GLENN v. COMMISSIONER

T.C. Summary Opinion 2005-127

UNITED STATES TAX COURT

TIMOTHY J. GLENN, Petitioner v.
COMMISSIONER OF INTERNAL REVENUE, Respondent

Docket No. 7249-04S. Filed August 16, 2005.

Timothy J. Glenn, pro se.

Tom D. Yang, for respondent.

GOLDBERG, 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. The decision to be

entered is not reviewable by any other court, and this opinion

should not be cited as authority. Unless otherwise indicated,

subsequent section references are to the Internal Revenue Code in

effect for the year in issue, and all Rule references are to the

Tax Court Rules of Practice and Procedure.
 - 2 -

Respondent determined a deficiency of $16,584 in the joint

Federal income tax of petitioner and petitioner’s former spouse,

Carolyn A. Glenn (Ms. Glenn),1 and an accuracy-related penalty of

$3,317 pursuant to section 6662(a) for the taxable year 2001.

After concessions, the issues for decision are: (1) Whether

petitioner is liable for the accuracy-related penalty pursuant to

section 6662(a) for the taxable year 2001; and if so, (2) whether

petitioner is entitled to relief from joint and several liability

for the tax deficiency and accuracy-related penalty pursuant to

section 6015.

Background

Some of the facts have been stipulated and are so found.

The stipulation of facts and the attached exhibits are

incorporated herein by this reference. Petitioner resided in

Hoffman Estates, Illinois, on the date the petition was filed in

this case.

Petitioner and Ms. Glenn were married on July 8, 1989. For

taxable year 2001, petitioner and Ms. Glenn filed a timely joint

Federal income tax return. During the year at issue, petitioner

and Ms. Glenn were married and resided in the same household;

however, they occupied separate rooms in the household. Their

1
Carolyn A. Glenn’s case, docket No. 9199-04S, was tried
immediately after petitioner’s case on this Court’s Chicago,
Illinois, session beginning Nov. 29, 2004. These cases were not
consolidated because of an objection by Carolyn A. Glenn.
 - 3 -

2001 Federal income tax return was signed and dated by both

petitioner and Ms. Glenn on April 10, 2002. Both petitioner and

Ms. Glenn executed the 2001 return voluntarily. Petitioner and

Ms. Glenn were divorced on November 13, 2002. Their judgment for

dissolution of marriage provided:

That each party shall be responsible for the payment of all
credit card bills and all other debts in his or her name
alone. Each shall hold the other harmless and indemnify the
other from the respective indebtedness.

However, the judgment for dissolution of marriage did not address

payment of joint liabilities.

On their jointly filed 2001 tax return, petitioner and Ms.

Glenn reported wage income of $157,301, interest income of $350,

and total pension and annuity income of $165,838.2 Petitioner

and Ms. Glenn reported adjusted gross income of $323,489 and

claimed deductions of $31,811 on Schedule A, Itemized Deductions.

Their 2001 income tax return reported a total tax of $86,293 and

a net amount owed of $21,438 after reducing their total tax by

the amount of income tax withheld.

During taxable year 2001, petitioner earned wages from two

sources: $58,502.61 from Ceridian Corp. from which $11,122.24 of

Federal income tax was withheld; and $74,219.76 from Kronos,

Inc., from which $14,984.69 of Federal income tax was withheld.

2
This amount is rounded to the nearest dollar.
 - 4 -

During taxable year 2001, Ms. Glenn earned wages of

$24,577.99 from Community Unit School District #220, and Federal

income tax of $1,704.43 was withheld. Also during tax year 2001,

petitioner and Ms. Glenn received pension and annuity income of

$165,838 from petitioner’s Fidelity Investments account from

which $33,167.58 of Federal income tax was withheld.

The $165,838 reported as pension and annuity income during

taxable year 2001 by petitioner and Ms. Glenn was a distribution

from petitioner’s section 401(k) plan maintained by his employer,

Kronos, Inc., through T. Rowe Price. Petitioner had been

employed at Kronos, Inc., since 1988. This distribution was made

approximately in June of 2001. Petitioner’s reasons for

requesting the distribution were that he was leaving Kronos,

Inc., and he and Ms. Glenn were considering divorce and wanted to

pay off outstanding bills to make their divorce “as simple as

possible”.

