T.C. Memo. 2003-255
UNITED STATES TAX COURT
LINDA M. WEILER, a.k.a. LINDA M. KRUPNICK, Petitioner v.
COMMISSIONER OF INTERNAL REVENUE, Respondent
ROBERT J. WEILER, Petitioner v.
COMMISSIONER OF INTERNAL REVENUE, Respondent
Docket Nos. 5322-00, 5728-00. Filed August 25, 2003.
Linda M. Weiler, pro se.
Robert J. Weiler, pro se.
Steven M. Roth, for respondent.
MEMORANDUM FINDINGS OF FACT AND OPINION
VASQUEZ, Judge: Respondent determined a $4,428 deficiency
in and an $885.60 penalty pursuant to section 6662(a)1 on
1
Unless otherwise indicated, all section references are to
(continued...)
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petitioners’ 1995 Federal income taxes. Respondent also
determined that neither petitioner qualified for relief from
joint and several liability pursuant to section 6015(b), (c), or
(f). After concessions,2 the issue for decision is each
petitioner’s entitlement to relief from joint and several
liability pursuant to section 6015(b) and (c) for 1995.3
FINDINGS OF FACT
Some of the facts have been stipulated and are so found.
The stipulation of facts and the attached exhibits are
incorporated herein by this reference. At the time they filed
the petitions, petitioners both resided in Westlake Village,
California.
Sometime before 1990, petitioners married. Petitioners
filed joint income tax returns every year they were married.
During the last half of 1994 and all of 1995, petitioners lived
apart.
1
(...continued)
the Internal Revenue Code, and all Rule references are to the Tax
Court Rules of Practice and Procedure.
2
Petitioners concede the adjustments determined in the
notice of deficiency. Respondent and petitioners have made
concessions regarding petitioners’ entitlement to relief pursuant
to sec. 6015(b) and (c). For purposes of clarity, those
concessions are discussed infra.
3
In their petitions, petitioners sought relief pursuant to
sec. 6015(b) and (c). Accordingly, sec. 6015(f) is not in issue.
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As of the time of trial, Linda M. Weiler (Ms. Weiler) had
been in the aerobics and fitness business for approximately 18
years. During 1995, Ms. Weiler was an aerobics and fitness
instructor. Ms. Weiler worked several jobs at the Westlake
Sporthouse (Sporthouse)--some were as an employee; others were as
an independent contractor. During 1995, Ms. Weiler received
$22,485 of income from Sporthouse. Sporthouse reported $8,420 of
Ms. Weiler’s income on a Form W-2, Wage and Tax Statement, and
$14,065 on a Form 1099-MISC, Miscellaneous Income. During 1995,
Ms. Weiler also worked at other gyms teaching classes.
In early 1996, when he was assembling the information to
have their 1995 joint Federal income tax return (1995 return)
prepared, Robert J. Weiler (Mr. Weiler) asked Ms. Weiler for the
information she had regarding her income and expenses. Ms.
Weiler gave Mr. Weiler her Forms W-2 from Fitness ‘90 and
Sporthouse. Ms. Weiler did not give Mr. Weiler the Form 1099
from Sporthouse. In prior years, Ms. Weiler had given Mr. Weiler
all of her Forms W-2 and Forms 1099, and the income on those
forms was reported on their tax returns.
Ms. Weiler also indicated to Mr. Weiler that she had $1,250
of income from private lessons. Ms. Weiler gave Mr. Weiler
documents associated with the expenses incurred in connection
with her aerobic and fitness business.
Ragnar Storm-Larsen, Mr. Weiler’s accountant, prepared the
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1995 return. Mr. Weiler listed his occupation as “outside
sales”, and Ms. Weiler listed her occupation as “self employed”.
Both petitioners signed the 1995 return.
