Court Opinion

ID: 4336476
Source: CourtListenerOpinion
Date Created: 2018-11-14 02:52:33.794336+00
Date Added: 2024-06-11T13:28:56.722600
License: Public Domain

T.C. Summary Opinion 2007-77

                      UNITED STATES TAX COURT

              MARY ELIZABETH CUMINGS, Petitioner v.
          COMMISSIONER OF INTERNAL REVENUE, Respondent

     Docket No. 11623-05S.             Filed May 21, 2007.

     Mary Elizabeth Cumings, pro se.

     Michael W. Lloyd, for respondent.

     MARVEL, Judge:   This case was heard pursuant to the

provisions of section 7463 of the Internal Revenue Code in effect

when the petition was filed.1   Pursuant to section 7463(b), the

decision to be entered is not reviewable by any other court, and

     1
      All subsequent section references are to the Internal
Revenue Code, unless otherwise indicated.
                               - 2 -

this opinion shall not be treated as precedent for any other

case.

     This case arises from a request for relief under section

6015(f) with respect to petitioner’s 2002 taxable year.

Respondent determined petitioner was not entitled to any relief

from joint and several liability under section 6015(f).

Petitioner timely filed a petition seeking review of respondent’s

determination.2   The issue for decision is whether respondent’s

denial of relief under section 6015(f) was an abuse of

discretion.

                            Background

     Some of the facts have been stipulated.   We incorporate the

stipulated facts into our findings by this reference.    Petitioner

resided in Loveland, Colorado, when her petition in this case was

filed.

     2
      Respondent filed a motion to dismiss this case for lack of
jurisdiction in which he contended that the Tax Court did not
have jurisdiction to review respondent’s denial of relief under
sec. 6015(f) in nondeficiency cases. However, in response to an
order to show cause dated Jan. 5, 2007, respondent concedes that
the Tax Relief and Health Care Act of 2006, Pub. L. 109-432, div.
C, sec. 408(a), (c), 120 Stat. 3061, 3062, amended sec.
6015(e)(1) to confer jurisdiction on the Court over stand-alone
requests for equitable relief under sec. 6015(f), effective for
tax liabilities arising or remaining unpaid on or after Dec. 20,
2006, and requests that his motion to dismiss for lack of
jurisdiction be denied. An appropriate order denying the motion
will be issued in accordance with respondent’s request.
                                 - 3 -

     During 2002, petitioner was married to Robert Parker (Mr.

Parker).   In October 2002, petitioner and Mr. Parker separated,

and in 2004 they divorced.

     Mr. Parker was the sole proprietor of two businesses:    Bob’s

Drywall and Parker Custom Homes.    During 2002 petitioner was a

laborer and a bookkeeper for Mr. Parker’s drywall business.

     During their marriage, petitioner and Mr. Parker maintained

a joint checking account from which they both paid household

bills.   Among other things, petitioner made deposits into the

account, wrote checks for household, business, and personal

purposes, reviewed the monthly bank statements, and reconciled

the checkbook.   Petitioner also opened the household mail.   After

petitioner and Mr. Parker separated in October 2002, petitioner’s

access to the joint checking account apparently was restricted.

     Petitioner and Mr. Parker timely filed a joint Federal

income tax return for 2002.   Their return reflected an unpaid

income tax liability of $506.3    The tax liability resulted from

an underpayment of self-employment tax arising from Mr. Parker’s

sole proprietorships.

     3
      The original tax return filed with the Internal Revenue
Service (IRS) did not contain the signature page. Petitioner and
Mr. Parker subsequently filed a document confirming that they had
signed the return.
                                 - 4 -

     Petitioner and Mr. Parker’s 2002 joint return was prepared

by a tax return preparer.   Petitioner compiled the necessary

paperwork and gave it to the preparer.    Petitioner faxed the

completed tax return to Mr. Parker for his signature and mailing.

