T.C. Summary Opinion 2006-28
UNITED STATES TAX COURT
DEBORAH ANN PUCKETT, Petitioner v.
COMMISSIONER OF INTERNAL REVENUE, Respondent
Docket No. 24747-04S. Filed February 16, 2006.
Deborah Ann Puckett, pro se.
Edwina L. Jones, for respondent.
ARMEN, Special Trial Judge: This case was heard pursuant to
the provisions of section 7463 of the Internal Revenue Code in
effect when the petition was filed.1 The decision to be entered
1
Unless otherwise indicated, all subsequent section
references are to the Internal Revenue Code in effect for 2000,
the taxable year in issue, and all Rule references are to the Tax
Court Rules of Practice and Procedure. All monetary amounts are
rounded to the nearest dollar.
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is not reviewable by any other court, and this opinion should not
be cited as authority.
Pursuant to the provisions of section 6015, petitioner
submitted to respondent an administrative request for relief from
Federal income tax liabilities for the taxable year 2000.
Respondent determined that petitioner is not entitled to relief
from joint and several liability for $15,044 of unpaid Federal
income tax, penalties, and interest for 2000 under section
6015(f). Petitioner timely filed a petition with this Court
under section 6015(e)(1) for review of respondent’s
determination.
The sole issue for decision is whether respondent abused his
discretion in denying petitioner relief from joint and several
liability under section 6015(f). We hold that he did not.
Background
Some of the facts have been stipulated, and they are so
found. We incorporate by reference the parties’ stipulation of
facts and accompanying exhibits.
At the time that the petition was filed, petitioner resided
in Mooresville, North Carolina.
Petitioner and Tracy B. Puckett (Mr. Puckett) were married
in 1987. Petitioner and Mr. Puckett began maintaining separate
residences in May 2000 and were legally separated in April 2002.
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Their separation agreement, dated March 12, 2002, stated, in
pertinent part:
The parties currently owe the IRS approximately
$11,000.00 due to Husband’s failure to pay his Social
Security tax. Husband agrees that he shall be solely
responsible for the said debt to the IRS and that he
shall pay the debt to the IRS in a timely fashion and
as determined by the IRS.
Petitioner and Mr. Puckett were divorced in March 2003. They
have one son, who is hearing impaired and resides with
petitioner. Petitioner was not abused by Mr. Puckett.
During 2000, petitioner worked part-time as a nurse for
Novant Health Corporate Presbyterian Hospital. Petitioner earned
wages of $4,206 from which $44 was withheld as Federal income
tax.
During 2000, petitioner also operated a retail clothing
business known as Ensembles, Inc. (Ensembles). She and Mr.
Puckett were joint owners of Ensembles, through an S corporation
that they organized in August 1999. During 2000, Ensembles
incurred substantial losses and eventually closed for business in
June 2001.
Mr. Puckett was also self-employed as a consultant for
Crothall Health Care, Inc., during 2000. In 2000, he made
estimated tax payments of $38 and reported a net profit of
$62,936 on Schedule C, Profit or Loss From Business.
During 2000, petitioner and Mr. Puckett maintained joint
checking and savings accounts into which they deposited their
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salary and from which they paid household bills and some business
bills. Petitioner had complete access to the joint accounts,
reviewed monthly bank statements, and balanced the joint
checkbook to the bank statements.
Petitioner and Mr. Puckett filed for bankruptcy under
chapter 7 of the Bankruptcy Code on October 4, 2001, and they
received a discharge on February 14, 2002.
On October 29, 2001, petitioner and Mr. Puckett filed a
delinquent joint Federal income tax return for the taxable year
2000 reporting tax due of $10,027.2 The amount due was solely
attributable to Mr. Puckett’s income calculated as an $8,893
self-employment tax liability plus an $823 tax on an individual
retirement account distribution. They did not remit payment with
their return.
On November 26, 2001, respondent assessed the tax, less
income tax withholding and estimated tax payments, plus the
applicable penalties and interest.
Petitioner submitted to respondent Forms 8857, Request for
Innocent Spouse Relief, dated September 13, 2002, and November 6,
2002. On June 3, 2003, respondent’s Examination Division denied
petitioner’s request for relief from joint and several liability.
