T.C. Memo. 2004-212
UNITED STATES TAX COURT
DELLA H. KNORR, Petitioner, AND DUANE J. KNORR, Intervenor v.
COMMISSIONER OF INTERNAL REVENUE, Respondent
Docket No. 7440-01. Filed September 21, 2004.
Michael R. N. McDonnell, for petitioner.
Duane J. Knorr, pro se.
Lorianne D. Masano, 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 1990,
1991, 1992, 1993, 1994, and 1995 with respect to joint income tax
returns that she filed with her former husband. The issue for
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decision is whether respondent abused respondent’s discretion in
denying 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 Naples, Florida.
Background
Petitioner married Duane J. Knorr (intervenor) on August 23,
1980. They had three children during the course of their
marriage. Throughout their marriage, petitioner was a homemaker,
and intervenor owned and operated a commercial painting and wall-
covering installation business. Intervenor organized his
business as a Florida corporation in February 1987 under the name
Universal Painters & Vinyl Hangers, Inc. (Universal Painters).
Universal Painters was operated as an S corporation during the
years in issue. Petitioner did not participate in the business
activities of Universal Painters, but she was aware of the
significant growth in the business’s size and profitability
during the course of her marriage to intervenor.
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As a result of Universal Painters’s growth in profitability,
petitioner and intervenor experienced a better lifestyle. In
particular, they were able to purchase three houses in Naples,
Florida; purchase a condominium at The Courtyard at Kings Lake
(Kings Lake condominium), a property development located in
Collier County, Florida; invest in stocks and Founders Funds,
Inc. (Founders Funds), mutual funds; take regular vacations to
Colorado, the Florida Keys, and the Bahamas; maintain $5,000 to
$6,000 cash in a safe located in their home; pay a housekeeper
$50 per day; and lease a Lincoln Navigator. Petitioner and
intervenor jointly owned all three houses, the Kings Lake
condominium, and the Founders Funds investments.
Petitioner’s and intervenor’s houses were located in three
Naples subdivisions: Golden Gate Estates (Golden Gate
residence); Forest Lakes Homes; and The Crossings, Stonegate
(Stonegate residence). Petitioner and intervenor rented the
Golden Gate residence to petitioner’s brother during the years in
issue. Petitioner and intervenor purchased the Stonegate
residence on February 18, 1997, for $530,000. Petitioner and
intervenor used their own funds for this purchase and did not
incur a mortgage.
During the early years of their marriage, petitioner relied
on intervenor to prepare and to file their joint income tax
returns. Intervenor did not file their joint income tax returns
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for 1984 through 1989 at the times that these returns were due.
Sometime after learning of intervenor’s failure to file their
returns, petitioner confronted intervenor and convinced him to
seek the help of a public accountant with respect to their tax
matters. Petitioner and intervenor eventually filed their joint
income tax returns for 1984 through 1988 with the Internal
Revenue Service (IRS) on February 14, 1991. They did not,
however, file a joint income tax return for 1989, and they did
not pay their income tax liability for 1988 in full until
sometime after August 5, 1991. Despite intervenor’s previous
failure to file their joint income tax returns and to pay their
income tax liabilities in full, petitioner continued to rely on
intervenor to handle the preparation and filing of their joint
income tax returns during the years in issue.
Petitioner’s and Intervenor’s Joint Income Tax Returns for 1990
Through 1995
Petitioner and intervenor did not file their joint income
tax returns for 1990 through 1995 at the times that these returns
were due. Petitioner did not question intervenor about their
failure to file income tax returns for these years until it was
brought to her attention by intervenor. Petitioner and
intervenor eventually filed their joint income tax returns for
1990 through 1995 in the latter part of 1996. Petitioner was
neither forced nor coerced to sign these returns.
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On their joint income tax return for 1990 (1990 return),
petitioner and intervenor reported the following sources of
income and loss:
Source Amount of Income (Loss)
Taxable interest $13,484
Dividends 4,223
Net long-term capital loss (76,107)
Other losses (840)
Universal Painters 366,583
Atrium Homes & Development (75,492)
Petitioner and intervenor received the dividends that they
reported on the 1990 return from “Founder Funds”. Petitioner and
intervenor reported taxable income of $277,213, total tax of
$79,916, and an estimated tax penalty of $5,261 for 1990.
