T.C. Summary Opinion 2004-16
UNITED STATES TAX COURT
SANDRA BROWDA, Petitioner, AND DAVID BROWDA, Intervenor v.
COMMISSIONER OF INTERNAL REVENUE, Respondent
Docket No. 17710-02S. Filed February 12, 2004.
Sandra Browda, pro se.
David Browda, pro se.
Michael E. Melone, for respondent.
ARMEN, Special Trial Judge: This case was heard pursuant to
the provisions of section 7463 of the Internal Revenue Code in
effect at the time that the petition was filed.1 The decision to
1
Unless otherwise indicated, all subsequent section
references are to the Internal Revenue Code in effect for the
taxable years in issue, and all Rule references are to the Tax
Court Rules of Practice and Procedure.
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be entered is not reviewable by any other court, and this opinion
should not be cited as authority.
Pursuant to the provisions of section 6015, petitioner made
an administrative request for relief from Federal income tax
liabilities for the taxable years 1994, 1995, 1996, 1997, and
1998. Respondent denied petitioner’s request for relief in a
notice of determination issued on October 11, 2002. Petitioner
timely filed a petition with this Court under section 6015(e) for
review of respondent’s determination. Intervenor, petitioner’s
former husband, filed a Notice of Intervention under Rule 325(b)
and opposes such relief.
The sole issue for decision is whether respondent abused his
discretion in denying petitioner relief from joint and several
liability under section 6015(f). We hold that he did.
Background
Some of the facts have been stipulated, and they are so
found. Petitioner resided in Berkeley, California, at the time
that her petition was filed with the Court.
Petitioner and intervenor David Browda (intervenor) were
married to each other on March 22, 1970, and had one child, a
daughter, during their marriage. In or about 1972, petitioner
and intervenor jointly purchased a home in which they resided
throughout their marriage.
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Petitioner is a high school graduate who was employed as a
librarian by a law firm during the taxable years in issue.
Petitioner’s employer withheld taxes from her wages, and such
withholding was more than sufficient to pay petitioner’s personal
income tax liabilities. Intervenor is a college graduate who was
self-employed as a salesman during the taxable years in issue.
Intervenor did not make estimated quarterly tax payments in
respect of his self-employment income; rather, he relied on
petitioner’s excess withholding to satisfy, at least in part, his
personal income tax liabilities.
Petitioner and intervenor maintained separate bank accounts
throughout their marriage. Petitioner primarily paid the monthly
expenses related to their daughter. Intervenor was responsible
for paying most of the household expenses, which included, among
other things, the monthly home mortgage, property taxes, auto
insurance, and household utilities.
Petitioner and intervenor filed joint Federal and State
income tax returns during their marriage. Petitioner did not
participate in the preparation of any of their joint tax returns.
Each year petitioner gave her Form W-2, Wage and Tax Statement,
to intervenor who had the tax return prepared by a paid preparer.
Petitioner willingly signed each tax return without meticulous
examination. Prior to the taxable years in issue, intervenor
paid all income tax balances due with respect to the couple’s
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jointly filed tax returns.
Several times during the couple’s marriage, the California
Franchise Tax Board notified petitioner and her employer that her
wages would be subject to garnishment for intervenor’s share of
the unpaid State income taxes reported on their jointly filed
State income tax returns. On each such occasion, petitioner
notified intervenor of the impending garnishment and intervenor
paid the State income taxes due.
Petitioner and intervenor filed joint Federal income tax
returns for the taxable years 1994, 1995, 1996, 1997, and 1998.
The tax returns were prepared by a paid income tax return
preparer. The 1994 tax return was filed on September 23, 1996;
the 1995 tax return was filed on October 21, 1996; and the 1996,
1997, and 1998 tax returns were filed on October 23, 2000.2
After prepayments consisting principally of petitioner’s tax
withholdings, petitioner and intervenor reported the following
balances of tax due on each tax return:3
2
The 1994 tax return had no date with petitioner’s
signature. However, intervenor signed the 1994 tax return on
Sept. 17, 1996. Petitioner signed the 1995 tax return on Oct.
14, 1996. The 1996 tax return had no date with petitioner’s
signature. However, intervenor signed the 1996 tax return on
Aug. 31, 1998. Petitioner signed the 1997 return on Aug. 31,
1998. Petitioner signed the 1998 return on Mar. 8, 2000.
3
All amounts have been rounded.
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Year Amount of Taxes Due1
1994 $1,484
1995 2,397
1996 4,490
1997 7,291
1998 6,727
1
Given petitioner’s excess withholdings, these amounts
relate to intervenor’s self-employment taxes and sec. 1 income
taxes on intervenor’s self-employment income.
