TAX COURT OPINION

Case: Joan Kay Dirks, Petitioner and Stephen Morford, Intervenor
Docket Number: 26567-15S
Judge: Kerrigan
Opinion Type: bench
Filed: 11/28/2016
Pages: 13

CZ UNITED STATES TAX COURT WASHINGTON, DC 20217 JOAN KAY DIRKS, PETITIONER AND STEPHEN MORFORD, INTERVENOR, Petitioner(s), v. COMMISSIONER OF INTERNAL REVENUE, Respondent ) ) ) ) ) ) Docket No. ) ) ) ) 26567-15S. ORD E R 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 petitioner, intervenor, and to respondent a copy of the pages of the transcript of the trial in the above case before Judge Kathleen Kerrigan at Wichita, Kansas on October 28, 2016, containing her oral findings of fact and opinion rendered at the conclusion of the trial session at which this case was heard. In accordance with the oral findings of fact and opinion, a decision will be entered for respondent. (Signed) Kathleen Kerrigan Judge Dated: Washington, D.C. November 28, 2016 SERVED Dec062016 Capital Reporting Company 3 1 Bench Opinion by Judge Kathleen Kerrigan 2 October 28, 2016 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 Joan Kay Morford, Petitioner, and Stephen Morford, Intervenor v. Commissioner Docket No. 26567-15S THE COURT: THE COURT HAS DECIDED TO RENDER IN THIS CASE THE FOLLOWING AS ITS ORAL FINDINGS OF FACT AND OPINION WHICH SHALL NOT BE RELIED UPON AS PRECEDENT IN ANY OTHER CASE. This proceeding was heard as a Small Tax Case pursuant to the provisions of section 7463 of the Internal Revenue Code (Code) of 1986, as amended, and Rules 170 through 175 of the Tax Court Rule of Practice and Procedure. This Bench Opinion is made pursuant to the authority granted by section 7459(b) of the Code and Rule 152 of the 'Tax Court Rules of Practice and Procedure. Unless otherwise indicated, all section references are to the Code in effect for the years in issue., and all Rule references are to the Tax Court Rules of Practice and Procedure. We round all 22 monetary amounts to the nearest dollar. 23 24 This proceeding was commenced under section 6015 for review of Respondent's determination that 25 Petitioner is not entitled to relief from joint and 866.488.DEPO www.CapitalReportingCompany.com Capital Reporting Company 4 1 2 several liability for 2009, 2010, and 2011, with respect to the Federal income tax returns she filed 3 with intervenor, her former spouse. We must consider 4 5 6 whether Petitioner is entitled to relief under section 6015 ( f) . Trial of this case was conducted on October 7, 28, 2016, in Wichita, Kansas. Petitioner represented 8 9 herself and intervenor represented himself. Britton G. Wilson represented Respondent. The parties' 10 Stipulation of Facts were admitted in evidence along 11 with the attached exhibits. 12 13 14 15 16 17 18 19 20 21 BACKGROUND Petitioner resided in Kansas when she timely filed the petition. Petitioner and intervenor were married,August 18, 2001, in Kansas. Petitioner worked for Haven Kansas School District. Intervenor worked for Haven Kansas Sports Industries, Inc., and Haven Kansas School District. Petitioner and intervenor filed joint income tax returns for tax years 2009 through 2011. Petitioner has a master's in education. 22 Petitioner and intervenor held separate bank accounts 23 24 25 during their marriage. Intervenor filed for bankruptcy in 2008. On September 10, 2012, intervenor filed for 866.488.DEPO www.CapitalReportingCompany.com Capital Reporting Company 5 1 2 3 4 5 divorce in Sedgwick County, Kansas. The decree of divorce was granted on December 2, 2013. On August 8, 2014, Petitioner filed a Form 8857, Request for Innocent Spouse Relief, requesting relief from joint tax liability for tax years 2009 through 2011. On 6 Petitioner's request, she contends that the 7 underpayment was caused by intervenor withdrawing 8 money from his retirement plan. 9 On her Form 8857, Petitioner reported 10 monthly income of $4,766 and basic living expenses of 11 $2,974. Petitioner has since retired from her job. 12 Petitioner updated her financial information on 13 October 15, 2016. Her reported income is $2,658 and 14 15 16 17 18 19 20 21 22 23 24 25 her total monthly expenses are $1,829. Respondent reviewed Petitioner's request for relief and determined that part of the underpayment was due to Petitioner's failure to properly withhold taxes from her wages. DISCUSSION Generally, married taxpayers may elect to file a joint Federal income tax return. Sec. 6013(a). After making this election, each spouse is jointly and.severally liable for the entire tax due for that taxable years. Sec. 6013(d)(3). A requesting spouse may seek relief from joint and 866.488.DEPO www.CapitalReportingCompany.com Capital Reporting Company 6 several liability under section 6015(b) or, if eligible, may allocate liability under section 6015(c). Sec. 6015(a). If a requesting spouse in not eligible for relief under section 6015(b) or (c), a requesting spouse may be eligible for equitable relief under section 6015(f). Olson v. Commissioner, T.C. Memo. 2009-294, slip op. at 10-11. Sections 6015(b) and (c) apply only in the case of an understatement of tax or in any deficiency in tax and do not apply in the case of underpayments of taxes reported on joint returns. Sec. 605(b) (1) (B) and (c)(1); Hopkins v. Commissioner, 121 T.C. 73, 88 (2003). Petitioner is seeking relief from the