T.C. Summary Opinion 2006-44
UNITED STATES TAX COURT
MARILYN STRINGHAM, a.k.a. MARILYN OLSEN, Petitioner,
AND FORREST BIRD, Intervenor v.
COMMISSIONER OF INTERNAL REVENUE, Respondent
Docket No. 22346-03S. Filed March 29, 2006.
Marilyn Stringham, pro se.
Forrest Bird, pro se.
Inga C. Plucinski, for respondent.
COUVILLION, Special Trial Judge: This case was heard
pursuant to section 7463 in effect when the petition was filed.1
1
Unless otherwise indicated, subsequent section references
are to the Internal Revenue Code in effect for the year at issue,
and all Rule references are to the Tax Court Rules of Practice
and Procedure.
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The decision to be entered is not reviewable by any other court,
and this opinion should not be cited as authority.
Respondent determined a deficiency of $4,135 in petitioner’s
Federal income tax for the year 2001. Petitioner does not
challenge the deficiency. This case arises from petitioner’s
election to seek relief from joint and several liability for
Federal income tax for the year 2001 under section 6015(b), (c),
and (f). Respondent determined that petitioner is not entitled
to relief. The sole issue for decision is whether petitioner is
entitled to relief under section 6015(b), (c), and (f).
Some of the facts were stipulated. Those facts, with the
exhibits annexed thereto, are so found and made part hereof.
Petitioner’s legal residence at the time the petition was filed
was Altamont, Utah.
During the year at issue, petitioner was married to Forrest
Bird (intervenor). Petitioner and intervenor were married in
1997. Each had been married previously. Petitioner has three
sons from her prior marriage, and intervenor has one son and one
daughter from his prior marriage. All the children were grown
and living outside their parent’s home during the year at issue.
Petitioner and intervenor separated in July 2003, and their
divorce was finalized on November 13, 2003.
Petitioner is a licensed practical nurse (LPN). She
received her training at Weaver State College and is currently an
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administrative assistant at Uintah Basin Medical Center in
Roosevelt, Utah. The record does not reflect whether petitioner
was an administrative assistant during the year at issue;
however, she testified that she has been continually employed in
the medical field since she received her LPN degree in 1985.
During 2001, intervenor was employed by the county as a
truck driver. From 1990 until 1999, intervenor was employed as a
crude oil transport driver with Chevron; however, he exercised an
early retirement option in 1999 when Chevron was in the process
of a cost reduction in its activities.
Petitioner and intervenor filed their 2001 joint Federal
income tax return timely. They failed to include as income on
that return several withdrawals totaling $16,260 from
intervenor’s Merrill Lynch Individual Retirement Account (IRA).
On December 8, 2003, separate notices of deficiency were issued
to petitioner and intervenor in which respondent determined a
deficiency of $4,135 in Federal income tax for the year 2001
based on the failure of petitioner and intervenor to include the
IRA withdrawals in income. Petitioner, thereafter, filed a
timely petition in this Court. After the petition was filed,
petitioner filed Form 8857, Request for Innocent Spouse Relief,
on February 3, 2004. That request was subsequently denied.
Petitioner’s sole position is that she is entitled to relief
from joint liability under section 6015. Respondent, pursuant to
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Rule 325 and King v. Commissioner, 115 T.C. 118 (2000), served
notice of this proceeding on intervenor. Intervenor filed a
Notice of Intervention on April 26, 2004, and he testified at the
trial to object to the relief sought by petitioner. Intervenor
has conceded the deficiency determination. In his intervention,
and at trial, intervenor testified that petitioner knew of the
IRA withdrawals during the year at issue because they were
deposited in their joint bank account and used for home
improvements, debts, and a downpayment on a car for petitioner.
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).
Generally, spouses filing joint Federal income tax returns
are jointly and severally liable for the taxes due thereon. Sec.
6013(d)(3). Under certain circumstances, however, section 6015
provides relief from this general rule.2 Section 6015 applies to
any liability for tax arising after July 22, 1998, and to any
liability for tax arising on or before July 22, 1998, but
remaining unpaid as of such date. Internal Revenue Service
2
Sec. 6015 was enacted as part of the Internal Revenue
Service Restructuring and Reform Act of 1998 (RRA 1998), Pub. L.
105-206, sec. 3201, 112 Stat. 734. Prior to the enactment of
sec. 6015, relief from the imposition of joint and several
liability for spouses filing joint returns was available under
sec. 6013(e).
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Restructuring and Reform Act of 1998, Pub. L. 105-206, sec.
3201(g), 112 Stat. 740.
