TAX COURT OPINION

Case: S. Charlene Andregg
Docket Number: 30330-08
Judge: Whalen
Opinion Type: bench
Filed: 06/07/2011
Pages: 19

UNITED STATES TAX COURT WASHINGTON, DC 20217 S. CHARLENE ANDREGG, Petitioner, v. COMMISSIONER OF INTERNAL REVENUE, Respondent. ) ) ) ) ) Docket No. 30330-08 ) ) ) ) O R D 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 and to respondent a copy of the transcript of undersigned at Oklahoma City, Oklahoma, containing the oral findings of fact and opinion rendered on May 19, 2011. the proceedings in the above case before the the pages of In accordance with the oral findings of fact and opinion, an Order will be issued sustaining the Final Appeals Determination dated September 19, 2008, for 2004. issued to petitioner (Signed) Laurence J. Whalen Judge Dated: Washington, D.C. June 7, 2011 3ERVED JUN - 9 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 Bench Opinion by Senior Judge Laurence J. Whalen May 19, 2011 Andregg v. Commissioner Docket No. 30330-08 3 I. THE COURT HAS DECIDED TO RENDER L. # ORAL FINDINGS OF FACT AND OPINION IN THIS CASE, AND THE FOLLOWING REPRESENTS THE COURT' S ORAL FINDINGS -OF FACT AND OPINION. II . This bench opinion is made pursuant to the authority granted by section 7459 (b) of the Internal Revenue Code and Rule 152 of the Tax Court Rules of Practice and Procedure. Hereinafter all section references are to the Internal Revenue Code, as amended and in effect for the taxable years in issue, and all rule references are to the Tax Court Rules of Practice and Procedure. III. H. Craig Pitts, Esquire, appeared on behalf of petitioner, and Britton G., Wilson, Esquire, appeared on behalf of respondent . IV. In her petition, petitioner seeks relief from a Final Appeals Determination issued to her on September 19, 2008 (herein referred to as the 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 determination), in which an Appeals Officer denied relief to petitioner under section 6015(f) for taxable year 2004. Pursuant to section 6015(e), we have jurisdiction to review respondent's denial of relief 4 to petitioner in this case. V. The sole issue for decision in this case is whether the Appeals Officer abused her discretion in denying petitioner's request for equitable reliefg LJW under section 6015 (f) from joint and several liability L for the unpaid tax reported on the joint return filed by petitioner with her deceased husband for taxable year 2004. VI. Some of the facts have been stipulated and are so found. On December 17, 2008, when petitioner filed her petition in this case, she resided in Altus, Oklahoma. During 2004, and fór many years prior thereto, petitioner was married to Fred W. Andregg, D.D.S., a self-employed orthodontist in Altus, Oklahoma. He had a successful practice and was the sole breadwinner for the family. Petitioner had only a high school education, and she was not employed 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 outside of the home. Circa 2003, petitioner noticed changes in Dr. Andregg's cognitive abilities. She discussed the matter with her husband's primary doctor, Dr. Richard L. Campbell, during an office visit on October 20, 2003, and he ordered an MRI of Dr.'Andregg's brain. The MRI found "mild generalized atrophy with relative prominence in the left Sylvian fissure". Approximately one year later, Dr. Andregg's family reported to Dr. Campbell that Dr. Andregg was having continued difficulty controlling his left hand, and he was exhibiting bizarre'behavior. The family reported that Dr. Andregg could not put his belt through the belt loops on his pants, he sometimes wore his clothes inside out, and he frequently drove down the middle of the road. Dr.'Andregg's son related that his father had a great deal of difficulty concentrating on his driving When Dr. Campbell saw Dr. Andregg during an office visit on November 19, 2004, he gave Dr. Andregg anóther MRI, and agreed that Dr . Andregg should see a neu alogist . Dr . Campbell next saw Dr. Andregg on December 21, 2004, after he had seen a neurologist, Dr. Reina. According to Dr. Reina, Dr. Andregg was suffering from frontotemporal dementia or Pick's disease. 