TAX COURT OPINION

Case: Elizabeth Cox
Docket Number: 20832-10S
Judge: Goeke
Opinion Type: bench
Filed: 05/01/2013
Pages: 11

Bob - Gem S CM loOI UNITED STATES TAX COURT WASHINGTON, DC 20217 - ELIZABETH COX, . Petitioner v. COMMISSIONER OF INTERNAL REVENUE, Respondent ) ) ) ) ) Docket No. 20832-10S. ) ) ) ) ORDER Pursuant to Rule 152(b), Tax Court Rules of Practice and Procedure, it is ORDERED that the Clerk ofthe Court shall transmit herewith to petitioner and to respondent a copy ofthe pages ofthe transcript ofthe trial in the above case before Judge Joseph Robert Goeke at Little Rock, Arkansas, 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, a decision will be entered for petitioner. (Signed) Joseph Robert Goeke Judge Dated: Washington, D.C. May 1, 2013 SERVED May 02 2013 Capital Reporting Company 1 Bench Opinion by Judge Joseph Robert Goeke 2 April 23, 2013 3 Elizabeth Cox v. Commissioner 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 Docket No. 20832-10s 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 case was heard pursuant to the provisions of section 7463 in effect when the petition was filed. Pursuant to section 7463(b), the decision to be entered is not reviewable by any other court. The previous section reference was to the Internal Revenue Code, and hereinafter section references are to the Internal Revenue Code. This opinion is rendered pursuant to section 7459(b) and Rule 152 of the Tax Court Rules of Practice and Procedure. Hereinafter rule references are to the Tax Court Rules of Practice and Procedure. The present case is before us for review of respondent's determination that the petitioner is not entitled to relief from joint and several liability 866.488.DEPO www.CapitalReportingCompany.com Capital Reporting Company pursuant to the provisions of section 6015(f) for the 4 year 2004. We have jurisdiction pursuant to section 6015(e) to review respondent's determination after the petitioner had timely filed a request for our review. The underlying tax liability, which is related to petitioner's claim for relief, is in the amount of $12,469. At the time she filed the petition in this case, the petitioner was a resident of Arkansas. She had previously been married to Lee Cox and was 1 2 3 4 5 6 7 8 9 10 11 12 married to Mr. Cox during the year in question, 2004. 13 14 15 16 17 18 19 20 21 22 23 24 25 In 2003 she and Mr. Cox separated physically, and she moved into a different residence. She was, however, not legally separated from Mr. Cox in either 2003 or 2004. After she separated from Mr. Cox physically in 2003, regarding her 2003 federal income tax return, the petitioner went to the accounting firm which had prepared her joint return with Mr. Cox in previous years and asked whether it was appropriate for her to continue to file a joint return with Mr. Cox for 2003. She was advised that it was advisable that she continue to file a joint return, and she provided 866.488.DEPO www.CapitalReportingCompany.com Capital Reporting Company 5 her W-2 information to the return preparer for 2003. In 2004 the petitioner had wage income which was reflected in Form W-2 in the amount of $28,810. She once again asked the return preparer whether she should continue to file a joint return and was advised that she should. She gave her wage income, including W-2 forms which reflected her current address, which was no longer the same address as Mr. Cox, to the return D preparer, and she thereafter had nothing to do with the filing of the 2004 federal income tax return. The return was filed electronically, and her signature on the forms authorizing the filing electronically were apparently submitted by Mr. Cox. A copy of the return prepared by the accounting firm in Monticello, Arkansas, was sent to the address of 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 Mr. Cox, and she did not receive a copy of the 2004 18 19 20 21 return. The 2004 return reflected a tax liability related to self-employment tax of Mr. Cox, who was in the farming business, in the amount of $14,961. The 22 withholding of the petitioner relative to her income 23 24 25 of $28,810 was $1492, and a child tax credit was claimed in the amount of $1000; thus there was a tax due of $12,469. 866.488.DEPO www.CapitalReportingCompany.com Capital Reporting Company 6 1 2 3 4 5 6 7 8 9 This tax liability was 100 percent related to Mr. Cox's income. The petitioner's withholding was sufficient to cover any portion of the tax liability associated with her income. Petitioner and Mr. Cox were divorced in 2008, but prior to that, in 2006, she was advised to join Mr. Cox in seeking bankruptcy relief. She did so, and while a discharge in bankruptcy would have relieved both her and Mr. Cox of the 2004 liability, 10 Mr. Cox did not pursue the bankruptcy proceeding 11 12 13 14 15 through discharge. Petitioner testified credibly that she had nothing to do with the bankruptcy proceeding other than agreeing to participate initially. She had later collection problems due to debts incurred by 16 Mr. Cox, which she credibly testified she had nothing 17 18 19 20 21 22 23 24 25 to do with other than she was associated with the debt because he had signed her name to various documents. Respondent determined, through the application of established authority and a revenue procedure which provides various factors to be considered in the application of 6015(f), that the petitioner had failed to show that it would be inequitable to hold her liable for the joint and 866.488.DEPO www.CapitalReportingCompany.com Capital Reporting Company 7 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 several liability. Initially an issue in dispute in this case related to whether the petitioner had filed a joint return with Mr. Cox. Based upon her testimony that she had agreed with the tax return preparer that a joint return should be filed, although we believe she never signed the authorizations to have an electronic return submitted, we do believe that she acquiesced in the filing of a joint return for 2004, and we