T.C. Memo. 2003-96
UNITED STATES TAX COURT
NANCY B. DOYLE, Petitioner v.
COMMISSIONER OF INTERNAL REVENUE, Respondent
Docket No. 9137-01L. Filed April 3, 2003.
Steven L. Sablowsky, for petitioner.
Julia L. Wahl, for respondent.
MEMORANDUM FINDINGS OF FACT AND OPINION
RUWE, Judge: The petition in this case was filed in
response to a Notice of Determination Concerning Collection
Action(s) Under Section 6320 and/or 6330. The sole issue for
decision is whether respondent erroneously denied petitioner’s
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request for relief from joint tax liability pursuant to section
6015(b) or (f).1
FINDINGS OF FACT
Some of the facts have been stipulated and are so found.
The stipulation of facts and the accompanying exhibits are
incorporated herein by this reference.
At the time the petition was filed, petitioner resided in
Pittsburgh, Pennsylvania.
The Deficiencies and Tax Court Cases
For the years 1980 through 1983, petitioner and her husband,
Richard E. Doyle (the Doyles), timely filed joint Federal income
tax returns on which they deducted expenses associated with
various tax shelters, including horse breeding and racing tax
shelters.2 Respondent audited the Doyles’ 1980 through 1983 tax
returns and disallowed the claimed tax shelter deductions.
Respondent issued notices of deficiency to the Doyles determining
tax deficiencies and penalties in excess of $100,000.
The Doyles timely filed petitions with this Court seeking
redetermination of deficiencies for the tax years 1980 through
1983. The cases, docket Nos. 6518-87 and 9855-88, were tried in
1
Except as indicated to the contrary, all section references
are to the Internal Revenue Code as amended.
2
For example, on their 1980 return, the Doyles claimed tax
shelter deductions of $69,721 on gross income of $101,053.
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March 1989, and the Court issued its opinion on July 7, 1992.3
Most of the issues in the cases were resolved adversely to the
Doyles. The deficiencies ultimately determined and assessed were
as follows:
Year Deficiency
1980 $31,854.92
1981 35,007.80
1982 25,209.22
1983 4,600.80
Additionally, respondent assessed more than $294,000 of interest
on the deficiencies.
In 1996, the Doyles filed another petition with this Court,
docket No. 17325-96, seeking redetermination of an additional
deficiency asserted by respondent on their 1983 return. The sole
issue in that case was whether the statute of limitations barred
the additional assessment. The parties stipulated to be bound by
the result in a related case, docket No. 8309-96, in which the
Court held that the period of limitations was still open. See
Doyle v. Commissioner, T.C. Memo. 1997-396, affd. without
published opinion 202 F.3d 253 (3d Cir. 1999). Accordingly, on
January 28, 1998, the Court entered a stipulated decision.4 On
3
See Brown v. Commissioner, T.C. Memo. 1992-379, affd.
without published opinion sub nom. Konenkamp v. Commissioner, 14
F.3d 47 (3d Cir. 1993).
4
This decision was subsequently affirmed. See Doyle v.
Commissioner, T.C. Memo. 1997-396, affd. without published
opinion 202 F.3d 253 (3d Cir. 1999).
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March 27, 1998, respondent assessed $13,750 in additional tax,
penalties, and interest against the Doyles.
Post-Tax-Court-Opinion Financial Transactions
On September 14, 1992, a deed was recorded transferring real
property owned by the Doyles to their son and his wife for $1.
On September 21, 1992, two checks drawn on the bank account of
“Lavina Maudice or Nancy B. Doyle,”5 PNB account No. 04130419
(the Lavina/petitioner bank account), in the amount of $5,000
were made payable to Bridget Fink and Andrew Fink, petitioner’s
daughter and son-in-law, respectively. On September 24, 1992, a
check drawn on a Parkvale Savings Bank account, No. 022061410,
held in the names of “Bridget or Andrew Fink”, was made payable
to the Dreyfus Family of Funds in the amount of $10,000.
On October 30, 1992, a Parkvale Savings Bank account No.
000033816 was opened in the names of “Michele or Denise Doyle”
(Michele/Denise Doyle bank account No. 1).6 The initial deposit
to the account was $2,450 in cash and a $500 check from the
Lavina/petitioner bank account.