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 On or about October 12, 2005, Dr. Andregg told petitioner that he had the couple's 2004 income tax return. He placed the return on the kitchen table and went into the garage . Petitioner looked at the return and was upset when she saw the amount of tax due. She knew that her husband did not have enough money to pay the tax, and she knew that he would not pay it. On October 16, 2005, petitioner and Dr. Andregg filed their joint income tax return for taxable year 2004. The return had been prepared by a certified public accountant, Mr. Jerry D. Frech, and was signed by both petitioner and Dr. Andregg. The return reported gross receip from Dr. Andregg's dental practice of $655,229, and a net profit from that business of $312,587. This was the principal source of income reported on the return. The return reported a balance of tax du of $85, 465. This amount was not paid with the return ind remains unpaid. Respondent has not issued a notice of deficiency with respect to the return filed by petitioner and Dr. Andregg for 2004. Dr . Andregg' s symptpoms increased in severity, and his condition continued to deteriorate. He died from Pick's disease on September 10, 2006. Heritage Reportiricj Corporation (202) 628-4888 7 1 2 3 4 5 6 7 8 9 Less than one month later, on September 29, 2006, petitioner completed Form 8857, Request for Innocent Spouse Relief, in which she asked for relief from liability for unpaid taxes for 2003 and 2004. On the same day, she also executed Form 12510, Questionnaire for Requesting Wife. The Form 8857 was mailed to respondent by petitioner's attorney on October 5, 2006, and the Form 12510 was not mailed until November 22, 2006. 10 After petitioner's Form 8857r--JECDTRt fDTM CJ 11 .9--Imeeentaporrse-ReTief-, was denied by respondent's 12 13 14 15 16 17 18 19 20 21 22 23 24 25 Cincinnati Centralized Innocent Spouse Operations (CCISO) unit, petitioner appealed the denial to the Of f ice of Appeal The Appeals Of f icer to whom the Ll\A case was assigned made a number of unsuccessful requests for financial information. For example the Officer wrote to petitioner on March 4, 2008, and, among other things, asked for petitioner's current financial information. He again wrote on March 26, 2008, stating that he has not received any additional information, as she had promised. The Officer also sent a facsimile transmittal on July 16, 2008, to petitioner's representative, Ms. Yuliya Diaconu, asking for information to show an economic hardship. The Officer wrote to petitioner on August 6, 2008, 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 8 make arrangements to talk to; petitioner's son, who handled petitioner's financial affairs. Finally, on August 15, 2008, the Officer, sent another facsimile transmittal to petitioner's representative, Ms. Yuliya Diaconu, asking for information. Petitioner and her representatives never provided the Appeals Officer with financial information. On September 19, 2008, the Appeals Office issued its Final Appeals Determination denying relief to petitioner under section 6015(f) for taxable year 2004. That determination gives the following as the reason the relief was denied:: "The information we have available does not show you meet the requirements for relief." VII. If a husband and wife file a joint Federal income tax return, they generally are jointly and severally liable for tax due. Sec. 6013(d) (3); Butler v. Commissioner,.114 T.C. 276 at 282 (2000). However, a spouse may qualify for relief from joint and several liability under section 6015(b) or (c) if various requirements are met. If relief is not available under section 6015(:b) or (c), as in this case, then the spouse may nevertheless be relieved of liability for any unpaid tax under section 6015(f) if, taking 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 into account all the facts a d circumstances, it would be inequitable to hold the individual liable. Section 6015(e) gives this Court jurisdiction to review the Commissioner's denial of equitable relief under section 6015(f). We review the Commissioner's denial of relief for abuse of discretion. Jonson v. Commissioner, 118 T.C. 106 at.125 (2002), affd. 353 F.3d 1181 (10th Cir. 2003); Farmer v. Commissioner, T.C. Memo 2007-74; Van~Arsdalen v. Commissioner, T.C. Memo 2007-48. The taxpayer åbeking relief has the burden of proof. Alt v. Comáissioner, 119 T.C. 306 at 311 (2002), affd. 101 Fed. Appx. 34 (6th Cir. 2004). To prevail, the taxpayer must show that the Commissioner's determination was arbitrary, capricious, and without sound basis in fact or law. Butler v. Commissioner, supra, at 291-292; Farmer v. Commissioner, supra; Van ArsåÅlen v. Commissioner, supra. We should