Court Opinion

ID: 4338914
Source: CourtListenerOpinion
Date Created: 2018-11-14 04:09:00.693902+00
Date Added: 2024-06-11T14:48:25.588189
License: Public Domain

T.C. Memo. 2011-284

                UNITED STATES TAX COURT

            MARY E. HAGGERTY, Petitioner v.
     COMMISSIONER OF INTERNAL REVENUE, Respondent

Docket No. 15589-09.             Filed December 5, 2011.

     P filed a joint Federal income tax return with her
husband (H) for the 2006 tax year. Following H’s
death, P seeks relief from joint and several liability
under sec. 6015(f), I.R.C., with respect to the 2006
tax liability.

     Held: P is not entitled to relief from joint and
several liability pursuant to sec. 6015(f), I.R.C.,
with respect to her 2006 tax year.

John Leeper, for petitioner.

Jeffrey D. Heiderscheit, for respondent.
                                 - 2 -

                MEMORANDUM FINDINGS OF FACT AND OPINION

     WHERRY, Judge:     This case arises from a petition for

judicial review of respondent’s determination denying relief from

joint and several liability under section 6015 for the 2006

taxable year.1    The issue for decision is whether petitioner is

entitled to relief from joint and several liability under section

6015(f) for the 2006 taxable year.

                           FINDINGS OF FACT

         Some of the facts have been stipulated, and the stipulated

facts and the accompanying exhibits are hereby incorporated by

this reference.     At the time she filed her petition, petitioner

resided in Texas.

     Petitioner and Timothy Haggerty (Mr. Haggerty) married in

1968.     Mr. Haggerty unexpectedly passed away on September 13,

2006, and he did not leave a will.

     Petitioner is a licensed vocational nurse and for the last

20 years has worked at Thomas Medical Associates.     Petitioner and

Mr. Haggerty had a tumultuous relationship during which he

verbally abused her.

     Petitioner and Mr. Haggerty used a joint checking account in

which her paycheck was directly deposited by her employer.

     1
      Unless otherwise indicated, all section references are to
the Internal Revenue Code of 1986, as amended, and all Rule
references are to the Tax Court Rules of Practice and Procedure.
                                 - 3 -

Petitioner paid all household bills out of this account.       Twice a

month Mr. Haggerty deposited between $500 and $550 into the joint

checking account.   Petitioner did not know what Mr. Haggerty did

with the rest of his paycheck.    When she inquired, Mr. Haggerty

became angry and told her that it was his money which he used to

pay his bills.   Petitioner explained that Mr. Haggerty “was very

secretive about his money and about you don’t question him.

That’s what he used to tell me.    Don’t question me.”   Mr.

Haggerty liked to gamble.

     On June 29, 1977, petitioner and Mr. Haggerty purchased a

house for $43,500 and paid $15,000 as a downpayment and financed

$28,500 of the purchase price with a 30-year mortgage.

Petitioner made the mortgage payments out of the joint checking

account each month.    On October 21, 2004, petitioner and Mr.

Haggerty took out a second loan against the house of $70,952.

Petitioner did not want the second loan, nor did she directly

benefit from any of its proceeds.    On April 17, 2006, the first

loan against the house was paid off and the first mortgage was

released.

     On July 25, 2006, the second mortgage was paid in full and

the lien against the house was released.    Because Mr. Haggerty

had been making the second mortgage monthly payments, petitioner

did not know until shortly before his death that he had paid off

the second mortgage.    When she confronted Mr. Haggerty about how
                                 - 4 -

he was able to do this, petitioner become distressed when he told

her that he had used a portion of his retirement funds.    Mr.

Haggerty did not ask petitioner’s permission to withdraw part of

his retirement funds, nor did she participate in the decision.

     Mr. Haggerty retired at the end of 2005 but received Form W-

2, Wage and Tax Statement, for 2006 which reported $19,735.93 of

income from the payment for his accumulated leave.    Mr. Haggerty

began receiving distributions from his retirement plan accounts

in 2006 and continued to deposit between $500 and $550 twice a

month into the joint account for household expenses.    Petitioner

did not receive any additional funds from Mr. Haggerty’s

retirement plan distributions.