No payments were submitted with any of the tax returns.4
Petitioner knew that there was a balance of tax due with respect
to each filed tax return.
Petitioner and intervenor were legally separated on October
29, 1999.
In 2000, petitioner notified intervenor that her 1999 tax
refund in the amount of $921 had been applied by respondent
toward the prior years’ unpaid joint tax liabilities. On August
2, 2000, intervenor sent petitioner a check for $921 to reimburse
her for her 1999 tax refund.5
Petitioner and intervenor sold their jointly owned home in
2000. No portion of the sale proceeds was applied to the
outstanding tax liabilities in issue.
4
During 1997 and 1998, intervenor made tax payments to
respondent toward the 1994 tax liability which totaled $778. A
$250 payment was also made with respect to the 1996 tax liability
at the time a Form 4868, Application for Automatic Extension of
Time To File U.S. Individual Income Tax Return, was filed for the
1996 taxable year.
5
Petitioner did not learn that her 1999 tax refund had
been applied by respondent toward the prior years’ unpaid joint
tax liabilities before signing any of the tax returns for the
taxable years in issue.
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Petitioner and intervenor were divorced in 2001.
On October 1, 2001, petitioner submitted to respondent a
Form 8857, Request for Innocent Spouse Relief, requesting section
6015 relief. Petitioner lived apart from intervenor during the
12-month period preceding her request.
On November 5, 2001, petitioner submitted to respondent a
completed Innocent Spouse Questionnaire and related attachments.
On November 14, 2001, respondent received from intervenor a
Form 12507, Innocent Spouse Statement, and a Form 12508, Innocent
Spouse Information Request.
On March 11, 2002, respondent sent a preliminary letter to
petitioner notifying her that she was not entitled to relief
under section 6015.
In April 2002, petitioner submitted to respondent a Form
12509, Statement of Disagreement. Petitioner also submitted a
Form 433-A, Collection Information Statement for Wage Earners and
Self-Employed Individuals.
On October 11, 2002, respondent issued a notice of
determination advising petitioner that she was not entitled to
relief under section 6015.
Discussion
As a general rule, spouses filing a joint Federal income tax
return are jointly and severally liable for all taxes shown on
the return or found to be owing. Sec. 6013(d)(3); Cheshire v.
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Commissioner, 115 T.C. 183, 188 (2000), affd. 282 F.3d 326 (5th
Cir. 2002). However, relief from joint and several liability is
available to certain taxpayers under section 6015. There are
three types of relief available under section 6015: (1) Section
6015(b)(1) provides full or apportioned relief from joint and
several liability; (2) section 6015(c) provides proportionate tax
relief to divorced or separated taxpayers; and (3) section
6015(f) provides equitable relief from joint and several
liability in certain circumstances if neither section 6015(b) nor
(c) is available.
Petitioner concedes that she is not eligible for relief
under either section 6015(b) or (c). Petitioner has instead
requested equitable relief under section 6015(f).
Section 6015(f) provides:
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); and
(2) relief is not available to such
individual under subsection (b) or (c),
the Secretary may relieve such individual of such
liability.
We review respondent’s denial of equitable relief to
petitioner after a trial de novo and under an abuse of discretion
standard. Ewing v. Commissioner, 122 T.C. (2004); Cheshire
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v. Commissioner, supra at 198; Butler v. Commissioner, 114 T.C.
276, 292 (2000). Petitioner bears the burden of proving that
respondent’s denial of equitable relief under section 6015(f) was
an abuse of discretion. Rule 142(a); Alt v. Commissioner, 119
T.C. 306, 311 (2002); Jonson v. Commissioner, 118 T.C. 106, 113
(2002), affd. 353 F.3d 1181 (10th Cir. 2003). Petitioner must
demonstrate that respondent exercised his discretion arbitrarily,
capriciously, or without sound basis in fact or law. Jonson v.
Commissioner, supra at 125; Woodral v. Commissioner, 112 T.C. 19,
23 (1999).
As directed by section 6015(f), the Commissioner has
prescribed procedures to be used in determining whether the
requesting spouse qualifies for relief from joint and several
liability under section 6015(f). These procedures are set forth
in Revenue Procedure 2000-15, 2000-1 C.B. 447 (the revenue
procedure).6 Where, as here, the requesting spouse satisfies the
threshold conditions,7 section 4.02(1) of the revenue procedure
sets forth the circumstances under which respondent ordinarily
will grant relief to that spouse under section 6015(f) in a case
like the instant case where a liability is reported on a joint
return but not paid. Subject to limitations not applicable here,
6
As relevant herein, Rev. Proc. 2000-15, sec. 3, 2000-1
C.B. 447, 448, is applicable with respect to any liability for
tax arising after July 22, 1998, or any liability for tax arising
on or before July 22, 1998, that was unpaid on that date.