emphasize that the taxpayer bears a heavy burden. We are required to give deference to the Commissioner's determination, and we are not permitted to interfere unless the Commissioner's determination is arbitrary, capricious, clearly unlawful, or without sound bÅsis in fact or law. See, 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 e.g., Thor Power Tool Co. v. Commissioner, 439 U.S. 522,~532-533, 550 (1979); Jonson v. Commissioner, 118 T.C. at 125; see also Patton v. Commissioner, 116 T.C. 206 at 210 (2001), Buzzetta Construction Corp. v. Commissioner, 92 T.C. 641 at 648 (1989); Oakton Distributors, Inc. v. Commissioner, 73 T.C. 182 at 188 (1979). As directed by section 6015(f), the Commissioner has prescribed procedures for determining whether a relief-seeking spouse qualifies for relief under section 6015(f). Those procedures are found in Rev. Proc. 2003-61, 2003-2 C.B. 296. That reven'ue procedure sets forth the factors that the Commissioner considers in determining whether to grant equitable relief under section 6015(f) First, pursuant to sec. 4.01 of the revenue procedure, the Commissioner will not grant such relief unless the following seven threshold conditions have been met: (1) The requesting spouse must have filed joint returns for the taxable years for which relief is sought; (2) the requesting spouse must not qualify for relief under section 6015(b) or (c); (3) the requesting spouse must apply for relief no later than two years after the date of the Commissioner's first collection activity after July 22, 1998, with respect to the requesting 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 spouse; (4) no assets must have been transferred between the spouses filing the joint returns as part of a fraudulent scheme by such spouses; (5) there must have been no disqualified assets transferred to the requesting spouse by the non-requesting spouse, the individual with whom the requesting spouse filed the joint return; (6) the requesting spouse did not file the subject returns with fraudulent intent; and (7) the income tax liability from which the requesting spouse seeks relief must be attributable to an item of the non-requesting spouse. Rev. Proc. 2003-61, supra, sec. 4.01 at 297. In this case, respondent concedes that all seven threshold conditions are satisfied. Second, if the abohe threshold conditions are satisfied in a case in which the income tax liability reported on a joint. return is unpaid, then, pursuant to section 4.02 of he revenue procedure, the Commissioner will ordinarily grant equitable relief under section 6015(f) if the following three circumstances are met: (1) The requesting spouse is no longer married to, or is legally separated from, the non-requesting spouse or has not been a member of the same household for 12 months; (2) when he or she signed the joint return, the requesting spouse had no knowledge or reason to know that the non-requesting 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 spouse would not pay the income tax liability; and (3) if the Commissioner does not grant relief, then the requesting spouse will suffer economic hardship, in that he or she will be unable to pay his or her reasonable basic living expenses. Rev. Proc. 2003-61, supra, sec. 4.02 at 298. Third, if the threshold conditions are met but the above three circumstances are not satisfied, then Rev. Proc. 2003-61 sets forth the following eight factors in section 4.03 for determining whether to grant equitable relief: (1) Whether the requesting spouse is separated (legally separated or living apart) or divorced from the non-requesting spouse; (2) whether the requesting spous will suffer economic hardship, as described above; (3) whether the requesting spouse had knowledge or reason to know that the non-requesting spouse would not pay the income tax liability, as described abové; (4) whether the non- requesting spouse has a legal obligation to pay the outstanding income tax liability; (5) whether the requesting spouse received si nificant benefit from the unpaid income tax liability; (6) whether the requesting spouse has made a good faith effort to comply with income tax laws in later years; (7) whether the requesting spouse was abused; and (8) Heritage Reporting Corporation (202) 628-4888 l' whether the requesting spouse was in poor mental or 13 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 physical health when the joint returns were signed or when the request for