Petitioner reviewed the return and was aware that there was a

reported unpaid tax liability.    Petitioner and Mr. Parker did not

discuss payment of the tax liability at the time they filed their

return.

     On November 12, 2003, less than 1 month after petitioner and

Mr. Parker filed their return, petitioner filed Form 8857,

Request for Innocent Spouse Relief, and Form 12510, Questionnaire

for Requesting Spouse.   Petitioner requested equitable relief

under section 6015(f).

     On or about May 25, 2004, Tax Examiner M. Wilce (Ms. Wilce)

evaluated petitioner’s request for relief under section 6015(f).

Among other things, Ms. Wilce determined that petitioner had

filed a joint return with Mr. Parker, had filed a timely claim

for relief under section 6015, had not yet paid the outstanding

tax liability for the year in issue, did not prepare a fraudulent

return, did not receive a fraudulent transfer of assets, and did

not receive disqualified assets.    However, Ms. Wilce also

determined that petitioner had received a portion of the income

from which the liability arose and that petitioner was ineligible

for relief to the extent of the partial attribution.    Ms. Wilce
                                - 5 -

did not determine at that time what portion of the underpayment

was attributable to petitioner, but she did conclude that

petitioner was not entitled to relief under section 6015(f).

     On or about July 19, 2004, petitioner appealed Ms. Wilce’s

denial of relief.    On or about March 30, 2005, Appeals Officer

Leslie Hackmeister (Ms. Hackmeister) reviewed petitioner’s

appeal.    In the case memorandum she prepared reflecting her

review, Ms. Hackmeister stated, among other things, that the

underpayment is attributable to Mr. Parker’s self-employment

income.

     On March 30, 2005, respondent issued a Notice of

Determination denying petitioner’s request for relief under

section 6015(f).    On June 24, 2005, a petition contesting

respondent’s determination was filed with this Court.

                              Discussion

     In general, spouses who file a joint Federal income tax

return are jointly and severally liable for the full amount of

the tax liability shown or required to be shown on the return.

Sec. 6013(d)(3); Butler v. Commissioner, 114 T.C. 276, 282

(2000).    However, a spouse may seek relief from joint and several

liability under section 6015 if certain requirements are met.

     In this case petitioner seeks equitable relief under section

6015(f).   Section 6015(f) provides:

          SEC. 6015(f). Equitable Relief.--Under procedures
     prescribed by the Secretary, if--
                               - 6 -

          (1) taking into account all the facts and
     circumstances, it is inequitable to hold the individual
     liable for any unpaid tax or any deficiency (or any
     portion of either); and

          (2) relief is not available to such individual
     under subsection (b) or (c),

     the Secretary may relieve such individual of such
     liability.[4]

     This Court is a court of limited jurisdiction, and it may

exercise its jurisdiction only to the extent authorized by

Congress.   Sec. 7442; Moore v. Commissioner, 114 T.C. 171, 175

(2000); Naftel v. Commissioner, 85 T.C. 527, 529 (1985).     On

December 20, 2006, Congress amended section 6015(e)(1) to provide

that this Court has jurisdiction over stand-alone section 6015(f)

cases.5   Tax Relief and Health Care Act of 2006, Pub. L. 109-432,

div. C, sec. 408(a), (c), 120 Stat. 3061, 3062.6   Respondent

     4
      Because petitioner seeks relief from an underpayment of tax
rather than understatements of tax, relief under subsecs. (b) and
(c) of sec. 6015 is not available to her. Sec. 6015(b) and (c);
see also Washington v. Commissioner, 120 T.C. 137, 145-147
(2003).
     5
      Sec. 408(c) of the Tax Relief and Health Care Act of 2006,
Pub. L. 109-432, div. C, 120 Stat. 3062, provides that “The
amendments made by * * * [sec. 408] shall apply with respect to
liability for taxes arising or remaining unpaid on or after [Dec.
20, 2006].”
     6
      Sec. 6015(e) now provides:

     SEC. 6015(e).    Petition for Review by Tax Court.--

          (1) In general.--In the case of an individual
     against whom a deficiency has been asserted and who
     elects to have subsection (b) or (c) apply, or in the
                                                   (continued...)
                                   - 7 -

concedes that we have jurisdiction over this case under section

6015(e) as amended.

