Court Opinion

ID: 4336397
Source: CourtListenerOpinion
Date Created: 2018-11-14 02:48:41.575551+00
Date Added: 2024-06-11T14:46:53.936045
License: Public Domain

T.C. Memo. 2007-74

                      UNITED STATES TAX COURT

                 LINDA D. FARMER, Petitioner v.
          COMMISSIONER OF INTERNAL REVENUE, Respondent

     Docket No. 19966-05.               Filed March 29, 2007.

     Linda D. Farmer, pro se.

     Steven M. Webster, for respondent.

             MEMORANDUM FINDINGS OF FACT AND OPINION

     GOEKE, Judge:   Petitioner timely filed a petition seeking

review of respondent’s determination denying her relief from

joint and several liability for the years 1994, 1995, and 1999

under section 6015(f).1

     1
      All section references are to the Internal Revenue Code.
                               - 2 -

     We review respondent’s determination for abuse of

discretion, and for the reasons explained herein we find

respondent’s determination was in error.

                         FINDINGS OF FACT

     Petitioner resided in Albermarle, North Carolina, when her

petition in this case was filed.

     Petitioner was married to Daniel Brown during the years in

question.   They separated in July 2000 and were divorced sometime

in 2002.

     During the years in question, petitioner assisted Mr. Brown

in his heating and air-conditioning business.   They did not pay

the income tax liabilities of $2,597 and $416 reflected on their

1994 and 1999 returns, respectively.   Respondent made an

assessment of $2,425.85 to correct a mathematical error on the

1995 joint return.   This amount was also unpaid.   The amounts of

tax remaining unpaid are $1,785.30, $2,425.85, and $416,

respectively.

     Petitioner mailed a Form 8857, Request for Innocent Spouse

Relief, in December 2002.   In August 2003, respondent made an

initial determination to deny relief on the basis that petitioner

had knowledge of the taxes due at the time she signed the joint

returns, that there was no spousal abuse, and that petitioner had

failed to establish economic hardship.   Petitioner appealed this

denial to no avail, and respondent issued a notice of
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determination denying petitioner relief under section 6015(f) on

September 16, 2005.

     Petitioner acknowledges that she participated as a helper in

her former husband’s heating and air-conditioning business, and

she admits that she signed the joint income tax returns realizing

the taxes were not being paid.    She maintains that her former

husband controlled the receipts from the heating and air-

conditioning business and kept the records of that business.

     She testified that she had no access to the money her

husband’s business generated and little or no influence over his

use of those funds.    She also explained that after she separated

from her husband, she lost contact with him and does not know his

current whereabouts.   She obtained a divorce from him in

absentia.

     In August 2005, petitioner provided respondent’s Appeals

officer a Form 433-A, Collection Information Statement for Wage

Earners and Self-Employed Individuals.    This Form 433-A reflected

that petitioner’s debts far exceeded the value of her assets and

her current income is below her expenses.    Petitioner’s Form 433-

A indicated that she was remarried and that she did not receive

any support from her new husband.    In fact, petitioner’s Form

433-A indicated that she was expending her resources to support
                                 - 4 -

herself and her spouse.   The Appeals officer did not address in

the Appeals memo the information petitioner provided about the

lack of support from her new husband.

      If petitioner had filed separate returns for the years in

issue, then on the basis of the income reported on her Forms W-2,

Wage and Tax Statement, she would have had no tax due and would

have been entitled to refunds.

                                OPINION

A.   Background

      If husband and wife file a joint Federal income tax return,

they are jointly and severally liable for the tax due.   Sec.

6013(d)(3); Butler v. Commissioner, 114 T.C. 276, 282 (2000).

However, a spouse may qualify for relief from joint liability

under section 6015(b) or (c) if various requirements are met.

The parties agree that petitioner does not qualify for relief

under section 6015(b) or (c).

      If relief is not available under section 6015(b) or (c), the

Commissioner may relieve an individual of liability for any

unpaid tax if, taking into account all the facts and

circumstances, it would be inequitable to hold the individual

liable.   Sec. 6015(f).   This Court has jurisdiction to review a

denial of equitable relief under section 6015(f).   Sec. 6015(e).

      We review the Commissioner’s denial of relief for abuse of

discretion.   Jonson v. Commissioner, 118 T.C. 106, 125 (2002),
                                - 5 -

affd. 353 F.3d 1181 (10th Cir. 2003).    The taxpayer seeking

relief has the burden of proof.     Alt v. Commissioner, 119 T.C.
306, 311 (2002), affd. 101 Fed. Appx. 34 (6th Cir. 2004).     To

prevail, the taxpayer must show that the Commissioner’s

determination was arbitrary, capricious, or without sound basis

in law or fact.     Butler v. Commissioner, supra at 291-292; Van

Arsdalen v. Commissioner, T.C. Memo. 2007-48.

B.   Rev. Proc. 2000-15

      The Commissioner promulgated a list of factors in Rev. Proc.