On the 1995 return, petitioners reported their Form W-2
income. On Schedule C, Profit or Loss From Business, petitioners
claimed a $7,796 loss associated with an aerobic and fitness
business. Mr. Weiler’s name and Social Security number were on
the Schedule C.4 The loss was made up of $1,250 in gross
receipts and $9,046 of total expenses. Petitioners, on Schedule
A, Itemized Deductions, claimed $20,957 of unreimbursed employee
expenses related to Mr. Weiler’s business. Petitioners did not
report any self-employment tax due or claim a self-employment tax
deduction. Petitioners reported $122 of alternative minimum tax
due.
Petitioners did not report the $14,065 of Form 1099 income
paid to Ms. Weiler by Sporthouse. In early 1996, Ms. Weiler was
aware of the Form 1099. Before the audit of their 1995 tax year
in 1998, Mr. Weiler was unaware of Ms. Weiler’s $14,065 of
additional income from Sporthouse. Around the time of the audit,
Ms. Weiler stated to Mr. Weiler that she had forgotten to tell
him about it. Ms. Weiler never took any steps to amend the 1995
4
Mr. Weiler was not engaged in an aerobic and fitness
business in 1995.
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return to include the Form 1099 income she received from
Sporthouse.
On January 5, 1997, petitioners’ divorce became final.
Respondent mailed each petitioner a notice of deficiency for
1995 and a notice of determination concerning relief from joint
and several liability under section 6015 (notice of
determination).
In the notice of deficiency, respondent determined the
following adjustments: (1) Disallowance of a $7,796 Schedule C
loss of Mr. Weiler, (2) an increase of $15,315 in Schedule C
gross receipts of Ms. Weiler, (3) allowance of $9,046 in Schedule
C expenses for Ms. Weiler, (4) an increase of $886 in self-
employment tax, (5) allowance of a $443 deduction for self-
employment tax, (6) disallowance of $4,841 in itemized deductions
(unreimbursed employee expenses) of Mr. Weiler, (7) an increase
of $2 in alternative minimum tax, and (8) an $885.60 section 6662
penalty.
In the notice of determination, respondent determined that
neither petitioner qualified for relief from joint and several
liability pursuant to section 6015(b), (c), or (f) for 1995.
OPINION
This is a messy and somewhat convoluted case. Essentially,
however, the case boils down to the following: (1) Mr. Weiler
seeks relief pursuant to section 6015(b) and (c) from the items
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in the notice of deficiency attributable or allocable to Ms.
Weiler, (2) Mr. Weiler seeks relief from the penalties and
interest on the items in the notice of deficiency attributable or
allocable to himself, and (3) Ms. Weiler seeks relief pursuant to
section 6015(b) and (c) from all the items in the notice of
deficiency.
In general, spouses filing joint Federal income tax returns
are jointly and severally liable for all taxes due. Sec.
6013(d)(3). Under certain circumstances, however, section 6015
provides relief from this general rule.
At trial, respondent initially claimed that neither
petitioner was entitled to relief pursuant to section 6015(b) but
conceded that each petitioner was entitled to relief from
liability associated with certain items pursuant to section
6015(c). After initial statements by both petitioners, however,
respondent withdrew his concession that petitioners were entitled
to relief pursuant to section 6015(c). Respondent stated that he
wished to hear the testimony of petitioners before conceding that
petitioners were entitled to relief pursuant to section 6015(c).
A. Additional Schedule C Income of $14,065
Respondent increased petitioners’ Schedule C income by
$14,065.5 Respondent recharacterized the Schedule C income as
5
At trial respondent noted that the $1,250 in gross
receipts reported on Schedule C of the 1995 return is not an
(continued...)
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Ms. Weiler’s income (instead of Mr. Weiler’s income).
Accordingly, respondent disallowed the Schedule C loss to Mr.
Weiler and allowed in full to Ms. Weiler the expenses claimed on
the Schedule C (altogether, the $14,065 adjustment). The $14,065
adjustment is attributable and allocable to Ms. Weiler.
Respondent concedes, and we agree, that Mr. Weiler is relieved
from liability for tax and penalties attributable or allocable to
the $14,065 adjustment. Sec. 6015(b) and (c).