Petitioner received a check from Fidelity Investments in the

amount of $132,670.30.3 In August of 2001, petitioner deposited

$123,700 into his and Ms. Glenn’s joint checking account with

Harris Trust & Savings Bank.4 Petitioner could not recall why

3
This amount represents the total sec. 401(k) distribution
of $165,838, less Federal income tax withheld of $33,167.58.
4
Petitioner transferred $100,000 from the joint checking
account into a joint savings account which was also held with
Harris Trust & Savings Bank. Petitioner transferred money from
(continued...)
 - 5 -

the whole amount of $132,670.30 was not deposited in the joint

checking account. Petitioner and Ms. Glenn had opened this joint

checking account before 1990. Petitioner also deposited his

paychecks in the joint checking account. However, Ms. Glenn did

not deposit her paychecks into the joint checking account;

instead, she had a separate personal checking account where she

deposited her paychecks.

During the period from July 27 through December 31, 2001,

petitioner wrote checks totaling $66,082.07 drawn on the Harris

Trust & Savings Bank joint checking account as follows:

Date Check No. Description Amount

7/27/2001 136 Payable to: Discover $2,700.00
8/1/2001 137 Payable to: Citibank 3,450.55
8/21/2001 147 Payable to: First USA 23,000.00
9/5/2001 164 Payable to: Citibank 6,938.63
9/5/2001 165 Payable to: Union Federal 27,701.51
9/29/2001 185 Payable to: First USA 1,215.40
10/24/2001 204 Payable to: First USA 1,075.98
Total 66,082.07

Both petitioner’s and Ms. Glenn’s names were on their credit

cards financed through Discover, Citibank, and First USA, and

both of their names were on the home mortgage note they received

from Union Federal. Therefore, petitioner and Ms. Glenn were

jointly liable for the credit card debts and home mortgage which

were paid by the above checks.

4
(...continued)
the savings account to the checking account, as needed, to cover
checks written on and withdrawals from the checking account.
Petitioner used the savings account to earn interest while the
large sum of money was not being used.
 - 6 -

From the record, the remaining $57,617.93, which was

deposited into the joint savings and checking accounts, was not

readily traceable. However, on November 28, 2001, the balance in

the joint savings account was $57,878.32.

As stated previously, petitioner and Ms. Glenn reported

pension and annuity income of $165,838 on their joint Federal

income tax return for taxable year 2001. However, they did not

report on their 2001 joint Federal income tax return the 10-

percent early withdrawal additional tax imposed by section 72(t).

Petitioner concedes that the total amount of $165,838 of

pension and annuity income reported on the return is subject to

the 10-percent additional tax under section 72(t) on early

withdrawals. After the date of the notice of deficiency,

petitioner tendered to respondent payment of $8,267,

approximately one-half of the amount of the 10-percent additional

tax.

Petitioner contends that he is not liable for the accuracy-

related penalty pursuant to section 6662(a) with respect to the

underpayment attributable to the unreported 10-percent additional

tax under section 72(t), because the underpayment was a result of

an “honest” mistake by his and Ms. Glenn’s tax return preparer.

In addition, petitioner requests relief pursuant to section 6015

from liability for one-half of the 10-percent additional tax
 - 7 -

attributable to the early withdrawal, and the accuracy-related

penalty imposed under section 6662(a).

Discussion

Except as otherwise provided in section 6015, petitioner

bears the burden of proof. See Rule 142(a); Alt v. Commissioner,

119 T.C. 306, 311 (2002), affd. 101 Fed. Appx. 34 (6th Cir.

2004). Respondent has the burden of production with respect to

the accuracy-related penalty, however. See sec. 7491(c); Higbee

v. Commissioner, 116 T.C. 438, 446-447 (2001).

1. Accuracy-Related Penalty

In the notice of deficiency, respondent determined that

petitioner and Ms. Glenn are liable for an accuracy-related

penalty pursuant to section 6662(a) with respect to the

underpayment attributable to the unreported 10-percent additional

tax under section 72(t).