relief was made. According to Rev. Proc. 2003-61, the last two factors will weigh in favor of relief, if present, but will not weigh against relief, if not present. In cases brought under section 6015(f), we apply a de novo standard of review, as well as a de novo scope of review. Porter v. Commissioner, 132 T.C. (2009). Under a de novo scope of review, we take into account facts that are presented at trial that are not in respondent's administrative record. See Porter v. Commissioner, 130 T.C. 115 at 117 (2008); Ewing v. Commissioner, 122 T.C. 32 (2004). Under a de novo standard of review, we take into account all the facts and circumstances and determine whether it is inequitable to hold the requesting spouse liable for the unpaid tax or deficiency'. Porter v. Commissioner, 132 T.C., Slip opinion 5. VIII. It is a fundamental principle of tax litigation that the Court is not bound to accept the unverified and undocumented testimony of a taxpayer. Hradesky v. Commissioner, supra; Tokarski v. Commissioner, 87 T.C. 74 at 77 (1986). See also 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 14 Lovell & Hart, Inc. v. Commissioner, 456 F.2d 145, 148 (6th Cir. 1972), affg. T.C. Memo. 1970-335; MacGuire v. Commissioner, 450 F.2d 1239 at 1244 (5th Cir. 1971), affg. T.C. Memo. 1970-89; Niedringhaus v. Commissioner, 99 T.C. 202, 212 (1992). In this case, mosti of petitioner's testimony was vague. However, she was certain of two significant points. First, she remembers how upset she was when she saw the joint return for 2004 that Dr. Andregg left on the kitchen table for her to sign. She was upset because she knew that they did not have enough money to pay the tax shown on the return. She testified that she knew that Dr. Andregg would not pay the tax liability shown on the return. Second, when she was upset and fearful that she would not have enough money, she remembers the conversation that she had with her step-son, who oyersees her financial affairs. According to her testimony, her step-son comforted her and told her, "you have more money than that, you will not be on the street." Another fundamental principle of tax litigation is that a party's failure to introduce documentary evidence, such as her financial records that are within her possession or control and that she implies would be favorable to her, gives rise to the 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 15 presumption that, if produced, such evidence, in fact, would be unfavorable. Recklitis v. Commissioner, 91 T.C. 874 at 890 (1988); Pollack v. Commissioner, 47 T.C. 92 at 108 (1966), affd. 392 F.2d 409 (5th Cir. 1968); Wichita Terminal Elevator Co. v. Commissioner, 6 T.C. 1158 at 1165 (1946), affd. 162 F.2d 513 (10th Cir. 1947). In this case, it is significant that petitioner did not introduce into evidence any financial information, or the testimony of her step-son, who manages her financial affairs. X. In Porter v. Commissioner, supra, the Court weighed the factors identified in Rev. Proc. 2003-61, 2003-2 C.B. 296, in order to determine whether the requesting spouse was entitled to equitable relief under section 6015(f). We will follow the same approach in this case. Set out below is our evaluation of each of those factors. A. Marital status: Dr. Andregg, the non-requesting spouse, is deceased. He is completely and permanently separated from petitioner. This is not a temporary absence. We believe' that this factor weighs in favor of relief. B. Economic hardship: The issue raised by this factor is whether petitioner would suffer economic 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 16 hardship if relief were not granted. Economic hardship is present if payment of the tax would prevent the taxpayer from paying her reasonable basic living expenses. See sec. 301.6343-1(b) (4) (I) and (ii), Proced. & Admin. Regs. The determination varies according to the unique circumstances of the taxpayer. Id. In this case, petitioner has not shown that payment of the subject tax liability would prevent her from paying her reasonable basic living expenses. Petitioner introduced evidence of expenses, but she has not introduced sufficient evidence concerning her income and assets from which we can come to a conclusion about whether payment of the 2004 tax liability would be an economic hardship. The record contains vague references to a trust that some or all of Dr. Andregg's assets were placed in before his death, but the record does