T.C. Memo. 2004-74
UNITED STATES TAX COURT
DONNA M. KEITZ, Petitioner v.
COMMISSIONER OF INTERNAL REVENUE, Respondent
Docket No. 2859-02. Filed March 18, 2004.
Donna M. Keitz, pro se.
Richard A. Stone, for respondent.
MEMORANDUM FINDINGS OF FACT AND OPINION
DEAN, Special Trial Judge: This is a case arising under
section 6015.1 Unless otherwise indicated, section references
are to the Internal Revenue Code. Respondent determined
1
Sec. 6015 was enacted as part of the Internal Revenue
Service Restructuring and Reform Act of 1998, Pub. L. 105-206,
sec. 3201(a), 112 Stat. 734, and is effective for any liability
for tax arising after July 22, 1998, and any liability for tax
arising on or before July 22, 1998, but remaining unpaid as of
July 22, 1998.
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petitioner was not entitled to relief for a $4,850 underpayment
of tax for tax year 1996 pursuant to section 6015. The issue for
decision is whether respondent abused his discretion by denying
petitioner's request for relief from joint and several liability
under section 6015(f) for the 1996 underpayment of tax.
Some of the facts have been stipulated and are so found.
The stipulation of facts and the exhibits received into evidence
are incorporated herein by reference. At the time the petition
was filed with the Court, petitioner resided in Baltimore,
Maryland.
FINDINGS OF FACT
Petitioner married in 1980 and bore four children during the
marriage. As of the time of respondent's determination, in June
of 2001, three of the children were still minors. Petitioner has
an eleventh grade education and was primarily a homemaker.
During 1996, petitioner worked part time, earning $7,875 from
which taxes were withheld. Petitioner's spouse, William A.
Keitz, owned and operated his own electrical business, A.K.
Electric. Petitioner had no involvement at all with Mr. Keitz's
business. During their marriage, Mr. Keitz handled the family
financial matters. He gave petitioner a weekly amount to cover
food and other necessities and an allowance of $60 per week for
herself. When the children needed clothes, Mr. Keitz would give
petitioner additional money. Mr. Keitz demanded that petitioner
not open any bills that came in the mail and that if she did, he
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could "have her handled."
During 1995 and 1996, petitioner filed joint income tax
returns with Mr. Keitz. For 1997, petitioner filed as head of
household.
For the 1996 tax filing, petitioner gave her 1996 Form W-22
to Mr. Keitz shortly after the end of the taxable year. The
Keitzes' 1996 adjusted gross income (AGI), as reported on the
return, was $72,413. Of this amount, $71,295 was documented by
Forms W-2, Wage and Tax Statement, or Forms 1099-R, Distributions
From Pensions, Annuities, Retirement or Profit-Sharing Plans,
IRAs, Insurance Contracts, etc.
The remaining $1,117 of AGI comprised: (1) A $411 taxable
refund; (2) $107 in dividend income; and (3) $599 in capital
gains. Only $7,875 of the total AGI was attributable to
petitioner.
Mr. Keitz had the 1996 joint tax return prepared at H & R
Block by a person or persons unknown to petitioner. When Mr.
Keitz told petitioner to sign the 1996 tax return, she signed a
computerized document in the 1040PC format of a U.S. Individual
Income Tax Return. IRS Publication 17 (1997 ed.) describes a
Form 1040PC, prepared using a personal computer, as follows:
2
In their Stipulations of Facts, the parties referred to
Forms "W-4," Employee's Withholding Allowance Certificate. The
Court assumes the parties meant Forms "W-2," Wage and Tax
Statement.
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The computer prints the return in a three-column
"answer sheet" format. It prints line numbers and
dollar amounts * * * only for lines on which you made
an entry. * * * As a result, an 11-page conventional
return requiring forms and schedules can be printed as
a two-page 1040PC return. [Vaksman v. Commissioner,
T.C. Memo. 2001-165, affd. 54 Fed. Appx. 592 (5th Cir.
2002).]