2
On the return, petitioner and Mr. Puckett reported total
tax of $9,716 on line 57 and total payments of $44 on line 65.
The return also reported an “estimated tax penalty” in the amount
of $355.
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On July 9, 2003, petitioner appealed to respondent’s Appeals
Office on the grounds that she filed jointly to lower Mr.
Puckett’s tax liability and with the understanding that Mr.
Puckett would pay the tax owing.
On November 3, 2004, respondent issued a Notice Of
Determination Concerning Your Request For Relief Under The
Equitable Relief Provision Of Section 6015(f). In the notice,
respondent determined (1) that petitioner failed to meet her
burden of establishing that she had a reasonable belief that the
taxes would be paid timely and (2) that petitioner failed to
establish that she would suffer an economic hardship if she were
required to pay some or all of the tax.
Petitioner filed an imperfect petition, followed by an
amended petition, contesting respondent’s determination.3 The
amended petition stated:
The debt was due to my ex-husband not paying his social
security taxes. I had been instructed by my accountant
to sign a joint tax return even though I was separated
from my ex-husband in an attempt to “help with divorce
relations” by lowering the amount he owed. And also
told I would not be held responsible. I was then told
by them to file an innocent spouse form which a former
IRS caseworker told me 2 months ago “never works”.
3
Mr. Puckett did not file a Notice of Intervention under
Rule 325(b). He did, however, file a statement with respondent’s
Appeals Office stating that he was assured by both his accountant
and his wife that there would not be any taxes due for 2000
because of the losses related to his wife’s business.
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Discussion
As a general rule, spouses filing a joint Federal income tax
return are jointly and severally liable for all taxes shown on
the return or found to be owing. Sec. 6013(d)(3). Section 6015,
however, provides relief from joint and several liability to
certain taxpayers under certain circumstances. Section 6015
encompasses three types of relief: (1) Section 6015(b)(1)
provides full or apportioned relief from joint and several
liability; (2) section 6015(c) provides proportionate tax relief
to divorced or separated taxpayers; and (3) section 6015(f)
provides equitable relief from joint and several liability in
certain circumstances if neither section 6015(b) nor section
6015(c) is available.
In the instant case, petitioner requested relief under
section 6015(f) from liability for the tax reported on the 2000
return but not paid when the return was filed. Respondent
determined that petitioner was not entitled to the requested
relief.
We review respondent’s denial of equitable relief to
petitioner after a trial de novo and under an abuse of discretion
standard. Ewing v. Commissioner, 122 T.C. 32 (2004); Cheshire v.
Commissioner, 115 T.C. 183, 198 (2000), affd. 282 F.3d 326 (5th
Cir. 2002); Butler v. Commissioner, 114 T.C. 276, 292 (2000).
Petitioner bears the burden of proving that respondent’s denial
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of equitable relief under section 6015(f) was an abuse of
discretion. Rule 142(a); Alt v. Commissioner, 119 T.C. 306, 311
(2002), affd. 101 Fed. Appx. 34 (6th Cir. 2004); Jonson v.
Commissioner, 118 T.C. 106, 113 (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. Jonson v. Commissioner, supra at
125; Woodral v. Commissioner, 112 T.C. 19, 23 (1999).
Section 6015(f) provides:
SEC. 6015(f). Equitable Relief.--Under procedures
prescribed by the Secretary, if--
(1) taking into account all the facts
and circumstances, it is nequitable 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 procedures to be used in determining whether the
requesting spouse qualifies for relief from joint and several
liability under section 6015(f). As applicable to the present
case, these procedures are set forth in Rev. Proc. 2000-15, 2000-
1 C.B. 447.4 The requesting spouse must satisfy seven conditions
4
Rev. Proc. 2003-61, 2003-2 C.B. 296, which supersedes
(continued...)
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(threshold conditions) before the Commissioner will consider a
request for relief under section 6015(f). Rev. Proc. 2000-15,
sec. 4.01, 2000-1 C.B. at 448. Respondent agrees that in this
case those threshold conditions are satisfied.
