ZACHRY v. COMMISSIONER

T.C. Summary Opinion 2005-55

UNITED STATES TAX COURT

ANGELA RAE ZACHRY, Petitioner, and CURTIS CARLIN, Intervenor v.
COMMISSIONER OF INTERNAL REVENUE, Respondent

Docket No. 317-04S. Filed May 5, 2005.

Angela Rae Zachry, pro se.

Curtis Carlin, pro se.

Monica D. Armstrong, for respondent.

COUVILLION, Special Trial Judge: This case was heard

pursuant to section 7463 in effect when the petition was filed.1

The decision to be entered is not reviewable by any other court,

and this opinion should not be cited as authority. Petitioner

1
Unless otherwise indicated, 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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seeks a review under section 6330(d) of respondent’s decision to

proceed with collection of petitioner’s portion of a Federal

income tax liability for the 1996 tax year.

Some of the facts were stipulated. Those facts, with the

exhibits annexed thereto, are so found and made part hereof.

Petitioner’s legal residence at the time the petition was filed

was Douglasville, Georgia.

Petitioner and her former husband, Curtis Carlin

(intervenor), were married in December 1995. At that time,

petitioner was 20 and intervenor was 29. They immediately

settled in Florida, where they rented a house. Petitioner has a

high school education and worked as a hair stylist, and

intervenor worked for both Show Tech Support, Inc., and ACC

Productions, Inc., managing props on motion picture sets. In May

1996, petitioner gave birth to a son. As a result, petitioner

worked only intermittently throughout 1996.

Approximately 6 weeks before petitioner’s son was born,

intervenor’s mother (Ms. Carlin) died. Intervenor was the sole

descendant and inherited Ms. Carlin’s estate. Shortly

thereafter, petitioner moved to Georgia with her parents, and

intervenor remained in Florida to settle his mother’s affairs.

Intervenor later joined petitioner in Georgia, where the couple

subsequently purchased land.
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During the latter part of 1996, intervenor received $68,648

in a distribution from Ms. Carlin’s section 401(k) retirement

account. Intervenor also received proceeds from the sale of Ms.

Carlin’s home in Florida.

Petitioner and intervenor filed their 1996 joint Federal tax

return timely. On the return, they reported total income of

$42,926 but included only $5,220 in gross pension income and $220

in taxable pension income. Respondent issued a Notice Proposing

Changes (CP-2000) on September 26, 1998, to petitioner and

intervenor stating: “information reported on their return did

not match what was reported by their employers, banks, and/or

other payers.” Intervenor did not respond to this notice. On

March 8, 1999, petitioner filed Form 8857, Request for Innocent

Spouse Relief. It was subsequently denied.

On April 12, 2000, respondent issued a notice of deficiency

to petitioner and intervenor for their 1996 tax. Respondent

determined petitioner and intervenor underreported the wages from

Show Tech Support, Inc., and pension income paid to intervenor

and failed to report nonemployee compensation paid to intervenor

from ACC Productions, Inc. The entire deficiency was based on

the payments made to intervenor, as noted on the various Forms

1099. A timely petition was filed in this Court in the names of

both intervenor and petitioner. Because the petition was
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imperfect, and an amended petition was never filed, as ordered by

the Court, the case was dismissed for lack of jurisdiction.2

Petitioner and intervenor separated during 1998. On May 1,

2000, their divorce became final. In the divorce agreement,

intervenor acknowledged receiving $191,000 from his mother’s

estate, of which only $12,000 remained. Petitioner and

intervenor agreed that petitioner would be responsible for one-

third of the tax liability while intervenor would be responsible

for the remaining two-thirds.

On December 4, 2002, respondent issued a Final Notice of

Intent to Levy to petitioner. On December 19, 2002, respondent

filed a Notice of Federal Tax Lien against petitioner.

Respondent then issued the Notice of Federal Tax Lien to

petitioner on December 24, 2002. Petitioner thereafter filed a

timely Form 12153, Request for a Collection Due Process Hearing,

on December 19, 2002. Petitioner raised the innocent spouse

issue as her sole defense at the subsequent hearing before an IRS

settlement officer. On December 16, 2003, the settlement officer

issued a Notice of Determination sustaining the lien and levy and

denying petitioner’s request for relief from joint liability.

2
The parties stipulated that “Petitioner did not petition
the Tax Court for a redetermination for the deficiency asserted
by respondent for the taxable year 1996.” Petitioner did in fact
petition this Court; however, since the petition was dismissed
for lack of jurisdiction, the stipulation is technically correct.
Petitioner, moreover, does not challenge the underlying
deficiency but only seeks relief from joint liability.
 - 5 -

Petitioner filed a timely petition in this Court appealing the

Appeals officer’s decision. On March 31, 2004, intervenor filed

a timely Notice of Intervention.

