t c memo united_states tax_court vandra bros construction co inc petitioner v commissioner of internal revenue respondent docket no filed date michael j occhionero for petitioner joseph p grant for respondent memorandum findings_of_fact and opinion gale judge dollar_figure and an in the amount of unless otherwise internal revenue respondent determined a deficiency of accuracy-related_penalty under sec_6662 a dollar_figure for petitioner’s taxable_year noted all section references are to the code in effect for the year in issue - - after a concession by respondent ’ we must decide whether respondent abused his discretion in determining that petitioner’s use of the cash_method_of_accounting did not clearly reflect income we hold that he did findings_of_fact some of the facts have been stipulated and are so found we incorporate by this reference the stipulation of facts and attached exhibits at the time of filing the petition petitioner was an ohio corporation with its principal_place_of_business in oakwood village ohio petitioner specialized in the construction of streets sidewalks curbs and similar improvements for governmental entities all of petitioner’s customers were governmental and municipal agencies including the state of ohio and municipalities within the state petitioner’s expertise was construction in particular laying concrete on public sites such as city streets and sidewalks that required the project to be completed with a minimal amount of disruption in traffic flow and in compliance with governmental regulations petitioner provided labor and equipment ’ but petitioner did not maintain a supply of any of the materials that were used at a construction site ' respondent concedes that petitioner is not liable for the accuracy-related_penalty occasionally petitioner rented equipment to third parties instead relying on suppliers to deliver needed materials to the construction site at the appropriate time petitioner only ordered the materials it needed for the job for the particular day petitioner had no plant or other facility to store materials and could not store materials at the construction site petitioner left no material on site overnight except occasionally a negligible amount concrete could not be stored on site for an additional reason within a few hours of delivery it would harden and become useless and worthless thus petitioner tried to estimate as closely as possible the amount of materials needed so there would not be anything left over petitioner bore the cost of any wasted materials if they were the result of an over order or in the case of concrete of it not being laid in time if the materials were defective or in the case of concrete delivered too late the supplier was responsible and bore the cost virtually all of petitioner’s projects required laying some concrete petitioner also engaged in related work such as preparing a site by removing existing concrete or stone petitioner also installed items such as reinforcing steel piping for sewers and drainage and guardrails during the year in issue percent of petitioner’s total materials cost was due to concrete percent was due to stone percent was due to reinforcing material and the remainder was due to other q4e- materials in general petitioner subcontracted for certain parts of projects such as electrical work asphalt or landscaping bids petitioner’s work was generally obtained through competitive bids petitioner’s bids comprised costs for labor equipment and materials in computing its bid petitioner estimated the cost of labor and equipment and added a markup to the cost of labor further petitioner estimated the quantity of materials which could include concrete aggregate stone and gravel reinforcing steel piping for sewer and drainage guardrail etc however petitioner did not add a markup to the cost of materials but rather included the cost of the materials as quoted by the supplier as an item in the bid during the year in issue percent of petitioner’s gross revenue came from the material cost of concrete petitioner would always solicit materials costs from at least two suppliers and sometimes three or four and would choose the lowest quoted cost for use in the bid the cost of materials was subject_to slight variations due for example to the distance between a supplier and the job site however petitioner got a discount for early payment to suppliers which was not passed along to customers occasionally a customer itself would supply materials e g concrete but this did not happen during the year in issue - - bids were calculated by estimating the cost of each individual job that was necessary to complete the entire project the bid price of most of the individual jobs was calculated on a per-unit basis for instance in arriving at a total bid for the reconstruction of a street in the city of south euclid petitioner bid dollar_figure per square yard to install 9-inch reinforced concrete pavement and dollar_figure per linear foot to install 6-inch drainage conduit and separate amounts for numerous other items the bid price for some individual jobs was calculated on a per- item basis for instance dollar_figure per each 9-foot guardrail post or on a lump-sum basis for instance dollar_figure for clearing and grubbing a certain area indicated in the project plan the bid calculation also included the estimated number of units or items that the project required however petitioner would bill the customer on the basis of the number of units or items actually used on the project not the number shown in the bid in some cases petitioner was required by the customer to state separately the cost of materials ie without labor and when so required petitioner did so on a per-unit or per-item basis even if two jobs used the same amount of material the amount of the bid could have differed substantially due to different cost of labor and equipment for instance to maintain traffic flow petitioner might be limited in the amount of work it could complete in one day thus increasing costs of labor petitioner -- - did not begin any work without a written contract for that particular project there were penalties if petitioner did not comply with the contract when petitioner subcontracted the subcontractor was responsible for labor equipment and materials for its part of the project petitioner took bids on the subcontractor work and did not mark up the subcontractor’s bids except to cover its own bond costs and insurance when petitioner subcontracted if the subcontractor did not pay its suppliers those suppliers could file liens against petitioner thus petitioner took care in selecting subcontractors trying to ensure they could pay their suppliers the construction season in general lasted from april to november generally petitioner bid in the spring and finished the projects by november or december occasionally work carried over to the next year governmental regulations petitioner’s business was strictly regulated by its customers both the state of ohio and local governments stationed an engineer at each construction site to inspect materials and oversee the project petitioner was required to pour concrete within hour after the concrete supply truck left the supply plant if this condition was not met the onsite engineer had the right to reject the load of concrete further - the engineer inspected the concrete to make sure it was not defective and had the right to reject it if it was if concrete was rejected the party responsible assumed the loss for instance if the supplier delivered defective concrete or did not deliver the concrete to the site in time to lay it within hour of leaving the supplier’s plant the supplier assumed the loss however if petitioner failed to pour properly delivered concrete in time petitioner assumed the loss the governmental entity worked with petitioner and the supplier but ultimately held petitioner responsible for any failure to meet contractual obligations petitioner signed for the concrete after the government’s inspector found it to be acceptable the government’s engineer gave permission to pour the concrete thus for instance if permission was given and concrete was poured and then the concrete was damaged by rain before it dried the governmental entity assumed responsibility for state projects the governmental regulation was so strict that petitioner did not need to guarantee materials if the state allowed use of the materials the state assumed responsibility for defects for city projects petitioner guaranteed some materials but the city would be responsible in some cases for instance if its engineer had advised petitioner to pour concrete that was later damaged because of rain during the 1990’s to percent of petitioner’s work was for the state of ohio --- - accounting_method payments and billing from its inception through the year in issue petitioner kept its books_and_records and reported its income using the cash_receipts_and_disbursements_method of accounting prior to and including the year in issue petitioner’s annual gross_receipts did not exceed dollar_figure million starting in petitioner prepared financial reports using an accrual_method of accounting the completed_contract_method these financial reports were required by petitioner’s bonding company petitioner was often required to be bonded for its work petitioner’s suppliers billed petitioner not petitioner’s customers and petitioner made payment to the suppliers if petitioner had the money on hand petitioner would pay when billed if not petitioner would wait until the money was available for some projects petitioner paid for all materials before receiving any payment from its customer petitioner made payments for its labor costs on a weekly basis the schedule on which petitioner billed and received payment from its governmental entity customers was regulated by them there was a set schedule of payments over which petitioner had little or no control the state paid biweekly whereas other governmental entities paid monthly petitioner normally received payments based on the amount of the project that was completed on at least one occasion during the year in issue petitioner paid for --- - all materials in but petitioner did not receive a check from the customer until date however the project was completed in date and the delay in payment was beyond petitioner’s control petitioner made no attempt to defer income to a later year and there were no prepayments of expenses business decisions were made on the basis of the cash_method financial records even though the completed contract records were available in the notice_of_deficiency respondent determined that petitioner was required to use an accrual_method of accounting by amendment to answer and stipulation of the parties the parties agree that if petitioner was not entitled to use the cash_method_of_accounting then petitioner will elect to use and respondent will allow the use of the completed_contract_method of accounting the parties further stipulate that under the completed_contract_method of accounting petitioner’s income for the taxable_year would be dollar_figure which would result ina current_year adjustment of dollar_figure after consideration of dollar_figure in income reported on the cash_basis and adjustment required to be taken into account in under sec_481 of dollar_figure thus the total increase in petitioner’s taxable_income for would be dollar_figure - lo - opinion we must decide whether respondent’s determination that petitioner’s use of the cash_method_of_accounting did not clearly reflect income was an abuse of respondent’s discretion we hold that it was in order to require a taxpayer to change its method_of_accounting the commissioner must determine that the method used by the taxpayer does not clearly reflect income see sec_446 90_tc_26 while the commissioner’s discretion is broad see 439_us_522 it is not absolute see hallmark cards inc v commissioner supra and we find an abuse_of_discretion