Where the requesting spouse satisfies the threshold
conditions, Rev. Proc. 2000-15, sec. 4.02(1), 200-1 C.B. at 448,
sets forth the circumstances under which respondent will
ordinarily grant relief under section 6015(f) in a case like the
instant case where a liability is reported on a joint return but
not paid. Relief under section 6015(f) will ordinarily be
granted if all of the following elements are satisfied:
(a) At the time relief is requested, the
requesting spouse * * * has not been a member of the
same household as the nonrequesting spouse at any time
during the 12-month period ending on the date relief
was requested;
(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
4
(...continued)
Rev. Proc. 2000-15, 2000-1 C.B. 447, is effective for requests
for relief under sec. 6015(f) filed on or after Nov. 1, 2003, and
for requests for such relief pending on, and for which no
preliminary determination letter had been issued as of, that
date. Rev. Proc. 2003-61, sec. 7, 2003-2 C.B. at 297. Rev.
Proc. 2003-61, supra is not applicable in the instant case
because (1) petitioner filed her request for relief on Sep. 8,
2002, and (2) respondent issued a preliminary determination on
June 3, 2003.
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(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
section 301.6343-1(b)(4) of the Regulations on
Procedure and Administration.
Rev. Proc. 2000-15, sec. 4.02(1), 2000-1 C.B. at 448.
In cases where the threshold conditions have been satisfied,
but the requesting spouse does not qualify for relief under Rev.
Proc. 2000-15, sec. 4.02(1), 2000-1 C.B. at 448, equitable relief
may be granted under section 6015(f) if, taking into account all
facts and circumstances, it is inequitable to hold the requesting
spouse liable. Rev. Proc. 2000-15, sec. 4.03, 2000-1 C.B. at
448-449.
Rev. Proc. 2000-15, sec. 4.03, 2000-1 C.B. at 448-449, lists
several nonexclusive factors that the Commissioner will consider
in determining eligibility for equitable relief under section
6015(f). “No single factor will be determinative of whether
equitable relief will or will not be granted in any particular
case. Rather, all factors will be considered and weighed
appropriately.” Rev. Proc. 2000-15, sec. 4.03, 2000-1 C.B. at
448.
The nonexclusive list of factors that the Commissioner will
consider as weighing in favor of granting relief includes: (1)
The requesting spouse is separated or divorced from the
nonrequesting spouse; (2) the requesting spouse would suffer
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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 be unpaid; (5) the nonrequesting spouse has a legal
obligation pursuant to a divorce decree or agreement to pay the
unpaid liability;5 and (6) the unpaid liability is attributable
solely to the nonrequesting spouse. See Rev. Proc. 2000-15, sec.
4.03(1), 2000-1 C.B. at 448.
The nonexclusive list of factors that the Commissioner will
consider as weighing against granting relief includes: (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
5
According to the revenue procedure, however, “This will
not be a factor weighing in favor of relief if the requesting
spouse knew or had reason to know, at the time the divorce decree
or agreement was entered into, that the nonrequesting spouse
would not pay the liability.” Rev. Proc. 2000-15, sec.
4.03(1)(e), 2000-1 C.B. at 449.
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agreement to pay the unpaid liability. See Rev. Proc. 2000-15,
sec. 4.03(2), 2000-1 C.B. at 449.
For reasons to be discussed, we conclude that petitioner
does not qualify for relief under section 4.02 or 4.03 of the
revenue procedure. In order to streamline our discussion, we
shall focus exclusively on the factors enumerated in section 4.03
of the revenue procedure. That discussion, however, will make
apparent why petitioner fails to qualify for relief under either
section of the revenue procedure.
A. Neutral Factors
We consider many of the factors to be neutral, weighing
neither in favor of nor against granting petitioner relief.
1. Abuse
Petitioner was not abused by Mr. Puckett. Lack of spousal
abuse is not a factor listed in Rev. Proc. 2000-15, sec. 4.03(2),
2000-1 C.B. at 449, that weighs against granting relief.
Therefore, this factor is neutral. See Washington v.
Commissioner, 120 T.C. 137, 149 (2003).
2. Compliance With Federal Income Tax Laws
Respondent concedes that petitioner has complied with her
income tax filing requirements. This factor does not weigh in
favor of or against granting relief to petitioner.
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3. Significant Benefit
There is no evidence that petitioner significantly benefited
beyond normal support from the unpaid liability. Therefore, this
factor is neutral.