The Court must decide whether petitioner is entitled to

relief from joint liability in lieu of the Appeals officer’s

determination. Where the underlying tax liability is properly at

issue before the Appeals officer, this Court reviews that issue

on a de novo basis. Goza v. Commissioner, 114 T.C. 176, 181-182

(2000). However, where the underlying tax liability is not at

issue, as in this case, this Court reviews the determination on

the basis of whether there was an abuse of discretion by

respondent. Sego v. Commissioner, 114 T.C. 604 (2000). An abuse

of discretion is defined as any action that is unreasonable,

arbitrary or capricious, clearly unlawful, or lacking sound basis

in law, taking into account all the facts and circumstances.

E.g., Thor Power Tool Co. v. Commissioner, 439 U.S. 522, 532-533

(1979); Swanson v. Commissioner, 121 T.C. 111, 119 (2003).

Married persons who file a joint Federal income tax return

generally are jointly and severally liable for the payment of the

tax shown on the return or found to be owing. Sec. 6013(d)(3);

Cheshire v. Commissioner, 115 T.C. 183, 188 (2000), affd. 282

F.3d 326 (5th Cir. 2002). Furthermore, agreements between

spouses with respect to how liability is shared on tax

deficiencies are not binding on this Court. Pesch v.
 - 6 -

Commissioner, 78 T.C. 100, 129 (1982) (citing Bruner v.

Commissioner, 39 T.C. 534, 537 (1962); Neeman v. Commissioner, 13

T.C. 397, 399 (1949), affd. per curiam 200 F.2d 560 (2d Cir.

1952); Casey v. Commissioner, 12 T.C. 224, 227 (1949); Bonner v.

Commissioner, T.C. Memo. 1979-435; Ballenger v. Commissioner,

T.C. Memo. 1955-171).

Relief from joint and several liability is available to

certain taxpayers under section 6015. There are three avenues

for relief available under this section–-section 6015(b), (c),

(f). In reaching the decision at the administrative level in

this case, the Appeals officer denied relief under subsections

(b) and (c) finding that petitioner had actual knowledge. The

Appeals officer also denied relief under subsection (f) noting:

While no formal request under 6015(f) was
received during the CDP process, the taxpayer’s
statements all concerned the inequity of holding her
liable and her inability to pay. The taxpayer
provided no financial information so Appeals could
make no determination as to the hardship provisions
of 6015(f) * * *. Appeals considered the taxpayer’s
statements about the inequity of holding her liable,
but her bare statements alone were insufficient to
overcome the prior denial of relief. Both the
taxpayer and her POA were given time to supply
additional supporting documentation and chose not to
do so.

The Appeals officer sustained the levy action. This Court will

reverse the Appeals officer’s finding only if petitioner

establishes there was an abuse of discretion.
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The Court first examines the Appeals officer’s

determination that petitioner had actual knowledge of the

unreported pension distribution. If petitioner had actual

knowledge, she cannot be afforded relief under section 6015(b) or

(c). Under section 6015(b), the taxpayer must not have known or

had any reason to know that the other spouse understated that

spouse’s tax liability on the return. Sec. 6015(b)(1)(C), (2).

Relief under section 6015(c) is not available to a taxpayer if it

is shown that the taxpayer had actual knowledge when signing the

return of any “item” giving rise to a deficiency. Sec.

6015(c)(3)(C).3

The Appeals officer met with petitioner before issuing a

notice of determination. Because the Appeals officer was unable

to retrieve the case file of petitioner’s settlement hearing

resulting from her March 1999 petition for relief from joint

liability, petitioner was afforded time to provide information to

the Appeals officer to support her claim. In the notice of

determination, the Appeals officer stated:

3
Although, generally, the burden is on the Commissioner to
prove that a taxpayer had “actual knowledge” under sec. 6015(c),
the Court is evaluating this case under an abuse of discretion
standard; therefore, the issue before the Court is not whether
petitioner had actual knowledge as to the pension distribution,
but whether the Appeals officer abused her discretion in deter-
mining such. As a result, petitioner need not prove she had no
actual knowledge; rather, petitioner need only show the Appeals
officer abused her discretion in determining petitioner had actu-
al knowledge and thereby denying relief.
 - 8 -

The only information received was a statement documenting *
* * [petitioner’s] testimony at the conference and some
child support checks issued by her ex-husband in 2000.
Subsequent discussions with the taxpayer and her Power of
Attorney did not result in any further documentation. The
taxpayer has raised no other collection alternatives. The
decision on the appropriateness of the proposed collection
action was made based on the information in the case file,
the information available in the master file account, the
assessment information, and on information submitted by the
taxpayer. No financial information was provided to allow a
decision based on financial circumstances.

Because petitioner presented no additional information to

establish she had no knowledge of intervenor’s underreporting of

the pension distribution, the Appeals officer found no basis for

overturning the denial of the original request for relief on the

basis of knowledge.

