T.C. Summary Opinion 2003-142
UNITED STATES TAX COURT
JANICE L. CARDIFF, f.k.a. JANICE DUNN, Petitioner, STEPHEN DUNN,
Intervenor v. COMMISSIONER OF INTERNAL REVENUE, Respondent
Docket No. 16011-02S. Filed October 1, 2003.
Janice L. Cardiff, pro se.
Stephen Dunn, pro se.
Sylvia Shaughnessy, for respondent.
PAJAK, Special Trial Judge: This case was heard pursuant to
the provisions of section 7463 of the Internal Revenue Code in
effect at the time the petition was filed. Unless otherwise
indicated, section references are to the Internal Revenue Code as
amended. The decision to be entered is not reviewable by any
other court, and this opinion should not be cited as authority.
This Court must decide whether respondent abused his
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discretion in determining that petitioner qualified for full
equitable relief under section 6015(f).
Some of the facts in this case have been stipulated and are
so found. Petitioner resided in Oceanside, California, at the
time she filed her petition. Intervenor resided in Vista,
California, at the time of the filing of the Notice of
Intervention in this case.
Petitioner and intervenor, while married, jointly filed a
Form 1040, U.S. Individual Income Tax Return, for 1994.
The 1994 return reflects a balance due of $4,531. Neither
petitioner nor intervenor paid this amount when the 1994 return
was filed. A portion of the amount plus statutory accruals
remains unpaid.
Petitioner and intervenor legally separated sometime during
1995, and were divorced on November 20, 1996. Neither the
divorce decree nor the marital separation agreement allocates or
addresses responsibility for payment of the 1994 income tax
liability.
In 1996, petitioner filed a Chapter 7 bankruptcy petition,
but the 1994 income tax debt was not discharged because the 1994
tax return was due within the 3-year period prior to the filing
of the petition.
On May 29, 2001, petitioner filed a Form 8857, Request for
Innocent Spouse Relief, seeking relief from liability for the
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underpayment of 1994 income taxes at issue herein, as well as for
an unpaid income tax deficiency for 1992.
In the Final Notice of Determination dated July 24, 2002,
respondent granted partial relief (50 percent) to petitioner from
joint and several liability for the tax liability on the 1994
joint return.
After petitioner filed the petition in this case, the
administrative file was forwarded to the San Diego Appeals Office
for consideration. The Appeals Officer recommended that
petitioner be granted full relief from joint and several
liability for the underpayment as requested, rather than only 50
percent relief as previously determined.
Intervenor filed his Notice of Intervention on December 31,
2002. He disputes that petitioner is entitled to full equitable
relief from joint liability instead of the 50 percent relief
previously granted by respondent in the final determination
letter upon which petitioner’s case is based.
In this case, we are concerned only with section 6015(f).
Section 6015(f) provides in pertinent part:
SEC. 6015(f). Equitable Relief.–-Under procedures
prescribed by the Secretary, if--
(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);
* * * * * * *
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the Secretary may relieve such individual of such liability.
The Court applies an abuse of discretion standard to review
respondent’s determinations under section 6015(f). Jonson v.
Commissioner, 118 T.C. 106, 125 (2002); 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).
As directed by section 6015(f), the Commissioner prescribed
procedures to use in determining whether the requesting spouse
qualifies for relief under section 6015(f). Those procedures are
found in Rev. Proc. 2000-15, 2000-1 C.B. 447. Rev. Proc. 2000-
15, sec. 3, 2000-1 C.B. at 448, is applicable to any liability
for tax arising on or before July 28, 1998, that was unpaid on
that date. The revenue procedure includes a partial list of the
positive and negative factors to be considered, including whether
the requesting spouse is divorced, whether the requesting spouse
would suffer undue economic hardship, whether the requesting
spouse had no reason to know that the liability would not be
paid, and whether the requesting spouse significantly benefitted
beyond normal support from the unpaid liability. Id. sec.
4.03(1) and (2), 2000-1 C.B. at 448-449. “No single factor will
be determinative of whether equitable relief will or will not be
granted in any particular case. Rather, all factors will be
considered and weighed appropriately.” Id. sec. 4.03.
In concluding that petitioner be granted full relief from
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liability, respondent pointed out that the earlier determination
erroneously computed petitioner’s liability under the community
property rules. Section 6015(a) provides that a determination
under this section is to be made without regard to community
property rules.
Petitioner is divorced.
On the 1994 return, $65,580 is income from Schedule E,
Supplemental Income and Loss, from intervenor’s S corporation,
Construction Planning & Management, Inc. The rest of the income
is from petitioner’s wages as a fitness instructor of $4,434, an
annuity distribution to her of $1,076, and unemployment
compensation to her of $3,510. Petitioner also had a loss of
$2,610 as reported on her Schedule C, Profit or Loss From
Business. Petitioner had withholding of $688 and intervenor made
estimated payments of $883. Respondent concluded that the
underpayment of tax was due to intervenor’s failure to make
estimated payments on his income.
Intervenor strictly controlled the family finances and had
total control over the moneys. He also prepared all the tax
returns and presented a completed return to petitioner and told
her to “sign this.” Petitioner stated that she had no reason to
believe that intervenor was not paying taxes on moneys he earned.
She also stated that she did not have any knowledge or belief
that the taxes had not been paid. Respondent gave petitioner the
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benefit of the “no reason to know” factor under Rev. Proc. 2000-
15, supra.
Petitioner submitted an income and expense declaration to
respondent, which showed monthly expenses exceeding her monthly
income by $1,605. At trial, intervenor mentioned a house
petitioner owns. As a result of the divorce, the house owned by
petitioner and intervenor was foreclosed. Subsequently, family
friends gave petitioner a house, in which she lives with her
children. Petitioner has a tenant and uses the rent to make
mortgage payments. The rent is less than the interest due and no
payments are made on principal. Petitioner explained this
resulted in negative amortization and the principal increases
each month. Respondent concluded that petitioner would suffer
undue economic hardship.
Because of the manner in which intervenor controlled the
finances, petitioner did not benefit beyond normal support from
the unpaid liability. Respondent gave petitioner the benefit of
this factor.
Based on our review of the record, we find that respondent
did not abuse his discretion in concluding that petitioner was
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entitled to full relief from the joint and several 1994 income
tax liability.
Reviewed and adopted as the report of the Small Tax Case
Division.
Decision will be entered
for petitioner.