Court Opinion

ID: 4337506
Source: CourtListenerOpinion
Date Created: 2018-11-14 03:24:36.704855+00
Date Added: 2024-06-11T14:48:07.699139
License: Public Domain

T.C. Memo. 2009-71

                      UNITED STATES TAX COURT

           MARY ANN AND THOMAS O’MEARA, Petitioners v.
          COMMISSIONER OF INTERNAL REVENUE, Respondent

     Docket No. 7829-07L.             Filed March 30, 2009.

     Neal J. Shapiro and Saul A. Bernick, for petitioners.

     Trent D. Usitalo, for respondent.

             MEMORANDUM FINDINGS OF FACT AND OPINION

     SWIFT, Judge:   The issue for decision is whether petitioner

Mary Ann O’Meara is entitled to relief under section 6015(f) from

unpaid joint Federal income taxes, as follows:1

     1
        The record does not reflect the status of petitioners’
Federal income taxes for 1994, 1996, 1997, and 1998.
                                - 2 -
                    Year                 Amount
                    1991                 $26,819
                    1992                  88,223
                    1993                  37,899
                    1995                  36,232
                    1999                  22,571
                    2000                  21,870
                    2001                   1,138
                      Total             $234,752

     Unless otherwise indicated, all section references are to

the Internal Revenue Code, and all Rule references are to the Tax

Court Rules of Practice and Procedure.     Hereinafter, references

to petitioner are to petitioner Mary Ann O’Meara, and references

to Thomas are to petitioner Thomas O’Meara.

                          FINDINGS OF FACT

     Some of the facts have been stipulated and are so found.

     At the time the petition was filed, petitioners resided in

Minnesota.

     Petitioners have a long history of filing their joint

Federal income tax returns late and of not paying their Federal

income taxes.

     Petitioners have been married since 1953 and have five

children.    During their marriage, petitioner was the homemaker,

and Thomas provided financial support for the family.

     Petitioners maintained several joint bank accounts to each

of which petitioner had full access.     Together petitioners
                                 - 3 -
regularly discussed family finances and expenses, including the

home mortgage, household utilities, automobiles, insurance, and

groceries.   Bills relating to the family expenses were received

by petitioners at their home.    Petitioner usually opened the mail

and wrote the checks for monthly family expenses.

     In 1955 Thomas founded Abbott Metals Co. (AMC) as a sole

proprietorship to buy, sell, and fabricate metal products.   From

1955 until approximately 2004 Thomas owned and managed AMC, and

the income from AMC constituted petitioners’ family’s primary

source of income.

     Although occasionally petitioner wrote checks on AMC’s bank

account to pay bills for AMC, generally petitioner was not

involved with AMC.   Petitioner was not employed by and did not

receive compensation from AMC.

     Petitioners also were involved in other business and

investment activities which generated income, including ownership

and management of rental real estate.

     From 1991 through at least 2001, petitioners had financial

problems and often did not have sufficient funds to pay family

expenses.    Generally, petitioners together decided which family

expenses to pay and when to pay them.

     On February 19, 1997, petitioners commenced a proceeding

with this Court at docket No. 3118-97 in connection with

petitioner’s request for relief under section 6013(e) relating to
                               - 4 -
petitioners’ unpaid joint Federal income tax liabilities for 1988

and 1989.   On March 23, 1998, the parties agreed that petitioner

was entitled to such relief under section 6013(e), and on

April 2, 1998, a decision was entered in docket No. 3118-97

reflecting that agreement.

     For some of the years in issue Thomas prepared petitioners’

joint Federal income tax returns.   In other years Thomas hired a

professional tax preparer to do so.    Generally, Thomas told

petitioner when and where to sign petitioners’ tax returns, and

petitioner signed the tax returns without reviewing the

information reported thereon and without inquiring of Thomas

whether a tax liability was due and was paid.    Attached to each

year’s late-filed tax return was a Schedule C, Profit or Loss

From Business, relating to AMC.

     However, on their 1992 joint Federal income tax return,

which was filed late on May 7, 1998, in order that petitioner

might build up her Social Security credits petitioners decided to

and did report $2,000 of AMC’s total net profits of $311,740 as

petitioner’s (not as Thomas’s) income.

     On their 1991, 1993, and 1995 joint Federal income tax

returns, which were also filed late on May 7, 1998, petitioners

reported AMC’s total net profits as Thomas’s income.

     However, on their late-filed Federal income tax returns for

1999, 2000, 2001, again in order that petitioner might build up
                              - 5 -
her Social Security credits, petitioners reported all of AMC’s

net profits as petitioner’s (not as Thomas’s) income.

