TAX COURT OPINION

Case: Kelly Brian McKinney, Petitioner & Vivian E. Channell, Intervenor
Docket Number: 26813-09S
Judge: Goeke
Opinion Type: bench
Filed: 07/07/2011
Pages: 12

UNITED STATES TAX COURT WA SHINGTON, DC 20217 KELLY BRIAN MCKINNEY, Petitioner VIVIAN E. CHANNELL, Intervenor v. COMMISSIONER OF INTERNAL REVENUE, Respondent ) ) ) ) ) ) ) ) ) ) ) ) ) O R D E R Docket No. 26813-09S. Pursuant to Rule 152(b), Tax Court Rules of Practice and Procedure, it is ORDERED that the Clerk of the Court shall transmit herewith to the pages of the transcript the trial in the above case before Judge Joseph Robert Goeke at containing his oral the petitioner and to respondent a copy of of Tallahassee, Florida, findings of trial. the conclusion of 2011, fact and opinion rendered at on June 24, 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. July 7, 2011 SERVED JUL 1 3 2011 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~ 3 BENCH OPINION BY JUDGE ROBERT JOSEPH GOEKE KELLY BRIAN MCKINNEY, PETITIONER, and VIVIAN E. CHANNELL, INTERVENOR, v. COMMISSIONER DOCKET NO.: 26813-095 DATE: June 24, 2010 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 of the Internal Revenue Code in effect at the time the petition was filed. Pursuant to Section 7463(b) the decision to be entered is not reviewable by any other court. Section references after this are to the Internal Revenue Code in effect for the years in issue, and rule references are to the Tax Court Rules of Practice and Procedure. This case is before the Court based upon the Court's jurisdiction under section 6330 to review Notices of Determination by respondent upholding respondent's collection action. In this case respondent filed a Notice of Federal Tax Lien filing Heritage Reporting Corporation (202) 628-4888 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 4 which petitioner addressed in a timely petition filed before the Court. In that petition and in the prior request for a collection due process hearing, the petitioner's only point of redress was a request for relief from joint and several liability under section 6015. There's no dispute in this case that the only amounts respondent now seeks to collect relative to petitioner's 2000 joint liability are additions to tax under section 6651(a) (1) and (a) (2). and interest on income tax and the addition to tax. The record in this case was stipulated and supported by some additional testimony by the petitioner, the intervenor, and the petitioner's father. The petitioner filed a 2000 joint Federal income tax with his then spouse, who is now the intervenor in this case. This return was filed on July 29th, 2004, which was obviously delinquent considering the 2000 return was actually due in April of 2001. The joint return filed in 2004 for the year 2000 reported income tax in the amount of $17,830. The return reported a withholding credit in the amount of $566, which was attributable to the intervenor, and a check in the amount of $17,264 was forwarded to Heritage Reporting Corporation (202) 628-4888 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 5 respondent with the return. The tax was assessed on November 8th, 2004, and was paid in full based upon the withholding credit and the check submitted by the petitioner and his former spouse. However, because the return was delinquent respondent assessed additions to tax under section 6651(a) (1) (2), in the amounts of $3,884.40 and $3,711.76 respectively. Statutory interest was also assessed based upon the original due date of the return in April 2001. In April 2005 respondent mailed to the petitioner and the intervenor separate Final Notices of Intent to Levy and Your Right to a Hearing. Neither the petitioner nor the intervenor requested a hearing based upon these final notices. On October 14th, 2008 respondent mailed to the petitioner a Notice of Federal Tax Lien Filing and Your Right to a Hearing, under section 6320. Petitioner did timely request a collection due process hearing based upon this notice. In his request for a collection due process hearing the petitioner only requested relief from joint and several liability under section 6015. Petitioner's request was forwarded to the Cincinnati Centralized Innocent Spouse Operation, which initially dismissed his claim as being beyond the two year period of limitation provided by Treas. Reg. section Heritage Reporting Corporation (202) 628-4888 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 6 1.6015-5(b) (1). Subsequently the Cincinnati Innocent Spouse Operation was requested to review petitioner's claim for relief on the merits of the claim, and after that analysis it was determined that petitioner did not qualify for relief under the factors stated in revenue procedure 2003-61, even without considering the fact that he had failed to file his claim for relief within two years after the commencement of the collection action. The Court is presented with two issues relative to the underlying relief: Whether to restrict petitioner's right to claim the relief based upon treasury reg. Section 1.6015-5(b) (1), and whether on the merits of the case petitioner is entitled to relief. For the reasons explained herein we find for respondent on both of these issues. First, dealing with the two year limitation period we find it is not inequitable to uphold the limitation period in the present situation since petitioner received notice of his rights to seek redress of his claim for innocent spouse relief in 2005 when the Final Notice of Intent to Levy and Your Right to a Hearing was sent to the petitioner. That would have. given petitioner the right to have a hearing and raise the innocent spouse Heritage Reporting Corporation (202) 628-4888 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 7 relief at that time. Petitioner failed to do so, and, therefore, his two year delinquency relative to seeking relief under Section 6015(f) is not reasonable, and, therefore, before considering the merits we would hold that respondent's denial of relief based upon the two year limitation period after collection has begun would not be inequitable under the facts of this case. Nevertheless, we will also pursue whether petitioner ntitled to relief based upon an application of the other factors set forth in revenue procedure 2003-61, 2003-2, C.B. 296. Before considering those factors we will summarize the pertinent factual situation. Petitioner and the intervenor were married in 1999. In 2000 they lived near their work in Georgia. The intervenor worked at Lowe's but she was terminated in 2000. This caused a change in the petitioner's circumstances and their efforts to find another domicile. The parties dispute the basis on which the petitioner was terminated by Lowe's, but we do not deem it necessary to resolve that dispute to determine the application of section 6015 in the present case. After the intervenor was terminated at Heritage Reporting Corporation (202) 628-4888 1 2 3 4 5 6 7 