Section 6662(a) imposes a 20-percent penalty on the portion

of any underpayment attributable to any of various factors, one

of which is negligence or disregard of rules or regulations.

Sec. 6662(b)(1). “Negligence” includes any failure to make a

reasonable attempt to comply with the provisions of the Internal

Revenue Code, including failure to keep adequate books and

records or to substantiate items properly. Sec. 6662(c); sec.

1.6662-4(b)(1), Income Tax Regs. As relevant to this case, the

penalty also applies to any portion of the underpayment that is
 - 8 -

attributable to any substantial understatement of income tax.

Sec. 6662(b)(2). There is a “substantial understatement of

income tax” if the amount of the understatement exceeds 10-

percent of the tax required to be shown on the tax return or

$5,000. Sec. 6662(d)(1).

As previously stated, section 7491(c) requires the

Commissioner to carry the burden of production because he seeks

to impose the penalty. Higbee v. Commissioner, supra. Once the

burden of production is met, the taxpayer must come forward with

sufficient evidence that the penalty does not apply. Id. at 447.

Petitioner argues that the underpayment attributable to the

unreported 10-percent additional tax under section 72(t) was a

result of an “honest” mistake by his and Ms. Glenn’s tax return

preparer. Petitioner and Ms. Glenn reported a tax liability of

$86,293 on their 2001 tax return. Respondent determined that

petitioner and Ms. Glenn’s corrected tax liability was $102,877.

The difference is fully attributable to petitioner and Ms.

Glenn’s omission of the additional tax under section 72(t) of

$16,584. Respondent has satisfied his burden of showing that the

understatement of tax exceeds the greater of 10 percent of the

tax required to be shown on the return or $5,000.

Section 6664(c)(1) provides that the penalty under section

6662(a) shall not apply to any portion of an underpayment if it

is shown that there was reasonable cause for the taxpayer’s
 - 9 -

position and that the taxpayer acted in good faith with respect

to that portion. The determination of whether a taxpayer acted

with reasonable cause and in good faith is made on a case-by-case

basis, taking into account all the pertinent facts and

circumstances. Sec. 1.6664-4(b)(1), Income Tax Regs. The most

important factor is the extent of the taxpayer’s effort to assess

his proper tax liability for the year. Id. Circumstances that

may indicate that a taxpayer acted with reasonable cause and in

good faith include “an honest misunderstanding of fact or law

that is reasonable in light of all of the facts and

circumstances, including the experience, knowledge, and education

of the taxpayer.” Id.

Further, in some instances, taxpayers can avoid the

accuracy-related penalty if they have furnished all of the

relevant information to a tax professional or return preparer and

relied on that person’s professional advice as to the proper tax

treatment. Jackson v. Commissioner, 86 T.C. 492, 539-540 (1986),

affd. 864 F.2d 1521 (10th Cir. 1989); Pessin v. Commissioner, 59

T.C. 473, 489 (1972). However, any reliance upon professional

tax advice must be reasonable. Freytag v. Commissioner, 89 T.C.

849, 888 (1987), affd. 904 F.2d 1011, 1017 (5th Cir. 1990), affd.

501 U.S. 868 (1991).

It is clear to the Court that petitioner is unsophisticated

as to tax matters. After providing his and Ms. Glenn’s tax
 - 10 -

return preparer with all their relevant tax information, they

relied reasonably and in good faith on the tax preparer to

prepare an accurate tax return. We conclude that petitioner

acted with reasonable cause and good faith as to the underpayment

resulting from the additional tax in issue. Accordingly, we hold

that petitioner is not liable for the accuracy-related penalty

pursuant to section 6662(a).

2. Relief From Joint and Several Liability Pursuant to Section
6015

Under present law, there are three primary jurisdictional

bases upon which this Court may review a claim for relief from

joint and several liability. First, a claim may be raised as an

affirmative defense in a petition for redetermination of a

deficiency filed pursuant to section 6213(a). Butler v.

Commissioner, 114 T.C. 276, 287-288 (2000). A second basis upon

which we may exercise jurisdiction is contained in section

6015(e). This provision allows a spouse who has requested relief

to petition the Commissioner’s denial of relief or to petition

the Commissioner’s failure to make a timely determination. Such

cases are referred to as “stand alone” cases, in that they are

independent of any deficiency proceeding. Fernandez v.