     Also attached to petitioners’ joint Federal income tax

return for each year in issue was a Schedule D, Capital Gains and

Losses, relating to petitioners’ investment activities.     On those

schedules petitioners reported the income relating thereto as

Thomas’s income.

     Also attached to petitioners’ joint Federal income tax

return for each year in issue was a Schedule E, Supplemental

Income and Loss, relating to petitioners’ rental real estate.     On

those schedules petitioners reported some of the rental real

estate income as both petitioner’s and Thomas’s and some of it as

just Thomas’s.

     Reflected in the table below for each year in issue are the

dates on which petitioners filed their joint Federal income tax

returns late, the Schedule C AMC income that was reported as

petitioner’s (P) and as Thomas’s, the Schedules D and E income

(Other income) that was reported as both petitioner’s and

Thomas’s (Both Ps), the other income reported as just Thomas’s,

and the total taxes reported due and the taxes that have been

paid to date:
                                    - 6 -
                         AMC Income           Other Income
                         Reported As           Reported As
  Ps’ Tax Returns         Income of             Income of          Taxes
Year   Filing Date      P      Thomas       Both Ps   Thomas     Due    Paid
1991   05/07/1998      -0-    $128,336        -0-       $130   $26,819   -0-
1992   05/07/1998    $2,000    309,740      $1,004     6,558    88,223   -0-
1993   05/07/1998      -0-     158,167        -0-      4,323    37,899   -0-
1995   05/07/1998      -0-      97,622        -0-     46,353    36,232   -0-
1999   10/11/2001    42,931       -0-       58,501    35,150    22,571   -0-
2000   10/17/2001    32,676       -0-       57,051       345    21,870   -0-
2001   10/16/2002    25,243       -0-       10,774      -0-      1,138   -0-

     Respondent examined petitioners’ joint Federal income tax

returns for the years in issue and assessed the tax liabilities

reported thereon.2

     On June 29, 2005, respondent mailed to petitioners a notice

of intent to levy relating to petitioners’ unpaid Federal income

tax liabilities for the years in issue.

     Petitioners timely filed an appeal with respondent’s Appeals

Office relating to respondent’s June 29, 2005, notice of intent

to levy.    On September 6, 2006, during the pendency of

petitioner’s appeal petitioner also filed with respondent a

request for equitable relief under section 6015(f) relating to

the unpaid joint Federal income tax liabilities for the years in

issue.    Petitioner attached to her request a Form 12510,

Questionnaire for Requesting Spouse, on which petitioner listed

$2,150 as petitioners’ monthly combined income and $3,675 as

petitioners’ monthly combined expenses.

      2
        During respondent’s audit respondent also determined
deficiencies in petitioners’ joint Federal income taxes for each
year in issue. Respondent concedes that petitioner is entitled
to relief under sec. 6015(b) for these deficiencies.
                              - 7 -
     On October 31, 2006, petitioners submitted to respondent’s

Appeals Office a Form 433-A, Collection Information Statement for

Wage Earners and Self-Employed Individuals.   On the Form 433-A

petitioners listed assets with values indicated as follows:

                    Assets             Value
             Cash                      $25,848
             Boats                       7,000
             Snowmobiles                 5,000
             Automobiles                  -0-
             Real estate
               Home                    161,000
               Cabin                    85,721
               Rental properties       Unknown
              Total reported value    $284,569

     After receiving more information relating to the value of

petitioners’ rental properties, respondent’s Appeals Office

determined that petitioners’ reasonable collection potential was

$521,600.

    On the Form 433-A petitioners also listed monthly

income of $2,202 and monthly expenses of $3,623 as follows:

                   Monthly              Amount
            Social security income
              Petitioner                  $687
              Thomas                     1,515
            Other income                  -0-
                Total income            $2,202

            Expenses
              Food/clothing                727
              Housing/utilities          1,182
              Transportation             1,154
              Health care                  520
              Life insurance                40
                Total expenses          $3,623
                              - 8 -
     On March 12, 2007, respondent mailed to petitioners a notice

of determination sustaining respondent’s June 29, 2005, notice of

intent to levy.

     On March 12, 2007, respondent also mailed to petitioner a

notice of determination denying petitioner’s request for section

6015(f) relief for all years in issue.   Respondent concluded that

at the time petitioner signed the joint tax returns for the years

in issue petitioner had reason to know that tax liabilities were

due and were unlikely to be paid.   Respondent also determined

that although petitioners’ monthly expenses exceeded petitioners’

monthly income, because petitioners were married and jointly

owned assets with a value of at least $284,569 and because

petitioners’ collection potential was $521,600, petitioner had

not established that an economic hardship would result if

petitioner were held jointly liable for the unpaid taxes.

