t c memo united_states tax_court ruthe g ohrman petitioner v commissioner of internal revenue respondent docket no filed date steven b hval for petitioner nhi t luu-sanders for respondent memorandum findings_of_fact and opinion cohen judge this proceeding was commenced under sec_6015 for review of respondent’s determination that petitioner is not entitled to relief from joint_and_several_liability for with respect to a joint_return filed with steven f ohrman mr ohrman the issues for decision are whether petitioner is eligible for relief from joint_and_several_liability under sec_6015 whether petitioner is liable under sec_6015 to the extent she received disqualified assets notwithstanding a valid election under sec_6015 and whether respondent abused his discretion in denying petitioner’s request for relief from joint_and_several_liability under sec_6015 unless otherwise indicated all section references are to the internal_revenue_code in effect for the year in issue all dollar amounts have been rounded to the nearest dollar findings_of_fact some of the facts have been stipulated and the stipulated facts are incorporated in our findings by this reference at the time the petition in this case was filed petitioner resided in portland oregon background petitioner and mr ohrman were married in seattle washington on date on date petitioner and mr ohrman purchased a personal_residence on birdshill road in portland oregon birdshill residence at the time of trial in date petitioner wa sec_53 years old and mr ohrman wa sec_56 years old petitioner attended college for at least years and worked towards a teaching degree but she did not graduate from to petitioner worked as a lending officer at two large banks while working as a lending officer petitioner dealt with real_estate agents and reviewed mortgage loan applications petitioner became a full-time homemaker when her grandniece alexa moved into her home in mr ohrman has worked for spicers paper inc spicers paper in gresham oregon as its regional manager for the portland oregon and seattle washington divisions for several years including as of the time of trial mr ohrman’s salary was dollar_figure per year and his take-home pay was approximately dollar_figure per month mr ohrman’s gambling addiction mr ohrman has an admitted gambling addiction petitioner first became aware of mr ohrman’s gambling in in mr ohrman enrolled in project stop the state of oregon gambling treatment center to seek treatment for his gambling addiction petitioner participated in project stop’s significant other program to support mr ohrman while participating in project stop mr ohrman revealed to petitioner that he had accrued approximately dollar_figure in outstanding gambling debts on various joint credit cards held in mr ohrman’s and petitioner’s names mr ohrman graduated from project stop on date and received a certificate of achievement during the project stop program petitioner was advised to block mr ohrman’s ability to obtain money pursuant to this advice petitioner took control of the family finances in petitioner wrote checks to pay the bills reviewed monthly bank statements and maintained a file drawer in the birdshill residence where she kept the family’s financial records in addition petitioner removed mr ohrman’s name from their joint checking account at u s bank u s bank checking account as well as from their joint money market savings account at u s bank petitioner also obtained quarterly credit reports under her name to check for inquiries and new credit during petitioner however did not remove mr ohrman’s name from either the dollar_figure home equity line of credit held by petitioner and mr ohrman with wells fargo bank wells fargo home equity line of credit or the joint checking account petitioner and mr ohrman maintained at key bank in seattle after she took control of the family finances petitioner had mr ohrman’s wages from spicers paper deposited directly into her u s bank checking account during petitioner was the only authorized signer on the u s bank checking account and mr ohrman had no access to this account mr ohrman’s wages provided the only income source from which petitioner paid her family’s ongoing living_expenses including mr ohrman’s pre-1998 gambling debts despite petitioner’s efforts mr ohrman’s gambling addiction persisted through mr ohrman’s early_withdrawals from his retirement account during mr ohrman was the owner of an individual_retirement_account ira at dean witter reynolds dean witter account the dean witter account was a rollover account set up by petitioner and mr ohrman in petitioner was present with mr ohrman when the dean witter account was established thereafter petitioner maintained a file for the dean witter account and placed the monthly account statements into a notebook as of date the dean witter account had a total asset value of dollar_figure petitioner was the designated_beneficiary of the dean witter account but her written consent was not required to make an early withdrawal petitioner was aware of how much money was in the dean witter account in and and she believed there was approximately dollar_figure in the account at one point in because of the size of the dean witter account petitioner solicited promises from mr ohrman before and during that he would not use any of the funds in the dean witter account for gambling despite his promises to petitioner mr ohrman withdrew dollar_figure in early distributions from the dean witter account in separate transactions from march to date to fund his gambling addiction petitioner neither knew about nor consented to these early distributions nor did petitioner sign any of the ira distribution request forms mr ohrman was the only person who endorsed the distribution checks statements for the months of march april may june july and date for the dean witter account were received at the birdshill residence these monthly statements showed that withdrawals totaling dollar_figure were taken from the dean witter account in the following amounts march dollar_figure april dollar_figure may dollar_figure june dollar_figure july dollar_figure and august dollar_figure in date mr ohrman changed the address on the dean witter account statements from the birdshill residence to his work address at spicers paper consequently the monthly statements for september october november and date for the dean witter account were sent to mr ohrman’s work address mr ohrman opened an individual checking account at wells fargo bank wells fargo checking account prior to date and he used this checking account throughout in connection with his gambling mr ohrman opened the wells fargo checking account without petitioner’s knowledge or consent mr ohrman also obtained credit cards in his name alone after graduating from project stop these credit cards were used to fund his gambling addiction and were not known to petitioner until date the early_withdrawals taken by mr ohrman from the dean witter account during were used at least in part to pay down the gambling debt attributable to these credit cards on date petitioner and mr ohrman filed a joint federal_income_tax return joint return form_1040 u s individual_income_tax_return and attachments petitioner prepared the joint return on her home computer using turbo tax a tax preparation program although two forms 1099-r distributions from pensions annuities retirement or profit- sharing plans iras insurance contracts etc for were sent to mr ohrman at the birdshill residence--one indicating a gross distribution and taxable_amount of dollar_figure from the dean witter account and the other indicating a gross distribution and taxable_amount of dollar_figure from the dean witter account--the dollar_figure in distributions withdrawn by mr ohrman from his dean witter account was not reported on the joint return filed by petitioner and mr ohrman the dollar_figure withdrawn by mr ohrman from the dean witter account was taxable_income the omission of which from the joint return resulted in an understatement_of_tax attributable to an erroneous item of mr ohrman at the time petitioner signed the joint return she did not have actual knowledge of the early distributions from the dean witter account on date respondent issued a letter of proposed changes to petitioner’s and mr ohrman’s reported tax_liability for this letter proposed that petitioner and mr ohrman owed an additional dollar_figure consisting of dollar_figure in deficiency dollar_figure in accuracy-related_penalty and dollar_figure in interest for the letter of proposed changes was received by petitioner at the birdshill residence in early date within a few days after receiving respondent’s letter of proposed changes petitioner confronted mr ohrman and learned of the early distributions from the dean witter account legal_separation proceedings and transfer of assets within week after receipt of respondent’s letter of proposed changes petitioner met with laura rackner rackner an attorney in portland who specializes in divorce and family law for advice during this meeting petitioner told rackner that she received respondent’s letter of proposed changes for in addition petitioner told rackner that mr ohrman was a compulsive gambler and that she wanted to be protected from his gambling-related debt rackner informed petitioner that there was a possibility that she could obtain relief from joint_and_several_liability for the tax_deficiency after hearing rackner’s advice petitioner told rackner that she wanted a financial separation from mr ohrman accordingly petitioner provided assets and liabilities information to rackner including the value of the birdshill residence and the value of the funds in mr ohrman’s dean witter account and in hi sec_401 retirement account on date petitioner filed for a legal_separation from mr ohrman in clackamas county oregon circuit_court on date petitioner and mr ohrman signed a stipulated judgment for unlimited separation separation agreement and mr ohrman conveyed his interest in the birdshill residence to petitioner rackner drafted the separation agreement for petitioner on date circuit_court judge patrick d gilroy signed the separation agreement in the matter of ohrman v ohrman case no dr0106592 mr ohrman was not represented at any point during the proceedings for legal_separation upon execution of the separation agreement mr ohrman conveyed to petitioner his interest in the birdshill residence petitioner also received ownership of a lexus automobile the dean witter account and a k retirement account that had been held in mr ohrman’s name in addition mr ohrman was required to pay to petitioner spousal support as follows dollar_figure per month commencing on date until the birdshill residence was sold and the sales transaction was completed dollar_figure per month for months thereafter dollar_figure per month for months thereafter and then dollar_figure per month indefinitely pursuant to the separation agreement mr ohrman has been required to maintain medical dental and hospital insurance on petitioner he has also been required to maintain life_insurance through his employer and through transamerica with petitioner as beneficiary additionally mr ohrman was required to pay defend indemnify and hold harmless petitioner for specified credit cards held in his name in addition to all other credit cards loans debts notes encumbrances credit lines equity lines or other financial obligations in his name with the exception of an alaska airlines visa account finally mr ohrman agreed to pay defend indemnify and hold petitioner harmless from any claim made by any taxing agency arising out of tax returns previously filed by the parties mr ohrman shall be liable indemnify and hold petitioner harmless from the tax_liabilities resulting for and mr ohrman shall be responsible for communicating with the taxing agencies and do all that is necessary to protect petitioner from the tax obligation excluding the right to spousal support insurance coverages and the lexus petitioner received assets with an approximate fair_market_value of dollar_figure under the separation agreement the fair_market_value of the birdshill residence as of date was approximately dollar_figure the true and actual stated consideration in the bargain and sale deed transferring mr ohrman’s interest in the birdshill residence to petitioner was dollar_figure