At the time petitioner signed Form 1040PC, Mr. Keitz and the paid
preparer had already signed it.
The return was filed electronically. Petitioner did not
discuss the return with her husband, nor did she question him
about the return.
Mr. Keitz had always told petitioner he would take care of
the taxes. In 1992, when petitioner and her husband legally
separated for the first time, Mr. Keitz memorialized his
intention to pay their tax liabilities. Their 1992 Voluntary
Separation and Property Settlement Agreement states:
The parties agree that they will file a joint income
tax return for the tax year of 1992, and split the
refund accordingly, with regard to both Federal and
State tax requirements. In the event that there is a
tax payment due for either the State or Federal
payment, Husband will pay the entire tax assessment.
Petitioner and her husband separated for the final time in
1997. The parties have stipulated that, pursuant to a 1998
consent order, petitioner received approximately $1,600 per month
from Mr. Keitz for child care and alimony during 1999 and 2000.
According to the 1998 consent order, beginning in May of
1998, Mr. Keitz was ordered to pay petitioner $1,873 per month,
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consisting of $312 per week for child support and $625 per month
in alimony. Additionally, petitioner earned $25,689 in 2000.
On April 12, 1999, respondent withheld petitioner's 1998
Federal income tax refund and applied it toward the outstanding
tax liability for 1995. That is when petitioner became aware
that there was a problem with their taxes. Initially, petitioner
did not pursue the matter because Mr. Keitz said he was taking
care of it. Respondent then withheld petitioner's 1999 Federal
income tax refund and applied it toward the outstanding tax
liabilities.
On July 24, 2000, respondent received a Form 8857, Request
for Innocent Spouse Relief, from petitioner for the years 1995,
1996, and 1997. On September 11, 2000, petitioner submitted to
respondent her responses to respondent's Innocent Spouse
Questionnaire. In her response, petitioner provided a listing of
her monthly expenses. Those expenses total $2,821 and are as
follows:
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House payment $693
Oil 200
Gas & electric 200
Auto fuel 50
Car insurance 51
Phone 35
Clothing 200
Recreation 160
Credit card 80
Food 800
Medical 60
Hair cuts 50
Cable 42
Lawyers 100
Child care 100
On June 25, 2001, respondent determined petitioner was not
entitled to relief from the deficiency for tax year 1997 pursuant
to section 6015 because petitioner did not file a joint tax
return for that year. Respondent granted petitioner relief from
joint liability for the deficiencies for 1995 and 1996 pursuant
to section 6015(c).
Despite the parties' agreement that the 1996 underpayment is
solely attributable to Mr. Keitz and respondent's examiner's
determination that Mr. Keitz bears the legal obligation for the
underpayment, respondent determined petitioner was not entitled
to relief for the $4,850 underpayment of tax for tax year 1996
pursuant to section 6015(f). Respondent contended that
petitioner: (1) Failed to prove a belief that the tax would be
paid; (2) did not fulfill her duty to inquire as to whether the
tax would be paid; and (3) failed to show that it would be an
economic hardship for her if relief were denied.
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Petitioner filed a timely petition under section 6015(e) for
a determination of relief from joint and several liability for an
underpayment of tax on a joint return.
OPINION
The Court's determination as to whether petitioner is
entitled to equitable relief under section 6015(f) is made in a
trial de novo and is not limited to matter contained in
respondent's administrative record. Ewing v. Commissioner, 122
T.C. ___, ___ (2004) (slip op. at 20-21).
The Court reviews respondent's denial of relief under
section 6015(f) for abuse of discretion. 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).
Petitioner bears the burden of proving that respondent abused his
discretion in denying that relief. See Washington v.