     On April 5, 2007, petitioners filed a petition relating to

respondent’s March 12, 2007, adverse determination on the notice

of intent to levy and on the request for relief under section

6015(f).

     As stated, after settlement of some issues the only issue

remaining in dispute is whether petitioner is entitled to relief

under section 6015(f) from the unpaid tax liabilities for the

years in issue.
                                - 9 -
       On April 15, 2004, petitioner filed her 2003 individual

Federal income tax return late reporting taxes due of $4,733,

which remain unpaid.    On April 20, 2007, petitioner filed her

2005 individual Federal income tax return late reporting no taxes

due.

                               OPINION

       Generally, taxpayers filing joint Federal income tax returns

are jointly liable for taxes reported due thereon.     Sec.

6013(d)(3).    However, under section 6015(f)(1) relief from joint

liability for Federal income taxes may be available to a

requesting spouse where it would be inequitable to hold the

requesting spouse liable for a tax underpayment or a tax

deficiency.

       This Court has jurisdiction to determine whether a

requesting spouse is entitled to equitable relief under section

6015(f).    Sec. 6015(e); see also Martino v. Commissioner, T.C.

Memo. 2009-43; Farmer v. Commissioner, T.C. Memo. 2007-74.

Petitioner bears the burden of proving that she is entitled to

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

       In order to qualify for equitable relief under section

6015(f), a requesting spouse must first satisfy seven so-called

threshold eligibility requirements set forth in Rev. Proc. 2003-

61, sec. 4.01, 2003-2 C.B. 296, 297.     In particular, the

requesting spouse must establish that the tax underpayment or the
                               - 10 -
tax deficiency is attributable to income of the nonrequesting

spouse. Id. sec. 4.01(7), 2003-2 C.B. at 297.

      If the income giving rise to the tax underpayment or

deficiency is reported on a joint Federal income tax return as

earned by the requesting spouse, the income and the tax

underpayment or deficiency relating thereto are presumptively

attributable to the requesting spouse.   Rev. Proc. 2003-61, sec.

4.01(7)(b), 2003-2 C.B. at 297.   The requesting spouse may rebut

the presumption by introducing evidence to show otherwise. Id.

For example, the requesting spouse may establish that her

ownership of the assets producing the income was only nominal.
Id.

      Respondent contends that petitioner fails this threshold

eligibility requirement with regard to the portion of AMC’s

income and the other income that was reported by petitioners on

their joint Federal income tax returns as income of petitioner or

as income of both petitioner and Thomas, as follows:3

      3
        Respondent concedes that for each year petitioner has
satisfied the threshold eligibility requirements for the portions
of the AMC and the other income reported by petitioners as
Thomas’s income.
                                 - 11 -
                              AMC and Other Income
                              Reported as Income of
                              Petitioner or of Both
                              Petitioner and Thomas
               Year            AMC           Other
               1992           $2,000         $1,004
               1999           42,931         58,501
               2000           32,676         57,051
               2001           25,243         10,774

     Petitioner argues that because Thomas controlled AMC, the

rental real estate and the other business activities, as well as

the preparation of petitioners’ Federal income tax returns for

the years in issue, any ownership interest that petitioner had or

was reported to have had in AMC and in the real estate and other

business activities was only nominal, and therefore that no

portion of the above-reported income should be attributed to her

(i.e., that her ownership thereof should be treated as nominal

for purposes of section 6015(f)).

     We disagree.     Having reported the above income as hers (or

as both hers and Thomas’s) for Social Security tax and benefit

purposes, petitioner has not established that this purpose and

petitioners’ reporting should be ignored and that the income

should be attributable solely to Thomas.    See Golden v.

Commissioner, T.C. Memo. 2007-299, affd. 548 F.3d 487 (6th Cir.

2008).   Petitioner does not satisfy the threshold eligibility

requirements with respect to the income reported as petitioner’s

or as petitioner’s and Thomas’s for 1992, 1999, 2000, and 2001.
                                - 12 -
     In the alternative with respect to the above income reported

as petitioner’s or as petitioner’s and Thomas’s, and with respect

to the AMC and other income reported by petitioners on their

joint Federal income tax returns as earned by Thomas (with

respect to which petitioner satisfies the threshold eligibility

requirements of Rev. Proc. 2003-61, sec. 4.01,4 we consider the

following factors relevant to determine whether petitioner is

entitled to relief under sec. 6015(f). Id. sec. 4.03, 2003-2

C.B. at 298.

Marital Status

     As of the trial date, petitioners were married and living

together.    This factor is neutral.