Petitioner asserts she did not know of the 1996 tax

understatement attributable to the distribution to intervenor of

his deceased mother’s pension because she was told that

intervenor’s sole inheritance was from the sale of Ms. Carlin’s

residence. Petitioner readily admitted she was aware intervenor

received approximately $200,000 after Ms. Carlin passed away;

however, petitioner contended she believed the entire amount came

from the sale of Ms. Carlin’s residence and had no reason to

believe otherwise. The knowledge standard for purposes of

section 6015(c)(3)(C) is an actual and clear awareness, as

opposed to reason to know, of the existence of an item that gives

rise to the deficiency. Cheshire v. Commissioner, supra at 195.
 - 9 -

Petitioner offered extensive testimony regarding her lack of

knowledge about the source of intervenor’s inheritance; however,

intervenor also offered extensive testimony that petitioner knew

the exact nature of his inheritance. As a result of the

conflicting testimony, and the lack of documentation supporting

either testimony, the Court finds neither party’s testimony

credible. To determine whether petitioner had actual knowledge

of the pension distribution to intervenor, the Court looks beyond

the testimony of petitioner and intervenor and relies principally

on the stipulation of facts and the admitted evidence.

Petitioner and intervenor filed their 1996 joint Federal

income tax return with the assistance of a tax preparer at H&R

Block. On Line 16(a) of Form 1040, U.S. Individual Income Tax

Return, the tax return listed $5,220 as “Gross Pension/Annuity

Amount” and then listed $220 as the “Taxable Pension/Annuity

Amount”. Regardless of whether petitioner was present during the

return preparation to discuss the pension distribution, she

nonetheless willingly signed the return, and a simple review of

the return would have alerted petitioner to the existence of a

pension distribution.4 Petitioner contends she signed the return

4
Petitioner and intervenor’s testimony as to whether
petitioner was present while their tax return was being prepared
is contradictory. Petitioner testified she was at work while
intervenor met with the H&R Block representative; however,
intervenor testified she was present the entire time the return
was being prepared.
 - 10 -

without reviewing it. When questioned by counsel for respondent

whether she had an opportunity to review the return, petitioner

responded she could have but thought there was no reason to.

Petitioner offered no evidence, other than her testimony, to

substantiate her claim of lack of knowledge. Her testimony alone

is not enough to show that the Appeals officer abused her

discretion in finding petitioner had actual knowledge of the

pension distribution. Therefore, respondent’s denial of relief

under section 6015(b) and (c) due to petitioner’s actual

knowledge of the pension distribution is sustained.

Lastly, the Court reviews the Appeals officer’s denial of

relief under section 6015(f). Section 6015(f) more broadly

confers on the Secretary discretion to grant equitable relief for

taxpayers who otherwise do not qualify for relief under section

6015(b) or (c). As directed by section 6015(f), the Commissioner

has prescribed guidelines in Rev. Proc. 2003-61, 2003-2 C.B. 296,

that the Commissioner will consider in determining whether an

individual qualifies for relief under section 6015(f).5 The

taxpayer may present evidence of factors like abuse, economic

hardship, or lack of knowledge to show it would be inequitable

5
Rev. Proc. 2003-61, 2003-2 C.B. 296, not Rev. Proc. 2000-
15, 2001 C.B. 447, applies to this case because Rev. Proc. 2003-
61 supersedes Rev. Proc. 2000-15 for requests still pending on
Nov. 1, 2003, for which no preliminary determination letter had
been issued as of Nov. 1, 2003. The Appeals officer issued
petitioner’s notice of determination on Dec. 16, 2003.
 - 11 -

for the taxpayer to be held liable for a portion of the

understatement. As previously discussed, other than the blanket

statement that “it would be inequitable” to make her pay,

petitioner submitted no evidence to the Appeals officer to

support her claim for relief under section 6015(f).

Petitioner bears a heavy burden of proof and respondent’s

position deserves the Court’s deference. This Court does not

interfere unless respondent’s determination is arbitrary,

capricious, clearly unlawful, or without sound basis in fact or

law. Ewing v. Commissioner, 122 T.C. 32, 39 (2004). Petitioner

presented no additional evidence at trial to support her claim

for relief under section 6015(f); therefore, the Court finds

there was no abuse of discretion by the Appeals officer in

denying her claim for equitable relief under section 6015(f).

Petitioner received an appropriate hearing for purposes of

section 6330(b)(1). Day v. Commissioner, T.C. Memo. 2004-30;

Leineweber v. Commissioner, T.C. Memo. 2004-17; sec. 301.6330-

1(d)(2), Q&A-D6, Proced. & Admin. Regs. Respondent properly

verified that the requirements of applicable law and

administrative procedures were met and balanced the need for

efficient collection of taxes with the legitimate concern of

petitioner that the collection action be no more intrusive than

necessary. On this record, the Court holds that there was no
 - 12 -

abuse of discretion in sustaining the notice of intent to levy.

Respondent, therefore, is sustained.

Reviewed and adopted as the report of the Small Tax Case

Division.

Decision will be entered

for respondent.