2000-15, sec. 4, 2000-1 C.B. 447, 448-449, that the Commissioner

considers in determining whether to grant equitable relief under

section 6015(f).2    First, the Commissioner will not grant relief

unless seven threshold conditions have been met:    (1) The

taxpayer must have filed joint returns for the taxable years for

which relief is sought; (2) the taxpayer does not qualify for

relief under section 6015(b) or (c); (3) the taxpayer must apply

for relief no later than 2 years after the date of the

Commissioner’s first collection activity after July 22, 1998,

with respect to the taxpayer; (4) the liability must remain

unpaid; (5) no assets were transferred between the spouses filing

      2
      Respondent’s determination was subject to Rev. Proc. 2000-
15, 2000-1 C.B. 447. Rev. Proc. 2000-15, supra, was superseded
by Rev. Proc. 2003-61, 2003-2 C.B. 296, for requests for relief
under sec. 6015(f) that either were filed on or after Nov. 1,
2003, or were pending on Nov. 1, 2003, and for which no
preliminary determination letter had been issued as of Nov. 1,
2003.
                                - 6 -

the joint returns as part of a fraudulent scheme by such spouses;

(6) there were no disqualified assets transferred to the taxpayer

by the nonrequesting spouse; and (7) the taxpayer did not file

the returns with fraudulent intent.     Rev. Proc. 2000-15, sec.

4.01, 2000-1 C.B. at 448.   Respondent concedes that petitioner

meets these conditions.

     Rev. Proc. 2000-15, sec. 4.03, lists two factors which, if

true, the Commissioner treats only as favoring relief:     (1) The

taxpayer is separated or divorced from the nonrequesting spouse;

and (2) the taxpayer was abused by the nonrequesting spouse.

Rev. Proc. 2000-15, sec. 4.03, also lists two factors which, if

true, the Commissioner treats only as not favoring relief:     (3)

The taxpayer received significant benefit from the unpaid

liability or the item giving rise to the deficiency; and (4) the

taxpayer has not made a good faith effort to comply with Federal

income tax laws in the tax years following the tax year to which

the request for relief relates.   See Ferrarese v. Commissioner,

T.C. Memo. 2002-249.

     The Commissioner generally does not consider the absence of

factor (1), (2), (3), or (4) in determining whether to grant

relief under section 6015(f).   Rev. Proc. 2000-15, sec. 4.03.

However, on the basis of caselaw deciding whether it was

equitable to relieve a taxpayer from joint liability under former

section 6013(e)(1)(D), we consider the fact that a taxpayer did
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not significantly benefit from the unpaid liability as favoring

equitable relief for that taxpayer.    See Belk v. Commissioner, 93
T.C. 434, 440-441 (1989); Ferrarese v. Commissioner, supra; Foley

v. Commissioner, T.C. Memo. 1995-16; Robinson v. Commissioner,

T.C. Memo. 1994-557; Klimenko v. Commissioner, T.C. Memo. 1993-

340; Hillman v. Commissioner, T.C. Memo. 1993-151.

     Rev. Proc. 2000-15, sec. 4.03, lists the following four

factors which, if true, the Commissioner treats as favoring

relief, and if not true, as weighing against relief:   (5) The

taxpayer would suffer economic hardship if relief were denied;

(6) in the case of a liability that was properly reported but not

paid, the taxpayer did not know and had no reason to know that

the liability would not be paid; (7) the liability for which

relief is sought is attributable to the nonrequesting spouse; and

(8) the nonrequesting spouse has a legal obligation pursuant to a

divorce decree or agreement to pay the outstanding liability

(weighs against relief only if the requesting spouse has the

obligation).   Rev. Proc. 2000-15, sec. 4.03, also states that no

single factor is controlling, all factors will be considered and

weighed appropriately, and the list of factors in Rev. Proc.

2000-15, sec. 4, is not exhaustive.
                                 - 8 -

C.   Application of the Factors Listed in Rev. Proc. 2000-15

      1.   Petitioner’s Marital Status

      Petitioner was divorced from her former husband when she

sought relief.    This factor favors petitioner.

      2.   Spousal Abuse

      Petitioner did not allege that there was abuse in her former

marriage.     Respondent determined that this factor is neutral.

We agree with respondent’s determination on this point.

      3.   Significant Benefit

      Respondent found this factor favors petitioner, and we

agree.

      4.   Compliance With Tax Laws

      This factor was considered neutral since petitioner was in

compliance.

      5.   Economic Hardship

      Respondent determined that because petitioner had remarried,

this factor was not present.     We disagree.   There is no question

that apart from any support from her current husband the

liability would cause petitioner significant hardship, and

petitioner provided sufficient information to the Appeals officer

to show her liabilities significantly exceeded her assets.     We

find that economic hardship is a significant favorable factor for

petitioner because payment of the underlying liabilities would

prevent petitioner from paying reasonable basic living expenses
                                  - 9 -

from her own assets.      See sec. 301.6343-1(b)(4)(i), Proced. &

Admin. Regs.      We find respondent’s assertion without any evidence

to be nonpersuasive in overcoming the prima facie case made by

petitioner in Appeals.

      6.     Knowledge or Reason To Know

      Petitioner admits she knew the tax liabilities would not be

paid.      She was in a disadvantageous position to cause the payment

of the liabilities, however.      Her husband completely controlled

the income from his business, and we find petitioner’s testimony

that she had no direct access to the business receipts to be

credible.      Accordingly, while this factor is disadvantageous to

petitioner, under the limited circumstances of this case we do

not find this determination to be fatal to petitioner’s claim for

relief.

      7.     Whether the Underpayment of Tax Is Attributable to
             the Ex-Spouse

      Respondent finds this factor favorable to petitioner, and we

agree.

      8.     Legal Obligation To Pay

      Because there is no such obligation, this factor is neutral.

D.   Conclusion

      Because we find economic hardship and a lack of significant

benefit from the income subject to tax, we are compelled to

conclude respondent has abused his discretion in denying relief

on the facts of this case.
                        - 10 -

To reflect the foregoing,

                                 Decision will be entered

                            for petitioner.