Commissioner, 120 T.C. 137, 146 (2003); Jonson v. Commissioner,
118 T.C. 106, 125 (2002), affd. 353 F.3d 1181 (10th Cir. 2003).
In order to prevail, petitioner must demonstrate that in not
granting relief, respondent exercised his discretion arbitrarily,
capriciously, or without sound basis in fact or law. See Woodral
v. Commissioner, 112 T.C. 19, 23 (1999); Mailman v. Commissioner,
91 T.C. 1079, 1082-1084 (1988).
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Whether Petitioner Is Entitled to Equitable Relief
Section 6015(f) grants the Commissioner discretion to
relieve from joint and several liability an individual who files
a joint return.3 The parties agree that relief from the 1996
underpayment is not available to petitioner under section 6015(b)
or (c), thereby satisfying section 6015(f)(2).
As contemplated by section 6015(f), the Commissioner has
prescribed guidelines in Rev. Proc. 2000-15, sec. 4.02, 2000-1
C.B. 447, 448, to be used in determining whether an individual
qualifies for relief under that section.4 Rev. Proc. 2000-15,
3
Sec. 6015 provides, in pertinent part, as follows:
SEC. 6015. RELIEF FROM JOINT AND SEVERAL LIABILITY ON
JOINT RETURN.
(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.
4
Respondent's determination is subject to Rev. Proc. 2000-
15, 2000-1 C.B. 447, which was in effect when respondent
evaluated petitioner's request and when respondent issued the
notice of determination. Rev. Proc. 2000-15, supra, has been
superseded by Rev. Proc. 2003-61, 2003-32 I.R.B. 296, effective
for requests for relief filed on or after Nov. 1, 2003.
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sec. 4.01, 2000-1 C.B. at 448, sets forth the threshold
conditions that must be satisfied before the Commissioner will
consider a request for equitable relief under section 6015(f).
Respondent does not dispute that petitioner has satisfied those
threshold conditions.
Circumstances Where IRS Ordinarily Grants Equitable Relief
Where the requesting spouse satisfies the threshold
conditions set forth in Rev. Proc. 2000-15, sec. 4.01, then Rev.
Proc. 2000-15, sec. 4.02, sets forth the circumstances, in any
case where a liability reported in a joint return is unpaid,
under which the Commissioner will ordinarily grant relief to that
spouse under section 6015(f).
The Commissioner will ordinarily grant relief to a
requesting spouse who satisfies all of the following elements as
set forth in Rev. Proc. 2000-15, 2000-1 C.B. at 448:
(a) At the time relief is requested, the
requesting spouse is no longer married to, or is
legally separated from, the nonrequesting spouse, or
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
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the Commissioner or the Commissioner's delegate, and
will be based on rules similar to those provided in
§ 301.6343-1(b)(4) of the Regulations on Procedure and
Administration.
1. Petitioner's Marital Status
Petitioner was legally separated from Mr. Keitz at the time
she filed the claim for relief in this case. They were divorced
at the time of trial. The Court concludes that petitioner has
satisfied this element.
2. Petitioner's Knowledge or Reason To Know the Tax Would
Not Be Paid
In determining whether a taxpayer in an underpayment case is
entitled to equitable relief under section 6015(f), the Court
considers whether the requesting spouse knew, or had reason to
know, when the return was signed that the tax would be unpaid.
Hopkins v. Commissioner, 121 T.C. 73, 88 (2003); Wiest v.
Commissioner, T.C. Memo. 2003-91. Respondent contends that
petitioner did not prove that she did not know or did not have
reason to know at the time the return was signed that the unpaid
1996 tax liability would not be paid and did not fulfill her duty
to inquire.
In Washington v. Commissioner, supra at 138, the taxpayer, a
high school graduate, signed a return jointly with her husband, a
self-employed carpenter. She had no involvement in her husband's
business. Id. at 138, 151. Nor did he discuss with her the
preparation or filing of their joint return. Id. at 139.
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The sole involvement of the taxpayer in Washington in
preparing the tax return was to provide her Form W-2 to the paid
preparer and sign the return. Id. at 138. The tax on her wages
was paid through withholding. Id. at 139. The remaining tax
liability was attributable to her husband. Id. at 139, 148.
In according her relief from liability, the Court found that
Mrs. Washington did not know and had no reason to know at the
time the return was signed that Mr. Washington would not pay the
tax. Id. at 150-151. She believed her husband would pay the
liability because it was solely related to his business
operations. Id. at 151.