     After Mr. Haggerty’s death, petitioner became aware of an

account at the Government Employees Credit Union.    She also

learned that Mr. Haggerty owed money to this credit union, which

informed her it would exercise its setoff rights and take the

money from Mr. Haggerty’s account if she did not pay the bill.

Petitioner paid the credit union, and she sent the Internal

Revenue Service the entire balance of this account with her 2006

tax return.   She also became aware of an account at El Paso

Employees Federal Credit Union which no longer had a balance but

showed that a $7,404.65 loan had been repaid on April 6, 2006.

Petitioner received Forms 1099-R, Distributions From Pensions,

Annuities, Retirement or Profit-Sharing Plans, IRAs, Insurance
                                   - 5 -

Contracts, etc., after Mr. Haggerty’s death.       She did not know

what to do with them, found them threatening, and hid them in a

cabinet.

     In early 2007 petitioner gathered all of the documents she

could find and hired an accountant, Michael L. Schmidt of

Schmidt, Nugent, Gano & Co., P.C., to prepare her tax return.

Mr. Schmidt prepared a joint return without asking petitioner how

she wished to file.    Petitioner assumed that was correct because

she had always filed joint returns.        Petitioner became distraught

when Mr. Schmidt informed her how much she owed; she did not know

that she would be liable for $25,343 in tax.       Petitioner signed

and timely filed a joint Form 1040, U.S. Individual Income Tax

Return, for the 2006 tax year, reporting taxable income of:2

                          Source                      Income
           Form W-2 to petitioner, Thomas            $46,105
             Medical Associates
           Form W-2 to Mr. Haggerty, City of El       19,736
             Paso
           Interest                                      165
           IRA distributions                          67,726
           El Paso Firemen’s Pension Fund             20,281
           El Paso Firemen’s Pension Fund             40,835
           ING Life Ins. & Annuity Co.                53,500
           Gambling winnings                           2,900
             Total                                   251,248

     2
      All values have been rounded to the nearest dollar amount.
                                - 6 -

     On the return petitioner reported a tax liability of

$57,636, withholding credits of $28,533, estimated tax payments

of $3,720, and a total tax due of $25,343.    Petitioner included

only $5,300 with the return.    At the time petitioner filed the

return she knew that there was a large amount due and that she

did not have the money to pay it.

     Petitioner filed a Form 8857, Request for Innocent Spouse

Relief, which respondent received on February 19, 2008.    On this

form petitioner stated that “My deceased husband received 1099s

after his death reflecting his pension and annuity income for the

year 2006.   I was shocked when I saw the 1099s because I had no

idea he had received that much money and there wasn’t enough

money to pay the tax.”    On her request petitioner reported

monthly income of $8,682 and monthly expenses of $7,147.    Of this

income $5,350.96 per month comes from Mr. Haggerty’s retirement

plan distributions.

      On March 26, 2009, respondent sent petitioner a final

Appeals determination denying her request for relief from joint

and several liability for the 2006 tax year.    On June 26, 2009,

petitioner filed a timely petition with this Court contesting the

adverse determination.

                               OPINION

     In general, married taxpayers may elect to file a joint

income tax return.    Sec. 6013(a).   A surviving spouse may elect
                                - 7 -

to file a joint return with a deceased spouse for the taxable

year of the deceased spouse’s death.      Sec. 6013(a)(3).   After

making the election, each spouse generally is jointly and

severally liable for the entire Federal income tax liability for

that year, whether as reported on the joint income tax return or

subsequently determined to be due.      Sec. 6013(d)(3); see sec.

1.6013-4(b), Income Tax Regs.   A spouse or former spouse may

petition the Commissioner for relief from joint and several

liability in certain circumstances.      See sec. 6015(a).

     The Commissioner may relieve a spouse or former spouse from

joint and several liability if, taking into account all the facts

and circumstances, it would be inequitable to hold the taxpayer

liable for any unpaid tax or deficiency and relief is not

available to such individual under section 6015(b) or (c).3      Sec.

6015(f).   We have held that the applicable standard of review is

de novo.   Porter v. Commissioner, 132 T.C. 203, 210 (2009).

Petitioner bears the burden of proving that she is entitled to

relief under section 6015(f).   See Rule 142(a).     The Commissioner

has outlined procedures for determining whether a requesting

spouse qualifies for equitable relief under section 6015(f).         See

Rev. Proc. 2003-61, 2003-2 C.B. 296.

