T.C. Memo. 2004-181
UNITED STATES TAX COURT
ANNETTE L. MORELLO, Petitioner v.
COMMISSIONER OF INTERNAL REVENUE, Respondent
Docket No. 2790-03. Filed August 5, 2004.
Annette L. Morello, pro se.
Robert F. Saal, for respondent.
MEMORANDUM FINDINGS OF FACT AND OPINION
COHEN, Judge: This proceeding was commenced under section
6015 for review of respondent’s determination that petitioner is
not entitled to relief from joint and several liability for 1992,
1993, 1994, and 1995 with respect to joint income tax returns
that she filed with her former husband. The issue for decision
is whether respondent abused respondent’s discretion in denying
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petitioner’s request for relief from joint and several liability
under section 6015(f) for those years.
Unless otherwise indicated, all section references are to
the Internal Revenue Code in effect for the years in issue. All
amounts have been rounded to the nearest dollar.
FINDINGS OF FACT
Some of the facts have been stipulated, and the stipulated
facts are incorporated in our findings by this reference. At the
time that the petition in this case was filed, petitioner resided
in Keyport, New Jersey.
Background
Petitioner and Frank Mazzilli (Mazzilli) were married in
1970. They had two children during their marriage. Between the
time that petitioner married Mazzilli and September 1992,
petitioner was a homemaker. Mazzilli became unemployed for a
period of approximately 17 weeks during 1992. As a result of
Mazzilli’s unemployment, petitioner and Mazzilli exhausted their
savings and could not make the monthly mortgage payments on their
home.
In order to help alleviate her family’s financial
difficulties, petitioner began to work as a receptionist at
Monmouth Associates in Internal Medicine, P.A., in September
1992. At the time that petitioner began working as a
receptionist, she completed Form W-4, Employee’s Withholding
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Allowance Certificate. Because of the financial difficulties
that petitioner and Mazzilli were having at that time, Mazzilli
advised petitioner to claim 10 withholding allowances on the
Form W-4, and petitioner agreed to do so. Petitioner was aware
that this practice would increase her take-home pay but would
result in a lesser amount of Federal income tax being withheld
from her wages than that which would become due on her portion of
Mazzilli’s and her joint income.
Mazzilli began working for Pfister Chemical, Inc. (Pfister),
during 1992. Mazzilli also claimed 10 withholding allowances on
the Form W-4 that he completed when he began his employment at
Pfister.
During 1993, 1994, and 1995, petitioner worked as a
receptionist for Lawrence Katz, M.D., and Mazzilli maintained his
employment at Pfister. Petitioner and Mazzilli each claimed
between 5 and 10 withholding allowances during those years. For
1992 through 1995, petitioner had the following amounts of wage
income and Federal income tax withheld from that income:
Year Wage Income Federal Income Tax Withheld
1992 $3,314 $156
1993 16,565 1,144
1994 16,705 66
1995 17,440 0
Even though petitioner and Mazzilli both were employed by
the end of 1992, they remained behind in their monthly mortgage
payments. After several foreclosure proceedings had been
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commenced against petitioner and Mazzilli during the years in
issue, Mazzilli filed for bankruptcy. As a result of Mazzilli’s
filing for bankruptcy, the mortgage on petitioner’s and
Mazzilli’s home was foreclosed. Petitioner was aware of the
foreclosure proceedings that had been commenced against Mazzilli
and her as well as of Mazzilli’s bankruptcy proceedings.
Petitioner and Mazzilli were divorced on October 28, 1999.
Petitioner held one or more jobs during 1997, 1998, and 1999. As
of April 29, 2004, petitioner had not filed Federal income tax
returns for either 1997 or 1999.
Petitioner’s and Mazzilli’s Joint Income Tax Returns for 1992
Through 1995
For 1992 through 1995, petitioner filed joint Forms 1040,
U.S. Individual Income Tax Return, with Mazzilli. Petitioner and
Mazzilli signed and filed their joint returns for 1993 and 1995
in February 1996 and their joint returns for 1992 and 1994 in
April 1996. These returns showed the following balances due:
$724 for 1992; $2,523 for 1993; $9,884 for 1994; and $695 for
1995. No portion of the amounts shown as due on these returns
was paid at the times that these returns were filed.
Mazzilli handled the preparation and filing of petitioner’s
and his joint returns for 1992 through 1995. Petitioner was not
aware that these returns showed balances due at the times that
she signed them because she neither reviewed these returns nor
asked Mazzilli whether these returns showed balances due.