underpayment of tax shown on joint income tax returns for tax years 2009, 2010, and 2011. Petitioner is not eligible for relief under sections 6015(b) or (c). Relief may only be granted pursuant to section 6015(f). Section 6015(f) Section 6015(f) provides an alternative means of relief for a requesting spouse who does not otherwise qualify under section 6015(b) or (c). Sec. 6015(f)(2). Section 6015(f)(1) permits relief from joint and several liability if it would be inequitable to hold the requesting spouse liable for 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 www.CapitalReportingCompany.com Capital Reporting Company 7 1 2 3 4 5 6 7 8 any unpaid tax or any deficiency. Under section 6015(f), the Secretary may grant equitable relief to a requesting spouse on the basis of the facts and circumstances. Petitioner bears the burden of proving that she is entitled to equitable relief under section 6015(f). See Rule 142(a); Porter v. Commissioner, 132 T.C. 203, 210 (2009). This Court has jurisdiction to review 9 Respondent's denial of Petitioner's request for 10 11 equitable relief under section 6015(f). See sec. 6015(e) (1). We apply a de novo standard of review as 12 well as a de novo scope of review. See Porter v. 13 14 15 16 Commissioner, 132 T.C. at 210. The Commissioner issued Rev. Proc. 2013-34, 2013-43, I.R.B. 397, superseding Rev. Proc. 2013-61, 2003-2 C.B. 296, to provide guidance for determining 17 whether a taxpayer is entitled to relief from joint 18 19 20 21 and several liability. Rev. Proc. 2013-34, supra, is effective for all requests for equitable relief pending on September 16, 2013, before a Federal court. Id. sec. 7, 2013-43 I.R.B. at 403. While the 22 Court may consider the guidance se forth in Rev. 23 24 25 Proc. 2013-34, supra, we are not bound by it. See, e.g., Reilly-Casey v. Commissioner, T.C. Memo. 2013- 292, at *10 n.6; see also Sriram v. Commissioner, 866.488.DEPO www.CapitalReportingCompany.com Capital Reporting Company 8 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 T.C. Memo. 2012-91, slip op. at 9-10 (noting that the Court considered the previous guidelines published under section 6015(f) in Rev. Proc. 2003-16, supra, but was not bound by them). Rev. Proc. 2013-34, supra, provides a three-step analysis to follow in evaluating a request for relief. The first step consists of seven threshold conditions that must be met; (1) the requesting spouse files a joint return for the taxable year for which he or she seeks relief; (2) relief is not available to the requesting spouse under section 6015(b) or (c); (3) the claim for relief is timely filed; (4) no assets were transferred between the spouses as part of a fraudulent scheme by the spouses; (5) the , nonrequesting spouse did not knowing participate in the filing of a fraudulent joint return; and (7) absent certain enumerated exceptions, the tax liability from which the requesting spouse seeks relief is attributable to an item of the nonrequesting spouse. Id. sec. 4.01, 2013-43 I.R.B. at 399-400. Respondent concedes that Petitioner 23 meets these seven threshold conditions and that 24 Petitioner is only eligible for relief for the 25 portion of underpayment attributable to the 866.488.DEPO www.CapitalReportingCompany.com Capital Reporting Company 9 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 intervenor. The second step of the analysis provides the following three conditions that, if met, will qualify a requesting spouse for a streamlined determination of relief under section 6015(f) with respect to an underpayment of a properly reported liability; (1) he or she is no longer married to, is legally separated from, or has not been a member of the same household as the other person at any time during the 12-month period ending on the date of the request for relief; (2) he or she would suffer economic hardship if relief is not granted; and (3) in a deficiency case he or she had no knowledge or reason to know when the return was filed that there was an understatement or deficiency. A request for economic hardship relief should include information on assets and liabilities, and amounts reasonably necessary for basic living expenses in the taxpayer's geographic area. See Wiener v. Commissioner, T.C. Memo. 2008-230, slip op. at 35-36; sec. 301.6343- 1(b)(4)(ii), Proced. & Admin. Regs. The requesting spouse must satisfy all three conditions in order to qualify for a streamlined determination. Rev. Proc. 2013-34, sec. 4.02, 2013-34 I.R.B. at 400. Because we find that Petitioner would not suffer economic 866.488.DEPO www.CapitalReportingCompany.com Capital Reporting Company 10 1 2 3 4 5 6 7 8 9 10 11 12 13 hardship, we find that she does not qualify for a streamlined determination of relief. Generally, economic hardship exists when collection of the tax liability will render the taxpayer unable to meet basic living expenses. Id. sec. 4.03(b), 2013-43 I.R.B. at 401. Whether a spouse will suffer an economic hardship is based on rules similar to section 301.6343-1(b)(4), Proced. & Admin. Regs Rev. Proc. 2013-43, sec. 403(b). The Internal Revenue Service (IRS) considers the requesting spouse's income (including how the requesting spouse's income compares to Federal poverty guidelines) and assets, and will compare them 14 with his or her share of living expenses. Id. 