     3
      Petitioner seeks relief from a liability she reported on
her return, and therefore she is ineligible for relief under sec.
6015(b) or (c). See Washington v. Commissioner, 120 T.C. 137,
146 (2003).
                               - 8 -

I.    Threshold Conditions

      Rev. Proc. 2003-61, sec. 4.01, 2003-2 C.B. at 297-298, sets

forth seven threshold conditions that must be satisfied before

the Commissioner will consider a request for equitable relief

under section 6015(f).   Respondent concedes that petitioner

satisfies the seven threshold conditions.

II.   Safe Harbor Conditions

      If the threshold conditions are met, the Commissioner

ordinarily will grant equitable relief under section 6015(f) with

respect to an underpayment of income tax reported on a joint

Federal income tax return, provided the following three safe

harbor conditions are satisfied:   (i) On the date of the request

for relief, the requesting spouse is no longer married to, or is

legally separated from, the nonrequesting spouse; (ii) on the

date the requesting spouse signed the joint income tax return,

the requesting spouse did not know, and had no reason to know,

that the nonrequesting spouse would not pay the tax liability;

and (iii) the requesting spouse will suffer economic hardship if

the Commissioner does not grant relief.     Id. sec. 4.02, 2003-2

C.B. at 298.

      On the date that petitioner signed the joint income tax

return, she knew that Mr. Haggerty was deceased and would not pay

the tax liability.   See George v. Commissioner, T.C. Memo. 2004-

261 (holding that the requesting spouse had knowledge that the
                                 - 9 -

nonrequesting spouse would not pay the tax liability because the

nonrequesting spouse was deceased at the time the requesting

spouse filed the joint return showing an amount due).    Therefore

she does not satisfy the second condition.    Accordingly, because

petitioner does not meet all the requirements of the safe harbor,

she does not qualify for relief under Rev. Proc. 2003-61, sec.

4.02.

III. Facts and Circumstances Test

        A requesting spouse, such as petitioner, who satisfies the

threshold conditions but fails to satisfy the safe harbor

conditions under Rev. Proc. 2003-61, sec. 4.02, is nevertheless

eligible for relief under section 6015(f) if, taking into account

all the facts and circumstances, it is inequitable to hold the

requesting spouse liable for an underpayment.     Rev. Proc.

2003-61, sec. 4.03, 2003-2 C.B. at 298-299, lists various

nonexclusive factors to be considered in deciding whether to

grant equitable relief under section 6015(f).     No single factor

is determinative, all factors are to be considered and weighed,

and the list of factors is not intended to be exhaustive.      Id.

The original Appeals officer found four of the following factors

weighed against relief and two weighed for relief.     Our analysis

of the relevant factors and circumstances is as follows.
                                  - 10 -

     A.     Marital Status

     When petitioner requested relief, Mr. Haggerty was deceased.

“We view that circumstance, with respect to petitioner, as

tantamount to her being separated or divorced.      Therefore, we

conclude that that factor is favorable.”       Rosenthal v.

Commissioner, T.C. Memo. 2004-89; see also Capehart v.

Commissioner, T.C. Memo. 2004-268, affd. 204 Fed. Appx. 618 (9th

Cir. 2006); George v. Commissioner, supra.

     We note that the Appeals officer found that this factor

weighed against relief, in direct contradiction with this Court’s

opinions.    At worst petitioner’s widowhood may be a neutral

factor, but we find it completely untenable that this factor

weighs against relief.

     B.     Economic Hardship If Relief Were Denied

     The second factor under Rev. Proc. 2003-61, sec. 4.03, is

whether the requesting spouse will suffer economic hardship if

relief is not granted.       Economic hardship for these purposes is

defined as the inability to pay reasonable basic living expenses

if the requesting spouse is held liable for the tax owed.      See

sec. 301.6343-1(b)(4), Proced. & Admin. Regs.      The ability to pay

reasonable basic living expenses is determined by considering

inter alia the following nonexclusive factors:      The taxpayer’s

age, employment status, ability to earn, and number of

dependents; the amount reasonably necessary for food, clothing,
                               - 11 -

housing, medical expenses, and transportation; and any

extraordinary circumstances.   Id.