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During their divorce proceedings, petitioner and Mazzilli
agreed that Mazzilli should be responsible for the payment of the
Federal income tax liabilities for 1992 through 1995. As of the
time of trial on May 3, 2004, Mazzilli had not paid these
liabilities.
Petitioner’s Request for Relief From Joint and Several Liability
On February 2, 2001, petitioner requested relief from joint
and several liability under section 6015(f) for 1992 through
1995. On November 21, 2002, the Internal Revenue Service sent to
petitioner a Notice of Determination Concerning Your Request for
Relief under the Equitable Relief Provision of Section 6015(f)
(notice of determination) with respect to those years. Attached
to the notice of determination was a Form 886-A, Explanation of
Adjustments, that set forth the following reasons for the denial
of petitioner’s request for relief:
1. Attributatable [sic] to the Non-Requesting
Spouse--Portions of the unpaid liability are
attributable to under withholding on your wages.
2. No Knowledge of [sic] Reason to Know--You had
reason to know that the liabilities would not be
paid when you signed the returns because
outstanding tax liabilities existed from prior
year returns that had not been paid, mortgage
payments were in * * * arrears and your ex-spouse
was contemplating filing for bankruptcy.
3. Noncompliance with Federal Income Tax Laws--You
have not filed tax returns for tax years 1997 and
1999 and have an outstanding tax liability for tax
year 2000.
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OPINION
Generally, married taxpayers may elect to file a joint
Federal income tax return. Sec. 6013(a). After making the
election, each spouse is fully responsible for the accuracy of
the return and jointly and severally liable for the entire tax
due for that year. Sec. 6013(d)(3); Butler v. Commissioner, 114
T.C. 276, 282 (2000). A spouse (requesting spouse) may, however,
seek relief from joint and several liability by following
procedures established in section 6015. Sec. 6015(a).
Under section 6015(a), a requesting spouse may seek relief
from liability under section 6015(b) or, if eligible, may
allocate liability according to the provisions under section
6015(c). Relief from joint and several liability under section
6015(b) or (c) is premised on the existence of a deficiency for
the year for which relief is sought. Sec. 6015(b)(1)(D), (c)(1);
see H. Conf. Rept. 105-599, at 252-254 (1998), 1998-3 C.B. 747,
1006-1008. Consequently, if there is no deficiency for the year
for which relief is sought, relief from joint and several
liability is not available under either subsection. See
Washington v. Commissioner, 120 T.C. 137, 146-147 (2003); see
also Hopkins v. Commissioner, 121 T.C. 73, 88 (2003); Block v.
Commissioner, 120 T.C. 62, 65-66 (2003); Ewing v. Commissioner,
118 T.C. 494, 497, 498 n.4 (2002); cf. sec. 6015(e)(1). In this
case, petitioner seeks relief from liabilities attributable to
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amounts shown as due on the joint returns that she filed with
Mazzilli for 1992 through 1995 rather than from deficiencies for
those years. Accordingly, no relief is available to petitioner
under section 6015(b) or (c).
If relief is not available under either section 6015(b) or
(c), an individual may seek equitable relief under section
6015(f). Sec. 6015(f)(2). Section 6015(f) permits relief from
joint and several liability where “it is inequitable to hold the
individual liable for any unpaid tax or any deficiency (or any
portion of either)”. Sec. 6015(f)(1). Equitable relief under
section 6015(f) is granted at the Commissioner’s discretion.
We review the Commissioner’s determination to deny equitable
relief under section 6015(f) using an abuse of discretion
standard. Butler v. Commissioner, supra at 287-292. Under this
standard of review, we defer to the Commissioner’s determination
unless it is arbitrary, capricious, or without sound basis in
fact. Jonson v. Commissioner, 118 T.C. 106, 125 (2002) (citing
Butler v. Commissioner, supra at 292; Pac. First Fed. Sav. Bank
v. Commissioner, 101 T.C. 117, 121 (1993)), affd. 353 F.3d 1181
(10th Cir. 2003). The question of whether the Commissioner’s
determination was arbitrary, capricious, or without sound basis
in fact is a question of fact. Cheshire v. Commissioner, 115
T.C. 183, 198 (2000), affd. 282 F.3d 326 (5th Cir. 2002). We are
not limited to the matters contained in the Commissioner’s
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administrative record when deciding this question. Ewing v.
Commissioner, 122 T.C. 32, 35–44 (2004). Petitioner bears the
burden of proving that respondent abused respondent’s discretion
in denying her relief under section 6015(f). Washington v.
Commissioner, supra at 146; Jonson v. Commissioner, supra at 125.
