T.C. Summary Opinion 2005-145
UNITED STATES TAX COURT
ANN MARIE BRIGHT, Petitioner v.
COMMISSIONER OF INTERNAL REVENUE, Respondent
Docket No. 3839-04S. Filed October 4, 2005.
Ann Marie Bright, pro se.
Robert V. Boeshaar, 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
This opinion supplements a bench opinion rendered on Oct.
22, 2004. Unless otherwise indicated, subsequent section
references are to the Internal Revenue Code as amended. Rule
references are to the Tax Court Rules of Practice and Procedure.
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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 December 18, 2003,
respondent denied petitioner’s claim for section 6015(f) relief
from her unpaid 1995 Federal income tax liability. In a timely
petition, filed March 3, 2004, 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, see Butler v.
Commissioner, 114 T.C. 276, 292-293 (2000).
The issue for decision is whether respondent’s failure to
relieve petitioner from an unpaid Federal income tax liability
reported on a 1995 joint Federal income tax return is 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 Camano Island, Washington.
Petitioner, a high school graduate with 2 years of college
education, married Jessie Bright (petitioner’s former spouse) in
1978. They have one child, a son, born in 1981.
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Petitioner was employed as an office manager during 1995,
and appropriate amounts of Federal income tax were withheld from
her wages from that employment. Her former spouse was a self-
employed construction contractor during 1995. He made no
estimated quarterly tax payments with respect to his self-
employment income earned that year.
Petitioner and her former spouse maintained a joint checking
account throughout their marriage. Petitioner’s former spouse
controlled their personal finances and directed the payment of
all of the household expenses, which from time to time included
payments to respondent in accordance with installment agreements
in effect for different years. Petitioner was given a fixed
amount each month by her former spouse with which to purchase
groceries for the family. Petitioner did not have access to the
household checking account without the knowledge of her former
spouse. In addition, petitioner’s former spouse maintained a
separate checking account for his construction business.
Petitioner did not have access to the business checking account.
Petitioner and her former spouse filed joint Federal income
tax returns during their marriage. Petitioner’s former spouse
was responsible for the preparation and filing of the joint
returns. Their joint returns typically were untimely, and the
tax reported on those returns typically was not fully paid with
the return. Before 1995, petitioner’s former spouse negotiated
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installment agreements for the payment of amounts reported on
delinquent Federal income tax returns, and the tax liabilities
for years prior to 1995 ultimately were satisfied through these
installment agreements or otherwise.
Petitioner’s 1995 joint Federal income tax return was filed
on March 21, 1997. Taking into account the Federal income tax
liability reported on the return and prepayment credits
consisting entirely of petitioner’s income tax withholdings, the
return shows a balance due of $3,751 that was not paid with the
return.2 At the time she signed the 1995 return, petitioner knew
that the tax liability reported on the return had not fully been
paid.
During the marriage, petitioner’s former spouse began to
abuse alcohol and drugs. During the final years of the marriage,
petitioner’s former spouse became abusive towards her, and at
times petitioner feared for her safety. In June 1997, the years
of substance abuse culminated in a violent episode that prompted
petitioner to call the police in order to have her former spouse
removed from the marital residence. The resultant police
report noted petitioner’s former spouse’s substance abuse and
2
The unpaid balance consists of the sec. 1401 self-
employment tax and sec. 1 income tax on the self-employment
income of petitioner’s former spouse.
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petitioner’s concern that her former spouse might harm her or
her son.
The potential for violence and her concerns for the safety
of herself and her son led to petitioner’s decision to move, with
her son, from the marital residence. When she advised her former
spouse of her intention to do so, she and her son were forced
from the marital residence without notice and with only a minimal
number of personal possessions. At that time, petitioner and her
son moved to Washington State to live with petitioner’s daughter.