Section 6015 provides three avenues for relief to a taxpayer
who has filed a joint return: (1) Section 6015(b) allows relief
for understatements of tax attributable to certain erroneous
items on the return; (2) section 6015(c) provides relief for a
portion of an understatement of tax for taxpayers who are
separated or divorced; and (3) section 6015(f) more broadly
confers on the Secretary discretion to grant equitable relief for
taxpayers who otherwise do not qualify under section 6015(b) or
(c).
The first avenue for relief is section 6015(b). Under
section 6015(b), the Court may grant a taxpayer full or
apportioned relief from joint and several liability for an
understatement of tax on a joint return if, among other
requirements,3 the taxpayer establishes that he “did not know,
and had no reason to know” that the other spouse understated that
spouse’s tax liability on the return. Sec. 6015(b)(1)(C),
(b)(2).
Intervenor had a Merrill Lynch Account with Chevron but
transferred the balance into a separate IRA when he left Chevron.
3
Neither respondent nor intervenor dispute that, in this
case, the requirements of subparagraphs (A), (B), and (E) of sec.
6015(b)(1) have been satisfied. The dispute is whether
petitioner meets the requirements of subparagraphs (C) and (D) of
sec. 6015(b)(1).
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Intervenor testified that he made several withdrawals from this
IRA throughout the year at issue. He used these withdrawals for
various purchases, including remodeling the home where he and
petitioner resided. The home had been acquired by petitioner
prior to her marriage with intervenor, and both wanted to “make
some changes and make it our own”. Intervenor also testified he
used part of one withdrawal for a downpayment on a car for
petitioner and gave a few cash gifts to his individual children
totaling approximately $3,000. He also paid some of their bills.
Intervenor further testified that petitioner knew of the
withdrawals because they discussed them together and he deposited
the money into their joint bank account whenever he made a new
withdrawal. Records from petitioner and intervenor’s joint bank
account show several, almost weekly, deposits ranging from $70 to
$1,500 throughout the year in question.
Finally, at trial, petitioner admitted she was aware of at
least some of intervenor’s IRA withdrawals. When asked at trial
if she was aware of where intervenor deposited the money he
withdrew from his IRA, petitioner stated: “He put some money in
our checking account for remodeling our home and things like that
* * * I was aware of that part”. In fact, petitioner’s testimony
establishes knowledge on her part that intervenor was withdrawing
money from his IRA regularly, acknowledging “I just assumed [the
money] came from Merrill Lynch”. Her testimony leads the Court
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to believe that her reasoning for requesting relief was solely
because intervenor would sometimes withdraw money from his IRA
and give it directly to his individual children without
consulting her or informing petitioner.
Although petitioner may not have known the exact amount
intervenor withdrew from his IRA during the year at issue, she
readily admitted she knew that withdrawals were made and
deposited into their joint bank account. Petitioner and
intervenor testified that their 2001 Federal income tax return
was prepared by a commercial tax preparation service, H&R Block.
Both parties signed the return; therefore, petitioner had reason
to know that the return she signed contained a substantial
understatement. Thus, petitioner is not entitled to relief under
section 6015(b).
The second avenue for relief is section 6015(c). Section
6015(c) affords proportionate relief to the requesting spouse
through allocation to the responsible party. Generally, this
avenue of relief allows a spouse to elect to be treated as if a
separate return had been filed. Rowe v. Commissioner, T.C. Memo.
2001-325. To be eligible for relief under section 6015(c), the
requesting spouse must no longer be married to, or must be
legally separated from, the individual with whom the tax return
was filed and must have elected the applicability of section
6015(c) not later than 2 years after the date on which collection
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activity began. Sec. 6015(c)(3). Furthermore, relief under
section 6015(c) is not available to a taxpayer if it is shown
that the taxpayer had actual knowledge when signing the return of
any “item” giving rise to a deficiency. Sec. 6015(c)(3)(C).
As previously discussed, petitioner is divorced from
intervenor, and the divorce was finalized before she requested
relief from joint and several liability. Also, she filed a
timely Form 8857 to request relief. Therefore, the remaining
requirement petitioner is required to meet to be eligible for
relief under section 6015(c) is to prove she had no actual
knowledge of the income item leading to the underpayment.
The Court has held that petitioner not only had reason to
know of the understatement, but also she had actual knowledge of
at least part of the “item”, intervenor’s early IRA withdrawals,
giving rise to the understatement. Because petitioner had actual
knowledge of intervenor’s IRA withdrawals, she is precluded from
claiming relief under section 6015(c).