As directed by section 6015(f), the Commissioner has
prescribed procedures to use in determining whether a relief-
seeking spouse qualifies for relief under that subsection. At
the time that petitioner requested relief under section 6015(f),
those procedures were found in Rev. Proc. 2000-15, 2000-1 C.B.
447. This Court has upheld the use of these procedures in
reviewing a negative determination. See, e.g., Washington v.
Commissioner, supra at 147-152; Jonson v. Commissioner, supra at
125-126. (Subsequent modification of these procedures by Rev.
Proc. 2003-61, 2003-32 I.R.B. 296, does not affect our analysis
of this case.)
Rev. Proc. 2000-15, sec. 4.01, 2000-1 C.B. at 448, lists
seven threshold conditions that must be satisfied before the
Commissioner will consider a request for relief under section
6015(f). Respondent has not argued that petitioner failed to
meet those seven threshold conditions. If the threshold
conditions are satisfied, Rev. Proc. 2000-15, sec. 4.02, 2000-1
C.B. at 448, lists the circumstances, which we refer to as
elements, under which the Commissioner will generally grant
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equitable relief in cases where a liability reported on a joint
return is unpaid. These elements are:
(a) At the time relief is requested, the
requesting spouse is no longer married to, or is
legally separated from, the nonrequesting spouse * * *;
(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. * * *
Rev. Proc. 2000-15, sec. 4.02(1), 2000-1 C.B. at 448. The
Commissioner will grant equitable relief to the extent that the
unpaid liability is allocable to the nonrequesting spouse only if
all three elements of Rev. Proc. 2000-15, sec. 4.02, 2000-1 C.B.
at 448, are satisfied. Rev. Proc. 2000-15, sec. 4.02(1), (2)(b),
2000-1 C.B. at 448.
Respondent concedes that petitioner satisfies the first and
third elements of Rev. Proc. 2000-15, sec. 4.02, 2000-1 C.B. at
448. With respect to the second element of Rev. Proc. 2000-15,
sec. 4.02, 2000-1 C.B. at 448, however, respondent contends that
petitioner knew or had reason to know that the liabilities
reported on the joint returns for 1992 through 1995 would not be
paid at the times that she signed those returns. As discussed
below, we agree with respondent’s contention.
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In order to satisfy the knowledge or reason to know element
of Rev. Proc. 2000-15, sec. 4.02, 2000-1 C.B. at 448, petitioner
must establish that it was reasonable for her to believe that
Mazzilli would pay the amounts shown as due on the joint returns
for 1992 through 1995 at the times that she signed them.
Petitioner cannot rely on her lack of awareness of the amounts
shown as due on these returns to establish that it was reasonable
for her to believe that Mazzilli would pay these amounts. By
signing the joint returns for 1992 through 1995, petitioner is
charged with constructive knowledge of, inter alia, the amounts
shown as due on those returns. Hayman v. Commissioner, 992 F.2d
1256, 1262 (2d Cir. 1993), affg. T.C. Memo. 1992-228; see also
Park v. Commissioner, 25 F.3d 1289, 1299 (5th Cir. 1994), affg.
T.C. Memo. 1993-252. Furthermore, petitioner’s unquestioning
reliance on Mazzilli to handle the preparation and filing of the
joint returns for 1992 through 1995 does not establish that it
was reasonable for her to believe that Mazzilli would pay the
amounts shown as due on these returns at the times that she
signed them. Taxpayers have a duty to file timely and accurate
returns and to pay the amounts shown as due on those returns.
See generally secs. 6001, 6011(a), 6012(a)(1), 6072(a), 6151(a).
We have consistently applied the principle that the provisions
providing relief from joint and several liability are “designed
to protect the innocent, not the intentionally ignorant”. Dickey
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v. Commissioner, T.C. Memo. 1985-478; see, e.g., Demirjian v.
Commissioner, T.C. Memo. 2004-22; Feldman v. Commissioner, T.C.
Memo. 2003-201; Taylor v. Commissioner, T.C. Memo. 1997-513;
Barnhill v. Commissioner, T.C. Memo. 1996-97; Shannon v.
Commissioner, T.C. Memo. 1991-207; Berry v. Commissioner, T.C.
Memo. 1990-396, affd. without published opinion 935 F.2d 1280
(3d Cir. 1991); Cohen v. Commissioner, T.C. Memo. 1987-537.
At the times in 1996 that petitioner signed the joint
returns for 1992 through 1995, petitioner was well aware of the
financial difficulties that had plagued her family since 1992.
In order to ease these difficulties, petitioner had entered the
workforce after being a homemaker for more than 20 years and had
accepted the risks of allowing a lesser amount of Federal income
tax to be withheld from her wages than that which would become
due on her portion of Mazzilli’s and her joint income and of not
filing Federal income tax returns during the years in issue.
