T.C. Summary Opinion 2005-48
UNITED STATES TAX COURT
VERNON STACY TAYLOR, Petitioner, AND SHERRI D. TAYLOR, Intervenor
v.
COMMISSIONER OF INTERNAL REVENUE, Respondent
Docket No. 2337-04S. Filed April 19, 2005.
Vernon Stacy Taylor, pro se.
Sherri D. Taylor, pro se.
Adam L. Flick, for respondent.
DEAN, 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. Unless otherwise
indicated, all subsequent section references are to the Internal
Revenue Code in effect for the year at issue, and all Rule
references are to the Tax Court Rules of Practice and Procedure.
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The decision to be entered is not reviewable by any other court,
and this opinion should not be cited as authority.
The case arises from petitioner’s election to seek relief
from joint and several liability for Federal income tax for
petitioner’s 2001 taxable year under section 6015(f). Respondent
determined that petitioner is not entitled to relief.
The issue for decision is whether respondent’s determination
that petitioner is not entitled to relief under section 6015(f)
is an abuse of discretion.
Background
Some of the facts are stipulated. The stipulated facts and
the exhibits received into evidence are incorporated herein by
reference. At the time the petition in this case was filed,
petitioner resided in Grapevine, Texas.
During 2001, petitioner was married to Sherri D. Taylor
(intervenor). Petitioner, an accountant, has a college degree
and owned the S corporation by which he was employed, Archive
Litigation Services, Inc. (Archive). Intervenor has a high
school diploma and was employed as a business manager for which
she reported wages of $73,352.40.
Intervenor was also a part owner of three “passthrough”
entities, Armstrong Archives, LLC (Armstrong), Property Leasing
X, LLP (Property), and United Business Services. Intervenor
reported net income from Armstrong and Property for 2001 and
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petitioner, although he received wages of $26,850, reported from
Archive a net loss of $14,840. The return also reported net
rental income of $2,852 and small amounts of interest and
dividends.
Petitioner and intervenor reported their income yearly on
jointly filed Federal income tax returns beginning in 1984, the
year of their marriage. In 1999, wage withholdings were
sufficient to pay the joint tax liability; intervenor’s business
interests lost money while petitioner’s business was profitable.
For several months leading to the departure of intervenor
from the marital household on June 15, 2001, the marriage had
been strained and tense. Despite the “unfriendly” separation,
petitioner volunteered to intervenor to prepare a joint income
tax return for 2001, as he had done over the course of their
marriage. Intervenor provided petitioner with the information
concerning her tax matters for 2001.
Petitioner signed the return on April 11, 2002, and
presented it to intervenor for her signature. On the advice of
her attorney, intervenor refused to sign the return. Petitioner
filed the return without intervenor’s signature and without
remittance. Intervenor has, however, ratified the filing of the
return on her behalf, but the tax remains unpaid.
Petitioner and intervenor’s divorce is pending in a Texas
family court.
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Discussion
Generally, married taxpayers may elect to file a joint
Federal income tax return. Sec. 6013(a). After making the
election, each spouse is jointly and severally liable for the
entire tax due. Sec. 6013(d)(3). A spouse, however, may seek
relief from joint and several liability under section 6015. To
obtain relief from liability, a spouse must qualify under section
6015(b), or if eligible, may allocate liability under section
6015(c). In addition, if relief is not available under section
6015(b) or (c),1 a spouse may seek equitable relief under section
6015(f). Fernandez v. Commissioner, 114 T.C. 324, 329-331
(2000); Butler v. Commissioner, 114 T.C. 276, 287-292 (2000).
The Court's review of determinations under section 6015(f) is not
limited to the Commissioner's administrative record. Ewing v.
Commissioner, 122 T.C. 32, 44 (2004).
Except as otherwise provided in section 6015, the taxpayer
bears the burden of proof. Rule 142(a); Alt v. Commissioner, 119
T.C. 306, 311 (2002), affd. 101 Fed. Appx. 34 (6th Cir. 2004).
Section 6015(f) grants the Commissioner discretion to
relieve from joint and several liability an individual who files
a joint return. Because relief from the 2001 underpayment is not
1
Because petitioner seeks relief from an underpayment of tax
rather than an understatement, relief under subsections (b) and
(c) of sec. 6015 is not available. Sec. 6015(b) and (c); see
also Washington v. Commissioner, 120 T.C. 137, 145-147 (2003).
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available to petitioner under section 6015(b) or (c), he has
satisfied one of the two prerequisites for relief under section
6015(f).
The other prerequisite is that it is inequitable to hold the
individual liable for the unpaid tax, taking into consideration
all of the facts and circumstances. 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.2 Rev. Proc. 2000-15, 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 the threshold conditions.
Where the requesting spouse satisfies the threshold
conditions set forth in Rev. Proc. 2000-15, sec. 4.01, sec. 4.02
sets forth the circumstances under which the Commissioner will
ordinarily grant relief to that spouse under section 6015(f).