B. Factors Weighing in Favor of Granting Relief
1. Marital Status
Petitioner and Mr. Puckett began living apart and separate
from each other in August 1999. They were legally separated in
April 2002 and divorced in March 2003. Consequently, this factor
weighs in favor of granting relief to petitioner.
2. Attributable to Nonrequesting Spouse
Respondent concedes that the liability for which relief is
sought is solely attributable to Mr. Puckett. This factor weighs
in favor of granting relief to petitioner.
C. Factors Weighing Against Granting Relief
1. Knowledge or Reason To Know
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.”
Washington v. Commissioner, supra; Rev. Proc. 2000-15, sec.
4.03(1)(b), 2000-1 C.B. at 449. Accordingly, we must consider
whether, “taking into account all the facts and circumstances”,
sec. 6015(f)(1), petitioner knew or had reason to know that Mr.
Puckett would not pay the tax shown as due on the return.
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Respondent contends that petitioner knew or had reason to
know that the tax liability would not be paid. In support of his
contention, respondent asserts: (1) Petitioner and Mr. Puckett
filed for bankruptcy 1 week before signing their return; (2) when
petitioner signed the return, she had constructive knowledge of
the tax liability shown on the return; and (3) because of their
financial difficulties, petitioner knew that Mr. Puckett would
not pay the tax liability.
Having observed petitioner’s appearance and demeanor at
trial, we find her testimony to be honest, forthright, and
credible. We conclude, however, that petitioner had reason to
know that Mr. Puckett would not pay the liability reported on the
2000 return. Petitioner testified at trial that she knew when
she signed the return that it reported a balance due and that no
payment was remitted with the return. She asserts, however, that
she was urged by her accountant to execute the return because “it
makes for better divorce relations if I [petitioner] sign jointly
and it will reduce the amount he [Mr. Puckett] owes”. Petitioner
further asserts that if she had known she would be liable for Mr.
Puckett’s unpaid tax liability, she would not have filed a joint
return. Notwithstanding, however, petitioner admitted that she
probably knew that there was a good chance Mr. Puckett was not
going to pay the tax liability and that she “definitely didn’t
care how he was going to pay it.” Indeed, petitioner admitted
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that she helped Mr. Puckett pay a previous tax liability from his
previous marriage.
Accordingly, this factor weighs against granting relief to
petitioner.
2. Nonrequesting Spouse’s Legal Obligation
Petitioner’s and Mr. Puckett’s March 2002 separation
agreement placed the legal obligation to pay the unpaid 2000 tax
liability exclusively on Mr. Puckett.
Respondent asserts, however, that this will not be a factor
weighing in favor of relief if petitioner knew or had reason to
know, at the time that the separation agreement was entered into,
that Mr. Puckett would not pay the tax liability. See Rev. Proc.
2000-15, sec. 4.03(1)(e), 2000-1 C.B. at 449. Respondent argues
that petitioner had reason to know, at the time the separation
agreement was entered into, that Mr. Puckett would not pay the
tax liability because, inter alia, they had received a discharge
in bankruptcy on October 4, 2001. We agree.
As discussed above, after their discharge in bankruptcy,
petitioner and Mr. Puckett filed their return on October 29,
2001, reporting a tax due. They did not remit payment. At the
time they executed their separation agreement, the 2000 tax
liability remained unpaid. Moreover, petitioner knew that Mr.
Puckett had a delinquent tax liability from his previous
marriage.
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Consequently, this factor weighs against granting relief to
petitioner.
3. Economic Hardship
Respondent contends that petitioner does not satisfy the
economic hardship test because she admitted that she is able to
pay her reasonable basic living expenses with her income.
Respondent further contends that petitioner failed to submit any
documentation of her monthly expenses to support her contention
that she would suffer economic hardship.
Petitioner admitted at trial that she told the Appeals
officer that her income was sufficient to meet her reasonable
living allowances. Given that admission, and in the absence of
documentation to the contrary, the record does not support a
finding that petitioner will suffer economic hardship if she is
not relieved from joint and several liability.
Consequently, this factor weighs against granting relief to
petitioner.
D. Conclusion
After considering all of the facts and circumstances, we
find that it would not be inequitable to hold petitioner liable
for payment of the outstanding liability. Thus, we hold that
respondent did not abuse his discretion in denying petitioner
equitable relief from joint and several liability under section
6015(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
for respondent.