Petitioner was also aware that foreclosure proceedings had been
commenced against Mazzilli and her and that they would lose their
home if they did not become current on their mortgage payments.
Under these facts and circumstances, petitioner has not
established that it was reasonable for her to believe that
Mazzilli would pay the amounts shown as due on the joint returns
for 1992 through 1995 at the times that she signed them.
Consequently, petitioner does not satisfy the knowledge or reason
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to know element of Rev. Proc. 2000-15, sec. 4.02, 2000-1 C.B. at
448, and does not qualify for equitable relief under that section
of the revenue procedure.
If the requesting spouse satisfies the threshold conditions
of Rev. Proc. 2000-15, sec. 4.01, 2000-1 C.B. at 448, but does
not qualify for relief under Rev. Proc. 2000-15, sec. 4.02,
2000-1 C.B. at 448, the Commissioner looks to Rev. Proc. 2000-15,
sec. 4.03, 2000-1 C.B. at 448, to determine whether the taxpayer
should be granted equitable relief. Rev. Proc. 2000-15, sec.
4.03, 2000-1 C.B. at 448, provides a partial list of positive and
negative factors that the Commissioner is to take into account
when considering whether to grant an individual full or partial
equitable relief under section 6015(f). As Rev. Proc. 2000-15,
sec. 4.03, 2000-1 C.B. at 448, makes clear, no single factor is
to be determinative in any particular case, all factors are to be
considered and weighed appropriately, and the list of factors is
not intended to be exhaustive.
Rev. Proc. 2000-15, sec. 4.03, 2000-1 C.B. at 448, lists the
following two factors that, if true, the Commissioner weighs in
favor of granting relief and that, if not true, are neutral:
(1) The taxpayer is separated or divorced from the nonrequesting
spouse and (2) the taxpayer was abused by his or her spouse.
Respondent concedes that the marital status factor weighs in
petitioner’s favor. The abuse factor is neutral in this case
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because petitioner failed to provide any evidence establishing
abuse.
In addition, Rev. Proc. 2000-15, sec. 4.03, 2000-1 C.B. at
448, lists the following two factors that, if true, the
Commissioner weighs against granting relief and that, if not
true, are neutral: (1) The taxpayer received a significant
benefit from the unpaid liability and (2) the taxpayer has not
made a good faith effort to comply with the Federal income tax
laws in the tax years following the tax year to which the request
for relief relates. The significant benefit factor is neutral in
this case because neither evidence nor argument has been
presented as to whether this factor weighs against petitioner.
The noncompliance factor weighs against petitioner because, as of
April 29, 2004, she had not filed Federal income tax returns for
either 1997 or 1999, and the explanations that petitioner gave
during her testimony as to why she had not filed those returns
were uncorroborated and unconvincing.
Finally, Rev. Proc. 2000-15, sec. 4.03, 2000-1 C.B. at 448,
lists the following four factors that, if true, the Commissioner
weighs in favor of granting relief and that, if not true, the
Commissioner weighs against granting relief: (1) The taxpayer
would suffer economic hardship if relief were denied; (2) in the
case of a liability that was properly reported but not paid, the
requesting spouse did not know and had no reason to know that the
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liability would not be paid at the time that the return was
signed; (3) the liability for which relief is sought is
attributable to the nonrequesting spouse; and (4) the
nonrequesting spouse has a legal obligation pursuant to a divorce
decree or agreement to pay the outstanding liability (this factor
weighs against relief only if the requesting spouse has the
obligation). Respondent concedes that the economic hardship
factor weighs in petitioner’s favor. The knowledge or reason to
know factor weighs against petitioner for the reasons discussed
above. The attribution factor weighs against petitioner because
a portion of the income tax liabilities for 1992 through 1995 is
attributable to her (i.e., she allowed a lesser amount of Federal
income tax to be withheld from her wages than that which became
due on her portion of Mazzilli’s and her joint income for those
years). Respondent concedes that the legal obligation factor
weighs in petitioner’s favor.
Based on our examination of the facts and circumstances in
this case, some of the factors in Rev. Proc. 2000-15, sec. 4.03,
2000-1 C.B. at 448, are neutral. With respect to the factors
that are not neutral, those weighing against granting petitioner
relief outweigh those weighing in favor of granting her relief.
Petitioner’s situation is unfortunate, but we cannot conclude
that respondent abused respondent’s discretion by acting
arbitrarily, capriciously, or without sound basis in fact in
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denying petitioner’s request for equitable relief under section
6015(f).
To reflect the foregoing,
Decision will be entered
for respondent.