Commissioner, 114 T.C. 324, 329 (2000). A third situation where

we may exercise jurisdiction to determine relief from joint and

several liability is where the issue is properly raised in a
 - 11 -

collection proceeding under sections 6320 and 6330.5 In the

instant case, petitioner raised his claim for relief from joint

and several liability as an affirmative defense in a petition for

redetermination of a deficiency filed pursuant to section

6213(a).

A. Section 6015

As a general rule, married taxpayers may elect to file a

joint Federal income tax return. Sec. 6013(a). After making the

election, each spouse generally is jointly and severally liable

for the entire tax due for that taxable year. Sec. 6013(d)(3).

In certain situations, however, a joint return filer can avoid

such joint and several liability by qualifying for relief

therefrom under section 6015.6

Section 6015 provides three avenues for obtaining relief to

a taxpayer who has filed a joint return: (1) Section 6015(b)

provides full or apportioned relief with respect to

understatements of tax attributable to certain erroneous items on

5
Additionally, we have held that we may address a claim for
relief from joint and several liability pleaded as an affirmative
defense in a matter properly before this Court under sec. 6404
(relating to the Commissioner’s determination not to abate
interest). Estate of Wenner v. Commissioner, 116 T.C. 284, 288
(2001).
6
Sec. 6015 was enacted as part of the Internal Revenue
Service Restructuring and Reform Act of 1998, Pub. L. 105-206,
sec. 3201, 112 Stat. 734. Before the enactment of sec. 6015,
relief from the imposition of joint and several liability for
spouses filing joint returns was available under sec. 6013(e).
 - 12 -

the return; (2) section 6015(c) provides relief for a portion of

an understatement of tax for taxpayers who are separated or

divorced; and (3) section 6015(f) (potentially the broadest of

the three avenues) confers upon the Secretary discretion to grant

equitable relief for taxpayers who otherwise do not qualify for

relief under section 6015(b) or (c).

Petitioner requests relief pursuant to section 6015 from

liability for one-half of the 10-percent additional tax

attributable to the early withdrawal. In addition, petitioner

argues that his and Ms. Glenn’s judgment for dissolution of

marriage required each party to pay half of the liabilities that

were incurred during the marriage.7 We will consider

petitioner’s request for relief under section 6015 as an election

under section 6015(b), (c), and (f).

B. Section 6015(b) Analysis

Section 6015(b) provides, in pertinent part as follows:

SEC. 6015(b). Procedures For Relief From Liability
Applicable to All Joint Filers.--

(1) In general.--Under procedures prescribed by
the Secretary, if–

(A) a joint return has been made for a
taxable year;

7
We need not discuss petitioner’s claim regarding the
judgment for dissolution of marriage because such a claim is a
State matter.
 - 13 -

(B) on such return there is an understatement
of tax attributable to erroneous items of one
individual filing the joint return;

(C) the other individual filing the joint
return establishes that in signing the return he
or she did not know, and had no reason to know,
that there was such understatement;

(D) taking into account all the facts and
circumstances, it is inequitable to hold the other
individual liable for the deficiency in tax for
such taxable year attributable to such
understatement; * * *

* * * * * * *

then the other individual shall be relieved of
liability for tax (including interest, penalties, and
other amounts) for such taxable year to the extent such
liability is attributable to such understatement.

The requirements of section 6015(b)(1) are stated in the

conjunctive. Accordingly, a failure to meet any one of them

prevents a requesting spouse from qualifying for the relief

offered therein. Alt v. Commissioner, 119 T.C. at 313.

On the basis of the facts and circumstances of the present

case, we find that petitioner was well aware of the distribution

of $165,838 from his own section 401(k) account through Fidelity

Investments. Petitioner may not claim that he did not have

knowledge of the unreported 10-percent early withdrawal

additional tax imposed by section 72(t), because of his and Ms.

Glenn’s tax return preparer’s “honest” mistake.