when the commissioner’s determination is without sound basis in fact or law see 104_tc_367 in 114_tc_211 we addressed these issues in a factual context indistinguishable from the instant case in that case we provided as follows whether the taxpayer 1s required to report its income on the accrual_method of accounting instead of the cash_method depends on whether the taxpayer is in the business of selling merchandise to customers in addition to providing service or whether the material provided by the taxpayer is a supply that is incidental to the provision of the contracted service id pincite citations omitted in that case we found that the taxpayer a company engaged in the laying of concrete and the installation of related items such as sand rock wire mesh and rebar did not sell merchandise to its customers rather relying on 113_tc_376 we found that the concrete and related materials were supplies consumed by the taxpayer in osteopathic med oncology hematology p c we held that chemotherapy drugs furnished by a healthcare provider in treating cancer patients were supplies rather than merchandise because the taxpayer was a service provider and the drugs were an integral and inseparable part of its service id pincite similarly in racmp enters inc v commissioner supra we held that the taxpayer was a service provider and we found that the materials used in construction were not merchandise because they were indispensable and inseparable from the service provided by the taxpayer id pincite in conclusion we held that because the taxpayer did not produce or sell merchandise the taxpayer could not be required to use inventory_accounting see id pincite in the instant case the concrete stone reinforcing steel and other items collectively the materials used by petitioner were not merchandise for the same reasons stated in racmp enters inc first the materials lost their separate identity when used in a construction_project second petitioner did not contract to sell the materials but rather contracted to provide finished walkways repaired streets and the like third the construction projects that petitioner engaged in were improvements to real_property fourth petitioner did not leave any of the materials on the construction site or store them for use for a later project see id pincite given our recent holding in racmp enters inc and the indistinguishable facts of the instant case we hold that petitioner was not engaged in the production or sale of merchandise therefore petitioner cannot be required to use inventories and the commissioner abused his discretion in requiring petitioner to change from the cash_method_of_accounting to reflect the foregoing decision will be entered for petitioner


internal_revenue_service number release date index number ----------------- ----------------------------------- ------------------------------------ ------------- ------------------------------ - department of the treasury washington dc third party communication none date of communication not applicable_person to contact -------------------- id no ------------- telephone number --------------------- refer reply to cc psi b01 plr-113646-05 date june x state ----------------------------------- legend ------------------------------------------------------------------------------ dear -------------- for a written_determination granting relief under sec_1362 of the internal_revenue_code this letter is in response to your request on behalf of x dated february ----------------------- ---------- date facts x was incorporated under the laws of state on date the shareholders of x intended that x elect to be treated as an s_corporation effective date however the election to be treated as an s_corporation effective date was not timely filed law and analysis sec_1362 of the code provides that a small_business_corporation can elect to be treated as an s_corporation sec_1362 of the code provides guidance on when the s election becomes effective if an s election is made within the first two and one-half months of a plr-113646-05 corporation s taxable_year then that corporation will be treated as an s_corporation for the year in which the election was made if the corporation makes an election after the first two and one-half months of a corporation s taxable_year then the corporation will generally not be treated as an s_corporation until the following taxable_year sec_1362 of the code provides that if no election is made pursuant to sec_1362 or if the election is made after the date prescribed for making such an election and the secretary determined reasonable_cause existed for the failure to timely make the election then the secretary can treat such an election as being timely made for that taxable_year and effective as of the first day of that taxable_year x did not file a timely election to be treated as a s_corporation under sec_1362 x has however established reasonable_cause for not making a timely s election therefore x is entitled to relief under section b conclusion based solely on the facts submitted and representations made and provided that x otherwise qualifies as a subchapter_s_corporation we conclude that x will be recognized as an s_corporation effective date an original form_2553 along with a copy of this letter must be forwarded to the relevant service_center within sixty days from the date of this letter except as expressly provided herein no opinion is expressed or implied this ruling is directed only to the taxpayer s requesting it sec_6110 of concerning the tax consequences of any aspect of any transaction or item discussed or referenced in this letter the code provides that it may not be used or cited as precedent this ruling to your representative pursuant to the power_of_attorney on file with this office we will send a copy of sincerely dianna k miosi chief branch passthroughs special industries enclosures cc copy of this letter copy of this letter for sec_6110 purposes


internal_revenue_service number release date index number ----------------- --------------------------- ------------------------------------------------------------ -------- ---------------------------------------- ------------------------------ department of the treasury washington dc third party communication none date of communication not applicable_person to contact ---------------------- id no ------------------ telephone number ---------------------- refer reply to cc fip b01 plr-132083-16 date date legend fund ------------------------------------------------------------ ----------------------------------------------------------------------------------- ------------------------------------------------------------------------- ---------------------------------------------------------------- fund ------------------------------------------------------------ ----------------------------------------------------------------------------------- ---------------------------------------------------------- ----------------------------------------------------------- dear -------------- this letter revokes a part of plr plr-112977-081 issued to fund sec_1 and the funds on date and in response to a request from your authorized representative dated date limits the retroactive effect of such revocation pursuant to sec_7805 of the internal_revenue_code in plr the internal_revenue_service the service issued rulings that i income and gain from certain commodity-linked notes constitute qualifying_income under sec_851 the cln ruling and ii income derived by each fund from its investment in the subsidiaries whether or not attributable to subpart_f_income is income derived from the funds’ business of investing in stock securities or currencies and therefore constitutes qualifying_income under sec_851 the subsidiary ruling in a letter dated date the service notified the funds that it plr-112977-08 is the controlling plr number for a multi-filer private_letter_ruling fund sec_1 and were assigned a separate plr number this letter refers to the controlling plr number but applies equally to the rulings issued to both funds under their respective separately assigned plr numbers plr-132083-16 was considering revoking the cln ruling on date the funds requested that the service exercise its discretionary authority under sec_7805 to limit the retroactive effect of any revocation since issuing plr the service has determined that having provided a private_letter_ruling on the issue in the cln ruling is not in accord with the current views of the service see revproc_2016_50 2016_43_irb_522 superseded by revproc_2017_3 i r b sec_4 see also reg-123600-16 fed reg date section dollar_figure of revproc_2017_1 2017_1_irb_1 provides in part that unless it was part of a closing_agreement a letter_ruling found to be in error or not in accordance with the current views of the service may be revoked or modified accordingly the cln ruling in plr is revoked the subsidiary ruling is not revoked and that portion of plr remains in effect at this time section dollar_figure of revproc_2017_1 also provides that if a letter_ruling is revoked the revocation applies to all years open under the statute_of_limitations on assessments unless the service uses its discretionary authority under sec_7805 to limit the retroactive effect of the revocation in accordance with the funds’ request the service has decided to grant relief under sec_7805 the revocation of the cln ruling in plr will apply prospectively only to commodity-linked notes acquired by the funds after date in accordance with the power_of_attorney on file with this office we are sending a copy of this letter to the funds’ authorized representative we are also sending a copy of this letter to the appropriate operating division sincerely ------------------------------------------- julanne allen assistant to the branch chief branch office of associate chief_counsel financial institutions and products cc


t c memo united_states tax_court cheryl denese brewer petitioner v commissioner of internal revenue respondent docket no filed date cheryl denese brewer pro_se jason m silver for respondent memorandum findings_of_fact and opinion jacobs judge respondent determined a dollar_figure deficiency in petitioner's federal_income_tax the issues for decision are whether petitioner is entitled to exclude from gross_income amounts received in settlement of a class action suit pursuant to sec_104 and whether petitioner is entitled to exclude from gross_income amounts paid as legal fees unless otherwise indicated all section references are to the internal_revenue_code as in effect for the year in issue and all rule references are to the tax_court rules_of_practice and procedure findings_of_fact some of the facts have been stipulated and are so found the stipulation of facts and attached exhibits are incorporated herein by this reference cheryl denese brewer petitioner resided in los angeles california at the time she filed her petition at all relevant times petitioner was an insurance agent on date a class action lawsuit kraszewski v state farm gen ins co was filed against state farm general insurance co state farm mutual automobile insurance co state farm life_insurance co and state farm fire and casualty co state farm in the u s district_court for the northern district of california the class representatives alleged that state farm had engaged in statewide discrimination in california in the recruiting hiring and training of women for sales agent trainee positions in on date the district_court for the northern district of california certified a class in kraszewski to maintain the action see kraszewski v state farm gen ins co fair empl prac cas bna n d cal violation of title vii of the civil rights act of publaw_88_ sec_701 78_stat_241 u s c sec 2000e to 2000e-17 title vii the representatives sought backpay as well as injunctive and declaratory relief on date the district_court bifurcated the litigation into a liability and a remedy phase on date