T.C. Memo. 2006-22
UNITED STATES TAX COURT
TERESA J. FOX, Petitioner v.
COMMISSIONER OF INTERNAL REVENUE, Respondent
Docket No. 8340-03. Filed February 13, 2006.
Teresa J. Fox, pro se.
Robert V. Boeshaar, for respondent.
MEMORANDUM FINDINGS OF FACT AND OPINION
COLVIN, Judge: Respondent determined petitioner is not
entitled to relief from joint and several liability under section
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60151 for petitioner’s taxable year 2000. We sustain
respondent’s determination.
FINDINGS OF FACT
Some of the facts have been stipulated and are so found.
A. Petitioner and Her Former Husband
Petitioner resided in Bremerton, Washington, when she filed
her petition. Petitioner married Timothy Shattun (Mr. Shattun)
in May 1997. Petitioner and Mr. Shattun separated on July 4,
2001, and were divorced on April 22, 2003.
Petitioner graduated from high school and has taken some
junior college courses. Petitioner was 42 years old at the time
of trial. During 2000, petitioner earned $32,194 as an
administrator at the Kitsap County Fire Marshal’s Office in
Kitsap County, Washington. At the time of trial, petitioner
worked in that department as a program specialist and fire
inspector trainee. She has worked in that department for 11
years.
Mr. Shattun graduated from high school and worked as an
automotive technician. During 2000, Mr. Shattun received a
distribution of $21,992 from his section 401(k) retirement plan,
Golden Touch Inc. Profit Sharing Plan. On January 17, 2001, Mr.
Shattun was arrested by the Bremerton Police Department for
1
Unless otherwise specified, 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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assaulting petitioner. Mr. Shattun filed for bankruptcy under
chapter 13 on a date not stated in the record and listed the tax
deficiency for 2000 as one of his debts.
B. Petitioner and Mr. Shattun’s Tax Return for 2000 and
Petitioner’s Tax Returns for 2002 and 2003
Petitioner and Mr. Shattun worked together to prepare their
2000 joint Form 1040, U.S. Individual Income Tax Return, which
they filed on February 11, 2001. They used a well-known brand of
tax preparation software. They reported a distribution of
$21,992 from Mr. Shattun’s section 401(k) retirement plan on line
16a of that return. They reported a taxable amount of $2,199 on
line 16b. Petitioner and Mr. Shattun signed the return
electronically.
Petitioner and Mr. Shattun reported a tax liability of
$5,446 and payments of $11,285, and requested a refund of $5,839.
Respondent determined a deficiency of $6,884 for petitioner and
Mr. Shattun resulting from the section 401(k) retirement plan
distribution. Respondent also determined that petitioner and Mr.
Shattun are liable for an accuracy-related penalty of $1,377. If
petitioner does not qualify for relief under section 6015(f), she
will remain liable for tax and penalties totaling $8,261 and
related interest.
Petitioner filed her 2002 and 2003 Federal income tax
returns untimely in August or September 2004. She did not timely
pay tax totaling about $5,000 for those years. Petitioner agreed
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with the Internal Revenue Service in the fall of 2004 to pay $83
per month for those years, and she has abided by that agreement.
C. Petitioner’s Finances
Petitioner’s expenses approximated her income in 2004 and
2005. At the time of trial, petitioner’s 19-year-old son from a
prior relationship lived with her and attended college.
Petitioner gives her son significant financial support.
D. Petitioner’s Application for Relief From Joint Tax Liability
On September 30, 2004, petitioner sent to respondent a Form
8857, Request for Innocent Spouse Relief, which respondent
denied.2 Petitioner concedes the underlying tax liability, but
contends that she is entitled to relief from joint liability
under section 6015(f).