Economic Hardship

     Where paying the outstanding tax liabilities would cause the

requesting spouse to suffer economic hardship, the economic

hardship factor weighs in favor of granting relief under section

6015(f).    Rev. Proc. 2003-61, sec. 4.03(2)(a)(ii), 2003-2 C.B. at

     4
           The income reported as earned by Thomas was as follows:

                            Income Reported as Thomas’s
               Year           AMC               Other
               1991         $128,336              $130
               1992          309,740             6,558
               1993          158,167             4,323
               1995           97,622            46,353
               1999            -0-              35,150
               2000            -0-                 345
                                - 13 -
298.    A requesting spouse suffers economic hardship if paying the

tax liabilities would prevent the taxpayer from paying reasonable

basic living expenses.    Sec. 301.6343-1(b)(4)(i), Proced. &

Admin. Regs.; Rev. Proc. 2003-61, sec. 4.02(1)(c),

4.03(2)(a)(ii), 2003-2 C.B. at 298.

       In determining a reasonable amount for basic living

expenses, the Court considers, among other things:    (1) The

taxpayer’s age and earning potential; (2) an amount reasonably

necessary for food, clothing, housing, medical expenses, and

transportation; (3) the amount of assets available to pay the

taxpayer’s expenses; and (4) any other factor bearing on economic

hardship.    See sec. 301.6343-1(b)(4)(ii), Proced. & Admin. Regs.

       Petitioner argues that because she is nearly 80 years old

and has low earning potential and because her monthly expenses

are reasonable, if required to pay the tax liabilities in issue

she would be unable to pay her basic living expenses.

       Petitioner’s argument does not consider the $284,569 in

assets listed on the Form 433-A that petitioners submitted to

respondent.    Those assets are to be included in determining

whether petitioner would be able to pay her basic living

expenses.    Further, petitioners have not meaningfully challenged

respondent’s Appeals Office’s determination relating to

petitioners’ $521,600 collection potential.
                                - 14 -
     It appears that the $284,569 in petitioners’ assets would

offset or be sufficient to pay the total $234,752 joint tax

liabilities for the years in issue, and petitioners’ $521,600

collection potential suggests that petitioner would not suffer

economic hardship if she were required to pay the tax liabilities

in issue.

     However, recognizing the costs and difficulties in

liquidating assets, as well as petitioner’s age and low earning

potential, we treat the economic hardship factor as neutral.

Knowledge or Reason To Know

     In the case of a properly reported but unpaid tax liability

we are less likely to grant relief under section 6015(f) if the

requesting spouse at the time she signed the Federal income tax

return knew or had reason to know that the tax liability reported

thereon would not be paid.    Washington v. Commissioner, 120 T.C.
137, 151 (2003).

     Petitioner argues that because she relied on Thomas to

properly prepare their joint Federal income tax returns and to

pay any tax liabilities reported thereon, at the time she signed

the tax returns she did not know or have reason to know that

Thomas would not pay the income taxes relating thereto.

     From 1991 through 2001, petitioner knew that petitioners

were generally having financial problems relating to family

expenses.   Petitioner should have learned that petitioners were
                                - 15 -
not paying their joint Federal income tax liabilities when the

settlement was reached in docket No. 3118-97, wherein she was

relieved of and wherein Thomas became fully liable for the

$80,429 joint income tax liabilities for 1988 and 1989.    Because

of the family tax and financial problems, petitioner was on

notice and should have verified that Thomas would pay the tax

liabilities reported on petitioners’ Federal income tax returns

for the years in issue.   See Stolkin v. Commissioner, T.C. Memo.

2008-211; Gonce v. Commissioner, T.C. Memo. 2007-328.     This

factor weighs against relief.

Significant Benefit

     The record does not adequately establish whether petitioner

received a significant benefit in excess of normal support from

the unpaid tax liabilities.   This factor is neutral.

Compliance With Income Tax Laws

     As stated, petitioner and Thomas have a history of not

timely filing Federal income tax returns and of not paying their

tax liabilities.   Petitioner filed her individual Federal income

tax return late for 2003, and the $4,733 tax liability reported

thereon remains unpaid.   Further, petitioner filed her Federal

income tax return late for 2005.   This factor weighs against

granting relief.
                                 - 16 -
Conclusion

     In summary, of the relevant factors considered two weigh

against granting relief, three are neutral, and none weighs in

favor of granting relief.

     We conclude that petitioner is not entitled to equitable

relief under section 6015(f) with regard to any of the AMC and

the other income and the Federal income taxes relating thereto

reported on petitioners’ joint Federal income tax returns for the

years in issue.5

     To reflect the foregoing,

                                          Decision will be entered for

                                   respondent.

     5
        Our conclusion herein would be the same regardless of the
Court’s standard of review of respondent’s determination.