the court ruled in the liability phase that state farm was liable under title vii for classwide discrimination on the basis of gender see kraszewski v state farm gen ins co fair empl prac cas bna n d cal the court concluded that women who attempted to become trainee agents were lied to misinformed and discouraged in their efforts to attain the entry level sales position id pincite the court then ruled that the class action suit properly included all female applicants and deterred applicants who at any time since date have been are or will be denied recruitment selection and or hire as trainee agents by defendant companies within the state of california id pincite on date the court held that individual hearings were appropriate to determine the relief for class members the court decided that class members were entitled to show that they were actual victims of discrimination as to any of the vacancies at state farm that occurred during the period of liability and were filled by men on date petitioner sought employment as a state farm trainee agent but was not hired she subsequently became aware of the class action suit against state farm and became a plaintiff in the suit on date petitioner and state farm entered into a settlement agreement and general release settlement agreement which provided in relevant part worker' sec_1 for and in consideration of the sum of dollar_figure and potential additional payments of up to dollar_figure as provided in paragraph below less all required payroll deductions applicable to the period of trainee agency if any and inclusive of attorneys's sic fees and costs to which petitioner cheryl denese brewer or claimant's counsel is entitled on a prevailing_party basis but excluding attorneys' fees and costs as set forth in paragraph below cheryl denese brewer does hereby completely release and forever discharge state farm from any claim or liability of any and every kind based on any federal state or local law statute or regulation excepting only claims for benefits hereinafter claim which arose prior to the execution of this settlement agreement and general release and which was raised or could have been raised in the above-captioned case as well as any and all claims including where applicable claims under the federal age discrimination in employment act arising out of or relating to any alleged discriminatory improper or unlawful act or omission of state farm in connection with any term or condition_of_employment or independent_contractor status or the process of securing or attempting to secure employee or independent_contractor status limitation recruitment selection hiring job assignment job or termination which arose prior to the execution of this settlement agreement and general release compensation promotion including training transfer without petitioner hereby agrees and promises that by entering into this settlement agreement and general release she is waiving any and all right s she may have under the terms of the consent decree respecting instatement or rights to any other future class relief unknown it is understood and agreed that this is a full and final general release applying not only to all claims which are presently known anticipated or disclosed to petitioner but also to all claims which are presently and undisclosed to petitioner and which may have arisen prior to the date of execution of this settlement agreement and general release petitioner hereby waives any and all rights or benefits which she may now have or may in the future have under the terms of section of the california civil code which provides as follows unanticipated a general release does not extend to claims which the creditor does not know or suspect to exist in his favor at the time of executing the release which if known by him must have materially affected his settlement with the debtor it is understood and agreed that this compromise settlement includes the compromise settlement of any and all legal evidentiary discovery and document production issues regarding claim no the parties further agree and understand that neither state farm nor petitioner will bring any motions either individually or as part of the class relative to such claim no issues the approximate full value of petitioner's claim under the consent decree damage formula as of date is dollar_figure which represents back pay as a state farm agent accrued from the year of the challenged appointment to date plus six months of front pay from that date forward b settlement cash pincite acceptance rate state farm offers petitioner settlement cash of dollar_figure which is approximately of the estimated full consent decree value of her claim to release her claims against state farm c incentive cash for acceptance rate above the incentive cash will be dollar_figure per claimant for each full percentage_point by which the acceptance rate exceed sec_90 e attorney's_fees the payments state farm is offering to petitioner include her attorneys' fees and costs that is petitioner will have to pay her attorneys' fees out of the payment state farm makes to her in pursuant to the terms of the settlement state farm issued petitioner and her attorney a check in the amount of dollar_figure petitioner's attorney retained legal fees of dollar_figure petitioner did not report the state farm payment on her federal_income_tax return respondent determined in the notice_of_deficiency that the entire state farm payment should have been included in petitioner's gross_income and that petitioner is entitled to claim legal fees in the amount of dollar_figure as a miscellaneous itemized_deduction opinion issue excludability of settlement proceeds the first issue for decision is whether petitioner is entitled to exclude from gross_income pursuant to sec_104 amounts received in settlement of a class action suit petitioner contends that she is so entitled respondent disagrees except as otherwise provided gross_income includes income from all sources sec_61 348_us_426 although sec_61 is to be broadly construed statutory exclusions from income must be narrowly construed 515_us_323 pursuant to sec_104 gross_income does not include the amount of any damages received whether by suit or agreement and whether as lump sums or as periodic_payments on account of personal injuries or sickness the regulations provide that the term 'damages received whether by suit or agreement ' means an amount received through prosecution of a legal suit or action based upon tort or tort type rights or through a settlement agreement entered into in lieu of such prosecution sec_1 c income_tax regs thus in order to exclude damages from gross_income pursuant to sec_104 the taxpayer must prove that the underlying cause of action is based upon tort or tort type rights and the damages were received on account of personal injuries or sickness commissioner v schleier supra pincite where amounts are received pursuant to a settlement agreement the nature of the claim that was the actual basis for settlement controls whether such amounts are excludable from gross_income under sec_104 504_us_229 the crucial question is in lieu of what was the settlement amount_paid 105_tc_396 affd 121_f3d_393 8th cir determining the nature of the claim is a factual inquiry 102_tc_116 affd in part revd in part and remanded 70_f3d_34 5th cir the amounts petitioner received pursuant to the settlement agreement were intended to settle her claim under title vii although petitioner did not file an individual complaint in that case and the settlement agreement does not contain a specific reference to title vii it is clear that title vii is the basis for the underlying claim the nature of petitioner's claim is identical to that stated in the complaint filed by the kraszewski class representatives which alleged that state farm had engaged in statewide discrimination in the recruiting hiring and training of women for sales agent trainee positions in violation of title vii the plaintiffs sought backpay and injunctive and declaratory relief the district_court held that state farm was liable under title vii to all members of the class who had been discriminated against and ordered individual hearings kraszewski v state farm gen ins co fair empl prac cas bna n d cal the court did not limit relief to state farm employees the u s supreme court's decision in united_states v burke supra controls the issue in burke was whether amounts received in settlement of a title vii claim were excludable pursuant to sec_104 the court analyzed title vii and held that it did not provide for remedies to recompense claimants for tort type personal injuries rather the court noted that the statute offered only injunctions back and front pay and other equitable relief id pincite accordingly the court held that title vii did not redress a tort type personal injury and consequently that settlement proceeds based on such a claim are not excludable pursuant to sec_104 here petitioner and state farm entered into a settlement agreement pursuant to which state farm paid dollar_figure to petitioner for her release of a claim arising out of or relating to any alleged discriminatory improper or unlawful act or omission of state farm in connection with recruitment selection hiring job assignment job transfer training promotion or termination in addition the settlement agreement specifically stated that it although petitioner did not have a hearing to determine whether she was entitled to damages petitioner and state farm nevertheless entered into a settlement includes the compromise settlement of any and all legal evidentiary discovery and document production issues regarding claim no thus the entire award petitioner received in settlement of her title vii claim against state farm represented a compromise and settlement of petitioner's rights pursuant to her claim against state farm alleging discrimination under title vii in sum no portion of petitioner's settlement award was attributable to a claim based upon tort or tort type rights thus we hold that petitioner improperly excluded the settlement proceeds dollar_figure from her gross_income commissioner v schleier supra pincite united_states v burke supra pincite accordingly we sustain respondent's determination we note that our opinion herein is consistent with prior decisions of this court which also held that settlement proceeds received pursuant to the kraszewski litigation were not excludable from gross_income pursuant to sec_104 see gillette v commissioner tcmemo_1997_301 hayes v commissioner tcmemo_1997_213 hardin v commissioner tcmemo_1997_202 raney v commissioner tcmemo_1997_200 clark v commissioner t c memo claim no was the identification of petitioner's claim against state farm in the class action suit as petitioner's claim arose in and the class action suit was filed in that year the amendments to title vii made by sec_102 of the civil rights act of publaw_102_166 stat do not apply 511_us_244 berst v commissioner tcmemo_1997_137 martinez v commissioner tcmemo_1997_126 fredrickson v commissioner tcmemo_1997_125 issue excludability of legal fees the second issue is whether petitioner is entitled to exclude from gross_income amounts paid as legal fees petitioner argues that because her legal fees were paid to counsel from the settlement proceeds and petitioner never received such fees petitioner is entitled to exclude the legal fees from her income respondent contends that petitioner may deduct attorney's_fees of dollar_figure as a miscellaneous itemized_deduction to the extent they exceed percent of petitioner's adjusted_gross_income although state farm issued a check jointly to petitioner and her attorney petitioner was responsible for her legal costs the settlement agreement provided inter alia that the state farm payment included petitioner's attorney's_fees and that it was petitioner's responsibility to pay her attorney's_fees thus we agree with respondent that the attorney's_fees are includable in petitioner's gross_income and deductible as a miscellaneous itemized_deduction see 72_f3d_938 1st cir affg tcmemo_1995_51 we have considered all of petitioner's other arguments and found them to be either irrelevant or without merit to reflect the foregoing decision will be entered for respondent


