T.C. Summary Opinion 2006-10
UNITED STATES TAX COURT
ANA MARIA RODRIGUEZ, Petitioner v.
COMMISSIONER OF INTERNAL REVENUE, Respondent
Docket No. 9409-04S. Filed January 26, 2006.
Ana Maria Rodriguez, pro se.
Thomas M. Newman, for respondent.
PANUTHOS, Chief 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, all section references are to the Internal Revenue
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Code in effect for the taxable year in issue, and all Rule
references are to the Tax Court Rules of Practice and Procedure.
Respondent determined a deficiency in petitioner’s Federal
income tax for the taxable year 2001 of $5,831 and a penalty
pursuant to section 6662(a) of $1,009. After concessions1 by the
parties, the issue for decision is whether respondent abused his
discretion in denying petitioner’s request for relief from joint
and several liability under section 6015(f).
Background
Some of the facts have been stipulated, and they are so
found. The stipulation of facts, the second stipulation of
facts, and the attached exhibits are incorporated by this
reference. At the time of filing the petition, petitioner
resided in Salinas, California.
Petitioner and Manuel Rodriguez2 were married in June 1999,
and they separated sometime in November 2000. Petitioner filed
for a divorce in 2004; however that matter was still pending at
the time of trial. Petitioner was employed as a day care
1
Respondent concedes that petitioner is not liable for a
sec. 6662(a) penalty of $1,009.
Petitioner concedes that she received $13 in interest income
from Wells Fargo Bank in tax year 2001.
2
On Aug. 3, 2004, respondent issued to Mr. Rodriguez a
Notice of Filing of Petition and Right to Intervene. Mr.
Rodriguez did not file a notice of intervention.
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provider, and Mr. Rodriquez was employed as a regional sales
manager.
During 2001, Mr. Rodriguez participated in gambling
activities and had gambling winnings of $5,503. Mr. Rodriguez
was a participant in an individual retirement account (IRA), and
in 2001 he received a distribution of $23,363. There is no
indication in the record that Mr. Rodriguez was 59-1/2 years of
age or older at the time of the distribution. Petitioner was not
a participant in an IRA.
Petitioner was responsible for paying the family’s household
finances; Mr. Rodriguez was responsible for the joint tax
returns. Mr. Rodriguez hired Lydias One Day Tax Service (tax
preparer) to prepare the 2001 tax return. Petitioner had limited
English proficiency and required an interpreter at trial.
Petitioner and Mr. Rodriguez filed a joint Form 1040, U.S.
Individual Income Tax Return, for 2001. The return reported
gambling income of $4,002. Petitioner and Mr. Rodriguez also
reflected total pension and annuities of $15,500 on Line 16a of
the return; however, the taxable amount was reported as $1,550.
Petitioner signed the tax return, reviewed the amounts
relevant to her income and deductions, and asked Mr. Rodriguez
and the tax preparer questions regarding Mr. Rodriguez’s income.
On February 26, 2004, petitioner submitted a Form 8857-SP,
Request for Innocent Spouse Relief, seeking relief from joint and
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several liability on the 2001 tax return. On March 29, 2004,
respondent issued to petitioner and Mr. Rodriguez a deficiency
notice for the taxable year 2001. Respondent determined that
petitioner and Mr. Rodriguez omitted gambling income in the
amount of $1,501 and income in the amount of $21,813 from an IRA
distribution. On June 7, 2004, petitioner filed a timely
petition with this Court.
Respondent concedes that petitioner did not have knowledge
that Mr. Rodriguez received gambling income in tax year 2001 in
excess of $4,002. Accordingly, respondent agrees that petitioner
is entitled to relief from liability for tax on $1,501, the
difference between the actual income received ($5,503) and the
income reported on the tax return ($4,002) pursuant to section
6015(c).
Petitioner concedes that she had knowledge of a $15,500
distribution, but she did not know that the actual amount of the
distribution was $23,363. Respondent concedes that petitioner is
entitled to section 6015(c) relief from liability for tax on
$7,863, the difference between the actual distribution ($23,363),
and the distribution reflected on the tax return ($15,500).
Petitioner asserts that she is entitled to relief under
section 6015(f) because Mr. Rodriguez was responsible for
preparing their tax return and he chose the tax preparer.
Petitioner asserts that she did not know of Mr. Rodriguez’s total
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gambling winnings or the amount of the distribution from Mr.
Rodriguez’s IRA account. Petitioner also asserts that she has no
knowledge of the tax laws.
Respondent asserts that petitioner, who was granted relief
under section 6015(c), is not entitled to additional relief under
section 6015(f) from liability for tax on the $4,002 gambling
income and $15,500 IRA distribution, primarily because she had
actual knowledge of both amounts. At trial, respondent asserted
that petitioner could not be considered for relief under section
6015(f), since she had been granted partial relief under section
6015(c). In a supplemental memorandum respondent conceded that
petitioner could be considered for relief under such
circumstances. Nevertheless, respondent asserts that, taking
into consideration all the factors under section 6015(f),
petitioner is not entitled to relief.