Petitioner and intervenor signed the 1990 return on December 14,
1996. The IRS received the 1990 return on December 18, 1996.
Alex P. Martinez, C.P.A. (Martinez), prepared the 1990 return.
On their joint income tax return for 1991 (1991 return),
petitioner and intervenor reported the following sources of
income and loss:
Source Amount of Income (Loss)
Taxable interest $2,438
Long-term capital loss carryover (73,107)
Universal Painters 353,435
Atrium Homes & Development (189,922)
Petitioner and intervenor reported taxable income of $137,141,
total tax of $35,629, and an estimated tax penalty of $2,049 for
1991. Petitioner and intervenor signed the 1991 return on
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December 2, 1996. The IRS received the 1991 return on
December 5, 1996. Martinez prepared the 1991 return.
On their joint income tax return for 1992 (1992 return),
petitioner and intervenor reported the following sources of
income and loss:
Source Amount of Income (Loss)
Taxable interest $290
Dividends 5,041
Net short-term capital gain 6,243
Long-term capital loss carryover (70,107)
Other losses (5,381)
Universal Painters 252,847
Atrium Homes & Development (40,813)
Petitioner and intervenor received the dividends that they
reported on the 1992 return from the following sources:
“Founders Money Market” and “Bedford Money Market”. Petitioner
and intervenor reported taxable income of $184,961 and total tax
of $50,089 for 1992. Petitioner and intervenor signed the 1992
return on December 2, 1996. The IRS received the 1992 return on
December 5, 1996. Martinez prepared the 1992 return.
On their joint income tax return for 1993 (1993 return),
petitioner and intervenor reported the following sources of
income and loss:
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Source Amount of Income (Loss)
Taxable interest $38
Dividends 3,751
Net short-term capital gain 3,835
Net long-term capital loss (86,975)
Universal Painters 295,667
Petitioner and intervenor received the dividends that they
reported on the 1993 return from the following sources:
“Founders Money Market”, “Oakmark Int’l Fund”, and “Oakmark
Fund”. Petitioner and intervenor reported taxable income of
$272,051 and total tax of $84,261 for 1993. Petitioner and
intervenor signed the 1993 return on October 14, 1996. The IRS
received the 1993 return on October 17, 1996. Martinez prepared
the 1993 return.
On their joint income tax return for 1994 (1994 return),
petitioner and intervenor reported the following sources of
income and loss:
Source Amount of Income (Loss)
Taxable interest $81
Dividends 7,492
Net short-term capital gain 1,639
Net long-term capital loss (28,524)
Rental income 10,600
Universal Painters 563,786
Petitioner and intervenor received the dividends that they
reported on the 1994 return from the following sources:
“Founders Funds”, “Founders Growth Funds”, “European Stock
Funds”, “Int’l Stock Fund”, “Japan Fund”, “New Asia Fund”,
“Summit Cash Reserve”, “Oakmark Int’l Fund”, “Oakmark Fund”,
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“Oakmark ILA Gov’t”, and “FSP--Pacific Basin”. Petitioner and
intervenor received the rental income that they reported on the
1994 return from two residential properties: “Sunny Trail
Heights” and “Golden Gates”. Petitioner and intervenor reported
taxable income of $565,136 and total tax of $200,098 for 1994.
Petitioner and intervenor signed the 1994 return on October 14,
1996. The IRS received the 1994 return on October 17, 1996.
Martinez prepared the 1994 return.
On their joint income tax return for 1995 (1995 return),
petitioner and intervenor reported the following sources of
income:
Source Amount of Income
Net long-term capital gain $43,365
Universal Painters 254,640
A large portion of the net long-term capital gain was
attributable to the redemption of 15,510.497 shares of Founders
Growth Fund, one of the Founders Funds mutual funds jointly owned
by petitioner and intervenor, on December 14, 1995. This
redemption generated a $65,698 long-term capital gain.