Petitioner and her former spouse were divorced in August
1998. The divorce decree ordered, in pertinent part, that
petitioner’s former spouse pay child support and the then-
outstanding 1995 Federal income tax liability.3
Since the divorce, petitioner’s former spouse has been more
than $4,900 in arrears on his child support obligation. In
addition, petitioner’s former spouse did not pay the outstanding
1995 tax liability, despite the fact that he provided petitioner
with a copy of an offer in compromise that he claimed he had made
with respect to that liability.
3
The copy of the divorce decree that petitioner initially
provided to respondent at the time of her request for innocent
spouse relief did not contain the provision which obligated
petitioner’s former spouse to pay the outstanding 1995 Federal
tax liability. However, a copy of the divorce decree which
included this provision was subsequently provided to respondent.
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Following her divorce, petitioner’s Federal income tax
returns were timely filed. With the exception of 2001, all of
the taxes shown on those returns were paid timely.4
By letter dated April 1, 2002, respondent notified
petitioner that the 1995 tax liability remained unpaid.
On April 6, 2002, petitioner submitted to respondent a Form
8857, Request for Innocent Spouse Relief, in which she requested
section 6015 relief from the unpaid portion of her 1995 Federal
income tax liability. According to the form, petitioner seeks
only “equitable relief” from that liability. On a questionnaire
submitted after her request, petitioner listed her total monthly
income and living expenses as $3,000 and $2,968, respectively.5
On November 15, 2002, respondent sent a preliminary letter
to petitioner notifying her that she was not entitled to relief
under section 6015. In December 2002, petitioner submitted
to respondent a Form 12509, Statement of Disagreement. On
4
Petitioner testified, and the record does not reflect
otherwise, that she entered into an installment agreement with
the IRS with respect to her unpaid taxes for the 2001 tax year.
As a result of this installment agreement, petitioner’s 2001 tax
liability was paid in full in March 2003.
5
In a subsequent submission to respondent, petitioner
listed her total monthly income and living expenses as $3,181 and
$3,024, respectively. Petitioner also provided copies of several
medical bills for herself and her son which totaled $1,051. On
the basis of petitioner’s 2002 tax return and the limited
information she provided, respondent determined that petitioner’s
total monthly income and allowable living expenses were $3,734
and $3,436, respectively.
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December 18, 2003, respondent issued a notice of determination
advising petitioner that she was not entitled to relief under
section 6015.
Discussion
In general, section 6013(a) allows a husband and wife to
elect to file a joint Federal income tax return. 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. Petitioner seeks relief from liabilities
reported on the 1995 joint return that she filed with her former
spouse. Consequently, she is entitled to relief only as provided
in section 6015(f), see Washington v. Commissioner, 120 T.C. 137,
146-147 (2003), which allows relief from joint and several
liability if the individual is not entitled to relief under other
provisions of section 6015 and “it is inequitable to hold the
individual liable for any unpaid tax or any deficiency (or any
portion of either)”, sec. 6015(f)(1).
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We review respondent’s denial of equitable relief after a
trial de novo and under an abuse of discretion standard. Ewing
v. Commissioner, 122 T.C. at 35-44; Butler v. Commissioner,
supra. Petitioner bears the burden of proving that respondent’s
denial of her request for section 6015(f) relief is an abuse of
discretion. See Rule 142(a); Washington v. Commissioner, supra
at 146; Jonson v. Commissioner, 118 T.C. 106, 125 (2002), affd.
353 F.3d 1181 (10th Cir. 2003). Petitioner must demonstrate that
respondent exercised his discretion arbitrarily, capriciously, or
without sound basis in fact or law. See Jonson v. Commissioner,
supra; Cheshire v. Commissioner, 115 T.C. 183, 198 (2000), affd.
282 F.3d 326 (5th Cir. 2002). The Court’s review is not limited
to respondent’s administrative record. Ewing v. Commissioner,
supra at 44.