     The Commissioner uses guidelines prescribed in Rev. Proc.

2003-61, 2003-2 C.B. 296, to determine whether a taxpayer

qualifies for relief from joint and several liability under

section 6015(f).7      We review the Commissioner’s determination

using an abuse of discretion standard.      See Washington v.

Commissioner, 120 T.C. 137, 146 (2003); Butler v. Commissioner,

supra at 291-292.      Under this standard of review, we defer to the

Commissioner’s determination unless it is arbitrary, capricious,

or without sound basis in fact.       Jonson v. Commissioner, 118 T.C.
106, 125 (2002), affd. 353 F.3d 1181 (10th Cir. 2003).      The

taxpayer requesting section 6015(f) relief bears the burden of

proof.       See Rule 142(a); Jonson v. Commissioner, supra at 113.

     6
     (...continued)
     case of an individual who requests equitable relief
     under subsection (f)--

                    (A) In general.-- * * * the individual may
               petition the Tax Court (and the Tax Court shall
               have jurisdiction) to determine the appropriate
               relief available to the individual under this
               section * * * [Emphasis added.]
         7
      Rev. Proc. 2003-61, 2003-2 C.B. 296, supersedes Rev. Proc.
2000-15, 2000-1 C.B. 447, effective for requests for relief filed
on or after Nov. 1, 2003, and for requests for relief pending on
Nov. 1, 2003, for which no preliminary determination letter has
been issued as of that date. Rev. Proc. 2003-61, secs. 6 and 7,
2003-2 C.B. at 299.
                              - 8 -

A.   Rev. Proc. 2003-61, Sec. 4.01

     Before the Commissioner will consider a taxpayer’s request

for relief under section 6015(f), the taxpayer must satisfy the

following seven threshold conditions listed in Rev. Proc. 2003-

61, sec. 4.01, 2003-2 C.B. at 297:

          (1) The requesting spouse filed a joint return for
     the taxable year for which he or she seeks relief.

          (2) Relief is not available to the requesting
     spouse under section 6015(b) or (c).

          (3) The requesting spouse applies for relief no
     later than two years after the date of the Service’s
     first collection activity * * *

          (4) No assets were transferred between the spouses
     as part of a fraudulent scheme by the spouses.

          (5) The nonrequesting spouse did not transfer
     disqualified assets to the requesting spouse. * * *

          (6) The requesting spouse did not file or fail to
     file the return with fraudulent intent.

           (7) The income tax liability from which the
     requesting spouse seeks relief is attributable to an
     item of the individual with whom the requesting spouse
     filed the joint return (the “nonrequesting spouse”)
     * * *

     Review of the administrative record, particularly Ms.

Wilce’s workpaper and Ms. Hackmeister’s case memorandum, confirms

that petitioner satisfies each of these conditions.   Petitioner

and Mr. Parker filed a joint Federal income tax return for 2002.

Relief is not available to petitioner under section 6015(b) or

(c) because relief under those subsections is available only with

respect to underreported liabilities; petitioner and Mr. Parker
                                 - 9 -

did not underreport their tax liability on their 2002 return.

Petitioner requested relief promptly after the return was filed.

Ms. Wilce concluded that there was no fraudulent transfer of

assets or transfer of disqualified assets to petitioner, and

there is no evidence in the record supporting a different

conclusion.   Neither Ms. Wilce nor Ms. Hackmeister claim that

petitioner and Mr. Parker filed their 2002 return with a

fraudulent intent, and there is no evidence in the record

supporting such an intent.   Finally, Ms. Hackmeister determined

that the income tax liability in question arose from Mr. Parker’s

sole proprietorship income, and the administrative record

overwhelmingly supports her conclusion.