We note that the term “tax” in section 6015(b)(1) and (2) is
not limited to any particular type of tax or portion of the
Internal Revenue Code; however, to be an “understatement” of tax
it has to be a tax required to be shown on the tax return. Secs.
6015(b)(3), 6662(d)(2)(A). Alternative minimum tax and self-
employment tax are reported on Form 1040, U.S. Individual Income
Tax Return.
Additionally, section 6015(c) provides relief from liability
for a “deficiency”. Alternative minimum tax and self-employment
tax are income taxes imposed by subtitle A. Secs. 55, 1401.
Accordingly, alternative minimum tax and self-employment tax are
types of tax included in the definition of a deficiency. Sec.
5
(...continued)
adjustment determined in the notice of deficiency. Petitioners
agree that this $1,250 is not in dispute. Ms. Weiler does not
dispute that she earned the $1,250 of gross receipts reported on
the 1995 return in addition to the $14,065 listed on the Form
1099 from Sporthouse.
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6211(a); see also sec. 6015(d)(2)(B) (discussing section 55 with
regard to the allocation of a deficiency for purposes of section
6015(c)). Therefore, we conclude that Mr. Weiler is relieved
from liability for the income (section 1) tax, self-employment
tax, and alternative minimum tax attributable or allocable to the
$14,065 adjustment.
Respondent’s concession, however, does not address whether
Mr. Weiler is relieved from the interest attributable or
allocable to the $14,065 adjustment. Section 6015(b) clearly
provides relief from liability for interest attributable to an
understatement from which the taxpayer is entitled to relief
pursuant to section 6015(b). Accordingly, we conclude that Mr.
Weiler is relieved from liability for the interest attributable
to the $14,065 adjustment.
Ms. Weiler also seeks relief pursuant to section 6015(b) and
(c) from liability for tax, penalties, interest, and other
amounts attributable or allocable to the $14,065 adjustment. We
conclude that Ms. Weiler is not relieved from liability for tax,
penalties, interest, and other amounts attributable or allocable
to the $14,065 adjustment because it was her income.6 Sec.
6
The Senate report discussing the allocation rule in sec.
6015(d)(3)(B) states: “In general, apportionment of items of
income are expected to follow the source of the income. * * *
Business * * * income * * * is allocated in the same proportion
as the ownership of the business * * * that produces the income.”
S. Rept. 105-174, at 57 (1998), 1998-3 C.B. 537, 593. The
(continued...)
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6015(b), (c), and (d); Hopkins v. Commissioner, 121 T.C. ___
(2003).
B. Disallowed Schedule A Deductions of $4,841
Respondent also increased petitioners’ income by $4,841
(associated with the disallowance of some of Mr. Weiler’s
unreimbursed employee expenses) (the $4,841 adjustment). The
$4,841 adjustment is attributable and allocable to Mr. Weiler.
Respondent concedes, and we agree, that Ms. Weiler is relieved
from liability for tax (including alternative minimum tax) and
penalties attributable or allocable to the $4,841 adjustment.
Sec. 6015(b) and (c).
Respondent’s concession, again, does not address whether Ms.
Weiler is relieved from the interest attributable or allocable to
the $4,841 adjustment. For the reasons stated supra, we conclude
that Ms. Weiler is relieved from liability for the interest
attributable to the $4,841 adjustment.
Mr. Weiler seeks to be relieved from the penalties and
interest associated with the $4,841 adjustment.7 We conclude
6
(...continued)
business that produced the $14,065 adjustment was Ms. Weiler’s.
Accordingly, the income associated with this business is
allocable to her.
7
Mr. Weiler concedes that he owes the money associated
with the disallowance of some of his unreimbursed employee
expenses. We construe this concession to mean that Mr. Weiler
agrees that he is liable for the taxes attributable or allocable
to the $4,841 adjustment. We note that the exception contained
(continued...)
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that Mr. Weiler is not relieved from liability for penalties and
interest attributable or allocable to the $4,841 adjustment
because it resulted from the disallowance of his expenses. Sec.
6015(b), (c), and (d); Hopkins v. Commissioner, supra.