OPINION
A. Petitioner’s Contentions and Background
Petitioner contends that she qualifies under section 6015(f)
for relief from joint liability for tax. This Court has
jurisdiction to decide whether a taxpayer is entitled to relief
from joint liability under section 6015(f). Sec. 6015(e); Ewing
v. Commissioner, 118 T.C. 494, 497-507 (2002), on appeal (9th
Cir., June 16, 2004), cross-appeal (9th Cir., July 19, 2004).
2
By leave of another Division of this Court, petitioner
raised her claim under sec. 6015 as an affirmative defense in the
deficiency proceedings.
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A taxpayer qualifies for relief under section 6015(f) if
relief is not available under section 6015(b) or (c) and, in
light of the facts and circumstances, it is inequitable to hold
the taxpayer liable for the tax or deficiency. Petitioner
concedes that she does not qualify for relief under section
6015(b) or (c) but contends she qualifies for relief under
section 6015(f).
To prevail under section 6015(f), petitioner must show that
respondent’s denial of relief from joint liability was an abuse
of discretion. See Rule 142(a);3 Alt v. Commissioner, 119 T.C.
306, 311 (2002), affd. 101 Fed. Appx. 34 (6th Cir. 2004); Jonson
v. Commissioner, 118 T.C. 106, 125 (2002), affd. 353 F.3d 1181
(10th Cir. 2003); Butler v. Commissioner, 114 T.C. 276, 289-290
(2000). Our determination under section 6015(e) relating to
petitioner’s eligibility for relief under section 6015(f) is made
pursuant to a trial de novo and is not limited to matter
submitted by petitioner before respondent determined whether she
was eligible for relief. Ewing v. Commissioner, 122 T.C. 32, 39
(2004), on appeal (9th Cir., June 16, 2004), cross-appeal (9th
Cir., July 19, 2004).
3
Petitioner does not allege that respondent bears the
burden of proof under sec. 7491(a).
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The Commissioner will not grant relief unless the taxpayer
meets seven threshold conditions:4 (1) The requesting spouse
filed a joint return for the taxable year for which she seeks
relief; (2) relief is not available to the requesting spouse
under section 6015(b) or (c); (3) the requesting spouse applies
for relief no later than 2 years after the date of the Service’s
first collection activity; (4) no assets were transferred between
the spouses as part of a fraudulent scheme; (5) the nonrequesting
spouse did not transfer disqualified assets to the requesting
spouse; (6) the requesting spouse did not file or fail to file
the return with fraudulent intent; and (7) the income tax
liability from which the requesting spouse seeks relief is
attributable to an item of the individual with whom the
requesting spouse filed the joint return. Rev. Proc. 2003-61,
sec. 4.01, 2003-2 C.B. 296, 297. Respondent concedes that
petitioner meets these conditions.
Rev. Proc. 2003-61, sec. 4.03, 2003-2 C.B. at 298, lists
several factors the Commissioner considers in determining whether
a requesting spouse is eligible for relief under section 6015(f)
and states that no single factor determines whether a taxpayer
qualifies for relief. All relevant facts and circumstances are
to be considered. Sec. 6015(f)(1); Rev. Proc. 2003-61, sec.
4
Rev. Proc. 2003-61, 2003-2 C.B. 296, applies here because
petitioner requested relief under sec. 6015(f) after Nov. 1,
2003; i.e., on Sept. 30, 2004. Id. sec. 7, 2003-2 C.B. at 299.
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4.03, 2003-2 C.B. at 298. We next consider the factors listed in
Rev. Proc. 2003-61, sec. 4.03.
B. Factors in Rev. Proc. 2003-61, Sec. 4.03
1. Whether the Requesting Spouse Is Separated or Divorced
From the Nonrequesting Spouse
Petitioner’s divorce from Mr. Shattun became final on April
22, 2003. This factor favors petitioner.
2. Whether the Requesting Spouse Would Suffer Economic
Hardship If Relief Were Not Granted
The Commissioner considers whether payment of tax would
cause economic hardship by applying section 301.6343-1(b)(4)(i)
and (ii), Proced. & Admin. Regs., which pertains to levy on a
taxpayer’s property. Generally, the Commissioner considers
economic hardship to be present if payment of tax would prevent
the taxpayer from paying his or her reasonable basic living
expenses. Id.
