T.C. Summary Opinion 2004-176
UNITED STATES TAX COURT
VICKI JO JAMES, Petitioner
v. COMMISSIONER OF INTERNAL REVENUE, Respondent
Docket No. 9856-03S. Filed December 28, 2004.
Steve Allen Claus, for petitioner.
Abbey B. Garber and Adam L. Flick (specially recognized),
for respondent.
CARLUZZO, Special Trial Judge: This case was heard pursuant
to the provisions of section 7463 of the Internal Revenue Code in
effect at the time the petition was filed.1 The decision to be
1
Unless otherwise indicated, subsequent section references
are to the Internal Revenue Code in effect at the time the
petition was filed.
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entered is not reviewable by any other court, and this opinion
should not be cited as authority.
In a final notice of determination, dated April 9, 2003,
respondent denied petitioner’s claim for section 6015(f) relief
from her unpaid 1995, 1996, and 1997 Federal income tax
liabilities. In a timely petition, filed June 24, 2003,
petitioner requests this Court to review respondent’s
determination. Our jurisdiction to do so is established by
section 6015(e), see Ewing v. Commissioner, 118 T.C. 494, 496-497
(2002), and we review respondent’s determination for abuse of
discretion. Butler v. Commissioner, 114 T.C. 276, 292-293
(2000).
The issue for decision is whether respondent’s failure to
relieve petitioner from unpaid Federal income tax liabilities
reported on joint Federal income tax returns for the years 1995,
1996, or 1997 is, for any of those years, an abuse of discretion.
Background
Some of the facts have been stipulated and are so found. At
the time the petition was filed in this case, petitioner resided
in Plainview, Texas.
Petitioner and Tommy J. James (petitioner’s former spouse)
had been married for 19 years prior to their divorce in January
1998. They have two sons, Russell Blake James, born December 2,
1981, and Tyler Martin James, born June 25, 1985 (the children).
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Petitioner’s former spouse was a farmer during most of the time
he and petitioner were married. At trial, when asked by her
attorney how she was employed during her marriage, petitioner
described herself as a “stay-at-home mom.” Although petitioner
did not participate in the farming operations, from time to time
during their marriage she and her former spouse discussed the
family’s financial situation.
For years prior to 1995, petitioner and her former spouse
filed joint Federal income tax returns and fully paid the
Federal income tax liabilities reported on those returns. Due
to financial difficulties apparently caused by the vagaries of
crop production, things changed in 1995.
For that year, as well as the next, the amount of tax shown
on the joint return of petitioner and her spouse was not fully
paid with the filing of the return. Of the $25,019 liability2
reported on their 1995 joint return, only $8,500 was paid with
the return. Apparently, the balance was paid through a series of
installment payments made during 1997 and 1998. On their 1996
joint return, they reported a tax liability of $26,527 but paid
only $12,919 with that return. During 1997, a $5,000 payment was
made towards the outstanding 1996 tax liability. It appears that
2
This amount does not include the “estimated tax penalty”
reported on the return.
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as of the date of trial, no additional payments on petitioner’s
outstanding 1996 tax liability had been made.
For 1997 petitioner and her former spouse initially filed
timely separate individual returns. The $17,163 income tax
liability reported on petitioner’s 1997 return remains, for the
most part, unpaid and results almost entirely from reporting her
community property share of her former spouse’s farming income.
The $29,076 income tax liability reported on the separate 1997
return of petitioner’s former spouse was paid in full with the
return.
Not surprisingly, it appears that petitioner’s domestic and
financial situations deteriorated simultaneously. As of the
close of 1997, divorce proceedings had been initiated. As noted
above, petitioner and her former spouse were divorced in January
1998, prior to the date that each had filed a separate 1997
return. The divorce decree (including other documents
incorporated by reference) required petitioner and her former
spouse to file separate 1997 Federal income tax returns and
presumably that is why they did so. Other relevant provisions of
the divorce decree: (1) Obligate petitioner’s former spouse to
pay to petitioner $1,500 per month in child support; (2) award
the marital residence to petitioner; (3) assign the liability for
the mortgage and real estate taxes on the marital residence to
petitioner’s former spouse; (4) provide that petitioner’s
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former spouse will, under conditions described, pay a portion
of petitioner’s 1997 Federal income tax liability; and (5) in
order to equalize the division of marital property, require
petitioner’s former spouse to sign a $107,782, interest-bearing,
secured “vendor’s lien note” (the note), payable to petitioner in
monthly installments of $1,500, plus annual “balloon” payments of
$12,000.
During 1998, which petitioner’s former spouse described as a
“good crop year”, he made payments to, or on behalf of,
petitioner as required by the divorce decree. Starting in 1999
and continuing into 2000, petitioner’s former spouse failed to
make all of the required payments on the note, failed to keep his
child support obligations current, and failed to make all of the
mortgage payments on the marital residence. As of the close of
1999, petitioner’s former spouse was no longer engaged in
farming. In September 2000 he initiated a bankruptcy proceeding.
It appears that after the bankruptcy proceeding was commenced,
petitioner received payments of $25,000 and $30,000 from her
former spouse. The purpose(s) or specific date(s) of the
payments cannot be determined from the record.
Following her divorce, petitioner sold the marital
residence, and, in sequence, purchased, resided in, and sold two
other residences. She also graduated from a private college and
began employment as a nurse. The children lived with petitioner
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following her divorce. When each of her sons reached the
requisite age for a driver’s license, she purchased a car for
him. The specific dates for the above occurrences cannot be
determined, and it is not clear whether the events occurred
before or after petitioner made her request for section 6015
relief.