     We conclude that petitioner has satisfied the conditions in

Rev. Proc. 2003-61, sec. 4.01.

B.   Rev. Proc. 2003-61, Sec. 4.02

     1.   In general

     Rev. Proc. 2003-61, sec. 4.02(1), 2003-2 C.B. at 298,

provides that equitable relief will ordinarily be granted as to

unpaid liabilities if, in addition to the seven threshold

conditions, each of the following elements is satisfied:

          (a) On the date of the request for relief, the
     requesting spouse is no longer married to, or is
     legally separated from, the nonrequesting spouse, or
     has not been a member of the same household as the
     nonrequesting spouse at any time during the 12-month
     period ending on the date of the request for relief.
                               - 10 -

           (b) On the date the requesting spouse signed the
     joint return, the requesting spouse had no knowledge or
     reason to know that the nonrequesting spouse would not
     pay the income tax liability. The requesting spouse
     must establish that it was reasonable for the
     requesting spouse to believe that the nonrequesting
     spouse would pay the reported income tax liability.
     * * *

          (c) The requesting spouse will suffer economic
     hardship if the Service does not grant relief. * * *

     Petitioner and Mr. Parker were separated at the time

petitioner filed her request for relief.   The parties dispute

only whether petitioner had knowledge or reason to know that Mr.

Parker would not pay the reported tax liability and whether

petitioner would suffer economic hardship if relief were not

granted.

     2.    Knowledge or reason to know

     This element is satisfied if the requesting spouse did not

know or have reason to know when she signed the return that the

taxes would not be paid.    Rev. Proc. 2003-61, sec. 4.02(1)(b).

Accordingly, petitioner must establish that it was reasonable for

her to believe that Mr. Parker would pay the reported liability.

     Petitioner was aware of the reported tax liability when she

signed the return.    Petitioner also admitted that at the time she

signed the return she did not know whether Mr. Parker would pay

the outstanding balance and that no funds were available at that

time to pay the liability.    Petitioner was aware that Mr. Parker

intended to file a petition in bankruptcy.
                               - 11 -

     While we are sympathetic to petitioner’s situation with her

former husband, we cannot find that respondent abused his

discretion in determining that petitioner had reason to know at

the time she signed the return that the tax liability would not

be paid.   Petitioner has not established that it was reasonable

for her to believe Mr. Parker would pay the liability.    We

conclude, therefore, that respondent did not abuse his discretion

in determining that petitioner did not satisfy the knowledge or

reason to know element of Rev. Proc. 2003-61, sec. 4.02, and thus

does not qualify for equitable relief under that section of the

revenue procedure.

C.   Rev. Proc. 2003-61, Sec. 4.03

     Where the requesting spouse fails to qualify for relief

under Rev. Proc. 2003-61, sec. 4.02, the Commissioner may

nonetheless grant relief under Rev. Proc. 2003-61, sec. 4.03,

2003-2 C.B. at 298-299.   Rev. Proc. 2003-61, sec. 4.03, provides

that, where the seven threshold conditions have been satisfied

and the requesting spouse does not qualify for relief under Rev.

Proc. 2003-61, sec. 4.02, equitable relief may be granted under

section 6015(f) if, taking into account all facts and

circumstances, it is inequitable to hold the requesting spouse

liable.    Rev. Proc. 2003-61, sec. 4.03, contains a list of

factors that the Commissioner will take into account in

determining, on the facts and circumstances, whether to grant
                             - 12 -

full or partial equitable relief under section 6015(f).   As Rev.

Proc. 2003-61, sec. 4.03, makes clear, no single factor is

determinative in any particular case, all factors are to be

considered and weighed appropriately, and the listing of factors

is not intended to be exclusive.

