T.C. Summary Opinion 2005-161
UNITED STATES TAX COURT
RHEA IONE SUPPLEE NEGOESCU, Petitioner v.
COMMISSIONER OF INTERNAL REVENUE, Respondent
Docket No. 11500-03S. Filed November 8, 2005.
Rhea Ione Supplee Negoescu, pro se.
Julie L. Payne, for respondent.
HOLMES, Judge: Rhea Negoescu and her ex-husband had constant
problems with the IRS while they were married. Although they
filed joint tax returns each year, they usually did not have
enough money to pay the tax due. Negoescu now asks for relief
from the still unpaid tax liabilities for two of those years,
1991 and 1992.1
1
The case was tried as a small case under Internal Revenue
(continued...)
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Background
Rhea Negoescu married William Supplee in 1982, and they had
two children. For much of their marriage--including 1991 and
1992, the years at issue here--he owned Red Hawk Express, a small
trucking company in Alaska. Supplee drove the truck and kept it
in good repair, and Negoescu kept the books. She collected,
categorized, and recorded all the business receipts to provide to
their accountant. The two shared the joint checking account used
for Red Hawk Express; Negoescu had signature authority for the
account, kept the check register, and regularly balanced it.
Negoescu also had her own part-time business, Du-Rite
Cleaning, and worked as an admissions clerk at a hospital in
Fairbanks. She deposited her paychecks, her business receipts,
and the checks she received for her children from the Alaska
Permanent Fund (a unique state institution that provides annual
dividends to Alaskans from oil and gas royalties paid to the
State) into an individual checking account. Only she had access
to the check register for this account; only she knew its balance
at any time.
The couple filed joint tax returns for both 1991 and 1992,
which showed taxes due of about $4,000 for both years. When
1
(...continued)
Code sections 6330 and 7463(f). (All section citations are to
the Code as currently in effect.) Trial as a small case means
that this decision is not reviewable by any other court, and this
opinion should not be cited as precedent.
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Negoescu signed the return, she knew that it showed taxes due;
she also knew that she and her husband did not have enough money
to pay.
The Supplees had many problems with the IRS all during their
marriage, and these problems frequently caused fights between
them. Negoescu was aware since 1984 that her husband was not
filing their returns on time. She was also aware that he was not
paying their tax bills as he should. The cause of this problem
was that he kept underpaying the estimated taxes from the
trucking business--which then led the couple to owe money when
their taxes came due each April. The accumulated interest and
additions to tax for underpayment and late payment quickly added
up to a considerable burden. We believe Negoescu when she
testified that he got angry when she asked him about what was
happening with the IRS. We also believe her testimony that the
tension this caused contributed to their divorce in April 1997.
By the time of that divorce, their total joint tax debt
(including their 1991 and 1992 taxes) was about $45,000, and in
their divorce decree Supplee promised to pay it all. And he did
pay quite a bit but, for whatever reason, never managed to pay it
off completely. In July 2001, the Commissioner sent Negoescu a
notice of intent to levy--a form to tell her that the IRS was
about to start seizing her property to pay the approximately
$23,000 in unpaid 1991 and 1992 taxes. This alarmed her, and so
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on August 29, 2001 she mailed in a request for a collection due
process (or CDP) hearing--and mailed it to the correct IRS
service center. At nearly the same time, though, she also sent
the IRS a Form 8857, used to request innocent spouse relief. It
seems that she was being cautious--a taxpayer in her position can
ask for innocent spouse relief at the CDP hearing, and doesn’t
need to ask for innocent spouse relief separately.
And here her troubles began, because she seems to have
mailed her Form 8857 to the same IRS service center to which she
had mailed her request for a CDP hearing--instead of handing it
to the Appeals officer at the hearing or mailing it to the
special address for innocent spouse relief requests, as the
instructions for the Form 8857 say she should have done. She
also didn’t mention her wish for innocent spouse relief on the
form that she used to ask for a CDP hearing. Her Form 8857 got
lost in the IRS bureaucracy, with an incorrect entry in a
computer database showing that the request was being considered
by the IRS’s Compliance Division when it really wasn’t. Not
until October 2002--more than a year after she sent it in--did
the IRS Appeals officer in Alaska who was looking at Negoescu’s
request for a CDP hearing discover the mistake. That Appeals
officer then quickly sent the Form 8857 to the section of the IRS
that reviews and decides innocent spouse requests--the Cincinnati
Centralized Innocent Spouse Operation (which despite its name is
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actually in Kentucky). So at the end of 2002, a year-and-a-half
after sending in her request for a CDP hearing and her Form 8857,
Negoescu had received decisions on neither.
The Appeals officer who discovered this snafu quickly tried
to set things right, sending a letter to Negoescu in January 2003
asking her to complete a more detailed Innocent Spouse
Questionnaire and also asking her to call to set up a CDP
hearing. Negoescu did not respond. An IRS employee in Kentucky
was also trying to reach her that month, making phone calls to
her in Alaska to ask for more information, but was never able to
reach her. Negoescu claimed that the problem was her decision to
drop her P.O. Box address (the one she had used as her return
address on the requests for a CDP hearing and innocent spouse
relief), followed by a period when her mail wasn’t being
forwarded to her residential address.