Petitioner’s request for section 6015 relief is dated
July 12, 2000. It was received by respondent on July 17, 2000.
In her request, petitioner seeks only “equitable relief” from
income tax liabilities for the years 1995, 1996, and 1997.
Between the dates that petitioner’s request for section 6015
relief was submitted and October 2000, petitioner and her former
spouse filed a joint 1997 Federal income tax return. The portion
of the unpaid income tax reported on the joint return closely
approximates petitioner’s then-outstanding income tax liability
resulting from her 1997 separate return.3 In a final notice,
dated April 9, 2003, respondent denied petitioner’s request for
relief for all 3 years. Respondent’s determination was
reconsidered and upheld by respondent’s Appeals Office on
December 18, 2003, after the petition in this case was filed.
3
The parties have ignored the fact that at the time her
request for sec. 6015 relief was made, her 1997 income tax
liability did not result from a joint Federal income tax return,
see Raymond v. Commissioner, 119 T.C. 191, 195-197 (2002), and we
do likewise.
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Discussion
In general, section 6013(a) allows spouses to elect to file
a joint Federal income tax return even though one has neither
income nor deductions. Subject to various conditions and
limitations, the election is available even after an individual
return has been filed by one, or both of the spouses. Sec.
6013(b). If for any year spouses elect to file a joint return,
then each spouse is charged with the knowledge of the information
reported on the return, and each spouse is jointly and severally
liable for the entire tax due for that year. Sec. 6013(d)(3);
Butler v. Commissioner, 114 T.C. at 282.
Subject to various conditions and in a variety of ways, an
individual who has made a joint return may elect to seek relief
from the joint and several liability arising from that joint
return. Sec. 6015. In this case, petitioner seeks relief from
liabilities reported on the 1995, 1996, and 1997 joint returns
that she filed with her former spouse. Consequently, she is
entitled to relief only as provided in section 6015(f), which
allows relief from joint and several liability if “it is
inequitable to hold the individual liable for any unpaid tax,”
and the individual is not entitled to relief under other
provisions of section 6015. Sec. 6015(f)(1); Washington v.
Commissioner, 120 T.C. 137, 146-147 (2003).
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We review the Commissioner’s determination to deny section
6015(f) equitable relief using an abuse of discretion standard
and 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), affd. 353 F.3d 1181 (10th
Cir. 2003). For each year here relevant, petitioner bears the
burden of proving that respondent’s denial of her request for
section 6015(f) relief is an abuse of discretion. Washington v.
Commissioner, supra at 146; Jonson v. Commissioner, supra at 125.
As required by section 6015(f), the Commissioner has
prescribed procedures and factors Internal Revenue Service
employees use to determine whether a spouse qualifies for relief
under that subsection. At the time that petitioner requested
relief under section 6015(f), those procedures were set forth in
Rev. Proc. 2000-15, 2000-1 C.B. 447. (Subsequent modification of
these procedures by Rev. Proc. 2003-61, 2003-32 I.R.B. 296, does
not affect the resolution of this case.)
Certain threshold conditions must be satisfied before the
Commissioner will consider a request for relief under section
6015(f). See Rev. Proc. 2000-15, sec. 4.01, 2000-1 C.B. at 448.
Respondent agrees that petitioner satisfies these threshold
conditions for each year here under consideration, and we focus
our attention on other parts of the controlling revenue
procedure.
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Rev. Proc. 2000-15, sec. 4.02, 2000-1 C.B. at 448, describes
the circumstances under which the Commissioner will “ordinarily”
grant 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.
Respondent acknowledges that petitioner satisfies the first
requirement, but argues that petitioner does not qualify for
relief under sec. 4.02 of the revenue procedure because she: (1)
Knew or had reason to know that the liabilities reported on the
joint returns for 1995 through 1997 would not be paid at the
times that she signed those returns; and (2) has not demonstrated
that she would suffer economic hardship if relief is not granted.
We agree with respondent on both points.
Although petitioner did not participate in the family
farming operation, she was aware of the family’s financial
situation. She was aware that her former spouse was having
trouble satisfying his then-current financial obligations when
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she signed the 1995 and 1996 returns, and she certainly was aware
of her former spouse’s dire financial situation when she signed
the 1997 return. The timing of the events strongly suggests that
the 1997 return was filed for the sole purpose of allowing her to
seek section 6015(f) relief from a Federal income tax liability
originally reported on a separate return. As to her “economic
hardship,” we take into account, as did respondent, that she was
awarded substantial property in the divorce proceeding, and it
was her choice to expend some of the moneys received on expenses
other than her outstanding Federal income tax liabilities. To
the extent that she experienced or is experiencing economic
hardship, that hardship is brought about more by her own
decisions than respondent’s refusal to grant section 6015(f)
relief.
As in this case, if the requesting spouse satisfies the
threshold conditions of Rev. Proc. 2000-15, sec. 4.01, but does
not qualify for relief under Rev. Proc. 2000-15, sec. 4.02, 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.
Section 4.03 of the revenue procedure 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 that
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section 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. We see little point in listing and discussing each
factor set forth in section 4.03 of the revenue procedure.
Respondent has adequately done so in his supporting statement
denying petitioner’s request for section 6015(f) relief.
Suffice it to say that respondent has considered each
and every one of the factors listed in section 4.03 of the
revenue procedure. Although we might not entirely agree with
respondent’s conclusion with respect to each, we cannot say that
respondent’s determination to deny petitioner’s request for
section 6015(f) relief for any year in issue is an abuse of
discretion.
Reviewed and adopted as the report of the Small Tax
Division.
To reflect the foregoing,
Decision will be
entered for respondent.