t c memo united_states tax_court vincent gina dean petitioners v commissioner of internal revenue respondent vincent dean petitioner v commissioner of internal revenue respondent docket nos 20812-07l 20943-07l filed date ronald f hood for petitioners daniel p ryan for respondent memorandum findings_of_fact and opinion cohen judge this proceeding was commenced in response to two notices of determination concerning collection action s under sec_6320 and or the internal_revenue_service irs sent a notice_of_determination to vincent dean petitioner for his income_tax liabilities for sustaining the proposed levy with respect to his unpaid taxes for the case at docket no 20943-07l arises from a petition filed in response to the notice sent to petitioner for the irs sent a separate notice_of_determination to vincent and gina dean petitioners with respect to their outstanding joint income_tax liabilities for and sustaining the proposed levy for the unpaid taxes for these years the case at docket no 20812-07l arises from a petition filed in response to this notice sent to petitioners the cases were consolidated for trial briefing and opinion the issue for decision is whether the irs appeals_office abused its discretion by rejecting offers-in-compromise oics made by petitioners and in determining that proposed levies on petitioners’ property were appropriate unless otherwise indicated all section references are to the internal_revenue_code and all rule references are to the tax_court rules_of_practice and procedure findings_of_fact some of the facts have been stipulated and the stipulated facts are incorporated in our findings by this reference petitioners resided in st louis county minnesota at the time the petitions were filed on date the irs sent petitioner a letter final notice_of_intent_to_levy and notice of your right to a hearing under sec_6330 with respect to his federal income taxes for attached to the letter was an account summary showing that petitioner’s liability for consisted of an assessed balance of dollar_figure plus interest of dollar_figure and a late payment penalty of dollar_figure for a total of dollar_figure on date the irs sent petitioners a letter with respect to their federal income taxes for and attached to the letter was an account summary showing that petitioners’ liabilities were as follows year assessed balance interest penalty total dollar_figure dollar_figure dollar_figure dollar_figure dollar_figure dollar_figure dollar_figure dollar_figure dollar_figure dollar_figure dollar_figure dollar_figure on date the irs received timely forms request for a collection_due_process_hearing from petitioners’ attorney ronald hood hood in response to the letters 1058--one for petitioner and one for petitioners on the forms petitioners did not challenge the underlying tax_liabilities but stated their desire for oics or installment agreements petitioners’ collection_due_process cdp hearings were assigned to the same settlement officer in the appeals_office on date petitioners through hood sent to the settlement officer one form_656 offer_in_compromise on the basis of doubt as to collectibility regarding the outstanding tax_liabilities for the form_656 also included tax years and with their oic petitioners submitted financial information about themselves on form 433-a collection information statement for wage earners and self-employed individuals and about petitioner’s business on form 433-b collection information statement for businesses in response to a phone conversation between the settlement officer and hood additional information regarding petitioner’s business was submitted on date the settlement officer and hood subsequently had several telephone conversations in one of these telephone conversations the settlement officer conveyed to hood that the monthly housing and utilities expenses of dollar_figure petitioners claimed on the form 433-a exceeded the irs local standard for housing and utilities which for a family of five in st louis county minnesota was a maximum of dollar_figure on date hood sent a letter to the settlement officer that she perceived as possibly threatening she discussed it with her manager who referred the letter to the irs office_of_professional_responsibility in her research to verify the information petitioners provided on the submitted form 433-a and determine the reasonable collection potential rcp the settlement officer concluded that she needed clarification regarding the real_property that petitioners owned on their form 433-a petitioners listed two parcels of real_property that they owned with a total current value of dollar_figure however the settlement officer’s online research of the st louis county public records revealed additional parcels of real_property listed in petitioners’ names thus on date the settlement officer sent a letter to petitioners requesting that they provide information to her by date regarding their real_property on date hood sent a letter on petitioners’ behalf to the settlement officer providing information regarding their real_property ownership hood noted that some of the parcels are in fact contracts for deed in which either vincent and or gina dean are only the buyers purchasers and these parcels are still owned by the seller petitioners submitted documentation regarding the real_property that they owned through warranty deeds that had been included on form 433-a petitioners also submitted the documents for two real_property parcels showing that contracts for deed had been executed one contract_for_deed was executed date for property described as lot block dorem st louis county minnesota except the easterly feet thereof parcel no the purchase_price was dollar_figure and there was an initial dollar_figure downpayment another contract_for_deed was executed date for property described as lot block plat of dorem parcel no the purchase_price was dollar_figure and there was an initial dollar_figure downpayment in the documents petitioners submitted to the settlement officer they included information that identified the outstanding balances that remained on both contracts for deed dollar_figure for parcel no and dollar_figure for parcel no the contracts for deed provided that the purchasers were to pay all real_estate_taxes and maintain liability insurance on date the settlement officer sent petitioners a letter summarizing her analysis of their financial information for the purpose of calculating the rcp and stated that the figures listed were calculated using the information received as of and the information is provided to allow you to discuss collection alternatives in resolving your outstanding personal income_tax liabilities in her analysis the settlement officer prepared an asset equity table that included the two parcels with the contracts for deed dissipated assets and noted the taxpayers entered into contracts for deed for parcel and parcel in ely sic county mn since they entered into these contracts the taxpayers paid dollar_figure towards the contracts that could have been paid towards their outstanding income_tax liabilities for the years through inclusive in calculating the rcp the settlement officer used the amounts petitioners had paid not the assessed values of the land additionally using information petitioners provided the settlement officer identified the actual monthly housing and utilities expenses as dollar_figure consisting of a monthly mortgage payment of dollar_figure which included taxes and insurance average monthly electricity expense of dollar_figure telephone expense of dollar_figure trash collection of dollar_figure and dollar_figure for directtv the settlement officer further explained the housing and utilities expenses she allowed according to the irs local standards maximum allowable_amount for a family of in st louis county mn is dollar_figure i allowed dollar_figure more a month than the allowable_amount due to the fact that there are living in the house and the electricity and water bills may be higher due to their being a family of they have presented no special circumstances such as the need for handicapped accessible housing as to why the dollar_figure in actual amount of housing_expenses which are dollar_figure over the allowable_amount should be allowed other than that the amounts listed are what they are actually paying to meet their basic living_expenses based on the information received from petitioners the inclusion of the properties with executed contracts for deed and the use of the local standard for housing with her dollar_figure addition the settlement officer calculated the rcp to be dollar_figure if the offered amount were to be paid in months or less or dollar_figure if the offered amount were to be paid in more than months but less than months in her letter the settlement officer gave petitioners until date to submit an acceptable collection alternative and noted that failure to do so would result in the issuance of the notices of determination on date hood sent a letter to the settlement officer on petitioners’ behalf with a proposed oic in this oic submitted for years through petitioners offered to pay dollar_figure in the oic petitioners stated we disagree with the irs analysis regarding the allowances for housing and utilities transportation and the issue of dissipated assets as a consequence of our disagreement on these issues our offer of dollar_figure is less than the irs’s reasonable collection potential rcp amount of which we disagree on date the settlement officer sent a letter to petitioners informing them that they needed to submit two oics-- one in petitioner’s name for and and a second in petitioners’ names for and on date petitioners submitted two oics both based on doubt as to collectibility in the oic submitted for his and income_tax liabilities petitioner offered to pay dollar_figure to be paid over months in monthly payments of dollar_figure in the oic submitted for their and income_tax liabilities petitioners offered to pay dollar_figure to be paid over months in monthly payments of dollar_figure the offered amounts were less than the rcp as calculated by the settlement officer and in both oics it was noted that there was disagreement with the settlement officer’s analysis regarding the allowance for housing and utilities the allowance for transportation_expenses and the issue of dissipated assets on date the irs sent two separate notices of determination concerning collection action s under sec_6320 and or the notices of determination were both signed by the same appeals team manager and each contained a summary of determination stating based on the information in the case file the notice_of_intent_to_levy was appropriate at the time it was issued no acceptable collection alternatives could be agreed to collection action would be appropriate to collect this debt this analysis indicates that this action is now necessary to provide for the efficient collection of the taxes despite the potential intrusiveness of enforced collection petitions were timely filed with the court in response to the notices at trial respondent’s counsel objected to petitioner’s testimony as outside the administrative record arguing that petitioner’s testimony would not add to or explain anything regarding the administrative record or the cdp hearing because petitioner had counsel--and did not participate himself--in the cdp hearing the court reserved ruling on this objection opinion sec_6330 provides for notice and opportunity for a hearing before the irs may levy upon the property of any person under sec_6330 the determination to proceed with a collection action