     Rev. Proc. 2003-61, sec. 4.03(2)(a), 2003-2 C.B. at 298-299,

lists the following factors that the Commissioner will weigh in

determining whether to grant equitable relief:

          (i) Marital status. Whether the requesting spouse
     is separated * * * or divorced from the nonrequesting
     spouse. * * *

          (ii) Economic hardship. Whether the requesting
     spouse would suffer economic hardship (within the
     meaning of section 4.02(1)(c) of this revenue
     procedure) if the Service does not grant relief from
     the income tax liability.

          (iii) Knowledge or reason to know.

          (A) Underpayment cases. * * * whether the
     requesting spouse did not know and had no reason to
     know that the nonrequesting spouse would not pay the
     income tax liability.

     *        *        *           *     *        *           *

          (iv) Nonrequesting spouse’s legal obligation.
     Whether the nonrequesting spouse has a legal obligation
     to pay the outstanding income tax liability pursuant to
     a divorce decree or agreement. * * *

          (v) Significant benefit. Whether the requesting
     spouse received significant benefit (beyond normal
     support) from the unpaid income tax liability * * *

          (vi) Compliance with income tax laws. Whether the
     requesting spouse has made a good faith effort to
     comply with income tax laws in the taxable years
                                - 13 -

     following the taxable year or years to which the
     request for relief relates.

     Rev. Proc. 2003-61, sec. 4.03(2)(b), 2003-2 C.B. at 299,

lists the following two positive factors that the Commissioner

will weigh in favor of granting equitable relief:

          (i) Abuse. Whether the nonrequesting spouse
     abused the requesting spouse. * * *

           (ii) Mental or physical health. Whether the
     requesting spouse was in poor mental or physical health
     on the date the requesting spouse signed the return or
     at the time the requesting spouse requested relief.
     * * *

We consider the factors below.

     1.   Marital status

     Petitioner and Mr. Parker separated in October 2002 and

divorced in 2004.   Both Ms. Wilce and Ms. Hackmeister admitted

that this factor weighs in favor of granting relief.

     2.   Economic hardship

     Rev. Proc. 2003-61, sec. 4.02(1)(c), requires respondent to

apply the rules in sec. 301.6343-1(b)(4), Proced. & Admin. Regs.,

in making the determination of whether a requesting spouse will

suffer economic hardship.     Sec. 301.6343-1(b)(4), Proced. &

Admin. Regs., provides that economic hardship is present if

satisfaction of the tax liability in whole or in part will render

a taxpayer unable to pay her reasonable basic living expenses.8

     8
      Sec. 301.6343-1(b)(4)(ii), Proced. & Admin. Regs., lists
factors that will be considered in determining a reasonable
                                                   (continued...)
                                - 14 -

     In November 2003, petitioner submitted a Form 12510 to

respondent.   Petitioner reported on the Form 12510 monthly income

of $1,7109 and monthly expenses of $2,555.   Petitioner’s stated

monthly expenses included housing, food, and utility expenses of

$2,107, transportation expenses of $133, and other expenses of

$315.

     The administrative record establishes that petitioner was

the sole owner of the marital residence and jointly owned a

mobile home with Mr. Parker, that petitioner had significant

credit card debt, and that the mortgage company holding the

mortgage on the marital residence had begun foreclosure

proceedings against the marital residence at the time petitioner

filed her request for relief.    The administrative record also

establishes that although petitioner was working two jobs in

2003, she could not pay her reasonable basic living expenses

without going further into debt.