C. Underlying Liability for the Penalty and Interest Abatement
In the stipulation of facts, Mr. Weiler conceded the
adjustments determined in the notice of deficiency. Therefore,
we do not construe his request that the penalty be waived to be a
challenge to the merits of his underlying liability for the
penalty. Accordingly, this is not in issue.
Mr. Weiler’s contention that the interest attributable to
the $4,841 adjustment should be abated is broad enough to be
considered a request for interest abatement pursuant to section
6404. The concession in the stipulation of facts regarding the
adjustments determined in the notice of deficiency can be read as
not including the issue of interest abatement. For the sake of
completeness, we shall address this issue.
The Tax Court is a court of limited jurisdiction and may
exercise jurisdiction only to the extent authorized by Congress.
Naftel v. Commissioner, 85 T.C. 527, 529 (1985). The question of
7
(...continued)
in sec. 6015(d)(3)(B) does not apply because Mr. Weiler had
sufficient income to offset the disallowed deduction. See
Hopkins v. Commissioner, 121 T.C. ___ (2003)
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the Court’s jurisdiction is fundamental and must be addressed
when raised by a party or on the Court’s own motion. Id. at 530.
Consistent with section 6404(h)(1), the Court’s jurisdiction
over interest abatement cases depends on a valid notice of final
determination and a timely filed petition for review. See Rule
280(b); Gati v. Commissioner, 113 T.C. 132, 134 (1999). But cf.
Katz v. Commissioner, 115 T.C. 329, 340-341 (2000). The Court
does not have jurisdiction to decide whether the Commissioner’s
failure to abate interest under section 6404 constitutes an abuse
of discretion unless or until the Commissioner has made a “final
determination” not to abate interest. Bourekis v. Commissioner,
110 T.C. 20, 25-26 (1998); Sigel v. Commissioner, T.C. Memo.
2001-138.
The record does not indicate that Mr. Weiler submitted a
request for interest abatement or that respondent made a final
determination denying a request for interest abatement.
Accordingly, we conclude that the Court lacks jurisdiction under
section 6404(h) to decide this issue.8
8
This is so regardless of whether Mr. Weiler raised this
issue in a petition from the notice of deficiency or the notice
of determination. See Block v. Commissioner, 120 T.C. 62, 68
(2003) (in a “stand alone” case brought pursuant to sec. 6015(e)
our jurisdiction is limited to reviewing the Commissioner’s
denial of relief from an existing joint and several tax liability
under subsecs. (b), (c), and (f) of sec. 6015); Muir v.
Commissioner, T.C. Memo. 2000-304 n.2 (in the deficiency context,
consideration of a taxpayer’s request for abatement of interest
is premature as there has been no assessment of interest), affd.
(continued...)
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D. Rule 155 Computation
Where we file or state our opinion, we may withhold entry of
decision for the purpose of permitting the parties to submit
computations pursuant to our determination of the issues, showing
the correct amount of deficiency, liability, or overpayment to be
entered as the decision. Rules 155(a), 320(a) (except as
otherwise provided, the other Rules of Practice and Procedure, to
the extent pertinent, are applicable to actions for the
determination of relief from joint and several liability pursuant
to section 6015).
We recognize that the amount of relief from liability each
petitioner is entitled to, and therefore each petitioner’s
ultimate liability, may be different under section 6015(b) and
(c). We leave it to the parties to compute the amount of relief
from liability each petitioner is entitled to under section
6015(b) and (c). Given the remedial nature of section 6015, we
expect that the parties will submit the computation for an entry
of a decision that is most beneficial to each petitioner (i.e.,
the one that relieves each petitioner from the largest total
amount). See Cheshire v. Commissioner, 115 T.C. 183, 188-189
(2000), affd. 282 F.3d 326 (5th Cir. 2002); H. Conf. Rept. 105-
599, at 249-255 (1998), 1998-3 C.B. 747, 1003-1009.
8
(...continued)
11 Fed. Appx. 701 (8th Cir. 2001).
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To reflect the foregoing,
Decisions will be entered
under Rule 155.