8 9 10 1 12 13 14 15 16 17 18 19 20 21 22 23 24 25 8 Lowe's, petitioner and the intervenor moved to a half- acre lot in Florida upon which they placed a mobile home. The funding for the efforts to place the mobile home on this lot and establish a residence in Florida was done through a portion of the distribution to the from her employee stock option plan. The distribution totaled $69,978, of which $29,412 was taxable. At trial the intervenor testified that $27,000 of this amount was used relative to the establishment of a residence at the mobile home. We find this testimony to be credible. Neither party disputes that the 2000 return was delinquent. The intervenor maintains that the return was filed late because of efforts to arrange a different residence, which she blames upon the petitioner. But in any event, both parties testified that they were aware the return was due and that it was not filed on time. Subsequently the intervenor said she arranged to have the return filed in 2004. The petitioner testified that he signed the return but is totally unsophisticated about taxes and did not actually know the significance of what he was signing. The petitioner and the intervenor divorced in March 2007. In the divorce decree the petitioner Heritage Reporting Corporation (202) 628-4888 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 9 and the intervenor are each held liable for one half of the outstanding additions to tax and the interest liability for 2000. Pursuant to the divorce the intervenor was given the marital home, which was the mobile home on the lot which had been arranged 'at the time of the parties' need to establish a residence when the petitioner lost her position with Lowe's. There is evidence in the record before us that the dispute between the petitioner and the intervenor, subsequent to their marriage, resulted in some destruction in the property and the mobile home. We do not need to address that to resolve the issues in this case. Concerning the question of the sophistication of the petitioner relative to taxes, we accept that he was not knowledgeable about income taxes, but he himself testified he was aware taxes were due, and he also was aware that income from his former spouse, the intervenor, was used to help finance the real estate which became their marital domicile in 2000. It is also clear that the petitioner was aware that interest would be due on the 2000 tax liabilities when the 2004 return was filed, based upon the subsequent filings and the order of divorce associated with the domestic relations case. Heritage Reporting Corporation (202) 628-4888 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 10 In analyzing the various sections of section 6015 which might be applicable, respondent correctly determines that sections 6015(b) and (c) are not applicable because of the fact that relief was sought two years after the beginning of collection action. Relative to section 6015(f) we have previously stated that we would find the application of the two year rule to not violate the requirements that the application of section 6015(f) not result in an inequitable collection. action because of the fact that the petitioner was made aware of his rights to seek relief in 2005. Nevertheless, we also find that petitioner is not entitled to relief based upon the application of the provisions of section 6015(f) as provided by Revenue Procedure 2003-61. Section 4.01 of Revenue Procedure 2003-61 lists seven threshold conditions that the requesting spouse must meet in order to b'e eligible to submit a request for relief. Respondent has admitted that petitioner meets all of these threshold conditions with the exception of the two year deadline. We then turn to Section 4.02 of the revenue procedure, which lists three circumstances which would result in the granting of relief if all three circumstances were met. The first circumstance is Heritage Reporting Corporation (202) 628-4888 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 11 whether on the date the relief was requested whether the requesting spouse is no longer married. That circumstance is met. The second circumstance is whether the requesting spouse had knowledge or reason to know that the income tax liability would not be met. We find that circumstance to be such that it would not support relief because we find that the petitioner should have known and did in fact know that the interest would not be paid when the 2004 tax return was sent to respondent. We also find that the petitioner, despite his unsophistication in tax matters, was aware of the obligation to file tax returns and should have known that in April of 2001 a Federal income tax was due, and his failure to see to it that such a return was filed at that time requires that the second threshold requirement of section 4.02 is not met. Respondent also determines that the petitioner would not suffer economic hardship, which is the third requirement of section 4.02. There is no evidence in the record relative to economic hardship, and we sustain respondent's determination in this regard. We now turn to Section 4.03 of Revenue Procedure 2003-61 which lists nonexclusive factors to. Heritage Reporting Corporation (202) 628-4888 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 12 be considered relative to relief. The first factor is marital status, and this factor supports relief. The second factor being economic hardship, and based upon our previous determination we find that this factor does not support relief. The third factor relates to the knowledge of the requesting spouse, and as explained previously we find that the petitioner had knowledge that the tax liability was not paid on time and had knowledge that the interest associated with the 2004 liability was not paid when the 2004 delinquent 2000 return was submitted. Given these factors alone we find that respondent's determination not to provide relief without considering the two year limitations was reasonable and we sustain respondent's determination denying relief. Petitioner and the intervenor indicated that they would like to see the liability divided 50 percent each based upon the original amount of the interest liability. Petitioner may have a different computation than the intervenor because the intervenor maintains that she has paid her share of 50 percent of the liability. Regardless, there76 o provision for the Court to grant this relief given our determination Heritage Reporting Corporation (202) 628-4888 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 13 that the petitioner not entitled to relief under section 6015(f). Given the Court's analysis of this case, a decision will be entered for respondent. This concludes the Court's oral findings of fact and opinion in this case. (Whereupon, at 10:53 a.m., the bench opinion in the above-entitled matter was concluded.) // // // // // // // // // // // // // // // // // Heritage Reporting Corporation (202) 628-4888