Getting no response, the Appeals officer never held a CDP
hearing. In April 2003, she finally denied Negoescu’s request
for innocent spouse relief, and on the same day mailed out a
letter sustaining the Commissioner’s decision to levy on
Negoescu’s property. She noted that
The taxpayer was asked to answer questions
and provide information to support her
innocent spouse claim; she failed to respond.
The taxpayer failed to respond to letters
sent to her regarding the innocent spouse
claim or to a letter offering her a
collection due process hearing in Appeals.
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The taxpayer presented no other relevant
information and did not provide any
collection alternative. No financial
information was provided.
Negoescu filed her petition seeking review in July 2003, and
did not fill out the IRS questionnaire until October. She also
provided other evidence at the trial, which was held in Alaska,
where she resided when she filed her petition.
Discussion
Married couples may choose to file their Federal tax returns
jointly. Sec. 6013(a). If they do, both are responsible for the
accuracy of the return and both are liable for the entire tax
due. Sec. 6013(d)(3); Butler v. Commissioner, 114 T.C. 276, 282
(2000).
In some cases, however, section 6015 can provide relief from
that liability. Under section 6015(b), a spouse may seek either
full or partial relief; under section 6015(c), the tax liability
can be split between two former or separated spouses. Both these
provisions, however, require that the liability in question arise
from a “deficiency,” which means that a couple underreported
their taxes. In this case, the Commissioner agrees that the
Supplees correctly filled out their tax returns for both 1991 and
1992, so there is no deficiency.
That means that Negoescu is in what’s called an
“underpayment situation”--there’s no dispute over how much tax
she and her ex-husband owe, only about who has to pay it. When
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there’s an underpayment, the Court has to look at a different
part of the tax law, section 6015(f). This section lets one
spouse out of having to pay taxes if “it is inequitable to hold
the individual liable for any unpaid tax.” Sec. 6015(f). The
Commissioner writes a guide, called a “revenue procedure,” that
tells IRS employees what to look for in deciding questions of
“inequitability”. Washington v. Commissioner, 120 T.C. 137, 147-
152 (2003); Jonson v. Commissioner, 118 T.C. 106, 125-126 (2002),
affd. 353 F.3d 118 (10th Cir. 2003). Revenue Procedure 2000-15
was the procedure in effect when the Commissioner issued his
final notice of determination to Negoescu, and that’s the revenue
procedure that we look at in reviewing what he did. Rev. Proc.
2000-15, 2000-1 C.B. 447.
We begin by noting that Negoescu has the burden of proof,
Alt v. Commissioner, 119 T.C. 306, 311 (2002), affd. 101 Fed.
Appx. 34 (6th Cir. 2004). This means that she must show that the
Commissioner abused his discretion--in other words, that he was
arbitrary, capricious, or acting without sound basis in fact when
he denied her relief. Jonson, 118 T.C. at 125; Butler v.
Commissioner, 114 T.C. 276, 291-292 (2000).
The revenue procedure begins with a list of conditions that
a person trying to win innocent spouse relief must show. These
include proof that she filed a joint return, did not qualify for
relief under section 6015(b) or (c), and did not fraudulently
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transfer property to anyone to avoid paying taxes. Rev. Proc.
2000-15, sec. 4.01, 2000-1 C.B. at 448. The Commissioner admits
that Negoescu meets all these conditions.
The revenue procedure then provides for a safe harbor; if
Negoescu met these conditions, she would ordinarily get relief.
Rev. Proc. 2000-15, sec. 4.02. To qualify, Negoescu must show
that (a) she is either separated or divorced, (b) she did not
know when she signed the returns that the tax liabilities would
not be paid, and (c) she would suffer economic hardship if she
doesn’t get relief. Id. Negoescu did show that she and Supplee
are divorced; however, we find that she knew that the taxes would
not be paid. Since she was keeping the books of both Red Hawk
Express and her own checking account, she knew that she and
Supplee did not have the money to pay the taxes due. Negoescu’s
knowledge of the delinquent tax payments means she fails to meet
the safe harbor.
This leaves a balancing test--eight factors to consider
before deciding if relief would be “equitable.” Rev. Proc. 2000-
15, sec. 4.03. These factors are not the only ones which the
Commissioner and we can look at, but they are where we start.
Id.; Ewing v. Commissioner, 122 T.C. 32, 47-48 (2004).
We can summarize those factors in a table:
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Weighs for Relief Neutral Weighs against
Relief
Separated or Still married N/A
divorced
Abuse present No abuse present N/A
N/A No significant Significant benefit
benefit from the
deficiency or
underpayment
N/A Later compliance Lack of later
with Federal tax compliance with
laws Federal tax laws
No knowledge of N/A Knowledge
deficiency or
underpayment
Economic hardship if N/A No economic hardship
taxes had to be paid
Tax liability N/A Liability
attributable to non- attributable to
requesting spouse petitioner
Non-requesting No divorce decree Petitioner
spouse responsible responsible for
for paying tax under paying tax under
divorce decree divorce decree
The parties agree on two of the factors (those in italics),
and we now turn to the rest:
Abuse: Negoescu maintains that Supplee emotionally abused
her throughout the course of their marriage; however, she did not
offer any evidence in support of her argument other than her own
testimony. And we find that the Commissioner was not clearly
wrong in finding that her marital situation--though full of
heated arguments over money--did not sink to the level of abuse.