the k retirement account had a value of dollar_figure on date the dean witter account had a value of dollar_figure on date under the separation agreement mr ohrman retained only his personal belongings which consisted of clothing items stored in the garage of the birdshill residence his tools and a honda automobile petitioner’s and mr ohrman’s relationship after their financial separation although petitioner and mr ohrman were legally_separated as of date they continued to reside together they remained at the birdshill residence until date on date petitioner sold the birdshill residence for dollar_figure petitioner received dollar_figure in proceeds from the sale of the birdshill residence after the sale of the birdshill residence petitioner and mr ohrman rented a room together at a hotel in portland from date through date on date petitioner purchased a new personal_residence on carlton street in portland carlton residence for dollar_figure petitioner made a downpayment of dollar_figure to purchase the carlton residence in petitioner’s uniform residential_loan application_for the purchase of the carlton residence dated date petitioner listed assets with a total value of dollar_figure and reported a net_worth of dollar_figure petitioner and mr ohrman have resided together at the carlton residence from date to at least date in addition to residing together petitioner and mr ohrman have been raising their grandniece alexa together as parents petitioner and mr ohrman were awarded full custody of alexa on date petitioner and mr ohrman have also continued to socialize together as a couple since their legal_separation petitioner has remained in control of the family finances since the legal_separation and has used mr ohrman’s monthly support payments to pay her family’s ongoing living_expenses consisting of the monthly mortgage payment on the carlton residence the utilities the monthly payment due on her alaska airlines visa credit card the house and car insurance premiums and groceries for mr ohrman alexa and herself in addition to making the monthly support payments to petitioner mr ohrman pays at least an additional dollar_figure per month for alexa’s schooling his gambling debt health insurance for petitioner and alexa and life_insurance revenue_agent mcconnell’s examination on date respondent sent a statutory_notice_of_deficiency to petitioner and mr ohrman for in the notice_of_deficiency respondent determined that petitioner and mr ohrman are liable for a deficiency in income_tax of dollar_figure and a sec_6662 accuracy-related_penalty in the amount of dollar_figure on date petitioner timely filed her petition for determination of relief from joint_and_several_liability on a joint_return under sec_6015 c and f in response to the statutory_notice_of_deficiency in date revenue_agent joan mcconnell mcconnell was assigned to examine petitioner’s qualification for relief from joint_and_several_liability under sec_6015 mcconnell interviewed petitioner on date during this interview petitioner told mcconnell that monthly statements for the dean witter account came to the birdshill residence during but she did not open them because they were not addressed to her additionally petitioner explained to mcconnell that she obtained the legal_separation from mr ohrman in order to protect herself financially petitioner also provided to mcconnell a written response to respondent’s innocent spouse questionnaire at this interview and signed it under penalties of perjury mcconnell interviewed mr ohrman on date when questioned during this interview about the transfer of assets to petitioner mr ohrman told mcconnell that the legal_separation and transfer of assets were his ideas and that he did not feel that petitioner should have to pay for his mistakes mcconnell referred to revproc_2000_15 2000_1_cb_447 to determine whether petitioner should be granted equitable relief under sec_6015 for the tax_deficiency based upon her analysis of the facts and circumstances of petitioner’s case mcconnell determined that petitioner did not qualify for equitable relief under sec_6015 mcconnell concluded that petitioner received a transfer of disqualified assets from mr ohrman in addition mcconnell concluded that petitioner had reason to know of at least some of the distributions from the dean witter account opinion generally married taxpayers may elect to file a joint federal_income_tax return sec_6013 after making the election each spouse is jointly and severally liable for the entire tax due for that taxable_year sec_6013 a spouse requesting spouse may however seek relief from joint_and_several_liability by following procedures established in sec_6015 sec_6015 a requesting spouse may request relief from liability under sec_6015 or if eligible may allocate liability according to provisions under sec_6015 sec_6015 if relief is not available under sec_6015 or c an individual may seek equitable relief under sec_6015 sec_6015 analysis sec_6015 provides in pertinent part as follows sec_6015 procedures for relief from liability applicable to all joint filers -- in general --under procedures prescribed by the secretary if-- a a joint_return has been made for a taxable_year b on such return there is an understatement_of_tax attributable to erroneous items of individual filing the joint_return c the other individual filing the joint_return establishes that in signing the return he or she did not know and had no reason to know that there was such understatement d taking into account all the facts and circumstances it is inequitable to hold the other individual liable for the deficiency in tax for such taxable_year attributable to such understatement and e the other individual elects in such form as the secretary may prescribe the benefits of this subsection not later than the date which i sec_2 years after the date the secretary has begun collection activities with respect to the individual making the election then the other individual shall be relieved of liability for tax including interest penalties and other_amounts for such taxable_year to the extent such liability is attributable to such understatement the requirements of sec_6015 are stated in the conjunctive accordingly a failure to meet any one of them prevents a requesting spouse from qualifying for relief offered therein 119_tc_306 there is no dispute that petitioner satisfies subparagraphs a and b of sec_6015 moreover respondent does not argue that petitioner’s election was untimely under sec_6015 respondent contends however that petitioner failed to meet the requirements of subparagraphs c and d of sec_6015 petitioner argues that she has met all of the requirements for equitable relief set forth in sec_6015 and is entitled to relief from joint_and_several_liability for the joint return sec_6015 requires that the requesting spouse establish that in signing the return she did not know and had no reason to know that there was an understatement the parties have stipulated that petitioner did not have actual knowledge of the understatement at the time she signed the joint return in deciding whether petitioner has carried her burden_of_proof in establishing that she had no reason to know of the understatement in the joint return witness credibility is an important consideration see penfield v commissioner tcmemo_2002_ ishizaki v commissioner tcmemo_2001_318 in this case as discussed below various inconsistencies in the assertions of petitioner and mr ohrman undermine the reliability of their generalized assertions that petitioner had no reason to know of the withdrawals from the dean witter account therefore we are not required to accept them see 440_f2d_688 9th cir affg tcmemo_1969_159 petitioner believed that there was approximately dollar_figure in the dean witter account at one point in in an effort to protect this amount she solicited promises from mr ohrman before and during that he would not use any of the funds in the dean witter account for gambling petitioner was aware of how much money was in the dean witter account in and because she was present with mr ohrman when the account was established and had maintained a file for the account’s monthly statements while mr ohrman may have been deceitful in hiding the actual withdrawals from the dean witter account from petitioner the account statements showing these withdrawals were sent to the birdshill residence for the months of march april may june july and date these statements show that withdrawals totaling dollar_figure were taken from the dean witter account during these months mr ohrman changed the address on the dean witter account to his work address in date it is not clear from the testimony or the evidence before us what happened to the dean witter account statements for the months of march april may june july and date petitioner does not account for these six monthly account statements in her written response to respondent’s innocent spouse questionnaire specifically in petitioner’s response to question no of the innocent spouse questionnaire she provided information only as to mr ohrman’s changing the address on the dean witter account statements for the months of september october november and date and his evasiveness about the account statements for those months when mcconnell interviewed petitioner on date she inquired as to the dean witter account statements for the months of march through date petitioner told mcconnell that monthly statements for the dean witter account came to the birdshill residence during but she did not open them because they were not addressed to her when questioned at trial however petitioner was not so forthcoming with an explanation as to what happened to the dean witter account statements for the months of march through date petitioner testified that she could not remember getting any statements during for the dean witter account at the birdshill residence therefore when examined in their totality petitioner’s response on the innocent spouse questionnaire her response to mcconnell during their interview of date regarding the delivery of the dean witter account statements to the birdshill residence during and her response at trial about these statements are vague inconsistent and evasive mr ohrman also provided testimony as to what happened to the dean witter account statements for the months of march through date mr ohrman testified that he would leave work and chase the mailtruck in order to prevent the dean witter account statements from reaching the birdshill residence he also testified that when petitioner asked about the dean witter account statements he would show her statements that he had doctored up in order to hide his withdrawals from the dean witter account when asked about the whereabouts of these doctored up statements on cross-examination however mr ohrman acknowledged that neither he nor petitioner had provided them and that they were thrown away by him or petitioner the dean witter account statements were not the only source of information indicating that mr ohrman had taken the early_withdrawals during two forms 1099-r for were also sent to the birdshill residence--one indicating a gross distribution and taxable_amount of dollar_figure from the dean witter account and the other indicating a gross distribution and taxable_amount of dollar_figure from the dean witter account on the innocent spouse questionnaire petitioner stated that the two forms 1099-r were sent to mr ohrman’s work address this statement is inconsistent with the address clearly shown on both forms 1099-r petitioner is a fairly well-educated individual who had gained experience with financial matters as a result of her years of employment as a lending officer with two large banks petitioner took complete control of her family’s finances in as a result of mr ohrman’s gambling addiction was aware of the existence and magnitude of the dean witter account and prepared the joint return by herself a reasonable person in petitioner’s position would have been put on notice by mr ohrman’s evasion and deception with respect to the dean witter account statements petitioner was well aware of the extent of mr ohrman’s past gambling and that he needed access to money in order to continue gambling even though petitioner had knowledge of these facts she did not keep close watch over the dean witter account although petitioner also