On November 5, 1992, an account at PNC Savings Bank, account
No. 10749779, was opened in the names of “Denise Doyle or Michele
Doyle” (Michele/Denise Doyle bank account No. 2). The initial
5
Lavina Maudice, now deceased, was petitioner’s aunt.
6
Michele and Denise Doyle are petitioner’s daughters.
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deposit was $26,000, $7,000 of which came from a check signed by
petitioner and drawn on the Lavina/petitioner bank account.
On November 25, 1992, Residential Advisor’s, Inc. check No.
185, made payable to petitioner and her husband in the amount of
$2,966.40, was deposited into the Michele/Denise Doyle bank
account No. 1.
On February 23, 1993, petitioner and her husband encumbered
their previously lien-free residence with a mortgage. On March
1, 1993, petitioner and her husband received the mortgage
proceeds in the form of a check for $93,424.03. On March 3,
1993, petitioner and her husband used the mortgage proceeds to
obtain $10,000 in cash and the following cashier’s checks:7
Check No. Amount Payee
59205410 $8,180.45 Nancy Doyle
59205421 8,180.45 Nancy Doyle
49205355 8,180.45 Richard Doyle
59205366 8,180.45 Richard Doyle
59205400 8,180.45 Richard Doyle
59205388 8,180.45 Richard Doyle
59205443 8,180.45 Richard Doyle
59205454 8,180.44 Nancy Doyle
59205465 8,180.44 Nancy Doyle
59205476 9,700.00 Nancy Doyle
The above-listed checks were disposed of as follows:
(i) Check No. 59205410 was endorsed by petitioner and
deposited on March 29, 1993, into the Michele/Denise Doyle bank
account No. 1;
7
The Doyles were charged a $10 transaction fee for each
cashier’s check.
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(ii) check No. 59205421 was endorsed by petitioner and her
daughter Bridget Fink, and on March 4, 1993, it was deposited
into Parkvale Savings bank account No. XX-XXXXXXX, held in the
name of her daughter Bridget (Doyle) Fink;
(iii) on March 4, 1993, check Nos. 49205355, 59205366,
59205400, 59205388, 59205443, and 59205454 were deposited into
the Doyles’ joint checking account at Great American Federal,
account No. 20355384. Within 2 weeks of the deposit, $39,598.50
from this account was transferred to the Doyles’ children and
$12,598.50 was withdrawn in cash. Of the $39,598.50, $27,000 was
transferred to the Doyles’ children on the day of deposit and
consisted of three checks for $9,000 each made payable to each of
the following: Denise, Michele, and Meghan Doyle. Petitioner
signed all three checks;
(iv) check No. 59205465 was deposited into the
Lavina/petitioner bank account. Petitioner then issued check No.
1707 for $8,100 from the Lavina/petitioner bank account to her
daughter-in-law Jill Doyle. On March 6, 1993, that check was
deposited into Parkvale Savings Bank account No. XX-XXXXXXX held
in the names of “Richard P. Doyle or Jill A. Doyle.”; and
(v) on March 4, 1993, check No. 59205476 was endorsed by
petitioner and cashed at Great American Federal.
From May 28 to June 7, 1993, petitioner and her husband took
a vacation to England and Italy which cost approximately $9,000.
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On July 28, 1993, Great American Federal checking bank
account No. 20374823 (the Great American Federal checking
account) was opened in the names of petitioner’s daughters,
“Bridget or Meghan Doyle”. Checks were drawn on this account
from time to time to pay petitioner and her husband’s expenses.8
The bank statements and canceled checks for this account were
mailed to petitioner’s address, where her daughter Meghan Doyle
resided. Additionally, checks made payable to the Doyles were
deposited into the Great American Federal checking account.9
On July 30, 1993, the Internal Revenue Service filed notices
of Federal tax liens against the Doyles for the tax liabilities
redetermined by this Court. Between September 18 and September
25, 1993, petitioner and her husband took a vacation to Italy at
a cost of approximately $11,000.