shall take into consideration whether any proposed collection action balances the need for the efficient collection_of_taxes with the legitimate concern of the person that any collection action be no more intrusive than necessary this court has jurisdiction to review the collection activities of the commissioner only with respect to tax_liabilities for which a valid notice_of_determination has been issued sec_6330 valid notices of determination were issued as to collection of petitioner’s income_tax_liability for and petitioners’ income_tax liabilities for and and petitions were filed identifying those years however the oics submitted to the irs included proposed compromises for years not subjects of the notices of determination the court lacks jurisdiction to review collection of the liabilities for the years not included in the notices of determination see sullivan v commissioner tcmemo_2009_4 in determining whether the rejection of the oics and the collection of the years included in the notices of determination is appropriate this court is authorized as the settlement officer was required to consider any relevant issue relating to the proposed levy sec_6330 d therefore we evaluate the settlement officer’s exercise of discretion in rejecting the oics taking into account all the liabilities that were proposed to be compromised even though we do not have jurisdiction to review the collection of all those liabilities see eg 123_tc_1 reviewing an oic that covers income_tax liabilities for tax years that are both within and outside of this court’s jurisdiction affd 412_f3d_819 7th cir petitioners have not challenged their underlying liabilities accordingly we review the appeals office’s determination for abuse_of_discretion see 114_tc_604 an action constitutes an abuse_of_discretion if it is arbitrary capricious or without sound basis in fact or law 129_tc_107 the parties agree that these cases are appealable to the court_of_appeals for the eighth circuit that court has held that judicial review of nonliability issues under sec_6330 is limited to the administrative record subject_to exceptions that are not applicable here 439_f3d_455 8th cir revg 123_tc_85 see also 497_f3d_828 8th cir concluding that the review of a cdp decision rendered by an appeals officer under sec_6330 is limited to the administrative record before the appeals officer see generally 469_f3d_27 1st cir listing exceptions to administrative record rule affg 125_tc_301 the administrative record consists of the case file including the taxpayer’s written request for a hearing written communications or information submitted in connection with the cdp hearing irs notes of any oral communications with the taxpayer irs memoranda in connection with the hearing and any other documents or materials used by the irs appeals officer_or_employee in making a determination under sec_6330 see robinette v commissioner supra pincite respondent asserts that petitioner’s testimony should be disregarded because it is outside the administrative record petitioner’s attorney--not petitioner--participated in the cdp hearing thus petitioner’s testimony is not relevant in determining whether the appeals office’s refusal to accept the oics was arbitrary capricious or without sound basis in law or fact see murphy v commissioner supra pincite robinette v commissioner supra pincite therefore we sustain respondent’s objection regarding the consideration of petitioner’s testimony sec_7122 authorizes compromise of a taxpayer’s federal_income_tax liability the grounds for compromise of a tax_liability include doubt as to collectibility sec_301 b proced admin regs petitioners based both of their most recently submitted oics on doubt as to collectibility which exists in any case where the taxpayer’s assets and income are less than the full amount of the liability id generally under the commissioner’s administrative guidelines an offer to compromise based on doubt as to collectibility will be acceptable only if it reflects the rcp see internal_revenue_manual irm pt date see also revproc_2003_71 sec_4 2003_2_cb_517 stating that an offer will be considered acceptable if it reflects the taxpayer’s rcp where the appeals officer has followed the irs guidelines to ascertain a taxpayer’s rcp and has rejected the taxpayer’s collection alternative on that basis we generally have found no abuse_of_discretion see mcclanahan v commissioner tcmemo_2008_161 lemann v commissioner tcmemo_2006_37 petitioners contend that in determining the rcp the settlement officer reached an unrealistic result by using the local standard allowance for monthly housing and utilities expenses and including the contracts for deed because petitioners claim these were not property that petitioners owned although petitioners stated on their forms that they also disagreed with the transportation expense allowance they did not raise this issue in their petition or at trial a petition for review of a collection action must clearly specify the errors alleged to have been committed in the notice_of_determination and any issues not raised in the assignments of error are deemed conceded by the taxpayer rule b see 114_tc_176 the transportation expense allowance issue is deemed conceded local standard allowance for housing and utilities expenses respondent asserts that petitioners erroneously argue that the issue in this case is whether the local standards for housing and utilities accurately reflect the costs for a family to reside in st louis county minnesota instead the issue to be decided by the court is whether the settlement officer abused her discretion in applying the local standards for housing and utilities rather than petitioners’ claimed expenses in determining an acceptable oic amount petitioners’ disagreement is in essence with the settlement officer’s use of the local standards for housing and utilities expenses as published by the irs for st louis county minnesota petitioners do not contend that the settlement officer misapplied these standard allowances they challenge the legitimacy of the irs prescribed county-by-county standard allowances and argue that the irs guidelines are clearly arbitrary on their face and do not follow the congressional mandate of sec_7122 because counties in the united_states vary in size and population and it would be more equitable for the local standards to be issued on a city and town level in congress directed the secretary to prescribe guidelines for calculating allowable living_expenses when determining the taxpayer’s current financial condition and ability to pay delinquent taxes see internal_revenue_service restructuring and reform act of publaw_105_206 sec 112_stat_764 sec_7122 enacted as sec_7122 the secretary was also directed to develop and publish schedules of national and local allowances designed to provide that taxpayers entering into a compromise have an adequate means to provide for basic living_expenses sec_7122 the irs has thus developed collection financial standards that include national standards for general living_expenses and local standards for housing utilities and transportation local standards for housing are established for each county within a state see irm pt date petitioners argue that the use of local standards is a violation of their fundamental rights of procedural due process and that respondent should have been required to present expert testimony about the manner in which the standards were developed petitioners’ rights to a precollection hearing and to compromise their undisputed tax_liability are privileges created by congress subject_to conditions established by congress they have no constitutional right to avoid payment of their admitted tax_liabilities and absent the legislation had no rights to precollection procedures their attempt to raise the dispute to constitutional levels is unpersuasive when sec_7122 was amended in to add provisions governing the submission and evaluation of oics congress did not question the promulgated local standards thus lending support to the irs local standards as developed and in use at that time see tax_increase_prevention_and_reconciliation_act_of_2005 publaw_109_222 b d stat congress also signaled its support for the irs standards as developed by referring to amounts specified under the national standards and local standards in the bankruptcy abuse prevention and consumer protection act of publaw_109_8 119_stat_27 and used to determine allowable living_expenses of above-median income debtors see u s c sec_707 b petitioners’ argument that the local standards should not be determined on a county level is not persuasive in the light of the actions of congress this court has sustained use of the irs published national and local allowances as guidelines for basic monthly living_expenses in evaluating the adequacy of proposed installment agreements and oics see eg 124_tc_165 affd 454_f3d_782 8th cir fernandez v commissioner tcmemo_2008_210 no abuse_of_discretion found when the taxpayer argued that the local standard allowance for monthly housing and utilities expenses would make it almost impossible to own a family size house in south florida generally this court has found no abuse_of_discretion where appeals officers used the housing and utilities standard allowances rather than the taxpayer’s actual expenses see marks v commissioner tcmemo_2008_226 diffee v commissioner tcmemo_2007_304 cf fowler v commissioner tcmemo_2004_ holding that an appeals officer abused his discretion in determining on the basis of the standard allowance guidelines that the taxpayer could not live as cheaply as they had claimed and so could not afford their proposed installment payments petitioners identified their actual monthly housing and utilities expenses as dollar_figure the settlement officer applied the published local standards for housing and utilities expenses of dollar_figure for st louis county minnesota and added dollar_figure because of the size of petitioners’ family resulting in a total monthly allowance of dollar_figure petitioners contend that the settlement officer should have conducted research to show the availability of less expensive housing in st louis county for petitioners presented an analysis showing the costs for petitioners to move and performed research on the tax consequences of such a move the taxpayer has the burden to submit information to appeals to justify a departure from the local standards see lindley v commissioner tcmemo_2006_229 no abuse_of_discretion to use local standards when taxpayer does not make showing that he will be unable to provide for basic living_expenses affd sub nom 568_f3d_710 9th cir no evidence concerning the alleged cost of moving to a new residence was presented during the cdp hearing and it was not the burden of the settlement officer to secure evidence supporting petitioners’ position petitioners have not shown that the settlement officer did not properly apply the provisions of the code the regulations or the irm with respect to the local standard allowance for monthly housing and utilities expenses there was therefore no abuse_of_discretion in regard to that element of the determination dissipated assets where a taxpayer has dissipated assets in disregard of the taxpayer’s outstanding federal income taxes the dissipated assets may be included in the calculation of the minimum amount that is to be paid under an acceptable oic see irm pt date a dissipated asset is defined as any asset liquid or not liquid that has been sold transferred or spent on nonpriority items and or debts and is no longer available to pay the tax_liability see samuel v commissioner tcmemo_2007_312 irm pt date petitioners assert that they have no equity in two parcels of real_property in minnesota for which they entered contracts for deed in a letter dated date sent to the settlement officer on petitioners’ behalf hood stated that the parcels were not listed on their form 433-a because