suffered difficult personal circumstances during she was able to retain control of other aspects of the family finances therefore when we consider the entire record of this case we conclude that petitioner has not established that she had no reason to know of the understatement when she signed the joint return we also conclude that petitioner has not satisfied the requirements of subparagraph d of sec_6015 taking into account all the facts and circumstances of petitioner’s case it is not inequitable to hold her liable for the tax_deficiency because the tax-avoidance purpose of the separation agreement is apparent from the evidence first a proposed tax_liability of nearly dollar_figure prompted petitioner to meet with rackner for advice in early date second petitioner told rackner about the proposed tax_deficiency during this meeting and rackner informed her that relief from joint_and_several_liability might be available third with the knowledge that relief from joint_and_several_liability might be available to her petitioner instructed rackner to draft the separation agreement whereby she would be financially separated from mr ohrman fourth pursuant to this separation agreement petitioner received approximately dollar_figure in assets that had previously been held in mr ohrman’s name along with spousal support amounting to at least dollar_figure per month for a minimum period of months leaving mr ohrman stripped of nearly all of his assets and monthly income finally petitioner and mr ohrman have continued their marital relationship since their legal_separation was finalized in date and have continued to use mr ohrman’s income to pay the family’s ongoing living_expenses in doyle v commissioner tcmemo_2003_96 we denied a taxpayer relief from joint_and_several_liability under sec_6015 because she and her family had engaged in a systematic plan to put their assets beyond the reach of respondent’s legitimate collection activities similarly in pierce v commissioner tcmemo_2003_188 we denied a taxpayer relief under sec_6015 when the object of a series of transactions entered into by the taxpayer was to shield assets from creditors which ultimately included respondent in both cases we concluded that granting relief to taxpayers in such circumstances would wrongfully permit them to shield themselves from federal tax_liabilities by using sec_6015 in this case petitioner has presented no credible nontax reason for the transfer of assets pursuant to the separation agreement mr ohrman’s gambling addiction long known to her did not cause a legal_separation petitioner reacted to that situation by taking practical control of the family finances these circumstances lead us to the ultimate conclusion that petitioner obtained a legal_separation in order to shield as many assets and as much of the family’s income as possible from the tax_deficiency furthermore it is not inequitable to hold petitioner liable for the tax_deficiency because she would not suffer a major financial hardship as a result petitioner holds assets that she could use to pay the tax_deficiency in addition her family’s living_expenses are all paid from mr ohrman’s earnings therefore although her circumstances may be unfortunate they do not compel relief from joint_and_several tax_liability under sec_6015 sec_6015 analysis because petitioner cannot avoid liability for the deficiency arising from the joint return under sec_6015 we now turn our attention to her claim for relief from joint_and_several_liability under sec_6015 sec_6015 allows a taxpayer who is eligible and so elects to limit his or her liability to the portion of a deficiency that is properly allocable to the taxpayer as provided in sec_6015 sec_6015 under sec_6015 generally any items that give rise to a deficiency on a joint_return eg the unreported early distributions from the dean witter account shall be allocated to the individual filing the return in the same manner as it would have been allocated if the individual had filed a separate_return for the taxable_year a taxpayer is eligible to elect the application of sec_6015 if at the time the election is filed the taxpayer is legally_separated from the individual with whom the taxpayer filed the joint_return to which the election relates sec_6015 furthermore the election under sec_6015 must not be made later than years after the date on which respondent has begun collection activities with respect to the taxpayer making the election sec_6015 respondent does not contend that petitioner’s election under sec_6015 was untimely therefore petitioner is eligible to elect the application of sec_6015 to limit her liability for the tax_deficiency the issue with which we are faced in this case however deals with the application of sec_6015 to the transfer of assets from mr ohrman to petitioner pursuant to the separation agreement specifically we must decide whether the amount of the tax_deficiency for which petitioner can be held liable under sec_6015 may be increased as a result of a transfer of disqualified assets under sec_6015 under sec_6015 the portion of the deficiency for which the taxpayer electing the application of sec_6015 is liable without regard to sec_6015 is increased by the value of any disqualified_asset transferred to the taxpayer the term disqualified_asset means any property or right to property transferred to the taxpayer making the election under sec_6015 ie petitioner by the other individual filing such joint_return ie mr ohrman if the principal purpose of the transfer was the avoidance of tax or payment of tax sec_6015 under sec_6015 there is a presumption that any asset transfer that occurs after the date that i sec_1 year before the first letter of proposed deficiency is sent by respondent has as its principal purpose the avoidance of tax or payment of tax the letter of proposed deficiency allows the taxpayer an opportunity for administrative review in the internal_revenue_service office of appeals sec_6015 this presumption however does not apply to any transfer made pursuant to a decree of divorce or separate_maintenance or a written instrument incident to such a decree sec_6015 see also sec_71 explaining that the term divorce_or_separation_instrument means a written_separation_agreement consequently this presumption is not applicable in this case because the transfer of assets from mr ohrman to petitioner took place pursuant to a written_separation_agreement respondent argues that the burden_of_proof under sec_6015 is on petitioner because of the language of sec_6015 and caselaw interpreting sec_6015 conversely petitioner contends that respondent has the burden_of_proof because of the language of sec_1_6015-3 income_tax regs and the legislative_history of sec_6015 we need not resolve this dispute however because the preponderance_of_the_evidence establishes that the principal purpose of the transfer was the avoidance of tax respondent contends that the facts of this case show that petitioner and mr ohrman intentionally and purposely obtained a legal_separation and transferred assets in an attempt to shield these assets from respondent’s effort to collect the tax_deficiency petitioner primarily argues that because the transfer of assets from mr ohrman to petitioner took place pursuant to the equitable distribution rules of oregon family law the transfer did not have as its principal purpose the avoidance of tax or payment of tax for the reasons set forth below respondent’s argument is persuasive on this matter petitioner’s use of state family law as a vehicle to lend legitimacy to mr ohrman’s transfer of assets and income to her is the type of abuse that congress expressly intended to stop by adding paragraph to sec_6015 while the state of oregon’s equitable distribution rules provided the mechanism for the transfer of mr ohrman’s assets and income to petitioner they do not negate the principal purpose for which the transfer occurred the avoidance of tax as discussed in detail above the separation agreement was a way for petitioner to enjoy the benefits of the family assets and income without satisfying the tax_deficiency accordingly we hold that petitioner received a transfer of disqualified assets under sec_6015 the next step in the sec_6015 analysis is to decide the amount by which petitioner’s liability for the tax_deficiency should be increased because of the transfer of disqualified assets under sec_6015 the portion of the deficiency for which petitioner is liable is increased by the value of the disqualified assets that were transferred to her in this case petitioner’s portion of the tax_deficiency would have been zero absent the transfer of disqualified assets because of her eligibility to make an election to limit her liability under sec_6015 the value of the disqualified assets petitioner received however far exceeds petitioner’s liability for the tax_deficiency consequently her election under sec_6015 does not allow her to avoid liability for those taxes sec_6015 analysis sec_6015 provides an additional opportunity for relief to those taxpayers who do not otherwise meet the requirements of subsection b or c of sec_6015 specifically sec_6015 gives respondent the discretion to grant equitable relief from joint_and_several_liability if taking into account all the facts and circumstances it is inequitable to hold the individual liable for any unpaid tax we have jurisdiction to review respondent’s denial of petitioner’s request for equitable relief under sec_6015 118_tc_106 114_tc_276 we review such denial of relief to decide whether respondent abused his discretion by acting arbitrarily capriciously or without sound basis in fact jonson v commissioner supra pincite butler v commissioner supra pincite the review of respondent’s denial of petitioner’s request for relief under sec_6015 is a question of fact 115_tc_183 affd 282_f3d_326 5th cir petitioner bears the burden of proving that respondent abused his discretion 120_tc_137 see also 119_tc_306 except as otherwise provided in sec_6015 petitioner bears the burden_of_proof jonson v commissioner supra pincite same as directed by sec_6015 respondent has prescribed procedures to use in determining whether a relief-seeking spouse qualifies for relief under sec_6015 at the time that petitioner filed her petition for determination of relief from joint_and_several_liability on a joint_return date those procedures were found in revproc_2000_15 2000_1_cb_447 section dollar_figure of revproc_2000_15 c b pincite lists seven threshold conditions that must be satisfied before respondent will consider a request for relief under sec_6015 the threshold conditions are as follows the requesting spouse filed a joint_return for the taxable_year for which relief is sought relief is not available to the requesting spouse under section b or c the requesting spouse applies for relief no later than two years after the date of the service’s first collection activity after date with respect to the requesting spouse the liability remains unpaid no assets were transferred between the spouses filing the joint_return as part of a fraudulent scheme by such spouses there were no disqualified assets transferred to the requesting spouse by the nonrequesting spouse if there were disqualified assets transferred to the requesting spouse by the nonrequesting spouse relief will be available only to the extent that the liability exceeds the value of such disqualified assets for this purpose the term disqualified_asset has such meaning given such term by sec_6015 and the requesting spouse did not file the return with fraudulent intent id a requesting spouse must satisfy all seven threshold conditions before respondent will consider his or her request for equitable relief under sec_6015 id we have upheld the use of these procedures in reviewing a negative determination see washington v commissioner supra pincite jonson v commissioner supra pincite respondent denied petitioner’s request for equitable relief under sec_6015 because she did not meet all seven of the threshold conditions listed above specifically respondent concluded that petitioner received a transfer of disqualified assets from mr ohrman in violation of the sixth condition of revproc_2000_15 sec_4 respondent reached this conclusion by considering the time line of events beginning with petitioner’s receipt of the date letter of proposed changes to petitioner’s and mr ohrman’s reported tax_liability for the transfer of assets from mr ohrman to petitioner pursuant to the separation agreement and statements made by petitioner and mr ohrman during their separate interviews with respondent petitioner maintains that she did not receive a transfer of disqualified assets thus petitioner argues that she has satisfied the threshold requirements of revproc_2000_15 sec_4 because we decided that petitioner received a transfer of disqualified assets from mr ohrman we conclude that petitioner does not meet all seven of the threshold conditions of revproc_2000_15 sec_4 accordingly we conclude that respondent did not abuse his discretion by acting arbitrarily capriciously or without sound basis in fact in denying petitioner’s request for equitable relief under sec_6015 conclusion we hold that respondent did not err in denying petitioner relief from joint_and_several_liability under sec_6015 with respect to the joint_return filed with mr ohrman for we have considered the arguments of the parties not specifically addressed in this opinion those arguments are either without merit or irrelevant to our decision to reflect the foregoing decision will be entered for respondent