This case has similarities to Washington. Mrs. Keitz had no
involvement in her husband's business. She gave Mr. Keitz her
Form W-2, and he had their 1996 tax return prepared by H & R
Block. What he told petitioner to sign was a return in the
1040PC format, in essence a computer printout of lines and
numbers.
It is reasonable to conclude that Mrs. Keitz believed that
Mr. Keitz would pay the tax. In fact, Mr. Keitz constantly
assured petitioner that their taxes would be paid. Further, as
in the Washington case, the liability here was solely
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attributable to Mr. Keitz since Mrs. Keitz's taxes on her wages
had been paid through withholding.
Given these facts, the Court concludes that petitioner at
the time she signed the return did not know or have reason to
know that the tax due would not be paid. The Court rejects
respondent's argument that she possessed such knowledge or failed
to fulfill a duty of inquiry. The Court concludes that
petitioner has satisfied this element.
3. Petitioner Will Suffer Economic Hardship
Respondent contends that petitioner failed to show that she
would suffer economic hardship if relief were denied. In
determining whether a requesting spouse will suffer economic
hardship if the relief is not granted, Rev. Proc. 2000-15, supra,
looks to section 301.6343-1(b)(4), Proced. & Admin. Regs., for
guidance. Rev. Proc. 2000-15, sec. 4.02(1)(c). Economic
hardship is present if satisfaction of the tax liability in whole
or in part will cause the taxpayer to be unable to pay her
reasonable basic living expenses. Sec. 301.6343-1(b)(4), Proced.
& Admin. Regs.
In 2000, petitioner earned $25,689 and received
approximately $1,600 per month from Mr. Keitz for alimony and
child support for three minor children. Petitioner had monthly
expenses of $2,821, after which she had $920 per month remaining.
Petitioner did not present any other evidence regarding any
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additional claimed expenses. Petitioner has failed to establish
that she will suffer economic hardship if equitable relief is not
granted. The Court concludes that petitioner has not satisfied
this element. Accordingly, the Court concludes that petitioner
fails to qualify for relief under Rev. Proc. 2000-15, sec. 4.02.
Balancing Factors for Determining Whether To Grant Equitable
Relief Under Rev. Proc. 2000-15
Where, as here, the requesting spouse fails to qualify for
relief under Rev. Proc. 2000-15, sec. 4.02, the Commissioner may
nonetheless grant the requesting spouse relief under Rev. Proc.
2000-15, sec. 4.03.
Rev. Proc. 2000-15, sec. 4.03, lists the following two
factors, which if present, the Commissioner weighs in favor of
granting relief: (1) The taxpayer is separated or divorced from
the nonrequesting spouse; and (2) the taxpayer was abused by his
or her spouse; and the following two factors, which if present,
the Commissioner weighs against granting 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. Ewing v. Commissioner, 122 T.C. at
____ (slip op. at 22-24).
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Rev. Proc. 2000-15, supra, implies that the Commissioner
will generally not consider the absence of factor (1), (2), (3),
or (4) in determining whether to grant relief under section
6015(f). 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), the Court considers the factor that
a taxpayer did not significantly benefit from the unpaid
liability or item giving rise to the deficiency as a factor in
favor of granting relief to that taxpayer.5 Ewing v.
Commissioner, supra at ____ (slip op. at 22-24); Ferrarese v.
Commissioner, T.C. Memo. 2002-249 (citing Belk v. Commissioner,
93 T.C. 434, 440-441 (1989); Foley v. Commissioner, T.C. Memo.
1995-16; Robinson v. Commissioner, T.C. Memo. 1994-557; Klimenko
v. Commissioner, T.C. Memo. 1993-340; and Hillman v.
Commissioner, T.C. Memo. 1993-151).