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 may seek relief from
joint and several liability under section 6015. A spouse may
qualify for relief from liability 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
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(c), an individual may seek equitable relief under section
6015(f) to the extent that relief is not available under section
6015(b) or (c). Fernandez v. Commissioner, 114 T.C. 324, 329-331
(2000); Butler v. Commissioner, 114 T.C. 276, 287-292 (2000).
Except as otherwise provided in section 6015, petitioner 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).
A prerequisite to granting relief under section 6015(b) or
(c) is the existence of a tax deficiency. Sec. 6015(b)(1)(B) and
(c)(1); Block v. Commissioner, 120 T.C. 62, 65-66 (2003). Here,
after an examination of the joint return, respondent determined a
deficiency of $5,831.
Petitioner sought and was granted partial relief by
respondent under section 6015(c). As previously indicated,
petitioner was granted relief from liability for tax on: (1)
$1,501 (the difference between the gambling income reported of
$4,002 and the gambling income received of $5,503), and (2)
$7,863 (the difference between the IRA distribution reflected of
$15,500 and the IRA distribution received of $23,363).
Petitioner claims that she is entitled to equitable relief under
section 6015(f).
Section 6015(f) provides:
SEC. 6015(f) Equitable Relief.--Under procedures
prescribed by the Secretary, if--
(1) taking into account all the facts and
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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.
We have jurisdiction to review respondent’s denial of
petitioner’s request for equitable relief under section 6015(f).
Fernandez v. Commissioner, supra at 329-331. We review such
denial of relief to decide whether respondent abused his
discretion by acting arbitrarily, capriciously, or without sound
basis in fact. Jonson v. Commissioner, 118 T.C. 106, 125 (2002),
affd. 353 F.3d 1181 (10th Cir. 2003). Our review is not limited
to respondent’s administrative record. Ewing v. Commissioner,
122 T.C. 32, 44 (2004).
Petitioner is not entitled to relief under section 6015(f)
as to the gambling income. Petitioner is entitled to be
considered for relief under section 6015(f)(1) where there is an
unpaid tax or deficiency. The $4,002 of gambling income was
reported on the return as income, and petitioner and Mr.
Rodriguez received a refund based on the fact that withholding
exceeded the tax reported on the return. Thus, petitioner cannot
be considered for equitable relief as to the gambling income
under section 6015(f) since there is not an unpaid tax or
deficiency with respect to this item.
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Petitioner can be considered for relief under section
6015(f) as to the amount of the IRA distribution omitted from the
return resulting in a deficiency. The $15,500 distribution was
reflected on the return; however, only $1,550 of that amount was
reported as the taxable amount. As indicated, petitioner was
granted relief under section 6015(c) as to the difference between
the IRA distribution reflected on the return ($15,500) and the
actual amount of the IRA distribution ($23,363). The difference
is $7,863. Petitioner now seeks additional relief on the
difference between the amount reflected on the return as a
distribution ($15,500), and the amount reported on the return as
income ($1,550), the difference of $13,950.
The Commissioner has prescribed procedures for determining
whether a spouse qualifies for relief under subsection (f). The
procedures set forth in Rev. Proc. 2000-15, 2000-1 C.B. 447, have
been superseded by Rev. Proc. 2003-61, 2003-2 C.B. 296.3 Rev.
Proc. 2003-61, sec. 4.01, 2003-2 C.B. 297, sets forth seven
threshold conditions that must be satisfied. Respondent agrees
that all the threshold conditions have been met.
3
Rev. Proc. 2003-61, 2003-2 C.B. 296, which supersedes
Rev. Proc. 2000-15, 2000-1 C.B. 447, is effective for requests
for relief filed on or after Nov. 1, 2003, or requests for relief
pending on Nov. 1, 2003, for which no preliminary determination
letter has been issued as of Nov. 1, 2003. The request for
relief was submitted on Feb. 25, 2004.
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Once the seven threshold conditions are satisfied, Rev.
Proc. 2003-61, sec. 4.03,4 provides factors to consider in
determining whether to grant equitable relief. Petitioner
satisfies the threshold provisions; therefore, we consider the
factors in Rev. Proc. 2003-61, sec. 4.03(2)(a) and (b) to decide
whether respondent abused his discretion in denying equitable
relief under section 6015(f).
Rev. Proc. 2003-61, Sec. 4.03(2)(a)
(i) Marital status. This factor weighs in favor of relief
if the requesting spouse and the nonrequesting spouse are
divorced, legally separated, or living apart. Petitioner and Mr.
Rodriguez are married but have maintained separate households
since November 2000. This factor weighs in favor of granting
relief to petitioner.
(ii) Economic hardship. A taxpayer might experience
economic hardship if he or she is unable to pay basic reasonable
living expenses. Sec. 301.6343-1(b)(4)(i), Proced. & Admin.
Regs. It is the taxpayer’s burden to show both that the expenses
qualify and that the expenses are reasonable. Monsour v.