Petitioner and intervenor reported taxable income of $293,619 and
total tax of $87,639 for 1995. Petitioner and intervenor signed
the 1995 return on October 14, 1996. The IRS received the 1995
return on October 17, 1996. Martinez prepared the 1995 return.
Petitioner and intervenor paid the income tax liabilities
reported on their joint income tax returns for 1990 through 1995
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at or about the times that they filed these returns with the IRS.
At the times that petitioner signed these returns, she was aware
that each return showed a substantial tax liability and that the
total tax liabilities reported on these returns exceeded
$500,000.
After petitioner and intervenor filed their joint income tax
returns for 1990 through 1995, the IRS determined additions to
tax under sections 6651(a)(1), (2), and 6654 and interest with
respect to the tax liabilities reported on these returns. The
additions to tax were determined in the following amounts:
Year Sec. 6651(a)(1) Sec. 6651(a)(2) Sec. 6654
1990 $18,189 $17,904 $5,261
1991 8,017 8,907 2,049
1992 11,153 10,906 2,132
1993 18,959 13,060 –-
1994 45,022 19,009 5,306
1995 –- 2,464 4,451
Petitioner and intervenor were aware that they would be liable
for additions to tax and interest at the times that they signed
the joint income tax returns for 1990 through 1995. Prior to
signing these returns, however, petitioner and intervenor decided
that they would request that the IRS abate any additions to tax.
Accordingly, they did not pay any amounts in excess of the income
tax liabilities reported on the joint income tax returns for 1990
through 1995 at the times that they filed these returns.
Petitioner did not question intervenor at or before the times
that she signed these returns as to how and when the additions to
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tax and interest would be paid if their request for abatement was
denied.
On August 7, 1998, the IRS denied petitioner’s and
intervenor’s request for abatement. As of March 2, 2001, the
additions to tax and interest totaled more than $336,000. As of
the time of trial on February 2, 2004, the additions to tax and
interest remained unpaid.
Petitioner’s and Intervenor’s Divorce Proceedings
On April 15, 1998, petitioner and intervenor separated, and
petitioner filed a petition for dissolution of marriage.
Petitioner’s and intervenor’s marriage was dissolved by Final
Decree of Dissolution of Marriage filed on November 1, 1999. A
Final Judgment as to Equitable Distribution, Alimony and Child
Support and Visitation (final judgment) was filed on August 15,
2000. Among other things, the final judgment declared intervenor
solely responsible for payment of the additions to tax and
interest that had been determined “or may accrue” with respect to
the tax liabilities reported on petitioner’s and intervenor’s
joint income tax returns for 1990 through 1995.
On or about September 11, 2000, intervenor filed an appeal
with respect to the final judgment. On or about July 10, 2002,
the final judgment was reversed in part. An Amended Final
Judgment as to Equitable Distribution, Alimony and Child Support
and Visitation (amended final judgment) was filed on February 24,
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2003. The amended final judgment awarded petitioner the
following assets:
Asset Value
Stonegate residence $454,137
Lot 49 Southport mortgage proceeds 16,321
Furnishings and jewelry 62,400
These assets were valued as of April 15, 1998. In addition, the
amended final judgment (1) awarded petitioner a $73,004 equalizer
payment; (2) awarded petitioner permanent periodic alimony of $1
per year; (3) required intervenor to maintain the payments on
petitioner’s automobile for the 12 months succeeding entry of the
amended final judgment; (4) required intervenor to pay all of the
children’s reasonably necessary medical, dental, ocular,
psychological, and orthodontia expenses; and (5) required
intervenor to pay petitioner $41,633 (and interest thereon) for
previously ordered support. The equalizer payment and the
previously ordered support were to be paid within 90 days of the
date of the amended final judgment. As set forth in the amended
final judgment, a hearing was to be held to determine the amount
of the monthly child support payments that intervenor would be
required to make to petitioner. The amended final judgment also
declared intervenor solely responsible for payment of the
additions to tax and interest that had been determined “or may
accrue” with respect to the tax liabilities reported on
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petitioner’s and intervenor’s joint income tax returns for 1990
through 1995.