On September 23, 1993, petitioner’s husband liquidated an
investment interest in Colonial Properties, Inc. The proceeds of
the liquidation were received in the form of a check in the
amount of $20,900 dated September 23, 1993, and made payable to
8
Petitioner’s husband explained their use of the daughters’
bank accounts at a bankruptcy creditor’s meeting: “We had our
daughter Bridget or Meghan write checks for our living expenses
* * *. Quite honestly the reason for this was because we were
worried about putting money into our account * * * and take the
chance and jeopardizing the IRS attaching that money.”
9
On June 10, 1994, petitioner and her husband gave
respondent a collection statement which failed to disclose the
Great American Federal checking account.
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petitioner’s husband. On October 7, 1993, this check was
endorsed and deposited into the Michele/Denise Doyle bank account
No. 2.
On December 23, 1993, petitioner’s husband liquidated an
investment interest in Colonial Properties Services, Inc. The
liquidation proceeds were received in the form of a check in the
amount of $5,543.88. On December 30, 1993, this check was
endorsed and deposited into the Michele/Denise Doyle bank account
No. 2.
On June 10, 1994, petitioner and her husband completed and
signed Form 433-A, Collection Statement for Individuals. On this
form, the Doyles understated the value of their home; they listed
its value as $90,000 even though in February 1993, they had
obtained a $97,500 mortgage on the property.
On December 24, 1994, $8,845.73 was deposited into the
Michele/Denise Doyle bank account No. 1, $8,000 of which was cash
and the balance of which consisted of three checks from
Wellington Power Corp., made payable to petitioner, and one check
from Parker & Parsley Partnership Distribution Account, made
payable to petitioner and her husband. On December 27, 1994,
$8,900 of funds belonging to petitioner and her husband was
deposited into the Michele/Denise Doyle bank account No. 2.
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The Bankruptcy Case
On May 5, 1995, petitioner and her husband filed a voluntary
petition for liquidation under chapter 7 of the U.S. Bankruptcy
Code in the U.S. Bankruptcy Court for the Western District of
Pennsylvania (the bankruptcy case). In the bankruptcy case,
respondent filed a $379,025.90 proof of claim. On June 17, 1996,
the bankruptcy court granted the Doyles a discharge pursuant to
11 U.S.C. sec. 727.
In this case, petitioner initially contended that the income
taxes at issue were discharged in the bankruptcy case. Petitioner
conceded before trial that her joint and several income tax
liabilities for the years 1980 through 1983 were excepted from
bankruptcy discharge pursuant to 11 U.S.C. sec. 523(a)(1)(C).
Payment of Tax Deficiencies
The Doyles have not made any voluntary payments on their
assessed tax liabilities. During 1994 and 1995, respondent
placed a continuing levy on the wages of petitioner’s husband
which resulted in the receipt of $34,672.71 and $14,132.45,
respectively. On June 5, 1995, respondent applied a $6,345
overpayment due the Doyles to their 1980 tax liability. In
addition, respondent retained the following refunds due the
Doyles to offset their assessed tax liabilities:
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Year Refund Claimed and Due
1995 $6,044
1996 839
1997 384
1998 924
1999 637
On October 31, 1994, the Doyles submitted an offer in
compromise of their outstanding tax liabilities. Respondent did
not accept the offer in compromise.
On September 5, 2000, respondent issued to petitioner his
final Notice of Intent To Levy and Notice of Your Right To a
Hearing. On October 2, 2000, petitioner sent to respondent Form
8857, Request for Innocent Spouse Relief, and Form 12153, Request
for Collection Due Process Hearing, with respect to the
aforementioned tax liabilities. On January 23, February 20, and
May 8, 2001, hearings were held with the IRS Appeals Office to
determine the appropriateness of the proposed levy action. On
June 22, 2001, respondent issued a notice of determination
sustaining the proposed levy action. Respondent determined that
the tax liabilities were not discharged in the bankruptcy case,
and that petitioner did not qualify for relief from joint and
several liability under section 6015.
Petitioner’s Background Information
Petitioner has a high school education. From 1962 until
1983, petitioner was a homemaker and stay-at-home mother. During
the years at issue, petitioner had no business experience and no
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earnings. Petitioner never reviewed the returns at issue before
signing them. The returns were prepared by the promoter of the
tax shelters. Petitioner was responsible for paying the family’s
expenses; she wrote the checks for all expenses. At her
husband’s direction, petitioner wrote the checks for the tax
shelter investments. Petitioner and her husband are still
married.
