,000, which included a home office deduction of more than $23,000. With each of the returns for years 2009 through 2011, Mr. Robinson also prepared a Schedule E reporting the income and expenses of the two rental properties and an apparently redundant Schedule C for a business called "Rental Property" or "Al and Pam 23 Rental Property". 24 25 On each of the returns for the years 2009 through 2011, Mr. Robinson also deducted, as itemized 866.488.DEPO twww.CapitaIReportingCompany.com Capital Reporting Company 8 expenses on Schedule A, mortgage interest and real estate taxes paid on the marital home. The returns reported overpayments of tax and requested refunds. The IRS paid refunds of $7,478 in 2009 and $11,317 in 2010. (Stip. 16). An overpayment of $8,684 that the IRS allowed for 2011 was not refunded to the Robinsons, but was instead diverted to pay overdue child support that Mr. Robinson owed for the support of a then-teenage child of whose existence Ms. Robinson had been unaware. In May 2012 Ms. Robinson filed a request for "injured spouse" relief (presumably on Form 8379 ("Injured Spouse Allocation"), which is not in our record). The IRS evidently determined that $1,495 of the overpayment arose from Ms. Robinson's withheld tax or estimated payments or that it otherwise pertained to her, determined that she owed no child support, and refunded that amount to her on September 3, 2012. (Ex. 17-J at 5-6). IRS Examination The IRS examined the returns for 2009, 2010, and 2011 (Stip. 19), and determined that many adjustments were appropriate: The IRS disallowed expenses reported on each of the Schedules C and E, and disallowed a portion of the mortgage interest and 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 866.488.DEPO twww.CapitalReportingCompany.com Capital Reporting Company 9 1 2 3 4 5 6 7 8 9 real estate tax reported on Schedule A. (Stip. 23- 25.) The IRS determined the resulting deficiency; issued a notice of deficiency to the Robinsons (Stip. 22; Ex. 14-J); and, after the Robinsons did not petition the Tax Court to redetermine the deficiencies, assessed tax in the amounts of $6,539 for 2009, $11,352 for 2010, and $8,605 for 2011 (Stip. 27-28, Exs. 14-J, 15-J), totaling $26,496, plus penalties. 10 Dissolution of the marriage 11 On January 24, 2013, after several years of 12 marital difficulty, the Robinsons separated, and Ms. 13 14 15 16 17 18 19 20 21 22 23 24 25 Robinson filed a complaint in divorce. (Stip. 21). The divorce was finalized in 2014. As part of the settlement, Mr. Robinson agreed to pay the outstanding liabilities for 2009, 2010, and 2011 (Stip. 31), though he has not yet done so; and he agreed to repay Ms. Robinson for any payments she is required to make. On October 21, 2013, Ms. Robinson submitted a Form 8857 requesting "innocent spouse" relief under section 6015. The IRS has conceded that petitioner is entitled to partial relief under section 6015(c). (Stip. 33). As for the adjustments from Schedules A, B, C, and E, the Commissioner allocated them equally 866.488.DEPO twww.CapitaIReportingCompany.com Capital Reporting Company 10 1 2 3 4 5 between the two spouses. (The Commissioner also allocated to each spouse individually a few items that appear to pertain directly to that spouse, and Ms. Robinson offered no criticism of, or objection to, that treatment.) This has the consequence of 6 making Ms. Robinson liable not for the total 7 8 9 10 11 12 deficiencies stated above but for only $3,619 for 2009, $4,537 for 2010, and $2,282 for 2011, totaling $10,438, plus penalties, i.e., about 40% of the aggregate deficiencies. On March 26, 2014, the IRS issued its final determinations to that effect (Exs. 1-J, 2-J), and in response Ms. Robinson filed her 13 petition in this Court. 14 15 16 17 I 18 19 20 21 22 23 24 25 OPINION I. Standard and scope of review When determining whether a taxpayer is entitled to relief under section 6015 (whether under subsection (b), (c), or (f)), we conduct a trial de novo. Porter v. Commissioner, 130 T.C. 115, 117 (2008). For all claims under section 6015 (including claims for equitable relief under section 6015(f)), we do not review for abuse of discretion but instead employ a de novo standard of review. Porter v. Commissioner, 132 T.C. 203, 210 (2009). II. Joint and several liability and section 866.488.DEPO twww.CapitalReportingCompany.com Capital Reporting Company 11 6015 relief Section 6013(d)(3) provides that if a married couple files a joint return (as Ms. Robinson and her then-husband did), then the tax is computed on the two taxpayers' aggregate income, and liability for the resulting tax is joint and several. That is, each spouse is responsible for the entire joint tax liability. Section 6015 provides for relief from that joint liability. Except as otherwise provided in section 6015, the taxpayer bears the burden of proof. See sec. 6015(c)(2); Rule 142(a). Section 6015 grants relief for spouses who meet the conditions of subsection (b) and for divorced and separated persons under subsection (c), and provides equitable relief in subsection (f) when the relief provided in subsections (b) and (c) is not available. The Tax Court has been given express authority to review the IRS's denial of equitable relief under section 6015. Section 6015(e) (1) provides: "In addition to any other remedy provided by law, the individual may petition the Tax Court (and the Tax Court shall have jurisdiction) to determine the appropriate relief available to the individual under this section ***." That is, upon reviewing the IRS's action, the Court "determine[s] the appropriate relief". We consider 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 866.488.DEPO twww.CapitalReportingCompany.com Capital Reporting Company Ms. Robinson's claim for relief under all three 12 subsections. A. Subsection (b) Section 6015(b) provides for relief for an innocent spouse where the joint return reflects an understatement of tax attributable to erroneous items of the other spouse. However, the several requirements of subsection (b) include at least one that Ms. Robinson does not satisfy: Subsection (b) relief is available only where the requesting spouse "establishes that in signing the return he or she did not know, and had no reason to know, that there was such understatement". Sec. 6015(b)(1)(C). We accept Ms. Robinson's testimony that she did not actually know that there were underpayments on the returns for 2009 to 2011, but that is because she took no steps to acquaint herself with the return that was being filed on her behalf, at her behest, and in her name. She had unhindered access to all the relevant information, and she was keenly aware that in those years she had no income from real estate sales or appraisals. She had a duty to examine the return and the accompanying schedules, see Magill v. Commissioner, 70 T.C. 465, 479-480 (1978), aff'd, 651 F.2d 1233 (6th Cir. 1981); and if she had simply 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 866.488.DEPO twww.CapitalReportingCompany.com Capital Reporting Company 13 looked through the return and noted the presence of those schedules--one of them claiming a $27,000 loss- -she would immediately have known that her activity was being wildly mis-reported. She thus had reason to know that there were understatements on her returns. B. Subsection (c) Section 6015(c) is rather different from the other subsections. Where a couple that filed jointly has divorced, section 6015(c) allows a taxpayer to elect to have her liability for a deficiency to be recomputed separately, without the items of the other taxpayer. Under section 6015(d) (3) (A), "any item giving rise to a deficiency on a joint return shall be allocated to individuals filing the return in the same manner as it would have been allocated if the individuals had filed separate returns for the taxable year." The IRS has conceded that Ms. Robinson is entitled to section 6015(c) treatment and made an allocation of the items on the return. In so doing, the IRS attributed the rental activity to Mr. and Mrs. Robinson on a 50/50 basis-- a reasonable allocation, since they both owned the rental properties and both operated the business. The IRS also attributed the realtor and appraisal E 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 866.488.DEPO twww.CapitalReportingCompany.com Capital Reporting Company 14 1 2 3 4 5 6 7 activities to the couple on a 50/50 basis--arguably generous to Ms. Robinson, since those activities were entirely hers. Ms. Robinson has offered no critique of the IRS's allocation nor any alternative that she thought the Court should consider. We therefore hold that the IRS's allocation under section 6015(c) complies 8 with the statute. 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 C. Subsection (f) Where sections 6015(b) and (c) do not provide relief (i.e., with respect to the deficiencies that the IRS still attributes to Ms. Robinson), 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 deficiency (or any portion of either)". 1. IRS analysis In accord with the statutory provision that section 6015(f) relief is to be granted "[u]nder procedures prescribed by the Secretary," the Commissioner has issued guidelines for IRS employees to follow in determining whether a requesting spouse is entitled to relief from joint and several liability. See Rev. Proc. 2013-34. These guidelines 866.488.DEPO twww.CapitalReportingCompany.com Capital Reporting Company 15 1 2 3 provide a three-step analysis for IRS employees to use in deciding whether to grant relief: Section 4.01 lists seven threshold conditions that must be 4 met for any relief to be granted; section 4.02 lists 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 circumstances in which relief will ordinarily be granted as to underpayments; and section 4.03 sets out eight non-exclusive factors to be considered in determining whether equitable relief should be granted. In "determin[ing] the appropriate relief", this Court reviews the IRS's three-step analysis prescribed in its revenue procedure, see Washington v. Commissioner, 120 T.C. 137, 147-152 (2003). Our review is not circumscribed by that matrix, and we consider "all the facts and circumstances" in determining whether the taxpayer is entitled to "innocent spouse" relief ( ec . 