Under the regulation, the Commissioner considers any
information provided by the taxpayer in determining a reasonable
amount for basic living expenses, including the following: (a)
The taxpayer’s age, employment status and history, ability to
earn, number of dependents, and status as a dependent of someone
else; (b) the amount reasonably necessary for food, clothing,
housing, medical expenses, transportation, current tax payments
or other court-ordered payments; (c) the cost of living in the
geographic area in which the taxpayer resides; (d) the amount of
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property exempt from levy which is available to pay the
taxpayer’s expenses; (e) any extraordinary circumstances such as
special education expenses, a medical catastrophe, or a natural
disaster; and (f) any other factor that the taxpayer claims bears
on economic hardship and brings to the Commissioner’s attention.
Id.
The parties dispute whether payment of the tax at issue
would be an economic hardship for petitioner. Petitioner
estimated the monthly amounts of several necessary living
expenses listed in section 301.6343-1(b)(4)(ii), Proced. & Admin.
Regs., e.g., $400 for food, $120 for gasoline, and $10 for
clothing. According to her estimates, her expenses equaled or
exceeded her income. However, it does not appear that petitioner
always incurred the amounts of expenses she listed. For example,
she testified that she spent the amounts indicated for gasoline
and clothing if she could afford to spend that much. Thus, we
think petitioner overstated her monthly expenses somewhat.
Petitioner was 42 years old at the time of trial and
apparently she will be able to be employed for many more years.
If relief is not granted, petitioner will remain liable for
paying $8,261 plus related interest. We conclude that this
factor is neutral.5
5
Respondent contends, in effect, that petitioner’s
expenses for her son were not reasonable basic living expenses.
(continued...)
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3. Whether the Requesting Spouse Knew or Had Reason To
Know of the Item Giving Rise to the Deficiency
Petitioner contends that this factor does not favor
respondent because she believed that she and Mr. Shattun properly
reported the $21,992 distribution using a well-known computer
software program. We disagree.
In the case of an income tax liability resulting from a
deficiency, the Commissioner is less likely to grant relief under
section 6015(f) if the requesting spouse knew or had reason to
know of the item giving rise to the deficiency. Rev. Proc. 2003-
61, sec. 4.03(2)(a)(iii). Actual knowledge of the item giving
rise to the deficiency is a strong factor weighing against
relief. Id. Petitioner had actual knowledge of the $21,992
distribution which generated the tax liability, and she completed
the Form 1040 on which she and Mr. Shattun reported the
distribution.
Petitioner testified that she and Mr. Shattun relied on the
computer software program and her interpretation of sources about
tax that she used. The question is whether petitioner had
knowledge of the transaction, not whether she had knowledge of
its tax consequences. See Bokum v. Commissioner, 992 F.2d 1132,
1134 (11th Cir. 1993) (knowledge contemplated by section 6013(e)
5
(...continued)
We conclude that this factor is neutral whether or not her
support for her son is a reasonable basic living expense.
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is not knowledge of the tax consequences of a transaction but of
the transaction itself), affg. 94 T.C. 126 (1990); Cheshire v.
Commissioner, 115 T.C. 183, 197 (2000) (knowledge of her
husband’s pension withdrawal was actual knowledge for purposes of
section 6015 relief even though the taxpayer did not know how the
withdrawal was taxed), affd. 282 F.3d 326 (5th Cir. 2002);
Purcell v. Commissioner, 86 T.C. 228, 237- 238 (1986), affd. 826
F.2d 470 (6th Cir. 1987). The item giving rise to the deficiency
was the $21,992 distribution made from Mr. Shattun’s section
401(k) account. This factor strongly favors respondent.