t c memo united_states tax_court gary lee colvin petitioner v commissioner of internal revenue respondent docket no filed date r disallowed a majority of p’s claimed business_expense deductions for due to a lack of substantiation and determined a deficiency r mailed the notice_of_deficiency to four separate addresses each notice was returned to r p claimed that he was a statutory_employee pursuant to sec_3121 i r c for held the notice_of_deficiency is valid as petitioner received actual notice of the deficiency without prejudicial delay and filed timely a petition held further p was not a statutory_employee for held further the majority of r’s deficiency determinations are sustained p failed to meet the substantiation requirements of sec_162 i r c and where applicable sec_274 i r c for most of the deductions or portions thereof that r disallowed gary lee colvin pro_se daniel n price for respondent memorandum findings_of_fact and opinion wherry judge this case is before the court on a petition for judicial review of a notice_of_deficiency that determined a dollar_figure deficiency for petitioner’s taxable_year after concessions by both parties the issues for decision are 1unless otherwise indicated all section references are to the internal_revenue_code in effect for the year in issue and all rule references are to the tax_court rules_of_practice and procedure 2petitioner received a form_w-2 wage and tax statement from technology integration group tig which reflected that he received wages of dollar_figure in petitioner also received a w-2 from daou systems inc daou systems which reflected that he received an dollar_figure settlement in petitioner included the dollar_figure on line of his schedule c profit or loss from business however petitioner then took deductions that exactly matched his income from tig and daou systems petitioner deducted dollar_figure and dollar_figure on part v other expenses of his schedule c respondent disallowed the deductions petitioner did not address these issues at trial or offer any evidence relating to them accordingly these deductions are deemed conceded by petitioner see rule burden_of_proof generally on taxpayer rule b party’s failure to produce evidence in support of issue of fact as to which party has burden_of_proof may be ground for determination of issue against that party respondent conceded that petitioner is entitled to the following schedule c line deductions for his taxable_year district_court appeal costs for colvin v o’conn70_f3d_530 9th cir in the amount of dollar_figure central valley reporters transcripts costs in the amount of dollar_figure and legal fees and costs for colvin v daou sys inc no 97-cv- continued whether the notice_of_deficiency is valid whether petitioner was a statutory_employee of technology integration group tig for his taxable_year whether petitioner is entitled to a deduction of dollar_figure for automobile expenses he incurred in whether petitioner is entitled to a deduction of dollar_figure for loan interest that he allegedly paid to his mother in whether petitioner is entitled to a deduction of dollar_figure for fees he allegedly paid to his mother for accounting tax preparation and representation services performed in whether petitioner is entitled to dollar_figure for cost_of_goods_sold in whether petitioner is entitled to a deduction for dollar_figure in legal fees and costs incurred in findings_of_fact some of the facts have been stipulated and are so found the stipulations of the parties with accompanying exhibits are incorporated herein by this reference at the time the petition was filed petitioner resided in round rock texas continued s d cal filed date in the amount of dollar_figure petitioner conceded that if it is ultimately determined that the tax_court has jurisdiction over the instant case then dollar_figure that petitioner claimed as attorney fees for colvin v pennant village homeowners_association no 96-cv-01654 s d cal filed date on schedule a itemized_deductions as a miscellaneous expense is a nondeductible personal_expense during petitioner was a computer hardware salesperson for tig petitioner signed a formal offer of employment on date to indicate his acceptance of employment an employment and commission agreement employment agreement between tig and petitioner was executed by petitioner on date petitioner initialed the lower right corner of every page on a space entitled employee and signed the last page of the agreement the employment agreement provides in pertinent part employment employer engages employee to serve a sec_1 an account executive and employee hereby accepts such an engagement upon the terms and conditions set forth herein term this agreement is for an initial period of one year but is terminable by either party with or without cause at any time with or without notice this agreement will continue to govern the employment relationship for additional one year terms unless a new agreement is negotiated and executed duties employee shall perform such duties as are customarily performed by an account executive and such 3petitioner in the joint stipulation objected to the admission into evidence of exhibit 26-r the unemployment agreement and related employment documents from tig on the grounds of lack of foundation hearsay fed r evid petitioner lacks personal knowledge of their creation and respondent has failed to identify the individual who allegedly created the documents respondent obtained the documents from tig pursuant to a subpoena duces tecum the court concludes that exhibit 26-r does not lack foundation the documents are business records some bear petitioner’s signature or initials and are admissible the court concludes that the documents are complete petitioner’s remaining arguments are meritless accordingly exhibit 26-r is admissible other duties as the president of employer president may require from time to time with the understanding that i employee will devote his her utmost knowledge and best skill to the performance of his her duties ii employee will devote his her full business time to the rendition of such services and iii employee will not engage in any other gainful occupation which requires his her personal attention without prior consent of the president at-will employment employee and employer understand and expressly agree that employee’s employment may be terminated by employer or by employee at any time with or without notice and with or without cause employee and employer expressly agree that this provision is intended by employee and by employer to be the complete and final expression of their understanding regarding the terms and conditions under which employee’s employment may be terminated employee and employer further understand and agree that no representation contrary to this provision is valid and that this provision may not be augmented contradicted or modified in any way except by a writing signed by employee and by the president personnel policies and procedures the employer shall have the authority to establish from time to time personnel policies and procedures to be followed by its employees employee agrees to comply with the policies and procedures of the employer to the extent any provisions in employer’s personnel policies and procedures differ with the terms of this agreement the terms of this agreement shall apply in no case shall any personnel policies or procedures be deemed to contradict the at-will employment provision contained in paragraph of this agreement commission plan employee is employed by employer to engage in the sale of computer-related equipment and computer service contracts employee will not engage in the actual provision of technical services under the service contracts that employee will sell employee will be paid on a commission basis pursuant to the following commission plan draw during the first four months of employment under this agreement employee will receive a non-recoverable draw on commission in the amount of dollar_figure per month draw in months five and six employee will receive a non- recoverable monthly draw of dollar_figure subsequent to the 6th month draw will be recoverable month to month which amount shall be paid in biweekly installments during the course of employer’s regular payroll periods draw record employer shall maintain a record of all draws taken by employee for the purposes of recouping draws from commissions as they are earned by employee draw record monthly gross_income calculations at or around the 15th day of each month employer shall determine the amount of gross_profit on paid invoices generated from employee’s sales in the previous calendar month employee will be allocated a commission amount equal to of such gross_profit amount gross commission recoupment of draws after employer determines employee’s gross commission employer shall deduct from such gross commission all amounts due and owing to the employer for draws taken by employee net commission any balance remaining after the deduction of the draws and other applicable payroll deductions from the gross commission shall be paid to employee at the commission payroll_period net commission draws exceeding gross commission if employee’s draws as reflected in the draw record exceed employee’s gross commission employee agrees that employer shall be entitled to deduct as much of the amount due in draws from the gross commission as possible in addition employee agrees that any balance remaining in employee’s draw record will be carried over into subsequent months until employee’s gross commission has satisfied such balance unauthorized expenses employees will not be entitled to reimbursement for expenses that are not previously authorized in writing by the president of employer fringe_benefits health insurance the employer shall provide health insurance pursuant to the existing company health insurance plan automobile employee shall at his her own expense procure an automobile for any use in traveling and making calls on clients and prospective clients employee agrees to indemnify and hold employer harmless from any claims arising out of or relating in any way to the operation or use of that automobile by employee furthermore employee shall at all times during the term of his her employment keep in full force and effect at his her sole expense a policy of automobile insurance on each automobile used by him her at any time to carry out any of the duties of his her employment reproduced literally petitioner did not enroll in tig’s medical plan petitioner his girlfriend kathleen santoni ms santoni and their two minor children were covered by ms santoni’s costco medical insurance petitioner did not participate in tig’s sec_401 plan petitioner listed his address on his form_1040 u s individual_income_tax_return as erlanger street san diego ca san diego address on his form_1040 4a handwritten notation to this provision added a vice president or the before president 5petitioner in the joint stipulation objected to the admission into evidence of his federal_income_tax return because of the non-redaction of his and third parties’ social continued schedule c profit or