7
Respondent concedes that petitioner has satisfied the
threshold conditions of Rev. Proc. 2000-15, sec. 4.01, supra.
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section 4.02(1) of the revenue procedure provides that equitable
relief will ordinarily be granted if all of the following
elements are satisfied:
(a) At the time relief is requested, the
requesting spouse * * * has not been a member of the
same household as the nonrequesting spouse at any time
during the 12-month period ending on the date relief
was requested;
(b) At the time the return was signed, the
requesting spouse had no knowledge or reason to know
that the tax would not be paid. The requesting spouse
must establish that it was reasonable for the
requesting spouse to believe that the nonrequesting
spouse would pay the reported liability. * * *; and
(c) The requesting spouse will suffer economic
hardship if relief is not granted. For purposes of
this section, the determination of whether a requesting
spouse will suffer economic hardship will be made by
the Commissioner or the Commissioner’s delegate, and
will be based on rules similar to those provided in
section 301.6343-1(b)(4) of the Regulations on
Procedure and Administration. [Rev. Proc. 2000-15, sec.
4.02(1), 2000-1 C.B. at 448]
Respondent concedes that petitioner lived apart from
intervenor during the 12-month period preceding the date of her
request for equitable relief and that petitioner will suffer
economic hardship if relief is not granted.
A. Knowledge or Reason To Know
The relevant knowledge in the case of a reported but unpaid
liability is whether when the return was signed, the taxpayer
knew or had reason to know “that the tax would not be paid.” Id.
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sec. 4.02(1)(b). Accordingly, we must consider whether, “taking
into account all the facts and circumstances”, sec. 6015(f)(1),
petitioner knew or had reason to know that intervenor would not
pay the taxes on intervenor’s self-employment income shown as due
on the tax returns for the taxable years in issue.
Petitioner contends that she had no knowledge that any of
the unpaid joint tax liabilities would not be paid by intervenor.
Petitioner did know that there were income taxes due for each of
the taxable years in issue when she signed each tax return.
However, petitioner testified that “[Intervenor] said that he
would take care of the [taxes] due, as my taxes were taken out of
my paycheck and none were taken out of his. And he did pay the
taxes. He paid the taxes for most of the years.” Having
observed petitioner’s appearance and demeanor at trial, we find
her testimony to be honest, forthright, and credible. In
addition, petitioner’s testimony is corroborated by the fact that
intervenor did generally pay the tax balances due as a result of
intervenor’s self-employment income as reported on the couple’s
jointly filed income tax returns. Accordingly, we conclude that
petitioner had no knowledge that intervenor would not pay the
taxes due on the tax returns filed for the taxable years in
issue.
Petitioner likewise contends that she had no reason to know
that intervenor would not pay those tax liabilities. Petitioner
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and intervenor maintained separate checking accounts at all times
during their marriage. Intervenor was responsible for paying the
vast majority of the household expenses, including the monthly
mortgage payment, property taxes, automobile insurance, and
household utilities. It was intervenor’s practice for petitioner
to provide him with her Forms W-2 and then for intervenor to have
their tax returns prepared by a paid return preparer. Although
petitioner signed the tax returns and was aware of any taxes due,
intervenor assured petitioner that he would pay the tax
liabilities. In fact, intervenor had paid any taxes due for the
taxable years prior to the taxable years in issue.
Additionally, intervenor also made several tax payments with
respect to the tax balances due for the 1994 and 1996 taxable
years.
The taxes due for the taxable years in issue were
attributable to intervenor’s self-employment earnings. As such,
intervenor reimbursed petitioner for her 1999 tax refund which
was applied by respondent to the couple’s outstanding joint tax
liabilities. Additionally, on several occasions during their
marriage petitioner’s wages were subject to garnishment from the
California Franchise Tax Board regarding intervenor’s share of
the couple’s outstanding liability. Intervenor handled these
matters and paid any necessary State income taxes due to prevent
petitioner’s wages from being garnished. Finally, the record
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suggests that the taxes due for the taxable years in issue were
not paid because of an unexpected downturn in intervenor’s
business that persisted over an extended period. Accordingly, on
the record before us, we conclude that petitioner did not have
reason to know that the income taxes for the taxable years in
issue would not be paid by intervenor.
B. Conclusion
Based on our review of all the facts and circumstances, we
hold that petitioner is entitled to relief under section 6015(f)
and that respondent’s denial of relief was an abuse of
discretion.
Reviewed and adopted as the report of the Small Tax Case
Division.
To reflect the foregoing,
Decision will be entered
for petitioner.