4. Whether the Nonrequesting Spouse Has a Legal Obligation
To Pay the Taxes Due Pursuant to a Divorce Decree
Petitioner and Mr. Shattun’s divorce decree is silent on
their Federal income tax liability. This factor is neutral. See
Washington v. Commissioner, 120 T.C. 137, 149 (2003); Magee v.
Commissioner, T.C. Memo. 2005-263; Ellison v. Commissioner, T.C.
Memo. 2004-57 n.12.
5. Whether the Requesting Spouse Received a Significant
Benefit Beyond Normal Support From the Item Giving Rise
to the Deficiency
Petitioner contended at the administrative stage and at
trial that Mr. Shattun received all of the benefit from the
$21,992 distribution and the refund. Mr. Shattun did not
testify, but he contended at the administrative stage that
petitioner benefited from the $21,992 and the refund.
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The item giving rise to the deficiency was a $21,992
withdrawal from Mr. Shattun’s section 401(k) plan retirement
account. Petitioner and Mr. Shattun received a $5,839 refund for
the 2000 tax year. Petitioner testified that the distribution
and refund went into Mr. Shattun’s bank account, and that he used
the money to pay for a Jeep, stereo equipment, furniture, and his
personal bills.
In a statement he filed during the administrative
proceeding, Mr. Shattun stated that the 401(k) plan distribution
helped to pay for their home, petitioner’s outstanding debts, and
petitioner’s truck. Either of their statements could reasonably
be true.
Petitioner offered no evidence corroborating her claim. On
this record, we find that Mr. Shattun did not receive the sole
benefit from the section 401(k) plan distribution and tax refund.
This factor is neutral.
6. Whether the Requesting Spouse Made a Good Faith Effort
To Comply With Income Tax Laws in Subsequent Tax Years
Petitioner contends that she is making a good faith effort
to comply with the income tax laws. We disagree. Petitioner did
not timely file her 2002 and 2003 individual income tax returns
or timely pay her tax for those years. She filed these returns
in August or September 2004. She offered no reason for late
filing. This factor favors respondent.
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7. Abuse of the Requesting Spouse by the Nonrequesting
Spouse
There are additional factors that the Commissioner treats as
favoring equitable relief if present, but not as grounds for
denying relief if not present. Rev. Proc. 2003-61, sec.
4.03(2)(b)(i) and (ii), 2003-2 C.B. at 299. One of those factors
is abuse of the requesting spouse by the nonrequesting spouse.
In her Form 8857, petitioner stated that Mr. Shattun
assaulted her, and she said that was why they were divorced. Her
testimony is corroborated by the January 2001 Bremerton Police
incident report. This factor favors petitioner.
8. Requesting Spouse’s Mental or Physical Health
The taxpayer’s mental or physical health, if poor when the
tax return was signed or when relief was requested, is a factor
the Commissioner treats as favoring the taxpayer if present, but
neutral if not present. Rev. Proc. 2003-61, sec. 4.03(2)(b)(ii).
In petitioner’s Form 12510, Questionnaire for Requesting Spouse,
she stated that she suffered from mental abuse when she signed
the return or requested relief. She did not elaborate or testify
on this point. We have previously found that the abuse factor
favors relief for petitioner. We conclude that this factor is
neutral.
C. Conclusion
Factors favoring petitioner are that she and Mr. Shattun are
divorced and that she suffered from abuse. Neutral factors are
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economic hardship, the question of benefit from the underpayment
and refund, the absence of a legal obligation of Mr. Shattun to
pay the tax, and petitioner’s mental condition. The factors
weighing against relief are petitioner’s actual knowledge of the
item giving rise to the deficiency and her unexplained failure to
timely file tax returns for 2002 and 2003. On this record we
conclude that respondent’s denial of equitable relief for
petitioner from joint Federal income tax liability for 2000 under
section 6015(f) was not an abuse of discretion.
To reflect the foregoing,
Decision will be
entered for respondent.