loss from business petitioner listed consultant as his principal business or profession and colvin business services ii as the name of his business petitioner reported his gross_receipts or sales as dollar_figure and did not check the box on line of his schedule c to indicate that the income was reported on a form_w-2 wage and tax statement that had the statutory_employee box checked on petitioner’s form_w-2 tig did not check the box on line to indicate that petitioner was a statutory_employee petitioner claimed a total of dollar_figure in expenses and costs of goods sold petitioner’s schedule c indicated a net_loss of dollar_figure petitioner owned two vehicles a volkswagen cabriolet and a honda accord he claimed a car and truck expense of dollar_figure on schedule c of his form_1040 on schedule c part continued security numbers as well as the full names of his minor children and phone numbers petitioner also objected to the admission into evidence of his and federal_income_tax returns on the same grounds and relevancy although the court on date proposed amendments to its rules_of_practice and procedure that would provide in rule for the redaction of social_security numbers and minor children’s names the proposed amendments have not yet been adopted further petitioner has not filed a motion to redact the social_security numbers and minor children’s names or to seal that portion of the record the court concludes that petitioner’s and federal_income_tax returns are admissible in their current form 6petitioner’s total expenses of dollar_figure consisted of dollar_figure in general_expenses dollar_figure in cost_of_goods_sold and dollar_figure for business use of his home iv information on your vehicle petitioner did not complete the section and indicated see stmt petitioner attached a schedule c multiple auto statement under the heading vehicle petitioner listed business miles of big_number under the heading vehicle petitioner listed business miles of big_number for petitioner claimed a schedule c interest_deduction on a loan he entered into with his mother rhoda colvin in the amount of dollar_figure respondent disallowed the entire deduction petitioner presented as substantiation a photocopy of the front of a check issued to his mother in the amount of dollar_figure a handwritten notation on the memo line of the check indicated that the check was for loan repayment other handwritten notations on the top of the check were loan pay int mar mtg and also honda ref dollar_figure toward glc loan of dollar_figure petitioner also claimed as a schedule c deduction dollar_figure in fees he allegedly paid to his mother for accounting services tax preparation and representation petitioner’s and federal tax returns indicate that they were prepared by his mother petitioner presented as substantiation an invoice in the amount of dollar_figure from colvin business services a business conducted by petitioner’s mother to colvin business services ii petitioner’s business the invoice dated date reflects that petitioner paid the invoice with check no on date petitioner’s original bank statements were apparently lost somehow by either petitioner or respondent during the tax examination in lieu of these petitioner presented a self-created computerized register report which petitioner testified is a check register notably however the register report does not reflect check no 6718's ever clearing petitioner’s bank account the court asked petitioner whether the register report included all your checks petitioner’s answer was yes sir anything hitting my bank account during the taxable_year checks numbered and are shown in the register report as cleared on june and date respectively but check no is never mentioned in addition petitioner claimed a schedule c deduction for legal fees and costs in the amount of dollar_figure the parties stipulated as to that item that the only issue still in contention is petitioner’s legal fees of dollar_figure for the case smyth v daou sys inc no 97-cv-02013 s d cal filed date petitioner presented as substantiation a document specifying the amount of the award he received a form_w-2 characterizing the settlement as a bonus the accompanying check from daou systems for dollar_figure dollar_figure less withholding taxes of dollar_figure payable to his attorney michael conger mr conger 7petitioner was employed by daou systems as a senior network systems engineer project manager from date to date petitioner conceded that he was not a statutory_employee as well as his attorney’s statement detailing the expenses and fees incurred and some court documents petitioner claimed on schedule c dollar_figure for cost_of_goods_sold cgs the notice_of_deficiency disallowed dollar_figure of petitioner’s claimed cgs petitioner’s cgs consisted of dollar_figure of computer hardware and dollar_figure of computer_software petitioner provided substantiation for dollar_figure in computer_software receipts and was allowed a software cgs for that amount petitioner’s register report listed computer hardware items and the dates they were purchased which respondent considered when he allowed dollar_figure of petitioner’s claimed hardware items cgs respondent disallowed the balance of the claimed cgs for lack of substantiation and because the items were allegedly used as capital assets and not inventory on his form_1040 petitioner used his san diego address on hi sec_2001 and sec_2002 form sec_1040 petitioner listed candle ridge trail georgetown tx georgetown texas address as his address form_872 consent to extend the time to assess tax for petitioner’s taxable_year was signed by petitioner on 8the cursory revenue agent’s report does not clearly identify which hardware items were disallowed based on the total dollar amount disallowed of dollar_figure dollar_figure total cgs disallowance minus dollar_figure software disallowance it appears the items were 16mb flash for dollar_figure floppy drive for dollar_figure ram zipdrive for dollar_figure and a 56k modem for dollar_figure date and by respondent on date on the designated space for the taxpayer’s address on form_872 petitioner’s georgetown texas address is typed however on one of the copies of this form which was produced by respondent from his records in digital cd format there is a photocopy of a post-it note in the middle with the handwritten notation w muirwood dr phoenix az new address muirwood phoenix address it is not clear from the record when the handwritten notation was added respondent concedes that the record does not indicate how the internal_revenue_service irs was informed of the new address on date respondent received petitioner’s form_2688 application_for additional extension of time to file u s individual_income_tax_return for taxable_year that had listed as his address south creek drive round rock tx round rock texas address petitioner also listed the round rock texas address as his address on his earlier filed form_4868 application_for automatic_extension of time to file u s individual_income_tax_return and on his form_1040 which was mailed on date and received by respondent on date previously respondent had issued a notice_of_deficiency on date for petitioner’s taxable_year showing a deficiency of dollar_figure the record reflects that the notice_of_deficiency was sent to four separate addresses one notice_of_deficiency was addressed to gary l colvin west muirwood drive phoenix az a second similar notice was addressed to gary l colvin unit south creek drive round rock tx dollar_figure a third notice_of_deficiency was addressed to gary l colvin candle ridge trail georgetown tx dollar_figure a fourth notice_of_deficiency was addressed to gary l colvin erlanger street san diego ca dollar_figure all four copies of the notice_of_deficiency were returned to the irs as unclaimed 9the certified envelope containing that notice_of_deficiency had notations reflecting that the u s postal service attempted to deliver the notice to petitioner on june june and had returned the undelivered envelope to the irs on date the envelope also bore stamps of unclaimed internal_revenue_service received jul and day unit laguna niguel 10the certified envelope containing that notice_of_deficiency had a line through the address and bore stamps providing internal_revenue_service received jul and day unit laguna niguel 11the certified envelope containing that notice_of_deficiency had a line through the address notations reflecting that the u s postal service attempted to deliver for a second time the notice to petitioner on date the undeliverable envelope was returned to the irs on date and bore stamps providing internal_revenue_service received aug and day unit laguna niguel 12the certified envelope containing this notice_of_deficiency had a handwritten notation of 2nd return reflecting that the u s postal service attempted to deliver the notice to petitioner on at least one occasion and bore stamps of returned to sender with attempted not known checked internal_revenue_service received jun and day unit laguna niguel petitioner’s request for a copy of the notice_of_deficiency from the irs was received by the taxpayer_advocate_service tas on date a copy of the notice_of_deficiency was provided by the tas in laguna niguel california and was attached to a letter to petitioner dated date the letter was addressed to petitioner’s round rock texas address petitioner petitioned timely this court on date petitioner stated on the petition his requests for relief and his supporting reasons as follows deductions taken for employee mileage allowable as a schedule a deduction deductions taken for business mileage allowable as a schedule c deduction legal fees and costs are allowable as a deductible sic under sec_212 sec_212 sec_216 and sec_262 further commissioner acted in violation of multiple sections of title_26 usc as well as its own i r c when it deliberately failed to complete its audit of petitioner’s tax_return deliberately failed to consider any of the documents petitioner timely submitted to substantiate his personal employee and business deductions deliberately sent audit correspondence to an address it knew was improper so as to prevent petitioner from exercising his right to an administrative appeal hearing deliberately sent the statutory 90-day notice to an address it knew it was improper thereby denying petitioner proper notice of the alleged deficiency and falsified documents to make it appear notice was proper i burden_of_proof opinion as a general_rule the commissioner’s determination of a taxpayer’s liability is presumed correct and the taxpayer bears the burden of proving that the determination is improper see rule a 290_us_111 however pursuant to sec_7491 the burden_of_proof on factual issues that affect the taxpayer’s tax_liability may be shifted to the commissioner where the taxpayer introduces credible_evidence with respect to such issue the burden will shift only if the taxpayer has inter alia complied with substantiation requirements pursuant to the internal_revenue_code and cooperated with reasonable requests by the secretary for witnesses information documents meetings and interviews sec_7491 in the instant case petitioner failed to comply with substantiation requirements and did not present credible_evidence at trial petitioner’s original bank statements were apparently lost during the tax examination however petitioner’s lack of substantiation and failure to present credible_evidence were pervasive accordingly the burden_of_proof remains on petitioner ii mailing of notice_of_deficiency petitioner argues that this court lacks jurisdiction the two requirements for this court’s jurisdiction in a deficiency case are a valid notice_of_deficiency issued by the commissioner and a timely filed petition by the taxpayer 81_tc_42 because petitioner filed his petition on time the only jurisdictional issue is the validity of the notice_of_deficiency the purpose of the mailing under sec_6212 is to provide the taxpayer with notice that a deficiency has been determined against him or her and to provide the taxpayer with an opportunity to petition this court to challenge the commissioner’s determinationdollar_figure id pincite when a taxpayer receives actual notice of a deficiency and does not suffer prejudicial delay in filing timely a petition with this court the notice_of_deficiency even though