As required by section 6015(f), the Commissioner has
prescribed procedures and factors IRS employees use to determine
whether a spouse qualifies for relief under that section. 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, 2003-2 C.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
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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 the year under consideration, and we focus our
attention on other parts of the controlling revenue procedure.
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. Rev. Proc. 2000-15, sec. 4.02(1)
provides that equitable relief will ordinarily be granted if all
of the following elements are satisfied:
(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. For purposes of this
section, the determination of whether a requesting
spouse will suffer economic hardship will be made by the
Commissioner or the Commissioner’s delegate, and will be
based on rules similar to those provided in § 301.6343-
1(b)(4) of the Regulations on Procedure and
Administration.
Respondent concedes that petitioner satisfies the first
requirement but argues that petitioner does not qualify for
relief under Rev. Proc. 2000-15, sec. 4.02 because she:
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(1) Knew or had reason to know at the time that she signed the
return that the liability reported on the joint return for 1995
would not be paid; and (2) has not demonstrated that she will
suffer economic hardship if relief is not granted.
The relevant knowledge in the case of a reported but unpaid
liability is whether when the return was signed, the taxpayer
knew or had reason to know “that the tax would not be paid.” Id.
sec. 4.02(1)(b). Accordingly, we must consider whether, “taking
into account all the facts and circumstances”, petitioner knew or
had reason to know that her former spouse would not pay the taxes
on his self-employment income shown as due on the tax return for
the taxable year in issue. See sec. 6015(f)(1).
Petitioner contends that she had no knowledge that the
unpaid 1995 joint tax liability would not be paid by her former
spouse. Petitioner did know that there was income tax due for
the taxable year in issue when she signed the tax return.
However, petitioner testified that her former spouse had a
pattern of “filing late, paying late, but having payment
agreements with the IRS.” Petitioner further testified that when
she signed the 1995 joint return “there was no reason for me to
think otherwise at that time that the [1995] taxes would not be
paid in a similar fashion, that we would get an installment
agreement and that that would be how those taxes would be paid.”
Having observed petitioner’s demeanor at trial, we find her
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testimony to be credible. In addition, petitioner’s testimony is
corroborated by the fact that her former spouse did pay the tax
balances due as reported on the couple’s jointly filed income tax
returns. Accordingly, we conclude that petitioner had no
knowledge that her former spouse would not pay, albeit at some
later date, the tax due with their 1995 return.
Petitioner further claims that she had no reason to know
that her former spouse would not pay the 1995 tax liability. She
points out that her former spouse was responsible for paying the
household expenses, including installment payments to the IRS.
Petitioner’s access to the joint checking account was through her
former spouse. Additionally, petitioner had no access to her
former spouse’s separate business checking account. It was
petitioner’s former spouse’s practice to file their joint tax
return late, to make no payment with the return, and to enter
into an installment agreement with the IRS. Although petitioner
signed the 1995 tax return in March 1997 and was aware of the tax
due, petitioner had no reason to believe that her former spouse
would not pay the tax liability. In fact, petitioner’s former
spouse handled the tax matters with the IRS and had paid any
taxes due for years prior to 1995. Contrary to respondent’s
position, we conclude that petitioner did not have reason to know
that the income tax for the taxable year in issue would not be
paid by her former spouse.
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Economic hardship for purposes of the revenue procedure 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. Rev. Proc.
2000-15, sec. 4.02. 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, and
responsibility for dependents and the amount reasonably necessary
for basic living expenses. See sec. 301.6343-1(b)(4)(ii),
Proced. & Admin. Regs.
Petitioner provided insufficient evidence to support a
finding of economic hardship. Petitioner provided no evidence as
to her basic monthly living expenses other than two lists of her
monthly expenses which totaled $2,968 and $3,024, respectively,
and copies of several medical bills which totaled $1,051.