OPINION
Pursuant to section 6330, petitioner sought relief from
respondent’s proposed collection action. Section 6330 allows a
taxpayer to raise appropriate spousal defenses. Petitioner
contends that respondent improperly denied her relief from joint
and several income tax liability under section 6015(b) or (f).
For the reasons stated infra, we sustain respondent’s
determination. Our jurisdiction is predicated upon section
6330(d)(1)(A). See Davis v. Commissioner, 115 T.C. 35, 37
(2000); Sego v. Commissioner, 114 T.C. 604, 610 (2000); Goza v.
Commissioner, 114 T.C. 176, 179 (2000).
Section 6015(b)(1)
Section 6015(b)(1) states five conjunctive requirements that
a taxpayer must meet to qualify thereunder for relief from joint
tax liability. Section 6015(b)(1)(C) requires the spouse seeking
relief to show that in signing the return she did not know, and
had no reason to know, that there was an understatement.
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Petitioner has failed to satisfy this requirement. Petitioner
was aware of the existence of the tax shelter investments; she
wrote the checks. See Alt v. Commissioner, 119 T.C. 306 (2002);
Jonson v. Commissioner, 118 T.C. 106 (2002) (no evidence was
presented that husband concealed or attempted to deceive electing
wife concerning couple’s financial affairs). There is no
evidence that petitioner was denied access to the documents
concerning the tax shelters. See Jonson v. Commissioner, supra
at 119 (spouse had access to financial files). Petitioner has
not alleged that she was misled but only that she relied on her
husband to take care of the returns. See Hayman v. Commissioner,
992 F.2d 1256, 1262 (2d Cir. 1993) (“Although * * * [the
taxpayer] claims to have signed the returns without reading them,
she nevertheless is charged with constructive knowledge of their
contents.”), affg. T.C. Memo. 1992-228; Price v. Commissioner,
887 F.2d 959, 965 (9th Cir. 1989) (spouse cannot obtain benefits
by simply turning a blind eye to facts fully disclosed on
return); Levin v. Commissioner, T.C. Memo. 1987-67 (spouse cannot
obtain benefits of innocent spouse protection in deduction case
“by simply turning a blind eye to-–by preferring not to know of-
–facts fully disclosed on a return, of such a large nature as
would reasonably put such spouse on notice that further inquiry
would need to be made”).
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Relief-seeking taxpayers must also establish, inter alia,
that “taking into account all the facts and circumstances, it is
inequitable to hold the * * * [electing taxpayer] liable for the
deficiency in tax for such taxable year attributable to such
understatement”. Sec. 6015(b)(1)(D) (emphasis added). In
determining the equities, the “Relevant factors include [but are
not limited to] significant benefits received as a result of the
understatements by the spouse claiming relief, [and] any
participation in wrongdoing on the part of the ‘innocent’
spouse”.10 Friedman v. Commissioner, 53 F.3d 523, 532 (2d Cir.
1995), affg. in part and revg. in part on another ground T.C.
Memo. 1993-549; see S. Rept. 91-1537, at 3-4 (1970), 1971-1 C.B.
606, 607-608.11 “Whether the failure to report correctly tax
liability results from ‘concealment, overreaching, or any other
wrongdoing’ on the part of the ‘guilty’ spouse is also relevant.”
Hayman v. Commissioner, supra at 1262; see Jonson v.
Commissioner, supra.
10
Guidance in determining “whether it would be inequitable
to hold a requesting spouse” liable can also be found in Rev.
Proc. 2000-15, 2000-1 C.B. 447. See sec. 1.6015-2(d), Income Tax
Regs.
11
Since sec. 6015(b)(1) is similar to former sec.
6013(e)(1), we may look to cases interpreting former sec.
6013(e)(1) for guidance when analyzing sec. 6015(b)(1). Butler
v. Commissioner, 114 T.C. 276, 283 (2000); Rowe v. Commissioner,
T.C. Memo. 2001-325.