incorrectly addressed is valid under sec_6212dollar_figure estate of greenwood v 13petitioner contends that 547_us_220 ruled that the government could not rely solely on an unclaimed certified letter for properly notifying a taxpayer of claimed tax_liabilities petitioner’s contention is mistaken and jones v flowers supra is not applicable to petitioner’s case jones v flowers supra held that according to the fourteenth amendment due process clause the state of arkansas should have taken additional reasonable steps to notify the petitioner of a tax sale of his house after a certified letter was returned unclaimed notably mr jones did not learn of the tax sale until after the sale had occurred whereas in the instant case petitioner obtained a copy of the notice_of_deficiency before the expiration of the 90-day filing period and filed a timely petition 14petitioner alleges that the notice_of_deficiency sent to his round rock texas address was addressed erroneously petitioner alleges that because respondent placed unit before south creek drive in addressing the notice_of_deficiency this caused the us postal service to process the letter as one destined to be delivered to a private mailbox or ‘pmb’ contained within a commercial facility such as a mailboxes etc postnet postal annex and pakmail not the apartment petitioner resided at reproduced literally petitioner asserts that as a result of the misaddressing by respondent the notice_of_deficiency was returned to respondent petitioner also asserts that respondent committed criminal continued commissioner tcmemo_2003_98 citing 235_f3d_886 4th cir affg tcmemo_1996_256 estate of biskis v commissioner tcmemo_2001_94 estate of citrino v commissioner t c memo petitioner had actual notice of the deficiency as he requested and received a copy of the notice_of_deficiency from the irs tas petitioner filed a petition that was timely and therefore did not suffer prejudicial delay accordingly the court concludes that the notice_of_deficiency is valid and this court has jurisdiction iii statutory_employee a general rules a statutory_employee may properly reflect business income and expenses in full on schedule c of form_1040 and thereby avoid the schedule a itemized_deductions limitations on the deduction of employee business_expenses and the phaseout of continued obstruction of justice by intentionally misaddressing the notice_of_deficiency sent to the round rock texas address the court concludes that these allegations are unfounded frivolous and meritless if anything the evidence indicates that respondent by sending four differently addressed notices of deficiency was very interested in ensuring that petitioner received the notice_of_deficiency additionally petitioner alleges that he did not receive a complete copy of the notice_of_deficiency until months after filing his petition however petitioner attached a complete copy of the notice_of_deficiency to his filed petition itemized deductionsdollar_figure see prouty v commissioner tcmemo_2002_175 citing revrul_90_93 c b an individual qualifies as a statutory_employee pursuant to sec_3121 only if such individual is not a common_law_employee pursuant to sec_3121 117_tc_263 sec_3121 defines employee in pertinent part as follows any officer of a corporation or any individual who under the usual common_law rules applicable in determining the employer-employee relationship has the status of an employee or any individual other than an individual who is an employee under paragraph or who performs services for remuneration for any person-- d as a traveling or city salesman other than as an agent-driver or commission- driver engaged upon a full-time basis in the solicitation on behalf of and the transmission to his principal except for side-line sales activities on behalf of some other person of orders from wholesalers retailers contractors or operators of hotels restaurants or other similar establishments for merchandise for resale or supplies for use in their business operations 15generally an employee may deduct unreimbursed employment expenses on schedule a subject_to an overall 2-percent of adjusted_gross_income limitation see sec_62 sec_67 a statutory_employee is not an employee for purposes of sec_62 see sec_3121 prouty v commissioner tcmemo_2002_175 as the court concludes infra that petitioner is not a statutory_employee petitioner’s expenses are subject_to this overall 2-percent of adjusted_gross_income limitation if the contract_of_service contemplates that substantially_all of such services are to be performed personally by such individual except that an individual shall not be included in the term employee under the provisions of this paragraph if such individual has a substantial investment in facilities used in connection with the performance of such services other than in facilities for transportation or if the services are in the nature of a single transaction not part of a continuing relationship with the person for whom the services are performed as an individual qualifies as a statutory_employee only if the individual is not a common_law_employee the court will initially determine whether petitioner was a common_law_employee of tig b common_law_employee whether an individual is an independent_contractor or common_law_employee is a question of fact weber v commissioner 103_tc_378 affd 60_f3d_1104 4th cir in the fifth circuit to which this case would normally be appealable doubtful questions should be resolved in favor of employment 900_f2d_49 5th cir generally petitioner has the burden of proving error in respondent’s notice_of_deficiency determination that he was a common_law_employee see rule a 89_tc_225 affd 862_f2d_751 9th cir however respondent conceded on brief that he bears the burden_of_proof on the statutory_employee issue because it constitutes a new_matter under rule dollar_figure in determining whether a worker is a common_law_employee or an independent_contractor the court generally considers the degree of control exercised by the principal which party invests in work facilities used by the individual the opportunity of the individual for profit or loss whether the principal can discharge the individual whether the work is part of the principal’s regular business the permanency of the relationship the relationship the parties believed they were creating and the provision of employee_benefits see ewens miller inc v commissioner supra pincite weber v commissioner supra pincite profl executive leasing inc v commissioner supra pincite 64_tc_974 cole v commissioner tcmemo_2006_44 all of the facts and circumstances of each case are considered and no single factor is dispositive ewens miller inc v commissioner supra pincite degree of control the right of the principal to exercise control_over the agent whether or not the principal does so is the crucial 16respondent conceded that he bears the burden_of_proof pursuant to rule because the issue of petitioner’s status as a statutory_employee of tig is a new_matter since the notice_of_deficiency frames the issue of petitioner’s schedule c expenses from the perspective of substantiation test for the employer-employee relationship weber v commissioner supra pincite the employment relationship exists when the principal retains the right to direct the manner in which the work is done and to control the methods used in doing the work and to control the details and means by which the desired result is accomplished 55_tc_142 in order to obtain the requisite degree of control the alleged employer need not ‘stand over the employee and direct every move that he makes ’ simpson v commissioner supra pincite citing atl coast life ins col v united_states 76_fsupp_627 e d s c in fact the employer need not set the employee’s hours workers who set their own hours are not necessarily independent contractors ewens miller inc v commissioner supra pincite in his argument that petitioner was a common_law_employee respondent relies predominately on the employment agreement and the tig employee handbook manual employee manual respondent contends that tig controlled the details of petitioner’s work because the employment agreement provides that the employee shall perform such duties as are customarily performed by an account executive and such other duties as the president of employer may require from time to time respondent then asserts based on the employee manual that such duties include tig’s requirement that petitioner attend weekly meetings tig prescribed appropriate dress for petitioner tig specified how its telephones software and company vehicles were to be used respondent also presented as evidence a written warning notice from mr rasmussen petitioner’s supervisor that reprimanded petitioner for argumentative comments made during a lunch-n- learn session with a vendor of tig petitioner contends that he set his own work hours and sales territory defined the manner in which he performed his tasks worked principally from home and was not required to utilize tig’s support staff or attend routine meetings other than his own testimony petitioner did not provide any substantiation of these facts the court concludes that respondent has met his burden_of_proof as to the degree of control that tig exercised over petitioner the documentary_evidence that respondent presented indicates that tig had the right to control whether or not exercised how petitioner performed his work this is particularly exemplified by the written warning notice issued by mr rasmussen and the employment history it recites accordingly this crucial factor weighs in favor of employee status investment in facilities the fact that a worker provides his or her own tools or owns a vehicle that is utilized for work is indicative of independent_contractor status id pincite citing breaux daigle inc v united_states f 2d pincite additionally maintenance of a home_office is consistent with independent_contractor status although alone it does not constitute sufficient basis for a finding of independent_contractor status lewis v commissioner tcmemo_1993_635 petitioner owned two vehicles and claimed he utilized both for work purposes for although the extent of such use is disputed the employment agreement provided that petitioner was to maintain motor_vehicle insurance at all times and that all other related expenses were his responsibility the record reflects that petitioner worked at least part-time from home petitioner claimed as a schedule c deduction dollar_figure for business use of his home which respondent allowed accordingly the court concludes that this factor tends to weigh in favor of independent_contractor status opportunity for profit or loss compensation on a commission basis is entirely consistent with an employer-employee relationship tex carbonate co v phinney 307_f2d_289 5th cir 186_f2d_943 4th cir while petitioner could have conceivably suffered some loss as a result of his sales activity for tig he may still be an employee under the common_law test if his risk of loss was negligible see lewis v commissioner supra petitioner worked for tig for approximately months in petitioner was paid a nonrecoverable draw in the amount of dollar_figure for the first months and then dollar_figure for the fifth and sixth months thereafter petitioner’s draw was recoverable against his sales commission on a month-to-month basis in petitioner was entitled to a nonrecoverable draw for the entire period he worked therefore petitioner’s risk of loss was negligible if not nil the court concludes that this factor weighs in favor of an employer-employee relationship right to discharge employers typically have the power to terminate employees at will ellison v commissioner supra pincite the employment agreement provided that tig could terminate petitioner at will with or without cause or notice notably tig exercised its termination right accordingly the court concludes that this factor weighs in favor of an employer-employee relationship integral part of business petitioner contends that he was not an integral part of tig’s business petitioner claims that tig was a diverse company with separate divisions that sold the following services computer hardware office furnishings office supplies outside help-desk functions and application service processing petitioner further asserts that tig performed computer training and installed networking cable