petitioners were required to list all real_estate that they own thus petitioners contend that the settlement officer erred by including those two properties to calculate the rcp the settlement officer included the amounts petitioners had already paid on the contracts for deed when calculating the rcp not the assessed value of the real properties the purchase_price of parcel no was dollar_figure and an outstanding balance of dollar_figure remained thus the settlement officer determined petitioners had paid dollar_figure the purchase_price of parcel no was dollar_figure and an outstanding balance of dollar_figure remained thus the settlement officer determined petitioners had paid dollar_figure when these amounts were paid petitioner had outstanding tax_liabilities going back to petitioners have offered no evidence contradicting the reasonable assumptions of the settlement officer we conclude that it was not an abuse_of_discretion for the settlement officer to include the amounts petitioners had paid on the parcels of real_property with executed contracts for deed when calculating the rcp we need not address the arguments of the parties about whether petitioners had an equity_interest in the parcels because the settlement officer included only the amounts paid and not the assessed values of the parcels appeals_office impartiality requirement finally petitioners argue that the cdp hearing failed to satisfy the impartiality requirements under sec_6330 petitioners base their argument on the referral to the irs office_of_professional_responsibility of a letter written by hood to the settlement officer the letter was intemperate and was reasonably perceived as possibly threatening we are unpersuaded that the referral was an inappropriate or excessive response or that the ultimate determination to reject petitioners’ oics was affected by counsel’s letter or the referral based on it for purposes of sec_6330 an impartial officer is one who has had no prior involvement with respect to the unpaid tax specified in subsection a a before the first hearing under this section or sec_6320 see perez v commissioner tcmemo_2002_274 petitioners have presented no evidence that either the settlement officer or the appeals team manager was involved in their cases before the first hearing under sec_6330 we conclude that the sec_6330 impartiality requirement was satisfied ultimately the issue in this proceeding is whether there was an abuse_of_discretion when the appeals_office refused petitioners’ requested collection alternatives and subsequently determined that the proposed levy should proceed the settlement officer followed applicable procedures in considering petitioners’ request for a collection alternative and rejection of the oics was not arbitrary capricious or without sound basis further the appeals team manager did not act in an arbitrary or capricious way or in an unlawful or unreasonable manner in sustaining respondent’s proposed collection action and accordingly did not abuse his discretion in sum we conclude that there was no abuse_of_discretion by the appeals_office in rejecting the oics and in sustaining the levy in reaching our decisions we have considered all arguments made by the parties to the extent not mentioned or addressed they are irrelevant or without merit to reflect the foregoing decisions will be entered for respondent


o f f i c e o f t h e c h i e f c o u n s e l department of the treasury i n t e r n a l r e v e n u e s e r v i c e w a s h i n g t o n d c date cc ita conex-125638-15 number release date uil the honorable dave loebsack member u s house of representative sec_125 south dubuque street iowa city ia attention dear representative loebsack i am responding to your letter dated date written on behalf of your constituent -------------------------- concerning certain medicaid waiver payments and its impact on her federal_income_tax returns for and later years she contacted your office about the application of notice_2014_7 ---------------------- ---------------- filed an amended tax_return to exclude from income payments described in notice_2014_7 notice_2014_7 provides that certain medicaid waiver payments are excludable from the gross_income of an individual care provider as difficulty_of_care_payments under sec_131 of the internal_revenue_code the text of the notice is available at www irs gov irb 2014-4_irb ar06 html questions and answers on the notice are available at www irs gov individuals certain-medicaid-waiver- payments-may-be-excludable-from-income amended_return shows negative adjusted_gross_income she asks ----------------- how this negative_amount would affect her tax_liability for other tax years we note that her original and amended returns show an ira deduction of the maximum amount for the year that reduces her adjusted_gross_income a taxpayer’s ira deduction from gross_income may be limited by the amount of the taxpayer’s taxable compensation thus it appears that because reduced her taxable compensation by payments described in the notice she should also have reduced her ira deduction from gross_income if she had reduced her ira deduction her amended_return would have shown a positive amount for adjusted_gross_income --------------- conex-125638-15 further it appears that she has made excess_contributions to her ira for for which she may have an ongoing excise_tax liability see publication 590-a contributions to individual_retirement_arrangements iras formerly part of publication individual_retirement_arrangements iras forms and publications for prior years are available on the irs’s website www irs gov notice_2014_7 allows a taxpayer to amend a return for a tax_year before to exclude payments described in the notice but a taxpayer may choose not to amend an earlier tax year’s return to exclude those payments if a taxpayer chooses to amend an earlier tax year’s return to claim a refund the amended_return must be filed within certain time limits generally years from the time the original return was filed or years from the date the tax was paid whichever period ends later in deciding whether to amend her and federal_income_tax returns to exclude from income payments described in the notice must reduce an ira deduction from gross_income and whether excluding those payments from taxable compensation would result in excess_contributions to her ira for the year thus for example she may choose not to amend her and tax returns to exclude payments described in the notice from income because of the effect the exclusion would have on her allowable ira contributions and her ira deduction as well as her tax_liability should consider whether she --------------- i hope this information is helpful if you have any questions please contact me or --------------------- identification_number --------------------- ----------------- at sincerely michael j montemurro chief branch office of associate chief_counsel income_tax accounting


t c summary opinion united_states tax_court mary ellen lepordo petitioner v commissioner of internal revenue respondent docket no 12911-06s filed date mary ellen lepordo pro_se louise r forbes for respondent dean special_trial_judge this case was heard pursuant to the provisions of sec_7463 of the internal_revenue_code in effect when the petition was filed pursuant to sec_7463 the decision to be entered is not reviewable by any other court and this opinion shall not be treated as precedent for any other case unless otherwise indicated subsequent section references are to the internal_revenue_code as amended and all rule references are to the tax_court rules_of_practice and procedure this case arises from requests for innocent spouse relief under sec_6015 with respect to petitioner’s tax_liabilities for and through no notices of deficiency were issued except for petitioner filed forms request for innocent spouse relief and separation of liability and equitable relief seeking equitable relief under sec_6015 for each year respondent determined that petitioner was not entitled to relief under sec_6015 for and with respect to petitioner requested relief of dollar_figure respondent granted partial relief of dollar_figure under sec_6015 but found petitioner liable for dollar_figure the issues for decision are whether respondent correctly denied relief as to the dollar_figure under sec_6015 for and abused his discretion when he denied petitioner’s request for innocent spouse relief for and through under sec_6015 petitioner and mr lepordo did not file a petition with the court and respondent assessed the dollar_figure deficiency respondent represents that he determined that petitioner did not have knowledge of mr lepordo’s gambling income and pension distributions in background some of the facts have been stipulated and are so found the stipulation of facts and the exhibits received into evidence are incorporated herein by reference at the time the petition was filed petitioner resided in somerville massachusetts petitioner is a high school graduate who was employed in clerical positions during the years at issue petitioner and joseph j lepordo filed a joint form_1040 u s individual_income_tax_return for each of the years at issue the federal_income_tax returns for and showed tax due in excess of the remittances for and the federal_income_tax returns were filed without remittances for the tax reported with respect to respondent determined a dollar_figure deficiency in the notice_of_deficiency mailed to petitioner and mr lepordo on date the deficiency was assessed when they failed to file a petition with the court the taxable years and the tax due for each year are summarized as follows year tax before credits dollar_figure big_number big_number big_number big_number big_number on date the internal_revenue_service irs issued to petitioner and mr lepordo a notice_of_intent_to_levy with respect to on date petitioner and mr lepordo submitted an offer-in-compromise that was rejected on date mr lepordo subsequently passed away on date thereafter petitioner submitted an offer-in- compromise for dollar_figure that was rejected on date apparently petitioner’s second offer-in-compromise for dollar_figure was never received and the irs cannot find its related paperwork after petitioner’s offers-in-compromise were rejected or went unanswered petitioner’s deceased spouse’s tax preparer advised her to seek innocent spouse relief petitioner filed forms on date seeking equitable relief under sec_6015 for and through on date respondent issued his preliminary determinations respondent denied relief for because petitioner’s request for relief was untimely since it was received more than years after the first collection activity the first collection activity a notice_of_intent_to_levy occurred date and petitioner’s request was received on date respondent denied petitioner’s requests for the years and because she did not satisfy the criteria for relief evidently the preliminary determination s for and which also cannot be found denied relief for and for the same reasons petitioner appealed the preliminary determinations by submitting forms statement of disagreement on date the appeals_office without any further explanation issued a final_determination that sustained the preliminary determinations with respect to and the final_determination granted partial relief of dollar_figure under sec_6015 with respect to but found petitioner liable for dollar_figure thereafter petitioner timely filed a petition for redetermination with the court discussion burden_of_proof except as otherwise provided in sec_6015 petitioner bears the burden_of_proof with respect to her entitlement to innocent spouse relief see rule a 119_tc_306 affd 101_fedappx_34 6th cir joint_and_several_liability and sec_6015 relief sec_6013 provides that if a joint_return is filed the tax is computed on the taxpayers’ aggregate income and liability for the resulting tax is joint_and_several see also sec_1_6013-4 income_tax