Assuming, without finding, that all of the expenses petitioner
claimed (e.g., expenses relating to her adult son) qualify as
basic living expenses within the meaning of section 301.6343-
1(b)(4), Proced. & Admin. Regs., petitioner provided no evidence
as to the amount of her claimed monthly living expenses.
Additionally, at the time of the trial in this case, petitioner
was earning approximately $42,000 a year. Other than the three
medical bills (two of which were for petitioner’s son),
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petitioner introduced no evidence of her basic living expenses or
other current debts that would show she could not pay her current
reasonable basic living expenses. Accordingly, petitioner has
failed to establish that she will suffer economic hardship if
equitable relief is not granted. The Court concludes that
petitioner has not satisfied this element. Therefore, the Court
concludes that petitioner fails to qualify for relief under Rev.
Proc. 2000-15, sec. 4.02.
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.
Rev. Proc. 2000-15, sec. 4.03(1), lists the following six
factors weighing in favor of granting relief for an unpaid
liability: (1) The requesting spouse is separated or divorced
from the nonrequesting spouse; (2) the requesting spouse will
suffer economic hardship if relief is denied; (3) the requesting
spouse was abused by the nonrequesting spouse; (4) the requesting
spouse did not know or have reason to know that the reported
liability would not be paid; (5) the nonrequesting spouse has a
legal obligation pursuant to a divorce decree or agreement to pay
the unpaid liability; and (6) the unpaid liability is
attributable to the nonrequesting spouse. Rev. Proc. 2000-15,
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sec. 4.03(2), 2000-1 C.B. at 449, lists the following six factors
weighing against granting relief for an unpaid liability: (1)
The unpaid liability is attributable to the requesting spouse;
(2) the requesting spouse knew or had reason to know at the time
the return was signed that the reported liability would be
unpaid; (3) the requesting spouse significantly benefited (beyond
normal support) from the unpaid liability; (4) the requesting
spouse will not suffer economic hardship if relief is denied;
(5) the requesting spouse has not made a good faith effort to
comply with Federal income tax laws in the tax years following
the tax year to which the request for relief relates; and (6) the
requesting spouse has a legal obligation pursuant to a divorce
decree or agreement to pay the unpaid liability. This list is
not exhaustive, no single factor is determinative, and all
factors should be considered and weighed appropriately. Rev.
Proc. 2000-15, sec. 4.03.
As we view the matter, the factors in favor of granting
petitioner relief outweigh the factors against granting
petitioner relief. Petitioner is divorced from her former
spouse. Respondent concedes that petitioner was abused by
her former spouse during the marriage. As discussed above,
petitioner did not know or have reason to know that the reported
1995 tax liability would not be paid by her former spouse.
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Additionally, petitioner’s former spouse has a legal obligation
pursuant to their divorce decree to pay the unpaid 1995 tax
liability. The record does not reflect that petitioner
benefitted beyond normal support from the unpaid tax liability.
Petitioner has also made a good faith effort to comply with
Federal tax laws in the tax years following the tax year to which
the request for relief relates. Finally, the unpaid 1995 tax
liability is attributable to the self-employment income of
petitioner’s former spouse. The only factor not weighing in
favor of granting petitioner equitable relief is that, as
discussed above, she will not suffer economic hardship if relief
is denied.
Petitioner has presented a strong case for relief from joint
liability under the factors promulgated by the Commissioner in
Rev. Proc. 2000-15, sec. 4.03. All of the factors except one,
economic hardship, weigh in favor of granting relief to
petitioner. While the economic hardship factor weighs against
petitioner, it does not outweigh the positive factors.
Furthermore, denying relief entirely on the basis of that one
factor would elevate that factor to the status of determinative.
We are unwilling to proceed by doing so. Accordingly, we hold
that petitioner is entitled to relief under section 6015(f) and
that respondent’s failure to grant that relief was an abuse of
discretion.
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Reviewed and adopted as the report of the Small Tax Case
Division.
To reflect the foregoing,
Decision will be entered
for petitioner.