Respondent determined that petitioner has not shown that, at
the time the return was signed, he had no knowledge or reason to
2
The guidelines applicable herein are set forth in Rev.
Proc. 2000-15, 2000-1 C.B. 447, which was in effect at the time
petitioner’s request for relief was made, Aug. 12, 2002. 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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know that the tax would not be paid. Respondent also determined
that he has failed to show that he would suffer economic hardship
if relief is not granted. Respondent therefore concluded that
petitioner has failed to satisfy all of the elements of Rev.
Proc. 2000-15, sec. 4.02 and does not qualify for relief under
section 6015(f).
Petitioner testified at trial that he signed and presented
the return to the intervenor, and “she wouldn’t sign it and pay
the tax”. He argues that “when I signed it and presented it, I
expected that it would be paid”. Petitioner testified that in
2000 intervenor received “passthrough” entity income and had paid
the tax and he expected that it would be paid for 2001.
Intervenor testified that when she moved out of the marital
home in June of 2001, she took with her no marital assets.
According to intervenor’s testimony, when she left the house,
petitioner removed all their financial assets from joint accounts
and a safe deposit box. All of the marital assets were placed
under petitioner’s control, intervenor testified.
The Court concludes that petitioner knew at the time he
signed the return that he intended to demand that intervenor pay
the entire amount of tax due. Petitioner certainly knew that his
marriage had failed and that there was acrimony between him and
his wife. Whether or not petitioner had assumed control of all
the financial assets of the marriage, he had ample reason to
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expect that intervenor, having retained counsel for divorce,
would balk at paying the entire tax liability. Judging from
petitioner’s actions, he had evidently decided that he would not
be the one to pay the tax liability. The Court finds from the
record that petitioner has not shown that at the time he signed
the return he had no reason to know that the tax would not be
paid.
In determining whether a requesting spouse will suffer
economic hardship if 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
reasonable basic living expenses. Sec. 301.6343-1(b)(4), Proced.
& Admin. Regs. Petitioner offered no evidence that payment of
part or all of the tax due would cause him financial hardship.
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, 2000-1 C.B. at 448. Rev. Proc. 2000-15, sec.
4.03(1) and (2), 2000-1 C.B. at 448-449, sets forth six positive
and six negative factors that are to be considered in determining
whether to grant relief. The revenue procedure makes clear that
no single factor is to be determinative in any particular case,
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that all factors are to be considered and weighed appropriately,
and that the list of factors is not intended to be exhaustive.
The knowledge or reason to know factor, the economic
hardship factor, and the legal obligation to pay factor in Rev.
Proc. 2000-15, sec. 4.03(2)(b), (d), and (f), 2000-1 C.B. at 449,
respectively, are the opposites of the knowledge or reason to
know factor, the economic hardship factor, and the legal
obligation to pay factor in Rev. Proc. 2000-15, sec. 4.03(1)(d),
(b), and (e), respectively. The attribution factor in Rev. Proc.
2000-15, sec. 4.03(2)(a) is substantially the opposite of the
attribution factor in Rev. Proc. 2000-15, sec. 4.03(1)(f).
Consequently, in the Court’s review of the Commissioner's
determination denying relief under section 6015(f), the Court has
held that a finding with respect to the reason to know, economic
hardship, legal obligation, and attribution factors ordinarily
will weigh either in favor of or against granting equitable
relief under section 6015(f). Ewing v. Commissioner, 122 T.C. at
45. The Court has also held that a finding that a requesting
spouse did not receive a significant benefit from the item giving
rise to the deficiency weighs in favor of granting relief under
section 6015(f). Id. Finally, the Court treats evidence that
the remaining positive and negative factors are not applicable as
evidence weighing neither in favor of nor against granting
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equitable relief (i.e., as neutral). Id.
In favor of petitioner here are the factors of marital
status, attribution, and significant benefit. Petitioner’s
failure to show that he had no reason to know that the tax would
not be paid or that payment of part or all of the tax would cause
him economic hardship are negative factors. Under Rev. Proc.
2000-15, sec. 4.03(2)(b), reason to know that the tax would not
be paid “is an extremely strong factor weighing against relief.”
The revenue procedure provision provides that “when the factors
in favor of equitable relief are unusually strong, it may be
appropriate to grant relief under section 6015(f) in limited
situations” where the spouse requesting relief had reason to know
of the understatement. The Court finds no “unusually strong”
factors in favor of equitable relief here.
Although petitioner has three factors in his favor and only
two that weigh against him, in view of the language of Rev. Proc.
2000-15, sec. 4.03(2)(b), the Court finds, considering all the
facts and circumstances, that respondent did not abuse his
discretion in denying petitioner equitable relief from joint and
severable liability under section 6015(f).
Reviewed and adopted as the report of the Small Tax Case
Division.
Decision will be entered for
respondent.