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This factor is neutral.
Later compliance: Negoescu and Supplee did not make full
and timely payment for their 1993 tax bill. Though Negoescu did
have money withheld from her job at the hospital, and though she
also paid an additional $833 with the return, she was still short
$747. The full amount, including interest and penalties, was not
paid until 1995, when her expected refund for 1994 was credited
to the balance due. This means that she has not consistently
complied with the Federal tax laws by making timely payments.
This factor weighs against her.
Knowledge: As we mentioned above, Negoescu knew when she
signed the 1991 and 1992 tax returns that the liabilities shown
on those returns would not be paid. This factor also weighs
against her. Furthermore, the revenue procedure states, “This is
an extremely strong factor weighing against relief,” making this
factor more important than the others. Rev. Proc. 2000-15, sec.
4.03(2)(b), 2000-1 C.B. 447.
Economic Hardship: The factor forces us to ask whether
Negoescu would be able to pay her reasonable basic living
expenses if she does not receive relief. Alt, 119 T.C. at 314-
315. While she claims that her monthly expenses are more than
her monthly income, she did not show any documentary evidence
that this is true. She testified that her monthly wages from her
job at the hospital were about $2400 a month. She also received
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$400 a month in rent from some real property she owned, about
$100 a month from the Alaska Permanent Fund, and about $300 a
month in child support from her husband.
She testified that her monthly expenses include rent and
utilities of about $960 for her current residence, health
insurance of $200, clothing for her and her daughter of about
$200, and college tuition of $100. She contributes about $230
per month toward her pension and union dues. Her current pension
balance is about $1500 and she has another $100 in a savings
account. While she does own some real property, we do not know
whether it is worth enough to pay the outstanding tax liability
if sold or refinanced.
Based on her testimony, her total monthly income is about
$3200 a month, while her expenses are about $1700 a month.
Although these numbers are a bit different from those in the
Innocent Spouse Questionnaire that she finally filled out in
October 2003, we cannot say she’s proven that she would suffer
economic hardship if she were not relieved of liability, and we
have to conclude that this factor weighs against relief.
Liability attribution: While Negoescu insists that more
than enough money was withheld from her paychecks to pay the tax
on her wages from the hospital and her earnings from Du-Rite
Cleaning, she did also play an active role in Red Hawk Express.
The unpaid tax liabilities for 1991 and 1992 came from that
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business, and so liability for those taxes is attributable to her
as well as to Supplee. This factor also weighs against relief.
Payment Responsibility: According to the divorce agreement,
Supplee is responsible for the payment of the disputed
liabilities. This is a factor weighing in her favor. The table
of conditions now looks like this:
Weighs for Relief Neutral Weighs against
Relief
Separated or
divorced
No abuse present
No significant
benefit
Lack of later
compliance with
Federal tax laws
Knowledge
No economic hardship
Liability
attributable to
petitioner
Non-requesting
spouse responsible
for paying tax under
divorce decree
Thus, Negoescu has only two factors weighing toward relief,
four weighing against relief, and two that are either neutral or
inconclusive. These factors are not all equally weighty--
Negoescu’s knowledge that the tax liabilities would not be paid,
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is an “extremely strong factor weighing against relief.”
The revenue procedure does go on to say: “[n]onetheless,
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 a requesting spouse knew or
had reason to know that the liability would not be paid.” Rev.
Proc. 2000-15, sec. 4.03(2)(b), 2000-1 C.B. 447. The two factors
weighing toward relief--that Negoescu divorced Supplee and that
he agreed to be responsible for the tax liabilities--are not
strong enough. Negoescu's reliance on these two factors boils
down to saying that her ex-husband broke his promise to pay the
taxes they both owed. While that is true, the Commissioner was
not a party to that agreement, and so it’s usually fair for him
to try to collect unpaid taxes from both spouses who signed a
return. Pesch v. Commissioner, 78 T.C. 100, 128-129 (1982). We
think this is especially true where the income triggering the
unpaid tax was produced--at least in part--by both spouses, as in
Negoescu’s case.
Our opinion is based on the evidence presented at trial,
evidence that the Commissioner did not have when he made his
determination. In a recent case, Robinette v. Commissioner, 123
T.C. 85, 112, 115, 119 (2004) (Wells, Thornton, and Wherry, JJ.,
concurring), many of the Tax Court’s judges warned that if the
Commissioner did not have evidence because a taxpayer withheld
evidence during the appeals process, we should limit our review
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to only the evidence the Commissioner did have. Negoescu is just
that sort of taxpayer. After asking the IRS for relief, she gave
the Commissioner no information to help him decide her case.
Once she filed her petition with us, however, she was forthcoming
with exhibits and testimony so that we could make an informed
decision. But our decision would be the same even if we limited
our review to the record that the Commissioner had.
Decision will be entered for
the respondent.