find that there was a joint income return for 2004. We now turn to whether section 6015(f) is applicable to the facts of this case. Under 6015(f), if after taking into account all the facts and circumstances, it is inequitable to hold an individual liable for an unpaid tax and relief is not available under section 6015(b) and (c), the individual may be relieved of the liability. Petitioner is not entitled to relief under section 6015(b) or (c), because she seeks relief from an underpayment of tax, not an understatement of tax. Hopkins v. Commissioner, 121 T.C. 73 (2003). In Porter v. Commissioner, 130 T.C. 115 (2008), and a subsequent case with the same caption, 132 T.C. 2003 (2009), we held that it was a de novo determination whether a spouse was entitled to relief 866.488.DEPO www.CapitalReportingCompany.com Capital Reporting Company 8 1 2 3 4 5 6 7 8 9 under section 6015(f) and that the Court's analysis was not limited to the evidence in the administrative record. That authority is applicable to the present case. We note that the petitioner has the burden of proof in this de novo analysis, pursuant to Rule 142(a). Respondent released Notice 2012-8 in the Internal Revenue Bulletin 2012-IRB-309. This 10 bulletin included a proposed revenue procedure which 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 revised the factors that would be used in determining the applicability of section 6015(f). The notice issued related to the revised revenue procedure notes that the provisions of Revenue Procedure 2003-61, 2003-2CB-292, would remain applicable in evaluating claims, pending a final issuance of the revised revenue procedure. The facts of the present case require that we reference the conditions reflected in section 4.03 of Revenue Procedure 2003-61. Section 4.03 provides a nonexclusive list of factors for consideration in determining whether relief should be granted under section 6015(f). This revenue procedure and these factors have consistently been the point of reference in 866.488.DEPO www.CapitalReportingCompany.com Capital Reporting Company 9 1 2 3 4 5 6 7 judicial reviews of the applicability of section 6015(f). The critical factor in the present case relates to whether Mrs. Cox had knowledge that the underlying tax liability reflected on the return she filed with Mr. Cox for 2004 would not be paid at the time the return was prepared. Respondent argued that Mrs. Cox does not 8 meet the requirement of the revenue procedure, 9 because she should have known that the taxes would 10 11 12 13 14 15 not have been paid and that she has not established that it was reasonable for her to believe that the taxes would be paid. Respondent quotes Pullins v. Commissioner, 136 T.C. 432, 444 (2009) in support of respondent's position. The facts of the instant case are very 16 difficult on the knowledge requirement. At the time 17 18 19 20 21 22 23 24 25 the 2004 return was prepared, as we have stated previously, Mrs. Cox did not live with Mr. Cox, and she was not on speaking terms with Mr. Cox. She did not trust him, and she was wary of his behavior and of his veracity. She did, however, rely upon the return preparer, who had previously prepared joint returns for her and Mr. Cox and was a reputable accounting firm in Monticello, Arkansas. 866.488.DEPO www.CapitalReportingCompany.com . Capital Reporting Company 10 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 Her reliance upon this firm caused her to agree to the joint return and caused her not to question or seek a copy of the return. And she was generally aware that the withholding on her income was sufficient to pay the tax associated with her portion of the tax liability. We believe she credibly testified that she never received a copy of the return until subsequently faced with a collection action by respondent in 2009 associated with the joint liability. Although she testified she could have received a copy from the return preparer, had she sought one, we note that the return preparer should have realized she didn't live with Mr. Cox and did not separately send her a copy of the return when it was filed. The question is whether Mrs. Cox should be deemed to have known that the taxes were unpaid when the return was filed for 2004. We believe that the problem in this case is not that Mrs. Cox relied upon Mr. Cox to pay the tax liability but rather that she relied upon the good faith of the return preparer to protect her interest in filing the joint return once she was advised that a joint return was appropriate for her and Mr. Cox. 866.488.DEPO www.CapitalReportingCompany.com Capital Reporting Company 11 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 We believe that the other factors involved in the application of the revenue procedure are either neutral or not significant. Respondent claims that Mrs. Cox was delinquent in regard to payments of subsequent tax liabilities for 2006 and 2009, but we find her delinquency not to be significant, and we find that she acted in good faith in promptly paying the taxes as soon as her finances permitted her to do so for both periods. She's not a chronic delinquent taxpayer. Given these circumstances and given the focus of the case being on the knowledge requirement, we find on the unique facts of this case that Mrs. Cox should not be deemed to have known that Mr. Cox was not paying the underlying tax liabilities. And because of the fact that no part of the delinquency was associated with her payment of taxes, we believe she should be provided relief under section 6015; therefore we overturn respondent's administrative determination and find in favor of the petitioner. The decision will be entered in favor of 22 Mrs. Cox in the present case. 23 24 25 This concludes the Court's oral findings of fact and opinion in this case. (Whereupon, at 10:51 a.m., the above- 866.488.DEPO www.CapitalReportingCompany.com 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 Capital Reporting Company entitled matter was concluded.) 12 866.488.DEPO www.CapitalReportingCompany.com