and telephone systems as a result petitioner argues that he was not a key connection with customers only one of many resources available to them and was therefore not an integral part of tig’s business however the fact that tig had several separate divisions does not affect the analysis of whether petitioner’s services were integral to tig petitioner’s services could have been integral to the division in which he worked which would indicate that petitioner was an employee see ewens miller inc v commissioner t c pincite respondent was silent on the issue the court concludes that this factor is neutral and indicates neither independent_contractor status nor employee status permanency of the relationship a transitory work relationship may weigh in favor of independent_contractor status ewens miller inc v commissioner supra pincite citing 161_f3d_299 5th cir the principal’s right to discharge the worker and the worker’s right to quit at any time is an important factor id petitioner’s position at tig was for renewable 1-year terms it was also at will and terminable by either party at any time with or without cause or notice and petitioner was in fact terminated the court concludes that petitioner’s position was transitory as he worked for tig for less than monthsdollar_figure accordingly this factor weighs in favor of independent_contractor status relationship the parties thought they created the offer and employment agreement refer to workers such as petitioner as employees and to tig as the employer notably tig did not check the box on line of petitioner’s form_w-2 indicating that he was a statutory_employee it is evident that for taxable_year tig thought of petitioner as an employee based on the employment agreement and that tig treated petitioner as a common_law_employee based on forms w-2 and w-4 employee’s withholding allowance certificatedollar_figure thus the court concludes that petitioner and tig intended to create an employer- employee relationship provision of employee_benefits the offer and employment agreement provide that tig employees are eligible to participate in a health insurance plan 17petitioner was terminated on date 18respondent argued on brief that tig had not checked petitioner’s form_w-2 for indicating that he was a statutory_employee in fact the tig form_w-2 for that is attached to petitioner’s stipulated federal tax_return does bear an x in the block on line indicating that for tig’s form_w-2 treated petitioner as a statutory_employee inexplicably the copy of the tig form_w-2 for attached to exhibit 26-r which was also stipulated seems identical to the copy of this form attached to petitioner’ sec_2001 federal tax_return but does not contain the x in the block on line indicating a statutory_employee and a sec_401 plan these are benefits that are typically provided to employees rather than independent contracts see weber v commissioner t c pincite although petitioner did not participate in tig’s health insurance plan because he was covered by his girlfriend’s health insurance and did not participate in tig’s sec_401 plan the benefits were available to him if needed see id accordingly this factor tends to weigh in favor of employee status conclusion the relationship between petitioner and tig had aspects that were characteristic of an employer and employee relationship and others characteristic of a principal and independent_contractor relationship after weighing the above factors the court concludes that petitioner was a common_law_employee of tig for the taxable_year petitioner was a common_law_employee of daou systems during his employment from date to date as a result the settlement he received from daou systems in is related to his common_law employment petitioner claims to have conducted a computer assembly and consulting business computer consulting forum company in as discussed infra petitioner’s lack of gross_sales as well as lack of substantiation leads the court to conclude otherwise c statutory_employee as the court has concluded that petitioner was a common_law_employee of tig for taxable_year petitioner is precluded from being a statutory_employee pursuant to sec_3121 accordingly petitioner is not entitled to deduct expenses on schedule c iv petitioner’s deductions in light of the court’s conclusion that petitioner is not entitled to deduct expenses on schedule c the court must now decide whether petitioner is entitled to deduct expenses_incurred in connection with his employment on schedule a see sec_67 a schedule a deductions an individual performing services as an employee may deduct miscellaneous_itemized_deductions incurred in the performance of services as an employee only to the extent such expenses exceed percent of the individual’s adjusted_gross_income sec_67 b general deduction rules deductions are a matter of legislative grace and the taxpayer bears the burden of proving that he is entitled to any claimed deductions 503_us_79 292_us_435 taxpayers must maintain records relating to their income and expenses and must prove their entitlement to all claimed deductions credits and expenses in controversy see sec_6001 rule a pursuant to sec_162 a taxpayer is entitled to deduct all of the ordinary and necessary business_expenses paid_or_incurred during the taxable_year in carrying_on_a_trade_or_business the deduction for an employed individual’s unreimbursed business_expenses under sec_162 is claimed on form_2106 employee business_expenses and included in the miscellaneous_itemized_deductions taken on form_1040 schedule a expenses_incurred in the performance of services as an employee are to be reported and memorialized as required by the regulations promulgated under sec_162 see sec_1_162-17 income_tax regs the taxpayer bears the burden of proving that the claimed expenses were ordinary and necessary according to sec_162 the employee must show the relationship between the expenditures and the employment see evans v commissioner tcmemo_1974_267 affd in part revd in part 557_f2d_1095 5th cir in certain instances the taxpayer must meet specific substantiation requirements in addition to the requirements of sec_162 see sec_274 generally a claimed expense other than those subjected to heightened scrutiny under sec_274 may be deductible even where the taxpayer is unable to fully substantiate it if there is an evidentiary basis for doing so 39_f2d_540 2d cir 85_tc_731 50_tc_823 affd per curiam 412_f2d_201 2d cir sec_1_274-5t temporary income_tax regs fed reg date in these instances the court is permitted to make as close an approximation of the allowable expense as it can bearing heavily against the taxpayer whose inexactitude is of his or her own making cohan v commissioner supra c automobile mileage pursuant to sec_162 expenses relating to the use of an automobile that a taxpayer pays or incurs while commuting between the taxpayer’s residence and the taxpayer’s place of business or employment are not deductible because such expenses are personal and not business_expenses sec_1_162-2 income_tax regs automobile mileage deductions are also subject_to the strict substantiation requirements of sec_274 where petitioner shows that his automobile expenses satisfy the requirements of sec_162 but fails to establish that his records satisfy the heightened substantiation requirements of sec_274 the expenses will not be allowable sec_274 applies to any traveling expense including meals_and_lodging away from home entertainment amusement and recreational expenses or the use of listed_property as defined in sec_280f including personal computers and passenger automobiles to deduct such expenses the taxpayer must substantiate by adequate_records or sufficient evidence to corroborate the taxpayer’s own testimony the amount of the expenditure or use which includes mileage in the case of automobiles the time and place of the travel entertainment or use its business_purpose and in the case of entertainment the business relationship to the taxpayer of each expenditure or use sec_274 to satisfy the adequate_records requirement of sec_274 a taxpayer must maintain records and documentary_evidence that in combination are sufficient to establish each element of an expenditure or use sec_1_274-5t temporary income_tax regs fed reg date although a contemporaneous log is not required corroborative evidence to support a taxpayer’s reconstruction of the elements of the expenditure or use must have a high degree of probative value to elevate such statement to the level of credibility of a contemporaneous record sec_1_274-5t temporary income_tax regs fed reg date in lieu of substantiating the actual amount of any expenditure relating to the business use of a passenger_automobile a taxpayer may use a standard mileage rate as established by the irs see sec_1_274-5 income_tax regs the standard mileage rate is to be multiplied by the number of business miles traveled the use of the standard mileage rate establishes only the amount deemed expended with respect to the business use of a passenger_automobile id the taxpayer must still establish the amount ie business mileage the time and the business_purpose of each use id petitioner claimed a car and truck deduction of dollar_figure on his schedule c respondent allowed only dollar_figure of the claimed deduction at trial petitioner produced little additional documentation petitioner was unable to identify which of his two vehicles the volkswagen or the honda was vehicle on his schedule c petitioner explained that he arrived at his total mileage figure of big_number by estimation based on his fuel expenditures_for taxable_year divided by the average miles per gallon for his two vehiclesdollar_figure petitioner has failed to meet 19petitioner claims that he spent dollar_figure on gasoline octane in petitioner determined from unspecified public records the average price of gasoline in california for to be between dollar_figure and dollar_figure per gallon petitioner then determined that the average miles per gallon combining street and highway for his two cars was between and miles petitioner took his total gas expense divided it by the average cost of gas per gallon and then multiplied it by the average miles per gallon of his two cars which came to approximately big_number miles traveled petitioner then testified that he assigned approximately big_number miles to personal_use and approximately big_number to business-related use petitioner was required to use a standard mileage rate established by the irs in lieu of establishing the actual amount of his expenditure see sec_1_274-5 income_tax regs the business standard mileage rate for the taxable_year wa sec_32 cents per mile revproc_99_38 1999_2_cb_525 continued the substantiation requirements of sec_274 to establish his automobile mileage accordingly petitioner is allowed a miscellaneous itemized schedule a deduction in the amount of dollar_figure subject_to the overall 2-percent of adjusted_gross_income limitation d loan interest pursuant to sec_163 interest is deductible however personal_interest generally is not deductible sec_163 debt arrangements between family members are subject_to a high level of scrutiny zohoury v commissioner tcmemo_1983_597 the following factors are used to scrutinize intrafamily loans whether a specific rate of interest is charged to the taxpayer for_the_use_of the money whether there is a specific date for repayment whether there is a written instrument evidencing the debt whether there is a legitimate purpose for obtaining the loan whether the taxpayer intended to repay the debt whether the relative receiving the payments on the loan was impecunious and whether the loan has economic_substance id continued petitioner’s big_number claimed business miles multiplied by the business standard mileage rate of cents totals dollar_figure see id secs dollar_figure and c b pincite the court concludes that petitioner’s calculations do not comply with revproc_99_38 1999_2_cb_525 petitioner claimed dollar_figure in interest_expenses on his schedule c for respondent disallowed the entire deduction petitioner’s only substantiation was a copy of a check he had issued to his mother in the amount of dollar_figure notations on the check indicate that the dollar_figure was to be put towards numerous uses including loan payment and interest in the amount of dollar_figure petitioner’s date mortgage in the