regs but the irs may relieve a taxpayer from joint_and_several_liability under sec_6015 in certain circumstances sec_6015 relief for taxpayers no longer married legally_separated or not living together although petitioner stated in her request for relief that she was seeking relief under sec_6015 with respect to an underpayment for each year respondent’s final_determination granted partial relief of dollar_figure with respect to the deficiency under sec_6015 and found petitioner liable for dollar_figure accordingly the court reviews respondent’s determination pursuant to sec_6015 sec_6015 provides proportionate relief for any deficiency that was assessed if a joint_return was filed and at the time the election was made the spouses were no longer married they were legally_separated or they had lived apart for the 12-month_period ending on the date the election was filed generally the individual may elect to be treated as if separate returns were filed and liability is limited to that portion of the deficiency that is properly allocable to the electing spouse see sec_6015 d the electing spouse bears the burden of proving the amount of the deficiency that is allocable to him except in limited circumstances sec_6015 if the irs proves that the electing spouse had actual knowledge at the time he signed the return of any item giving rise to the deficiency and the item was allocable to the nonelecting spouse then the election is invalid with respect to the portion of the deficiency that is attributable to the item see sec_6015 sec_1_6015-3 income_tax regs the knowledge standard for purposes of sec_6015 is an actual and clear awareness of the existence of the item giving rise to the deficiency or the portion thereof see 115_tc_183 affd 282_f3d_326 5th cir the knowledge standard does not require the requesting spouse to possess actual knowledge of the tax consequences arising from the item giving rise to the deficiency see id see also 292_f3d_800 d c cir affg tcmemo_2000_332 121_tc_73 for petitioner and mr lepordo submitted to respondent a signed form_1040 that omitted all income deductions and tax computations attached to the return was a form_w-2 wage and tax statement for mr lepordo from signature flight support showing wages of dollar_figure and a form_w-2 for petitioner from harvard vanguard medical associates showing wages of dollar_figure with their tax_return and attached forms petitioner and mr lepordo enclosed a dollar_figure check and a letter signed by petitioner and mr lepordo stating that a form_w-2 was missing and requesting that the irs compute their taxes sec_1_6015-0 through income_tax regs are applicable for all elections under sec_6015 filed on or after date sec_1_6015-9 income_tax regs respondent examined petitioner’s and mr lepordo’s form_1040 and made three adjustments to income a total wages of dollar_figure dollar_figure dollar_figure b dollar_figure in taxable pension and annuity income received by mr lepordo and c dollar_figure in gambling income received by mr lepordo the adjustments resulted in a net tax due of dollar_figure as of the date of the notice_of_deficiency consisting of the dollar_figure deficiency determination a dollar_figure accuracy-related_penalty under sec_6662 dollar_figure of interest due and dollar_figure of withholding credits respondent granted petitioner partial relief of dollar_figure determining that she had no knowledge of mr lepordo’s gambling income and pension distributions respondent denied relief as to dollar_figure although it is not clear from the record the court assumes that respondent’s denial of relief was due to a determination to allocate petitioner’s salary to her and to ascribe to petitioner actual knowledge of mr lepordo’s salary because of the form_w-2 enclosed with the letter and the blank return see sec_6015 c to the extent that this is not so it was petitioner’s burden to establish the portion of the deficiency that was not allocable to her see sec_6015 sec_1_6015-3 income_tax regs stating that the electing spouse has the burden to establish the proper the court assumes that the payment of dollar_figure has been or will be credited to the joint liability allocation and that none of the other limitations apply ie disqualified_asset transfers petitioner did not establish that the irs’s dollar_figure computation was incorrect or that a more favorable calculation was appropriate see sec_1_6015-3 and ii and income_tax regs discussing proportionate allocation the allocation of separate_return items and their effect on the requesting spouse’s liability and alternative allocation_methods therefore petitioner is not entitled to relief under sec_6015 with respect to the dollar_figure for which respondent found her liable accordingly respondent’s determination with respect to the dollar_figure for under sec_6015 is sustained sec_6015 equitable relief the irs may relieve an individual from joint_and_several_liability under sec_6015 if taking into account all the facts and circumstances it is inequitable to hold the taxpayer whether petitioner qualifies for sec_6015 relief with respect to the dollar_figure is discussed below see 121_tc_73 applying revproc_2000_15 the taxpayer received partial relief under sec_6015 and the court went on to review the disallowed portion under sec_6015 capehart v commissioner tcmemo_2004_268 same affd 204_fedappx_618 9th cir rowe v commissioner tcmemo_2001_325 same cf baumann v commissioner tcmemo_2005_31 applying revproc_2003_61 the irs determined that the taxpayer did not qualify for relief under sec_6015 because of her actual knowledge of the item but allowed partial relief under sec_6015 liable for any unpaid tax or deficiency and he does not qualify for relief under sec_6015 or c the court reviews the irs’s denial of innocent spouse relief under sec_6015 for abuse_of_discretion see 114_tc_276 under the abuse_of_discretion standard the court must determine whether the irs exercised its discretion arbitrarily capriciously or without sound basis in fact when it denied the requested relief id the court’s review is limited and the court cannot substitute its judgment for that of the irs and determine whether in the court’s opinion it would have granted relief see 116_tc_206 collectors training inst inc v united_states aftr 2d ustc par big_number at big_number n d ill stating that an abuse_of_discretion ‘means something more than’ the court’s belief that it would ‘have acted differently if placed in the circumstances confronting the’ appeals officer quoting 280_f3d_1125 7th cir to guide irs employees in exercising their discretion the commissioner has issued revenue procedures that list the factors they should consider the court also uses the factors when reviewing the irs’s denial of relief see 120_tc_137 revproc_2003_61 2003_2_cb_296 modifying and superseding revproc_2000_15 2000_1_cb_447 revproc_2003_61 sec_4 seven threshold conditions for relief revproc_2003_61 sec_4 c b pincite begins with a list of seven threshold conditions that a taxpayer must satisfy in order to qualify for relief under sec_6015 the court will not recite them all with respect to petitioner fails the third requirement ie the requesting spouse must apply for relief no later than years after the date of the irs’s first collection activity after date see revproc_2003_61 sec_4 c b pincite cf sec_1_6015-5 income_tax regs defining the term collection activity to include a sec_6330 notice which is also defined as the notice the irs sends to taxpayers informing them of the irs’s intent to levy and their right to request a hearing respondent entered into evidence a form_4340 certificate of assessments payments and other specified matters which shows that the irs sent to petitioner a notice of the irs’s intent to levy and her right to request a hearing on date petitioner’s form_8857 was received by the irs on date because the form_8857 was received after the expiration of the year period the court concludes that the irs did not abuse its discretion when it denied relief for accordingly respondent’s determination for is sustained with respect to taxable years through respondent agrees that the irs determined that petitioner satisfied the threshold requirements of revproc_2003_61 sec_4 revproc_2003_61 sec_4 circumstances ordinarily qualifying for relief where the requesting spouse satisfies the threshold conditions of revproc_2003_61 sec_4 revproc_2003_61 sec_4 c b pincite sets forth the circumstances in which the irs will ordinarily grant relief under sec_6015 with respect to the underpayment of a properly reported liability to qualify for relief under revproc_2003_61 sec_4 the requesting spouse must no longer be married to be legally_separated from or not have been a member of the same household as the nonelecting spouse at any time during the 12-month_period ending on the date of the request for relief have had no knowledge or reason to know when she signed the return that the nonelecting spouse would not pay the tax_liability and suffer economic hardship if relief is not granted see revproc_2003_61 sec_4 c b pincite petitioner’s husband passed away on date and petitioner’s request for relief was received on date condition is satisfied the preliminary determination for and states that petitioner’s reliance on mr lepordo to take care of the tax matters did not establish a reasonable belief that the taxes would be paid at the time she signed the returns the fact that mr lepordo did not have enough taxes withheld did not support relief she had knowledge of the unpaid balances when she signed the returns she did not establish that mr lepordo was financially responsible she did not establish that mr lepordo took responsibility for any portion of the unpaid taxes and she did not establish that mr lepordo had the funds available or a specific payment plan at the time she signed the returns the preliminary determination s for and is not in the record the final_determination merely states that the irs was granting partial relief for but there is no explanation as to the irs’s reasons for denying relief petitioner testified that she was not involved in the preparation of the returns that she just gave her forms w-2 to mr lepordo and his tax guy did everything petitioner also testified that she knew that partial payments were submitted for some years while no payments were submitted in other years petitioner testified further that she told mr lepordo that the taxes had to be paid but he told me not to worry about it that he’ll take care of it on her form questionnaire for requesting spouse petitioner claimed that she was not allowed to question mr lepordo or the return preparer and that she had no knowledge about how the moneys from the unpaid taxes were spent with respect to their financial matters petitioner testified that she had access to their joint account but she did not pay any bills however petitioner’s form stated that mostly my husband wrote the checks and if any checks were written mr lepordo had to approve them the court notes however that with the return petitioner signed a document that stated i enclosed a dollar_figure check and any moneys left over from this check may be applied to my previous year’s balance still owed and although the return is no longer in issue petitioner submitted a similar handwritten statement please find enclosed a check in the amount of dollar_figure towards the money we owe thank you mary ellen lepordo in view of petitioner’s testimony that she knew at the time she signed the returns that their returns were submitted with either partial or no payments and of the other evidence in the record the court finds that she had both actual and constructive the court also notes that because petitioner filed a separate_return for she knew that she did not have to file a joint tax_return with mr lepordo because the court finds that this factor favors respondent on other grounds the court need not decide whether that