not reveal the terms of the trust, who the trustees are, or what assets are in the trust. The record suggests that there was one or more life insurance policies on Dr. Andregg's life, but we do not know the death benefit of the policy or • policies, or to whom the proceeds were paid. Similarly, the record contains only vague references to a retirement account. Accordingly, we agree with 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 17 respondent that this factor weighs against granting petitioner relief. C. Knowledge or reason to know: This factor raises the question whether the requesting spouse had knowledge or reason to know that the non-requesting spouse would not pay the subject income tax liability. In Porter v. Commissioner, 132 T.C., suora, at Slip op. 6, we said "A taxpayer who signs a return is generally charged with constructive knowledge of its contents. Hayman v. Commissioner, 992 F.2d 1256, 1262 (2d Cir.1993), affg. T.C. Memo.1992-228. * * * Section 6015 does not protect a spouse who turns a blind eye to facts readily available to her. Charlton v. Commissioner, 114 T .C. 333, 340 (2000); Bokum v. Commissioner, [94 T.C. 126, 145-146 (1990), affd. 992 F.2d 1132 (11th Cir.1993)]. In such instances, we may impute the requisite knowledge to the putative innocent spouse unless she satisfies her duty of inquiry. Hayman v. Commissioner, supra, at 1262; Adams v. Commissioner, 60 T.C. 300 at 303 (1973)." In this case, petitioner testified that, at Heritage Reporting Corporation (202) 628-4888 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 18 the time she signed the 2004 return, she knew that Dr. Andregg could not, and would not, pay the income tax liability shown on the return. This factor weighs against granting petitioner relief. D. Non-requesting spouse's legal obligation to pay the outstanding income tax liability under a divorce decree or separation agreement. Petitioner's deceased husband had no liability under a divorce decree or agreement to pay the tax. This factor is neutral. E. Significant benefit from the unpaid income tax liability. Receipt by the requesting spouse, either directly or indirectly, of a significant benefit in excess of normal support from the unpaid liability or the item giving rise to the deficiency weighs against relief. Lack of a significant benefit beyond normal support weighs in favor of relief. Normal support is measured by the circumstances of the particular parties. Estate of Krock v. Commissioner, 93 T.C. 672, 678-679 (1989). In this case, we do not have sufficient information to judge whether petitioner would derive a significant benefit from the unpaid income tax liability. The record does not describe what assets Dr. Andregg owned at the time of his death or how such assets were distributed. It is possible that 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 19 petitioner has or eventually will receive all of Dr. Andregg's assets. In our view, petitioner has failed to show that she will not derive a significant benefit from the unpaid tax liability. This factor weighs against granting petitioner relief. F. Compliance with income tax laws. Petitioner's income tax return for 2006 was not filed until October 29, 2008. This factor does not favor relief. G. Abuse. The parties have stipulated that there was no abuse in this case. H. Mental or physical health. Whether the requesting spouse was in poor mental or physical health when the joint returns were signed or'when the request for relief was made. There is nó'evidence that petitioner was in poor mental or physical health when her 2004 return was filed. However, there is evidence that petitioner recently suffered eseveral mini-strokes and suffers from fibromyalgia, chronic fatigue, and other ailments. X. We hold that petitioner has failed to prove that, under the facts and circumstances of this case, respondent abused his discret on in denying equitable relief to petitioner under section 6015(f). In order to give effect to the foregoing, an Order will be 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 issued sustaining the Final Appeals Determination dated September 19, 2008, issued to petitioner for 20 2004. XI. THIS CONCLUDES THE COURT' S ORAL FINDINGS OF FACT AND OPINION IN THIS CASE. (Whereupon, at 4 : 28 p . m . , the bench op inion in the above-entitled matter was concluded.) // // // // // // // // // // // // // // // // // Heritage Reporting Corporation (202) 628-4888