6015 ( f ) (1) ; see Porter II, 132 T.C. at 210; Lantz v. Commissioner, 132 T.C. 131, 140 (2009), rev'd on other grounds, 607 F.3d 479 (7th Cir. 2010 ; but in this case the IRS's decision tree is helpful and gets us to the appropriate analysis. 2. Threshold eligibility Rev. Proc. 2013-34 sets out, in section 4.01, seven threshold conditions that all requesting . 866.488.DEPO twww.CapitalReportingCompany.com Capital Reporting Company 16 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 spouses must meet in order for the IRS to grant relief pursuant to section 6015(f). The Commissioner contends here that Ms. Robinson fails to satisfy the seventh. 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 underpayment resulting from the nonrequesting spouse's income." However, by its section 6015(c) allocation, the IRS has left Ms. Robinson liable for only the deficiencies arising from the adjustments separately attributable to her (and her share of joint items); and she did not show or argue that after this allocation she is bearing tax that she would not have borne if she had filed a correct return. 16 Consequently, the liability in dispute pertains not 17 18 19 20 21 22 23 24 25 to Mr. Robinson (the "nonrequesting spouse") but to Ms. Robinson (the "requesting spouse"). Thus, under the IRS's guidelines, Ms. Robinson does not meet the threshold requirements for eligibility. If she did meet all those threshold requirements (which she does not), the next step in the IRS analysis (Rev. Proc. 2013-34, sec. 4.02) would be to consider a "streamlined" determination; but Ms. Robinson fails two of the three criteria for 866.488.DEPO twww.CapitalReportingCompany.com Capital Reporting Company 17 1 2 3 4 5 that treatment (i.e., she made no showing of economic hardship, and she had reason to know of the underpayments, as we explained above); so she would need instead to attempt to qualify for relief (assuming she had met the threshold requirements, 6 which, again, she did not) by reference to the 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 following factors that the IRS has listed in section 4.03: Marital status. The Robinsons were divorced at the time Ms. Robinson requested relief. This factor is in favor of relief. Economic hardship. Ms. Robinson has not shown economic hardship. This factor is neutral. Knowledge or reason to know. Ms. Robinson had reason to know of the underpayments. This factor weighs against relief. Abuse. Ms. Robinson gave no testimony about abuse by Mr. Robinson, and in a closing argument she made only the most general allegation of non-physical abuse and "alcohol". Her trial testimony gave no suggestion that any problem in the 22 marriage impeded her ability to be as involved as she 23 24 25 wanted to be in reporting their tax liability. This factor is neutral. Legal obligation. Under the Robinsons' 866.488.DEPO twww.CapitalReportingCompany.com Capital Reporting Company 18 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 divorce decree, Mr. Robinson has the sole obligation to pay the deficiencies. This factor is in favor of relief. (However, we note that under that decree Mr. Robinson is obliged to reimburse Ms. Robinson if she is required to pay any of the deficiency.) Significant benefit. There is no evidence that Ms. Robinson significantly benefitted from the unpaid tax, and there is no indication that she lived a lavish lifestyle. This factor is neutral. Compliance with federal income tax laws. Ms. Robinson has filed her returns but has not yet paid her 2014 liability, presumably because of inability to pay. This factor is neutral. Mental or physical health. No evidence was introduced as to Ms. Robinson's mental or physical health. This factor is neutral. Thus, two of these factors would favor relief (i.e., marital status and legal obligation), five are neutral, and one tends against relief (i.e., reason to know). However, this very modest "score" in favor of relief, is outweighed by the threshold issue 23 mentioned above: After the IRS's section 6015(c) 24 25 allocation, Ms. Robinson is now in effect being held liable only for the tax arising from the adjustments 866.488.DEPO twww.CapitaIReportingCompany.com Capital Reporting Company 19 1 2 3 4 5 attributable to her and her items (and her share of joint items). Such a liability is not inequitable. The residual disadvantages that she now suffe - chiefly, liability for penalty--can be said to be the consequence of her failure to review her return, 6 which she had ample opportunity to do. She now has available to her the remedy of enforcing against Mr. Robinson the provision of the divorce decree that requires him to pay the liability or to reimburse her to the extent she is required to pay. We therefore hold that Ms. Robinson is not entitled to further relief under section 6015. This concludes the Court's oral Findings of Fact and Opinion in this case. (Whereupon, at 10:24 a.m., the above- entitled matter was concluded.) 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 866.488.DEPO twww.CapitaIReportingCompany.com