amount of dollar_figure and a car loan in the amount of dollar_figure at trial petitioner testified that he was unsure how much of the dollar_figure check constituted interest notably petitioner did not have a written loan agreement the loan was based on an oral agreement petitioner’s mother kept records relating to the loan in a written journal those records indicate that petitioner was not held to a strict repayment schedule and that the interest rate fluctuated petitioner has failed to satisfy the requirements to deduct interest on an intrafamily loan accordingly the court sustains respondent’s determination on this issue e accounting fees petitioner claimed dollar_figure in fees he allegedly paid to his mother for accounting services tax preparation and representation on his form_1040 schedule c respondent disallowed the entire deduction the only substantiation petitioner offered was an invoice from his mother’s business that indicated petitioner paid dollar_figure for her services the invoice specifically referenced payment by check no which apparently never cleared petitioner’s bank account petitioner has failed to substantiate his claimed accounting tax preparation and representation fees accordingly the court sustains respondent on this issue petitioner is not entitled to a deduction for accounting fees f cost_of_goods_sold the cost of goods purchased for resale with proper adjustment for opening and closing inventories is deducted from gross_sales in computing gross_income sec_1_162-1 income_tax regs a taxpayer may also deduct the cost of supplies and materials consumed in the operation of his or her business during the taxable_year see sec_1_162-3 income_tax regs petitioner claimed on schedule c dollar_figure for cgs respondent disallowed dollar_figure of petitioner’s cgs petitioner asserted that he purchased the items constituting his cgs for use in his sales activity for tig and then provided substantiation for dollar_figure in computer softwaredollar_figure the remaining items listed as his cgs were allegedly used in his computer assembly and consulting business computer consulting forum company petitioner claimed to have 20petitioner contended that he purchased a palm pilot which he used for appointments that were related to his business petitioner further testified that the palm pilot actually got run over by a car and flattened so it was a total loss that year assembled and sold some computers at cost during the taxable_year although he failed to provide substantiation notably petitioner’s federal tax_return did not report any gross_receipts from the alleged sales the regulations promulgated under sec_162 clearly provide that cgs is deductible from gross_sales petitioner did not report any gross_sales from his computer assembly business petitioner failed to substantiate the cost of materials_and_supplies allegedly used in his computer assembly business further petitioner’s testimony established that he purchased items he believed were cgs such as the palm pilot for use not for resale petitioner has failed to substantiate the cgs disallowed by respondent accordingly the court sustains respondent on this issue petitioner is entitled to dollar_figure in cgs for taxable_year g legal fees generally legal fees are deductible on a schedule c only if the matter with respect to which the fees were incurred originated in the taxpayer’s trade_or_business and only if the claim is sufficiently connected to that business test v commissioner tcmemo_2000_362 citing 372_us_39 affd 49_fedappx_96 9th cir expenses not incurred_in_a_trade_or_business activity but in the production_or_collection_of_income are deductible only as miscellaneous_itemized_deductions on schedule a see sec_67 sec_212 test v commissioner supra it is well established that even though a taxpayer’s employee status may be regarded as a trade_or_business legal fees stemming from a taxpayer’s employee status are not deductible in computing adjusted_gross_income but are to be treated as miscellaneous_itemized_deductions test v commissioner supra the case smyth v daou systems inc no 97-cv-02013 s d cal filed date is related to petitioner’s former employment with daou systems as a result of the litigation petitioner recovered a total of dollar_figure from daou systems which was subject_to_withholding the net amount of dollar_figure was actually paid to petitioner’s attorney mr conger who deducted his legal fees of dollar_figure and paid the remainder to petitioner the court concludes that petitioner is entitled to deduct dollar_figure as a miscellaneous itemized expense on schedule a subject_to the overall 2-percent of adjusted_gross_income limitation the court has considered all of petitioner’s contentions arguments requests and statements to the extent not discussed herein we conclude that they are meritless moot or irrelevant to reflect the foregoing and concessions by both parties decision will be entered under rule


significant index no department of the treasury internal_revenue_service washington d c tax_exempt_and_government_entities_division jul op telat ie this letter is in response to your request with respect to the above-referenced defined benefit pension_plan pursuant to revproc_90_49 for the plan_year commencing date revproc_90_49 sets forth the procedure whereby under_certain circumstances a disallowance of the deduction of employer contributions to a qualified defined benefit pension_plan may be obtained thereby fulfilling a condition under which such contributions could revert to the employer based upon the information submitted we have determined that contributions amounting to ee which were made for the plan_year commencing date may be considered as disallowed to the extent that they are not deductible solely for the purpose of applying revrul_91_4 1991_1_cb_57 therefore the return of contributions not exceeding j would not adversely affect the qualified status of the plan provided this reversion occurs no later than one year from the date of this letter however if it is not returned by your tax filing_date including extensions filed for and granted the tax under sec_4972 would apply in granting this approval we are not expressing any opinion as to the accuracy or acceptability of any calculations or other material submitted with your request this ruling is directed only to the taxpayer that requested it sec_6110 of the internal_revenue_code provides that it may not be used or cited by others as precedent when filing form_5500 for the plan_year commencing date a copy of this letter must be attached to the schedule b actuarial information hence a copy of this letter should be provided to the enrolled_actuary servicing the plan we have sent a copy of this letter to the manager ep classification in manager ep compliance unit in pursuant to a power_of_attorney on file in this office this matter please contact if you require further assistance in and to your authorized representative to the sincerely yours op donna m prestia manager employee_plans actuarial group


internal_revenue_service number release date index numbers ------------------------------------------------------------- -------------- ----------------------------------- ------ -------------------------------- ------------------------------------------------ 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 b03 plr-128817-09 date date legend x --------------------------------------------------------------------------------------------------- --------------------------------------------------------------------------------------------------- ------------------------ country --------------------------------------- date1 -------------------------- date2 -------------------------- dear -------------- this letter responds to a letter dated date and subsequent correspondence submitted on behalf of x by x’s authorized representative requesting an extension of time under sec_301_9100-3 of the procedure and administration regulations to file an election under sec_301_7701-3 to be classified as a disregarded_entity for federal tax purposes facts x was formed under country law on date1 x represents that it is a foreign_entity eligible to elect to be classified as a disregarded_entity for federal tax purposes x intended that it be classified as a disregarded_entity effective date2 however due to inadvertence a valid form_8832 entity classification election to treat x as a disregarded_entity effective date2 was not timely filed plr-128817-09 law and analysis sec_301_7701-3 provides that a business_entity that is not classified as a corporation under sec_301_7701-2 or an eligible_entity can elect its classification for federal tax purposes as provided in sec_301_7701-3 an eligible_entity with a single owner can elect to be classified as an association or to be disregarded as an entity separate from its owner sec_301_7701-3 provides that unless the entity elects otherwise a foreign eligible_entity is a a partnership if it has two or more members and at least one member does not have limited_liability b an association if all members have limited_liability or c disregarded as an entity separate from its owner if it has a single owner that does not have limited_liability sec_301_7701-3 provides that an eligible_entity may elect to be classified other than as provided in sec_301_7701-3 or to change its classification by filing form_8832 with the service_center designated on form_8832 sec_301_7701-3 provides that an election made under sec_301_7701-3 will be effective on the date specified by the entity on form_8832 or on the date filed if no date is specified on the election form the effective date specified on form_8832 can not be more than days prior to the date on which the election is filed and can not be more than months after the date on which the election is filed sec_301_9100-1 provides that the commissioner may grant a reasonable extension of time under the rules set forth in sec_301_9100-2 and sec_301_9100-3 to make a regulatory election or a statutory election but no more than six months except in the case of a taxpayer who is abroad under all subtitles of the code except subtitles e g h and i sec_301_9100-1 defines a regulatory election to include an election whose due_date is prescribed by a regulation published in the federal_register sec_301_9100-2 provides the rules governing automatic extensions of time for making certain elections sec_301_9100-3 provides the standards the commissioner will use to determine whether to grant an extension of time for regulatory elections that do not meet the requirements of sec_301_9100-2 sec_301_9100-3 provides that requests for relief subject_to sec_301_9100-3 will be granted when the taxpayer provides the evidence including affidavits described in sec_301_9100-3 to establish to the satisfaction of the commissioner that the taxpayer acted reasonably and in good_faith and the grant of relief will not prejudice the interests of the government plr-128817-09 conclusion based on the facts submitted and the representations made we conclude that the requirements of sec_301_9100-1 and sec_301_9100-3 have been satisfied as a result x is granted an extension of time of sixty days from the date of this letter to elect to be classified as a disregarded_entity for federal tax purposes effective date2 the election should be made by filing form_8832 with the appropriate service_center a copy of this letter should be attached to the election except as expressly provided herein no opinion is expressed or implied concerning the tax consequences of any aspect of any transaction or item discussed or referenced in this letter this ruling is directed only to the taxpayer requesting it sec_6110 of the code provides that it may not be used or cited as precedent the ruling contained in this letter is based upon information and representations submitted by the taxpayer and accompanied by a penalty of perjury statement executed by an appropriate party while this office has not verified any of the material submitted in support of the ruling_request it is subject_to verification on examination in accordance with the power_of_attorney on file with this office a copy of this letter is being sent to your authorized representative sincerely s curt g wilson associate chief_counsel passthroughs special industries enclosures copy of this letter copy for sec_6110 purposes cc