Taxpayers seeking to prove that they had no knowledge or

reason to know of an item giving rise to an understatement of tax
 - 14 -

must demonstrate, at a minimum, that they fulfilled a “duty of

inquiry” with respect to determining whether their correct tax

liability was reported on the return for the year for which they

seek relief. Stevens v. Commissioner, 872 F.2d 1499, 1505 (11th

Cir. 1989), affg. T.C. Memo. 1988-63; Butler v. Commissioner, 114

T.C. at 284. When taxpayers fail to fulfill their duty of

inquiry, they are ordinarily charged with constructive knowledge

of any understatements on their returns. See Hayman v.

Commissioner, 992 F.2d 1256, 1262 (2d Cir. 1993), affg. T.C.

Memo. 1992-228; Crowley v. Commissioner, T.C. Memo. 1995-551,

affd. without published opinion sub nom. Cockrell v.

Commissioner, 116 F.3d 1472 (2d Cir. 1997); Cohen v.

Commissioner, T.C. Memo. 1987-537 (the provisions providing

relief from joint and several liability are “designed to protect

the innocent, not the intentionally ignorant”). Petitioner has

not satisfied his burden here.

Further, petitioner has not satisfied the requirement of

section 6015(b)(1)(B) because he cannot show that the

understatement of tax is attributable to an erroneous item of one

of the individuals filing the joint return. As previously

discussed, the understatement of tax is attributable to

petitioner and Ms. Glenn’s omission of the additional tax under

section 72(t).
 - 15 -

Moreover, on the basis of the entire record and petitioner’s

enjoyment of benefits stemming from the distribution, we cannot

conclude that it would be inequitable to hold petitioner liable

for the deficiency in tax at issue in this case. Petitioner is

not entitled to relief under section 6015(b).

C. Section 6015(c) Analysis

Section 6015(c) grants relief from joint and several tax

liability for electing individuals who filed a joint return and

are no longer married, are legally separated, or are living

apart. Congress intended that such relief from liability be

available for tax attributable to items of which the electing

spouse had no knowledge. S. Rept. 105-174, at 55 (1998), 1998-3

C.B. 537, 591. Generally, this type of relief treats spouses,

for purposes of determining tax liability, as if separate returns

had been filed. Sec. 6015(d)(3)(A); Grossman v. Commissioner,

182 F.3d 275, 278 (4th Cir. 1999), affg. T.C. Memo. 1996-452;

Charlton v. Commissioner, 114 T.C. 333, 342 (2000); Rowe v.

Commissioner, T.C. Memo. 2001-325. The allocation, however, is

not permitted if the Secretary shows by a preponderance of the

evidence that the electing individual had “actual knowledge, at

the time such individual signed the return, of any item giving

rise to a deficiency (or portion thereof) which is not allocable

to such individual”. Sec. 6015(c)(3)(C); Culver v. Commissioner,
 - 16 -

116 T.C. 189, 194-195 (2001); Cheshire v. Commissioner, 115 T.C.

183, 193-194 (2000), affd. 282 F.3d 326 (5th Cir. 2002).

Respondent argues that petitioner had actual knowledge of

the unreported 10-percent additional tax under section 72(t)

since he received the check for the distribution, personally used

the proceeds to pay off debts for which he and Ms. Glenn were

jointly responsible, and signed the joint Federal income tax

return without making any inquiry as to whether the tax reported

was correct.

In the present case, as in the case of a disallowed

deduction, we find that actual knowledge is present if the

taxpayer had actual knowledge of the factual circumstances which

led to the 10-percent additional tax. See King v. Commissioner,

116 T.C. 198, 204 (2001). Knowledge of the tax consequences

resulting from the factual circumstances is not required. Id. at

203-204. The Commissioner bears the burden of proving that the

taxpayer requesting section 6015(c) relief had the relevant

actual knowledge. Sec. 6015(c)(3)(C); King v. Commissioner,

supra at 204.

Petitioner is not entitled to relief from joint and several

liability under section 6015(c). As discussed above, petitioner

was fully aware of all the underlying factual circumstances

concerning the distribution from his own section 401(k) plan.

See King v. Commissioner, supra. Consequently, petitioner had
 - 17 -

actual knowledge of the factual basis for the 10-percent

additional tax pursuant to section 72(t), and he cannot rely on

ignorance of the law for relief from liability. Mitchell v.