Because petitioner is not eligible for relief under section
6015(b) and (c), she falls under the equitable relief provision
of section 6015(f). Section 6015(f) provides, in part, that a
taxpayer may be relieved from joint and several liability if it
is determined that, taking into account all the facts and
circumstances, it is inequitable to hold the taxpayer liable for
the unpaid tax, and relief is not available under section 6015(b)
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or (c). To prevail, petitioner must prove that respondent’s
denial of equitable relief from joint liability under section
6015(f) was an abuse of discretion. Jonson v. Commissioner, 118
T.C. 106, 125 (2002), affd. 353 F.3d 1181 (10th Cir. 2003);
Cheshire v. Commissioner, 115 T.C. 183, 198 (2000), affd. 282
F.3d 326 (5th Cir. 2002); Butler v. Commissioner, 114 T.C. 276,
291-292 (2000).
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 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.
As directed by section 6015(f), the Commissioner has
prescribed guidelines in Rev. Proc. 2003-61, 2003-2 C.B. 296,
modifying Rev. Proc. 2000-15, 2000-1 C.B. 447, that are to be
used in determining whether it is inequitable to hold a
requesting spouse liable for all or part of the liability for any
unpaid tax or deficiency.4 The requesting spouse must satisfy
4
Rev. Proc. 2000-15, 2000-1 C.B. 447, was superseded by Rev.
Proc. 2003-61, 2003-2 C.B. 296, and is effective as to requests
for relief filed on or after Nov. 1, 2003, and also is effective
(continued...)
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seven conditions (threshold conditions) before the Commissioner
will consider a request for relief under section 6015(f). Rev.
Proc. 2003-61, supra. Respondent agrees that petitioner has
satisfied those threshold conditions.
Where, as here, the requesting spouse satisfies the
threshold conditions, Rev. Proc. 2003-61, sec. 4.03, 2003-2 C.B.
at 298,5 lists factors to be considered in determining whether to
grant equitable relief. Therefore, the Court considers the
factors in Rev. Proc. 2003-61, sec. 4.03(2)(a) and (b), in
determining whether respondent abused his discretion in denying
equitable relief under section 6015(f).
In this case, petitioner satisfies only one of the factors
listed in the revenue procedure. Petitioner divorced intervenor
in 2003; therefore, she satisfies the first factor. With respect
to the second factor, petitioner must show that she would be
unable to pay basic reasonable living expenses if relief were not
granted. Monsour v. Commissioner, T.C. Memo. 2004-190. Being
unable to pay basic reasonable living expenses would amount to
economic hardship. Sec. 301.6343-1(b)(4)(i), Proced. & Admin.
4
(...continued)
for requests for relief pending on Nov. 1, 2003, as to which no
preliminary determination letter had been issued as of that date.
Petitioner’s application for relief was filed after Nov. 1, 2003,
on Feb. 3, 2004.
5
The Court 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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Regs. Petitioner has not alleged that denial of her request for
relief would result in economic hardship. She is gainfully
employed and has no dependents to support. The Court fails to
see, and petitioner has not established, that she would suffer
economic hardship if her request for relief from joint liability
were denied.
As to the third factor, as discussed earlier, petitioner had
actual knowledge that intervenor was making early IRA
withdrawals. Therefore, petitioner knew when she signed her
joint return for the year at issue that there was an
understatement of tax since these withdrawals were not included
as income. Rev. Proc. 2003-61, specifically states that actual
knowledge by the requesting spouse of the item giving rise to the
deficiency is a strong factor weighing against relief. This
strong factor may only be overcome if the factors in favor of
equitable relief are particularly compelling.
The fourth and sixth factors are neutral. There was no
legal obligation on either party to pay for the liability for the
year at issue, and there is no evidence that petitioner either
failed to comply with or fully complied with tax obligations.6
6
In determining whether petitioner complied or failed to
comply with tax obligations, the Court notes that petitioner did
not allege she suffered any abuse, mental or physical, from
intervenor. In addition, petitioner presented no evidence that
she was in poor mental or physical health either when she signed
the return or when she filed her request for relief.
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Petitioner also fails to satisfy the fifth factor because,
although the early IRA withdrawals from which the liability
arises are directly attributable to intervenor, petitioner
received a significant benefit from the items giving rise to the
deficiency. This benefit goes beyond that of normal support. At
least a portion of the money intervenor withdrew from his IRA was
deposited into their joint bank account. Although intervenor
testified that he used at least $3,000 of the money he withdrew
to assist his son with purchasing a home, he also testified that
part of the money was used to remodel his and petitioner’s home.
Also, intervenor withdrew $5,000 from his IRA for a downpayment
on a new car for petitioner.
The failure of petitioner to satisfy all but one of the
factors in Rev. Proc. 2003-61, is determinative. On these facts
and circumstances, the Court holds that there was no abuse of
discretion by respondent in denying relief to petitioner under
section 6015(f). The Court, therefore, sustains that denial.
Reviewed and adopted as the report of the Small Tax Case
Division.
Decision will be entered
for respondent.