15 16 17 Economic hardship generally does not exist if the requesting spouse's income exceeds 250% of the Federal poverty guidelines and monthly income exceeds 18 monthly expenses by more than $300. Id. Based on 19 20 the Petitioner's revised income and monthly expenses, her income is above 250% of the poverty level and is 21 more than $300 than her monthly expenses. Petitioner 22 23 24 25 does not meet the requirements of economic hardship. The third step is available if the requesting spouse satisfies the threshold conditions but fails to satisfy the conditions in Rev. Proc. 866.488.DEPO www.CapitalReportingCompany.com Capital Reporting Company 11 1 2 3 4 5 6 7 8 9 2013-34, sec. 4.02. A requesting spouse may still be eligible for equitable relief under section 6015(f) if, taking into account all the facts and circumstances, it would be inequitable to hold the requesting spouse liable for the underpayment. Id. sec. 4.03, 2013-43 I.R.B. at 400. Rev. Proc. 2013- 34, sec. 4.03 lists the following nonexclusive factors that the Commissioner takes into account when determining whether to grant equitable relief: (1) 10 marital status; (2) economic hardship; (3) in the 11 12 13 case of a deficiency, knowledge or reason to know of the item giving rise to the deficiency; (4) legal obligation; (5) significant benefit; (6) compliance 14 with tax laws; and (7) mental or physical health. 15 16 17 18 19 20 21 Id. No single factor is determinative; the IRS considers all factors and weighs them appropriately. Id. Any indication of abuse or the exercise of financial control by the nonrequesting spouse is a factor that may impact the other factors. Id. A. Marital Status If the requesting spouse is no longer 22 married to the nonrequesting spouse, this factor will 23 24 25 weigh in favor of relief. For purposes of Rev. Proc. 2013-34, sec. 4.03(a), a requesting spouse will be treated as being no longer married to the 866.488.DEPO www.CapitalReportingCompany.com Capital Reporting Company 12 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 nonrequesting spouse if the requesting spouse is divorced from the nonrequesting spouse. Petitioner and intervenor were divorced at the time the request was made. This factor weighs in favor of relief. B. Economic Hardship As explained above, Petitioner would not suffer economic hardship. This factor is neutral. C. Knowledge or Reason to Know This factor is identical in all material respects to the knowledge requirement of section 6015(b) and (c). The requesting spouse must not have known or had reason to know that the nonrequesting spouse would not or could not pay the tax liability at that time or within a reasonable period of time. If the requesting spouse knew or had reason to know of the potential for underpayment, this factor will weigh against relief. Rev. Proc. 2013-34, sec. 4.03(c). Petitioner and intervenor had difficult paying their 2008 taxes. Petitioner paid for their 20 2008 taxes a refund from a later tax year. 21 Petitioner had knowledge of intervenor's inability to 22 23 24 25 pay. Because we find that had knowledge of intervenor's financial difficulties, this factor weighs against granting relief. D. Legal Obligation 866.488.DEPO www.CapitalReportingCompany.com Capital Reporting Company 13 This factor is concerned with whether the requesting spouse or the nonrequesting spouse has a legal obligation to pay the outstanding tax liability pursuant to a divorce decree or agreement. The divorce decree assigned the responsibility to pay taxes to the intervenor. However, it was unreasonable to expect him to pay because he filed for bankruptcy 10 days after the divorce decree was signed. This factor is neutral. E. Significant Benefit This factor considers whether the requesting spouse received an significant benefit (beyond normal support) from the unpaid taxes. This factor is neutral because neither party received a significant benefit. F. Compliance With Income Tax Laws This factor considers whether the requesting spouse has made a good-faith effort to comply with the income tax laws in tax years after the year for which relief is requested. See id. sec. 4.03(f), 2013-43 I.R.B. at 402. If the requesting S spouse i in compliance for taxable years after being divorced from the nonrequesting spouse, then this factor will weigh in favor of relief. Id. 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 Petitioner was not in compliance with her 2015 taxes, 866.488.DEPO www.CapitalReportingCompany.com Capital Reporting Company but made a payment this week, and is now compliant. This factor is neutral. 14 G. Mental or Physical Health This factor considers whether the 1 2 3 4 5. requesting spouse was in poor physical or mental 6 7 8 9 health. This factor was not an issue and is therefore neutral. H. Conclusion Balancing all of the facts and 10 circumstances we find that the equities deny 11 Petitioner relief under section 6015(f). Any contention we have not addressed is irrelevant, moot, or meritless. We sustain the determination by Respondent, and a decision will be entered for Respondent. This concludes the Court's oral. Findings of Fact and Opinion in this case. (Whereupon, at 3:02 p.m., the above- entitled matter was concluded.) 12 13 14 15 16 17 18 19 20 21 22 23 24 25 866.488.DEPO www.CapitalReportingCompany.com