Commissioner, T.C. Memo. 2004-190. Petitioner has provided no
evidence that she would be unable to pay basic living expenses if
she is held liable for the deficiency. There is no evidence that
4
We need not consider Rev. Proc. 2003-61, sec. 4.02, 2003-
2 C.B. at 298, since that section relates to “underpayments”.
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petitioner would suffer economic hardship upon denial of relief.
This factor weighs against granting petitioner relief.
(iii) Knowledge or reason to know. In the case of an
income tax liability that arose from a deficiency, the fact that
the requesting spouse did not know and had no reason to know of
the item giving rise to the deficiency is a factor in favor of
granting relief. Rev. Proc. 2003-61, sec. 4.03(2)(a)(iii)(B).
By contrast, the fact that the requesting spouse knew or had
reason to know of the item giving rise to the deficiency is a
factor weighing against relief. Id. This factor is not weighed
more heavily than other factors; however, it is a strong factor
weighing against relief. Petitioner must establish that she did
not know and had no reason to know about Mr. Rodriguez’s IRA
distribution.
In evaluating whether a spouse had reason to know of an
item, Rev. Proc. 2003-61, supra, provides that we may consider
the spouse’s level of education, any deceit or evasiveness, the
spouse’s degree of involvement in business and household
financial matters, and her business or financial expertise.
See also Price v. Commissioner, 887 F.2d 959, 965 (9th Cir. 1989)
(factors to consider whether a spouse knew or had reason to know
of a substantial understatement include spouse’s level of
education, spouse’s involvement in family’s business and
financial affairs, presence of expenditures that appear lavish or
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unusual when compared to the family’s past levels of income,
standard of living, and spending patterns, and culpable spouse’s
evasiveness and deceit concerning couple’s finances).
Petitioner’s level of education was not made a part of the
record; however, given her limited English proficiency, her
understanding of the tax return was likely somewhat limited.
Petitioner was responsible for paying the household
expenses, and taking care of her three daughters, while Mr.
Rodriguez was responsible for preparing the couple’s tax returns.
We conclude that petitioner was at least somewhat experienced in
financial matters and in running a household. Petitioner also
had some control over financial matters because she asked the tax
preparer at Lydia’s Tax Service questions regarding certain items
relating to Mr. Rodriguez’s income. Petitioner also testified
that she tried to understand the amounts included on the return.
The record does not reflect a difference in petitioner’s
lifestyle, or the presence of expenditures that appear lavish or
unusual in comparison to the family’s past levels of income.
Petitioner’s standard of living and spending patterns reflect
those of someone attempting to raise three daughters as a single
parent on one income.
While petitioner testified that she was unaware of the
amount of the IRA distribution, we note that she has previously
been granted relief to the extent of the amount not reflected on
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the return. The amount of $15,500 was reflected on the return as
a pension distribution. It appears that the actual reporting of
$1,550 of income was an error made by the preparer. Given that
the $15,500 was reflected on the return, we conclude that
petitioner knew or had reason to know of the pension
distribution. Hayman v. Commissioner, 992 F.2d 1256, 1262 (2d
Cir. 1993), affg. T.C. Memo. 1992-228; Levin v. Commissioner,
T.C. Memo. 1987-67.
(iv) Nonrequesting spouse’s legal obligation. There was no
legal obligation pursuant to a divorce decree or agreement. This
factor is neutral.
(v) Significant benefit. A significant benefit is a benefit
in excess of normal support. Sec. 1.6015-2(d), Income Tax Regs.
Petitioner did not live with her husband during the year in
issue. She worked as a nanny, and there is no evidence that
petitioner received any benefit beyond normal support from Mr.
Rodriguez. This factor is neutral.
(vi) Compliance with income tax laws. The question is
whether the taxpayer has made a good faith effort to comply with
tax laws in tax years subsequent to the years for which relief is
requested. This factor is neutral as there is no evidence that
petitioner has either failed to comply with or fully complied
with tax obligations.
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Rev. Proc. 2003-61, Sec. 4.03(2)(b)
This subsection lists factors that if present will weigh in
favor of equitable relief, but if not present, will not weigh
against relief. The factors are (i) whether the nonrequesting
spouse abused the requesting spouse, and (ii) whether the
requesting spouse was in poor mental or physical health. Neither
of these factors is present in this case, and accordingly they
have no effect on the outcome.
Additional Factors
Petitioner argues that she lacked knowledge regarding the
tax laws as the basis why she should be granted relief. We have
held that where a taxpayer relies on a professional tax preparer,
it is not inequitable to make either spouse liable because the
error is based on a misunderstanding of the tax laws. McCoy v.
Commissioner, 57 T.C. 732, 735 (1972).
On the basis of our examination of the facts and
circumstances in this case, including the factors set forth in
Rev. Proc. 2003-61, sec. 4.03, 2003-2 C.B. 298, we conclude that
respondent did not abuse his discretion by acting arbitrarily,
capriciously, or without sound basis in fact in denying
petitioner’s request for equitable relief under section 6105(f).
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Reviewed and adopted as the report of the Small Tax Case
Division.
To reflect the foregoing,
Decision will be entered
under Rule 155.