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One particularly relevant factor “is whether the requesting
spouse significantly benefited, directly or indirectly, from the
understatement.”12 Sec. 1.6015-2(d), Income Tax Regs. “Normal
support”, however, is not considered a significant benefit. See
Friedman v. Commissioner, supra at 532; Hayman v. Commissioner,
supra at 1262; Flynn v. Commissioner, 93 T.C. 355, 367 (1989).
“‘Unusual support or transfers of property to the spouse would,
however, constitute “benefit” and should be taken into
consideration * * *’ even when the benefit was received ‘several
years after the year in which the omitted item should have been
included in gross income’”. Estate of Krock v. Commissioner, 93
T.C. 672, 679 (1989) (quoting S. Rept. 91-1537, supra at 3,
1971-1 C.B. at 607-608); see Hayman v. Commissioner, supra at
1262.
We find that petitioner significantly benefited from the
unpaid liability or items giving rise to the deficiency. See
Rev. Proc. 2000-15, sec. 4.03(2)(c), 2000-1 C.B. 447, 449. The
Doyles received significant tax refunds as a result of the tax
12
The original predecessor of sec. 6015 explicitly required
the consideration of “whether or not the other spouse
significantly benefitted directly or indirectly from the items
omitted from gross income.” See Act of Jan. 12, 1971, Pub. L.
91-679, sec. 1, 84 Stat. 2063. Although such consideration is no
longer an explicit requirement of the statute, nonetheless, it is
still a factor of significance. See Estate of Krock v.
Commissioner, 93 T.C. 672, 679 (1989); Purcell v. Commissioner,
86 T.C. 228, 242 (1986), affd. 826 F.2d 470 (6th Cir. 1987); H.
Rept. 98-432 (Part 2), at 1501, 1502 (1984).
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shelter deductions.13 Petitioner testified that the refund
checks were deposited into the family checking account to “Do the
household things we wanted to do.” Additionally, the parties’
stipulation that petitioner and her husband enjoyed two vacation
trips to Europe immediately after this Court’s decision that the
couple owed significant amounts of Federal income tax weighs
heavily against her.
In determining the equity of the sought-after relief, we
also find it significant that petitioner and her husband tried to
thwart respondent’s collection activities. The record
demonstrates that after this Court sustained respondent’s
deficiency determinations, petitioner and her family engaged in a
systematic plan to put their assets beyond the reach of
respondent’s legitimate collection activities. Petitioner and
her husband encumbered their personal residence, which they had
previously owned lien free. The proceeds of the mortgage were
immediately converted into cash and cash equivalents and spread
among petitioner’s children by deposit into freshly opened bank
accounts in the children’s names. Petitioner and her husband
liquidated investments and transferred the funds to their
children. The children used transferred funds to pay their
13
By their very nature, the erroneous deductions provided
the Doyles with more disposable income than they otherwise would
have had. For example, the Doyles “sheltered” approximately 69
percent of their 1980 income.
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parents’ expenses. Petitioner and her husband took two trips to
Europe at a cost of approximately $20,000. Petitioner and her
husband transferred real property to their son for $1.
Considering the above, there can be no question that petitioner
materially participated in this plan to make herself and her
husband “collection proof”. It is elementary, of course, that
one seeking equity must do equity. Given the facts of this case,
it is not inequitable to deny petitioner relief from joint income
tax liability.
Equitable Relief-–Section 6015(f)
Alternatively, petitioner asks us to hold that respondent
abused his discretion in denying her equitable relief pursuant to
section 6015(f). See Cheshire v. Commissioner, 115 T.C. 183, 198
(2000), affd. 282 F.3d 326 (5th Cir. 2002); Butler v.
Commissioner, 114 T.C. 276, 292 (2000). Since section 6015(f) is
similar to section 6015(b)(1)(D) and the equitable factors
considered are the same, we hold that respondent did not abuse
his discretion by denying petitioner’s request for relief under
section 6015(f). See Alt v. Commissioner, 119 T.C. at 316;
Barranco v. Commissioner, T.C. Memo. 2003-18.
Conclusion
Respondent did not err in denying petitioner relief from
joint and several income tax liability under section 6015(b) or
(f). We hold that respondent correctly determined that
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collection by levy should proceed. Accordingly, we shall enter a
decision upholding respondent’s proposed collection action.
To reflect the foregoing,
Decision will be entered
for respondent.