     On her request for relief, petitioner reported monthly

income of $8,682 and monthly expenses of $7,147.   Although

petitioner explained that her income was decreasing because new

medical technology made some of her services obsolete, she owns

her own home free and clear of any mortgages and has no

delinquent accounts.   We also note that petitioner included in

her monthly expenses $1,094.03 for “withholding from pension”.

At trial she explained that this was because “I started having a

little bit more taken out of the pension and from my checks, just

so I won’t be in the position of paying taxes to the IRS.”    This

factor weighs against petitioner because we find that she would

not suffer economic hardship if relief was not granted.

     C.   Knowledge or Reason To Know That the Nonrequesting
          Spouse Would Not Pay the Income Tax Liability

     The third factor under Rev. Proc. 2003-61, sec. 4.03, is

whether the requesting spouse did not know and had no reason to

know that the nonrequesting spouse would not pay the income tax

liability.   When determining whether the requesting spouse had

reason to know, among other things, we consider “the requesting

spouse’s degree of involvement in the activity generating the

income tax liability, the requesting spouse’s involvement in

business and household financial matters”.   Rev. Proc. 2003-61,

sec. 4.03(iii)(C).   Petitioner did not know of Mr. Haggerty’s
                               - 12 -

income at the time he received it and was not involved in the

income-generating activity or the expenditure of most of these

funds.    She was, however, benefited by the expenditure of a large

portion of the funds to pay off the second mortgage encumbering

their home on July 26, 2006, shortly before Mr. Haggerty’s death.

     Petitioner knew of the tax liability at the time the return

was filed; therefore, this factor weighs against relief.

     D.    Nonrequesting Spouse’s Legal Obligation To Pay the
           Outstanding Liability

     Because petitioner and Mr. Haggerty never divorced, this

factor is neutral.    Respondent’s Appeals officer found that this

factor weighed against relief.    Customarily we find that this

factor is neutral if it does not weigh in favor of relief.    See

Akopian v. Commissioner, T.C. Memo. 2011-237; Bland v.

Commissioner, T.C. Memo. 2011-8 (this factor was found to be

neutral because the taxpayer was widowed).

     E.     Significant Economic Benefit

     A fifth factor is whether the requesting spouse received a

significant economic benefit from the unpaid income tax liability

in excess of normal support.    Petitioner did receive a

significant economic benefit when Mr. Haggerty paid off the

substantial second mortgage against their home.    She also

receives significant income each month from his remaining

retirement plan distributions.
                                - 13 -

     We note the similarities of this case to Cheshire v.

Commissioner, 115 T.C. 183 (2000), affd. 282 F.3d 326 (5th Cir.

2002).    In Cheshire the requesting spouse’s husband received

retirement plan distributions and used part of the withdrawn

funds to pay off their mortgage of $99,425.    Id. at 185-186.     In

this case, there does not appear to be an underlying attempt to

avoid the tax collector as there was in Cheshire.    We find that

this factor weighs against petitioner.

     F.     Subsequent Compliance With Income Tax Laws

     A sixth factor is whether the requesting spouse made a good-

faith effort to comply with Federal income tax laws in subsequent

years.    At trial petitioner credibly explained that she has

complied with all Federal income tax laws since 2007.    This

factor weighs in favor of petitioner.

     G.     Abuse

     A seventh factor is abuse of the requesting spouse.    Mr.

Haggerty was an imposing man who was secretive about his money.

He occasionally verbally abused petitioner and would get angry if

she ever asked about his money.    Although of concern, there is

not enough evidence to find that this factor weighs in favor of

petitioner.    It is neutral.

     H.     Poor Health When Signing the Return or Requesting
            Relief

     The final factor is whether the requesting spouse was in

poor health when signing the return or requesting relief.    The
                               - 14 -

record does not indicate that petitioner was in poor health when

she signed the 2006 joint income tax return.        Therefore, this

factor is neutral.

IV.   Conclusion

      As indicated by the foregoing analysis, three factors are

neutral.    Two of the factors--marital status and compliance

with Federal income tax laws--favor relief.     Three of the

factors--economic hardship, the more important factor knowledge

or reason to know, and significant benefit--weigh against

relief.    After weighing the testimony and other evidence, we

conclude that petitioner is not entitled to equitable relief

for the tax year at issue.

      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,

                                       Decision will be entered

                                  for respondent.