Commissioner, 292 F.3d 800, 803-806 (D.C. Cir. 2002), affg. T.C.

Memo. 2000-332. Regardless of whether the taxpayer “possesses

knowledge of the tax consequences of the item at issue, * * *[he]

is considered as a matter of law to have reason to know of the

* * * understatement and thereby is effectively precluded from

establishing to the contrary.” Mitchell v. Commissioner, supra

at 804.

D. Section 6015(f) Analysis

Therefore, the only remaining opportunity for relief

available to petitioner is section 6015(f). Section 6015(f)

provides as follows:

SEC. 6015(f). Equitable Relief.--Under procedures
prescribed by the Secretary, if-–

(1) taking into account all the facts and
circumstances, it is inequitable to hold the individual
liable for any unpaid tax or any deficiency (or any
portion of either); and

(2) relief is not available to such individual
under subsection (b) or (c),

the Secretary may relieve such individual of such liability.

As directed by section 6015(f), the Commissioner has

prescribed guidelines in Rev. Proc. 2003-61, 2003-2 C.B. 296,8 to

8
This revenue procedure superseded Rev. Proc. 2000-15, 2000-
(continued...)
 - 18 -

be considered in determining whether an individual qualifies for

relief under section 6015(f). Rev. Proc. 2003-61, sec. 4.01,

2003-2 C.B. at 297, lists seven conditions which must be

satisfied before the Commissioner will consider a request for

relief under section 6015(f).

Rev. Proc. 2003-61, sec. 4.03(2), 2003-2 C.B. at 298, lists

nonexclusive factors that the Commissioner will consider in

determining whether, taking into account all the facts and

circumstances, it is inequitable to hold the requesting spouse

liable for all or part of the unpaid income tax liability or

deficiency, and full or partial equitable relief under section

6015(f) should be granted. Rev. Proc. 2003-61, sec. 4.03, 2003-2

C.B. at 298, provides that the following factors are relevant to

whether the Commissioner will grant equitable relief: (1)

Marital status, (2) economic hardship, (3) knowledge or reason to

know, (4) the nonrequesting spouse’s legal obligation, (5)

significant benefit, (6) compliance with income tax laws, (7)

abuse, and (8) mental or physical health. Further, Rev. Proc.

2003-61, supra, provides that no single factor will be

8
(...continued)
1 C.B. 447, and is effective either for requests for relief filed
on or after Nov. 1, 2003, or for requests for which no
preliminary determination letter was issued as of Nov. 1, 2003.
In the present case, the request for relief was still pending as
of Nov. 1, 2003, and the preliminary determination letter was
issued on Dec. 19, 2003; therefore, Rev. Proc. 2003-61, 2003-2
C.B. 296, is applicable in the present situation.
 - 19 -

determinative, but that all relevant factors, regardless of

whether the factor is listed in Rev. Proc. 2003-61, sec. 4.03,

will be considered and weighed.

Petitioner executed the 2001 return voluntarily. The

distribution which led to the 10-percent additional tax pursuant

to section 72(t) was a distribution from petitioner’s own section

401(k) plan. Petitioner had actual knowledge of the factual

basis for the 10-percent additional tax. Petitioner personally

used the proceeds from the distribution to pay for living

expenses incurred by him, Ms. Glenn, and their children. Also,

petitioner used the proceeds from the distribution to pay credit

card debts and a second mortgage, for which petitioner and Ms.

Glenn were jointly liable.

Furthermore, we find no basis for concluding that petitioner

would suffer undue financial hardship in being liable for the

additional unpaid 2001 tax liability.

While petitioner may have a claim to indemnity under State

law for half of the payment of the additional tax liability

incurred because of the 10-percent additional tax, we find that

no factors considered support the conclusion that petitioner is

entitled to relief under section 6015(f), and petitioner’s

request for relief pursuant to section 6015 will be denied.
 - 20 -

Reviewed and adopted as the report of the Small Tax Case

Division.

An appropriate decision

will be entered for respondent

with respect to the deficiency

and for petitioner with respect

to the accuracy-related penalty

under section 6662(a).