Petitioner’s Request for Relief From Joint and Several Liability
On January 22, 1999, the IRS received petitioner’s Form
8857, Request for Innocent Spouse Relief, on which she requested
relief from joint and several liability under section 6015 with
respect to 1990 through 1995. On March 8, 2001, the IRS sent to
petitioner a Notice of Determination Concerning Your Request for
Relief from Joint and Several Liability under Section 6015
(notice of determination) with respect to those years. The
notice of determination set forth the following reasons for the
denial of petitioner’s request for relief from joint and several
liability:
We’ve determined, for the above tax years, that:
* * * * * * *
• You are not eligible for relief under Section
6015(f). Section 6015(f) allows us to provide
equitable relief when you don’t qualify for relief
under either Section 6015(b) or 6015(c) and when
holding you responsible for the tax liability
would be unfair or inequitable, given your
particular circumstances.
In this case, the unpaid liability is attributable to
interest and penalties on the taxes shown on the
returns you filed. Since there are no additional
deficiencies assessed subsequent to these taxes, relief
under sec. 6015(b) or sec. 6015(c) is not applicable.
For sec. 6015(f), relief is not warranted since you
have not established that payment of the amount due
would cause an economic hardship or that it would be
inequitable to hold you liable for these amounts.
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Petitioner’s Financial Status as of the Time of Trial
As of the time of trial on February 2, 2004, intervenor was
paying petitioner approximately $1,520 per month for child
support and an additional $700 per month to pay off the debt that
he owed to her as a result of their divorce. As of the time of
trial, petitioner was employed as a personal trainer at a Naples
area YMCA and was earning approximately $300 per week.
Petitioner also had private personal training clients from time
to time. Petitioner was eager to sell the Stonegate residence,
which had a value in excess of $650,000 as of the time of trial,
but she had not taken any steps towards doing so.
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
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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 additions to tax and interest
that respondent determined with respect to the tax liabilities
reported on the joint income tax returns for 1990 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
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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
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.
Petitioner’s brief contains bold and general rhetoric and no
analysis of the evidence or of the applicable authorities,
notwithstanding the Court’s specific direction that her brief
address section 6015(f) and the relevant factors.
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.
Notice 98-61, 1998-2 C.B. 756, provided interim guidance for
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taxpayers seeking equitable relief from joint and several
liability. Notice 98-61, supra, was superseded by Rev. Proc.
2000-15, 2000-1 C.B. 447, effective January 18, 2000, which, in
turn, was superseded by Rev. Proc. 2003-61, 2003-32 I.R.B. 296,
effective for requests for relief filed on or after November 1,
2003, and for requests for relief pending on November 1, 2003,
for which no preliminary determination had been issued as of that
date. Rev. Proc. 2003-61, secs. 6 and 7, 2003-32 I.R.B. at 299;
Rev. Proc. 2000-15, secs. 6 and 7, 2000-1 C.B. at 449.
Petitioner’s request for relief and respondent’s determination
are subject to Rev. Proc. 2000-15, 2000-1 C.B. 447, because that
revenue procedure was in effect when respondent evaluated
petitioner’s request and when respondent issued the notice of
determination on March 8, 2001. See Ewing v. Commissioner, supra
at 44 n.12. 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; cf. Ewing v. Commissioner, supra at 45. (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 conceded that petitioner has met those seven
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threshold conditions. If the threshold conditions are satisfied,
Rev. Proc. 2000-15, sec. 4.02, 2000-1 C.B. at 448, lists
circumstances where relief will generally be granted in cases
where a liability reported on a joint income tax return has gone
unpaid. We have considered the circumstances listed in Rev.
Proc. 2000-15, sec. 4.02, 2000-1 C.B. at 448, in cases where the
liability reported on a joint income tax return was unpaid. See,
e.g., Morello v. Commissioner, T.C. Memo. 2004-181; August v.
Commissioner, T.C. Memo. 2002-201; Collier v. Commissioner, T.C.
Memo. 2002-144; Castle v. Commissioner, T.C. Memo. 2002-142. We
have declined to consider them where the liability for which
equitable relief was sought was not such a reported but unpaid
liability. See, e.g., Demirjian v. Commissioner, T.C. Memo.