circumstance would also weigh against relief knowledge at the time she signed the returns that the tax_liabilities would not be paid therefore the court finds for respondent on this element and need not discuss the third element accordingly the irs did not abuse its discretion by denying relief under revproc_2003_61 sec_4 with respect to and revproc_2003_61 sec_4 other factors where the requesting spouse fails to qualify for relief under revproc_2003_61 sec_4 the irs may nevertheless grant relief under revproc_2003_61 sec_4 revproc_2003_61 sec_4 c b pincite contains a nonexhaustive list of factors that the irs will consider and weigh when determining whether to grant equitable relief under sec_6015 the factors and the court’s analysis with respect to each factor are described below marital status the irs will take into consideration whether the requesting spouse is separated or divorced from the nonelecting spouse revproc_2003_61 sec_4 a i c b pincite mr lepordo passed away well over a year before petitioner’s request for relief therefore the court concludes that this factor weighs in favor of relief see banderas v commissioner tcmemo_2007_129 finding that this factor weighed in favor of relief under similar facts economic hardship the irs will also take into consideration whether the requesting spouse will suffer economic hardship if the relief is not granted revproc_2003_61 sec_4 a ii c b pincite generally economic hardship exists if collection of the tax_liability will cause a taxpayer to be unable to pay reasonable basic living_expenses see butner v commissioner tcmemo_2007_136 petitioner must prove that the expenses qualify and that they are reasonable see monsour v commissioner tcmemo_2004_190 at trial petitioner testified that she cannot afford to pay the liabilities petitioner’s form shows that her monthly expenses dollar_figure exceed her net wages dollar_figure by dollar_figure petitioner’s forms state that her current income barely allows her to stay ahead of her bills and because of increases in rent and utilities it will be very difficult if not impossible to meet the irs demands in a document attached to her form petitioner stated i cannot take on this burden myself and i am trying to figure out how i’m going to make it with just one income to the extent that there are determination letters in the record the letters fail to set forth the irs’s conclusions with respect to this factor respondent did not raise any issue as to this factor at trial the court finds however that petitioner has not met her burden petitioner did not introduce into evidence her financial records ie current salary living_expenses and amounts of other debts which are necessary to support her claim that she will be unable to pay reasonable basic living_expenses if relief is not granted substantiation was particularly necessary in view of petitioner’s assertion that her expenses exceeded her income as well as the large amount of expenses claimed ie dollar_figure for food and dollar_figure for utilities moreover petitioner remains gainfully_employed and has only one child whom she helps attend school therefore this factor weighs against relief see banderas v commissioner supra stating that lack of economic hardship weighs against relief under rev_proc cf butner v commissioner supra stating same under rev_proc knowledge or reason to know a properly reported but not paid liability the irs will also consider whether the requesting spouse did not know or had no reason to know that the nonelecting spouse would not pay the liability revproc_2003_61 sec_4 a iii a c b pincite in the case of a properly reported but unpaid liability the relevant knowledge is whether the taxpayer knew or had reason to know when the return was signed that the tax would not be paid see washington v commissioner t c pincite see also feldman v commissioner tcmemo_2003_201 affd 152_fedappx_622 9th cir petitioner must establish that at the time she signed the return for each of the years at issue she had no knowledge or reason to know that the tax reported on each return would not be paid and it was reasonable for her to believe that mr lepordo would pay the tax reported on each return see ogonoski v commissioner tcmemo_2004_52 collier v commissioner tcmemo_2002_144 the court has found for respondent on this factor therefore this factor weighs against relief see beatty v commissioner tcmemo_2007_167 applying revproc_2003_61 and finding that knowledge or reason to know weighs against relief fox v commissioner tcmemo_2006_22 same cf levy v commissioner tcmemo_2005_92 applying revproc_2000_15 and stating that lack of knowledge weighs in favor of relief while knowledge or reason to know weighs against relief knowledge or reason to know items giving rise to the dollar_figure portion of the deficiency with respect to a liability that arises from a deficiency the irs will consider whether the requesting spouse did not know or had no reason to know of the items giving rise to the deficiency revproc_2003_61 sec_4 a iii b c b pincite if the electing spouse had actual knowledge of the item giving rise to the deficiency then that knowledge is a strong factor weighing against relief see id to the extent that the dollar_figure portion of the deficiency consists of the income mr lepordo received from signature flight support the court finds that petitioner had actual knowledge of the item since she knew of his employment relationship therewith the amount of the income and his receipt of the income on account of the form_w-2 enclosed with their return see cheshire v commissioner t c pincite finding that the taxpayer had actual knowledge because she knew about the nature of the income the amount and her spouse’s receipt thereof mitchell v commissioner tcmemo_2000_332 stating same to the extent that the dollar_figure portion of the deficiency consists of other items petitioner failed to show that she had no knowledge or reason to know of the items giving rise to the deficiency accordingly this factor weighs against relief nonelecting spouse’s legal_obligation the irs will also consider whether the nonelecting spouse has a legal_obligation to pay the outstanding income_tax_liability pursuant to a divorce decree or agreement see revproc_2003_61 sec_4 a iv c b pincite but if the requesting spouse knew or had reason to know at the time the agreement was entered into that the liability would not be paid_by the nonelecting spouse then this factor will not weigh in favor of relief id there is no evidence of a divorce decree or agreement in the record showing that the unpaid taxes were the legal_obligation of mr lepordo therefore this factor is neutral see magee v commissioner tcmemo_2005_263 applying rev_proc cf butner v commissioner tcmemo_2007_136 applying rev_proc significant benefit the irs will consider whether the requesting spouse received significant benefit beyond normal support as a result of the unpaid tax_liability or the item giving rise to the deficiency revproc_2003_61 sec_4 a v c b pincite respondent represents that there is no indication that petitioner received any significant benefit beyond normal support because of the unpaid tax_liabilities or the item giving rise to the deficiency in the preliminary determination denying relief for and no issue was raised as to whether petitioner had received any significant benefit the final_determination fails to make a conclusion as to this factor and the preliminary determination s for and is not in the record additionally there is no evidence in the record indicating that petitioner received significant benefit as a result of the unpaid tax therefore the court concludes that this factor weighs in favor of relief see magee v commissioner supra stating that lack of significant benefit weighed in favor of relief under rev_proc cf butner v commissioner supra stating that lack of significant benefit weighed in favor of relief under former sec_6013 notwithstanding that revproc_2000_15 stated that it was neutral ferrarese v commissioner tcmemo_2002_249 compliance with federal tax laws the irs will take into consideration whether the requesting spouse has made a good_faith effort to comply with the federal tax laws in the succeeding years see revproc_2003_61 sec_4 a vi c b pincite respondent agrees that petitioner has complied with the federal tax laws since her husband’s death therefore this factor weighs in favor of relief see fox v commissioner supra stating that noncompliance weighs against relief under rev_proc see also beatty v commissioner supra stating that one delinquently filed return which showed a refund due and the other facts and circumstances were not significant factors weighing against relief in that case and the commissioner argued that the compliance factor weighed in favor of relief under rev_proc cf butner v commissioner supra stating that noncompliance weighs against relief under rev_proc abuse the irs will also consider whether the nonelecting spouse abused the electing spouse see revproc_2003_61 sec_4 b i c b pincite the presence of abuse is a factor favoring relief and a history of abuse may mitigate the electing spouse’s knowledge or reason to know id with respect to the abuse factor on form petitioner merely stated if controlling is abuse then yes but on forms petitioner contended that her deceased husband inflicted abuse on her and was very controlling at trial however she testified that she was not physically abused the preliminary determination for and only states that documentation was not provided to consider an abusive situation or duress the preliminary determination s for and is not in the record the final_determination merely states that it was sustaining the denial and granting partial relief for but there is no explanation whatsoever as to the irs’s reasons for denying relief petitioner’s claim of abuse is merely conclusory she points to no specific incidents or threats at or near the time she signed the return see in re hinckley bankr bankr m d fla additionally petitioner’s testimony at trial contradicts the allegations of abuse on her forms on the other hand the irs’s administrative record with respect to the abuse factor is scant at best because of the lack of sufficient evidence of abuse in the record as well as the court’s concern that mr lepordo is not available to defend himself against the abuse allegations or to otherwise verify them the court finds that the abuse factor is neutral see revproc_2003_61 sec_4 b i stating that the presence of abuse weighs in favor of relief while lack of abuse does not weigh against relief see also magee v commissioner tcmemo_2005_263 stating that lack of abuse is a neutral factor under rev_proc cf butner v commissioner supra stating same under rev_proc additionally the court finds that because of the lack of evidence of abuse in the record this factor does not mitigate petitioner’s knowledge or reason to know mental or physical health the irs will take into consideration whether the electing spouse was in poor mental or physical health on the date the electing spouse signed the return or at the time relief was requested see revproc_2003_61 sec_4 b ii c b pincite there is no evidence in the record that petitioner’s mental or physical health was poor therefore this is a neutral factor see id see also magee v commissioner supra conclusion weight of the factors although the decision is close the court concludes that the appeals officer did not act arbitrarily capriciously or without sound basis in fact nor is there anything fundamentally wrong with the irs’s determination see johnson v j b hunt transp inc f 3d pincite consequently the court concludes that respondent’s denial of relief with respect to through was not an abuse_of_discretion and that it would not be inequitable to hold petitioner liable for the unpaid taxes and the dollar_figure portion of the deficiency with respect to to reflect the foregoing decision will be entered for respondent