Rev. Proc. 2000-15, supra, lists the following four factors
which, if present, the Commissioner weighs in favor of granting
relief, and if not present, the Commissioner weighs against
granting relief: (5) The taxpayer would suffer economic hardship
if relief is denied; (6) in the case of a liability that was
5
Cases deciding whether a taxpayer was entitled to equitable
relief under sec. 6013(e)(1)(D) are helpful in deciding whether a
taxpayer is entitled to relief under sec. 6015(f). Mitchell v.
Commissioner, 292 F.3d 800, 806 (D.C. Cir. 2002), affg. T.C.
Memo. 2000-332; Cheshire v. Commissioner, 282 F.3d 326, 338 n.29
(5th Cir. 2002), affg. 115 T.C. 183 (2000).
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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). Ewing v. Commissioner,
supra at ____ (slip op. at 22-24).
Rev. Proc. 2000-15, sec. 4.03(2), states that "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. The list is not
intended to be exhaustive."
As discussed next, most of the factors the Commissioner uses
in making section 6015(f) determinations do not support
respondent's determination in this case.
1. Petitioner's Marital Status
Respondent determined that the marital status factor weighs
in favor of petitioner. As discussed, supra, the Court agrees
that this factor favors petitioner.
2. Spousal Abuse
Mr. Keitz did not abuse petitioner. Lack of spousal abuse
is not a factor listed in Rev. Proc. 2000-15, sec. 4.03(2), that
weighs against granting equitable relief. Washington v.
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Commissioner, 120 T.C. at 149. The Court concludes that this
factor is neutral.
3. Significant Benefit
Respondent determined that petitioner did not gain any
significant benefit from the unpaid liability. The Court
concludes that this factor favors petitioner. See Ewing v.
Commissioner, supra at _____ (slip op. at 22-23).
4. Compliance With Tax Laws
Petitioner filed returns for tax years 1995 through 1997,
and respondent concedes that petitioner has complied with tax
laws at least since 1996. Rev. Proc. 2000-15, supra, lists tax
compliance as a factor which the Commissioner will consider only
against granting relief. The Court concludes that this factor is
neutral.
5. Economic Hardship
As discussed, supra, petitioner has failed to establish that
she will suffer economic hardship if equitable relief is not
granted. The Court concludes that this factor weighs against
petitioner.
6. Knowledge or Reason To Know
The Court has considered supra respondent's argument that
petitioner at the time she signed the return knew or had reason
to know that the tax due would not be paid. The Court rejects
respondent's argument that she possessed such knowledge or failed
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to fulfill a duty of inquiry. The Court concludes that this
factor favors petitioner.
7. Whether the Underpayment of Tax Is Attributable to
Petitioner's Husband
Respondent concedes that the underpayment of tax for 1996 is
attributable to Mr. Keitz. The Court concludes that this factor
favors petitioner.
8. Legal Obligation To Pay Tax
During the evaluation process, respondent's examiner
determined that Mr. Keitz bears the legal obligation for the tax
liability. As neither party has introduced any additional
evidence on this point, the Court accepts this determination and
concludes that this factor favors petitioner.
9. Conclusion
Petitioner has presented a strong case for relief from joint
liability under the factors promulgated by the Commissioner in
Rev. Proc. 2000-15, supra. All of the factors except one,
economic hardship, either weigh in favor of petitioner or are
neutral. While the economic hardship factor weighs against
petitioner, it does not outweigh the positive and neutral
factors. Rev. Proc. 2000-15, sec. 4.03(2).
Petitioner is no longer married to Mr. Keitz. She did not
significantly benefit from the underpayment, the underpayment was
solely attributable to Mr. Keitz, petitioner has complied with
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Federal tax laws at least since 1996, she did not know or have
reason to know Mr. Keitz would not pay the unpaid tax for 1996,
and Mr. Keitz bears the legal obligation to pay the tax. The
neutral factors include petitioner's compliance with the tax laws
and lack of spousal abuse. The Court determines that
respondent's denial of relief under section 6015(f) was an abuse
of discretion, and that, on the basis of the facts and
circumstances, it would be inequitable to hold petitioner liable
for the underpayment of tax for 1996.
To reflect the foregoing,
Decision will be entered
for petitioner.