2004-22; Mellen v. Commissioner, T.C. Memo. 2002-280. In the
instant case, petitioner and intervenor paid the income tax
liabilities reported on their joint income tax returns for 1990
through 1995 at or about the times that they filed these returns.
The additions to tax and interest resulted from, among other
things, petitioner’s and intervenor’s failure to file these
returns at the times that they were due. Consequently, Rev.
Proc. 2000-15, sec. 4.02, 2000-1 C.B. at 448, is not applicable
here.
If the requesting spouse satisfies the threshold conditions
of Rev. Proc. 2000-15, sec. 4.01, 2000-1 C.B. at 448, but does
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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 conceded that the marital status factor weighs in
petitioner’s favor. The abuse factor is neutral in this case
because petitioner failed to provide any detailed or
corroborating evidence with respect to her generalized claim that
intervenor was physically and emotionally abusive.
In addition, Rev. Proc. 2000-15, sec. 4.03, 2000-1 C.B. at
448, lists the following two factors that, if true, the
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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 years following the year to which the request for
relief relates. The significant benefit factor weighs against
petitioner because she and intervenor were able to purchase the
Stonegate residence and to maintain their comfortable lifestyle
as a result of not paying the additions to tax and interest at
the times that they filed their joint income tax returns for 1990
through 1995. The noncompliance factor is neutral in this case
because neither evidence nor argument has been presented as to
whether this factor weighs against petitioner.
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) the
taxpayer did not know and had no reason to know that the
liability would not be paid at the time that the return was
signed; (3) the liability for which relief is sought is solely
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. The legal
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obligation factor weighs in favor of granting relief only if the
taxpayer did not know or have reason to know that, at the time
that the divorce decree or agreement was entered into, the
nonrequesting spouse would not pay the liability and weighs
against granting relief only if the taxpayer has the obligation.
Rev. Proc. 2000-15, sec. 4.03(1)(e), (2)(f), 2000-1 C.B. at 449.
Petitioner argues that the economic hardship factor weighs in
favor of granting her relief. For the reasons discussed below,
the economic hardship factor, the knowledge or reason to know
factor, and the attribution factor weigh against petitioner. The
legal obligation factor would have weighed in petitioner’s favor
but for the facts and circumstances of this case establishing
that she knew or had reason to know that, at the time that the
amended final judgment was filed, intervenor would not pay the
additions to tax and interest. Consequently, the legal
obligation factor is neutral in this case.
Economic hardship is determined by using rules similar to
those under section 301.6343-1(b)(4), Proced. & Admin. Regs., and
generally involves an inability to pay reasonable basic living
expenses. This regulation provides that the Commissioner will
consider any information offered by the taxpayer that is relevant
to the determination, including, but not limited to, the
taxpayer’s age, ability to earn, responsibility for dependents,
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and the amount reasonably necessary for basic living expenses.
See sec. 301.6343-1(b)(4)(ii), Proced. & Admin. Regs.
After respondent issued the notice of determination,
intervenor successfully appealed a portion of the final judgment,
and, as a result, an amended final judgment was filed in February
2003. As set forth in the amended final judgment, petitioner was
awarded unencumbered assets with a value in excess of $532,000 as
of April 15, 1998, and intervenor was required, inter alia, to
pay to petitioner more than $114,000 with respect to previously
ordered support and an equalizer payment. Among the unencumbered
assets awarded to petitioner was the Stonegate residence, which,
as of the time of trial on February 2, 2004, had appreciated to a
value in excess of $650,000. Moreover, as of the time of trial,
intervenor was paying to petitioner $700 per month to satisfy his
debt to her as well as approximately $1,520 per month for child
support, and petitioner was employed as a personal trainer and
was earning approximately $300 per week (excluding any earnings
from private personal training clients).
Petitioner did not present evidence of her reasonable basic
living expenses or otherwise show economic hardship. She
asserted that liens in excess of $350,000 have been placed on the
Stonegate residence since the time of her divorce from
intervenor. It is unclear whether the liens that she had in mind
included liens for the tax liabilities in dispute, but, in any
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event, the record suggests that she would have substantial equity
in the residence after satisfaction of those tax liabilities and
discharge of any other liens.