     Ms. Wilce determined that petitioner would not suffer

economic hardship because the Internal Revenue Service (IRS)

     8
     (...continued)
amount for basic living expenses. These factors include the
taxpayer’s age, employment status and history, ability to earn,
number of dependents, extraordinary circumstances, and any other
factor that the taxpayer claims bears on economic hardship and
brings to the attention of the director.
         9
      Petitioner’s Form 12510 is inconsistent with IRS documents
that show petitioner reported only a total of $3,339 in wage
income and $255 as Schedule C, Profit or Loss From Business,
income in 2003.
                                - 15 -

computer records showed that petitioner had received a Form 1099-

MISC, Miscellaneous Income, reporting $127,932 of income during

2002.     However, the Social Security number on the Form 1099-MISC

did not match petitioner’s Social Security number.    Petitioner

learned of Ms. Wilce’s determination incorrectly attributing the

income from the Form 1099-MISC to petitioner.    On December 2,

2004, petitioner faxed to Ms. Hackmeister an affidavit from Ryan

Scallon, the issuer of the Form 1099-MISC, stating that the form

was issued to C&C Contracting and not to petitioner or Mr.

Parker.     Ms. Hackmeister erroneously concluded that the Social

Security number referenced in the fax matched petitioner’s Social

Security number and that the income had not been reported on the

2002 return.

     We conclude that petitioner has established that she will

suffer economic hardship if she is not granted equitable relief.

This factor weighs in favor of granting relief.

     3.      Knowledge or reason to know

     For the reasons stated in our analysis of this factor under

Rev. Proc. 2003-61, sec. 4.02, we conclude petitioner has failed

to establish that she did not have reason to know when the return

was filed that the tax liability shown as due would not be paid.

This factor weighs against granting relief.
                                - 16 -

     4.   Nonrequesting spouse’s legal obligation

     Petitioner and Mr. Parker’s divorce decree was not included

in the record, and petitioner did not testify to the contents of

it regarding the unpaid tax liability.      Therefore, we cannot

determine which spouse had the legal obligation under the decree

to pay the outstanding tax liability.      This factor is neutral.

     5.   Significant benefit

     Both Ms. Wilce and Ms. Hackmeister admitted that petitioner

did not significantly benefit from the unpaid liability, and the

record does not reflect otherwise.       This factor weighs in favor

of granting relief.

     6.   Compliance with income tax laws

     Respondent does not appear to contend that this factor

applies, and he did not otherwise argue at trial that petitioner

did not make a good faith effort to comply with her Federal

income tax obligations in the years subsequent to 2002.

Moreover, both Ms. Wilce and Ms. Hackmeister noted that

petitioner met this requirement.    Therefore, this factor weighs

in favor of granting relief.

     7.   Abuse/mental or physical health

     Neither of these positive factors applies in this case.

Petitioner was not abused by Mr. Parker, and there is no evidence

in the administrative record that she suffered poor mental or

physical health.
                               - 17 -

     8.   Liability attribution

     Under Rev. Proc. 2000-15, sec. 4.03(1)(f) and (2)(a), 2000-1

C.B. 447, 449, the IRS considered whether the outstanding

liability was attributable to the requesting spouse or the

nonrequesting spouse when determining whether equitable relief

was appropriate.   Although Rev. Proc. 2003-61, sec. 4.03, does

not list liability attribution as one of the factors for

consideration, we note that the list in Rev. Proc. 2003-61, sec.

4.03, is not exclusive.

     The entire outstanding liability is attributable to self-

employment taxes arising from Mr. Parker’s self-employment income

from two sole proprietorships.    None of the self-employment

income or self-employment taxes arising therefrom is attributable

to petitioner.    This factor weighs in favor of granting relief.

D.   Conclusion

     At trial, petitioner’s testimony was consistent with her

assertions in the Form 8857, her responses to information

requests from respondent, and the statements outlined in the

revenue agent’s workpapers.    Respondent has not challenged

petitioner’s truthfulness on these matters.    Although we find

that petitioner had reason to know that the tax liability would

not likely be paid in light of Mr. Parker’s intent to file a

petition in bankruptcy, we nevertheless conclude that respondent

abused his discretion in determining that petitioner was not
                             - 18 -

entitled to relief under section 6015(f) because all of the other

factors either weigh in favor of granting relief to petitioner or

are neutral.

     To reflect the foregoing,

                                        An appropriate order and

                                   decision will be entered for

                                   petitioner.