Petitioner’s situation is dissimilar to the situations of
those taxpayers who were living at or near poverty level at the
time of their request for relief from joint and several liability
and who proved that they would suffer economic hardship without
relief. See, e.g., Washington v. Commissioner, 120 T.C. at
149-150; Foor v. Commissioner, T.C. Memo. 2004-54; Ferrarese v.
Commissioner, T.C. Memo. 2002-249; August v. Commissioner, T.C.
Memo. 2002-201; Rowe v. Commissioner, T.C. Memo. 2001-325. On
the record in this case, petitioner has not persuaded us that the
economic hardship factor weighs in favor of granting her relief.
In order to satisfy the knowledge or reason to know factor
under the circumstances of this case, petitioner must establish
that it was reasonable for her to believe that intervenor would
pay the additions to tax and interest at the times that she
signed those returns. See, e.g., Ewing v. Commissioner, 122 T.C.
at 47-48; Hopkins v. Commissioner, 121 T.C. at 88-89; Washington
v. Commissioner, supra at 150-151; Morello v. Commissioner, T.C.
Memo. 2004-181; Keitz v. Commissioner, T.C. Memo. 2004-74;
Foor v. Commissioner, supra; Ogonoski v. Commissioner, T.C. Memo.
2004-52; Wiest v. Commissioner, T.C. Memo. 2003-91; Collier v.
Commissioner, T.C. Memo. 2002-144.
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At the times in 1996 that petitioner signed the joint income
tax returns for 1990 through 1995, she was well aware of
intervenor’s past failures to file their returns on time and to
pay their income taxes. Petitioner was also aware that additions
to tax and interest were owed on their joint liabilities for 1990
through 1995. Petitioner testified as follows:
Q [By petitioner’s counsel] Did you have any
discussions with him [intervenor] about paying
penalties?
A I knew that there were penalties to be paid.
Yes. But as far as how much and how they were going to
be paid, no. * * *
Despite her knowledge of intervenor’s habitual delinquency with
respect to their income tax obligations, petitioner agreed to
defer payment of the additions to tax and interest and request
that the additions to tax be abated. Petitioner did not question
intervenor at or before the times that she signed the joint
income tax returns for 1990 through 1995 as to how and when the
additions to tax and interest would be paid if their request for
abatement was denied. Under these facts and circumstances,
petitioner has not established that it was reasonable for her to
believe that intervenor would pay the additions to tax and
interest at the times that she signed the joint income tax
returns for 1990 through 1995. Furthermore, petitioner has
identified no ground warranting an abatement nor otherwise shown
that it would have been reasonable for her to believe that an
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abatement would be granted. 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 v. Commissioner, T.C. Memo.
1985-478; see, e.g., Morello v. Commissioner, supra; 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.
Consequently, the knowledge or reason to know factor weighs
against granting petitioner relief.
The unpaid liability in this case is the result of, among
other things, petitioner’s and intervenor’s failure to file their
joint income tax returns for 1990 through 1995 and to pay their
income taxes for those years when they were due. All 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). Therefore, petitioner’s
reliance on intervenor to handle the preparation and filing of
their joint income tax returns does not establish that the
additions to tax and interest are solely attributable to
intervenor. Furthermore, petitioner has not denied that the
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income tax liabilities reported on the joint income tax returns
for 1990 through 1995 were, in part, attributable to assets that
she jointly owned with intervenor. Consequently, the attribution
factor weighs against granting petitioner relief.
Based on our examination of the facts and circumstances in
this case, the factors in Rev. Proc. 2000-15, sec. 4.03, 2000-1
C.B. at 448, weighing against granting petitioner relief outweigh
those weighing in favor of granting her relief. Accordingly, we
conclude that respondent did not abuse respondent’s discretion by
acting arbitrarily, capriciously, or without sound basis in fact
in denying petitioner’s request for equitable relief under
section 6015(f).
To reflect the foregoing,
Decision will be entered
for respondent.