T.C. Summary Opinion 2006-104
UNITED STATES TAX COURT
SHIRLEY H. STARTZMAN, Petitioner,
AND LARRY G. EASLER, Intervenor v.
COMMISSIONER OF INTERNAL REVENUE, Respondent
Docket No. 2084-05S. Filed July 13, 2006.
Shirley H. Startzman, pro se.
Larry G. Easler, pro se.
James R. Rich, for respondent.
WELLS, Judge: This case was heard pursuant to the
provisions of section 7463 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. All
section references are to the Internal Revenue Code, as amended,
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and all Rule references are to the Tax Court Rules of Practice
and Procedure.
Respondent denied petitioner’s request for section 6015
relief with respect to a $6,445 deficiency in income tax and a
$929 section 6662 accuracy-related penalty assessed for
petitioner and intervenor’s taxable year 1997. The issue we must
decide is whether petitioner is entitled to relief pursuant to
section 6015(b), (c), or (f).
Background
Some of the facts and certain exhibits have been stipulated.
The parties’ stipulations of fact are incorporated in this
Summary Opinion by reference and are found as facts in the
instant case. At the time of filing the petition, petitioner
resided in Greenwood, South Carolina. Petitioner and intervenor
(collectively referred to as the Easlers) were married on August
18, 1979. Petitioner has a general education development diploma
and a certified nursing assistant’s diploma. During taxable year
1997, petitioner worked as a retail manager at C.B. Mart, Inc.
and Wal-Mart, Inc. Intervenor has taken a few college courses,
including courses in government and economics. During taxable
year 1997, Intervenor was employed as a sales clerk at Greenwood
Mills, Inc. On their 1997 tax return, the Easlers reported
$12,030.78 in wages earned by petitioner but omitted $29,506 in
wages earned by intervenor. The $29,506 in omitted wages enabled
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the Easlers to qualify for the earned income credit and receive a
$4,080 tax refund. Petitioner and intervenor separated on June
16, 2000, and divorced on October 2, 2001.
On June 16, 2000, respondent sent the Easlers a notice of
deficiency determining a $6,445 income tax deficiency and a $929
section 6662 accuracy-related penalty. Neither petitioner nor
intervenor petitioned this Court in response to the notice of
deficiency. Accordingly, the tax and penalty determined in the
notice of deficiency, and an additional $1,291.89 of interest,
were assessed against the Easlers.
On February 12, 2001, respondent applied petitioner’s $2,730
overpayment from taxable year 2000 against the Easlers’ 1997 tax
liability. On March 4, 2002, respondent applied petitioner’s
$2,230 overpayment from taxable year 2001 against the Easlers’
1997 tax liability. Because respondent had previously applied
two overpayments made by intervenor against the Easlers’ 1997 tax
liability, petitioner received a refund of $105.22.1
On February 12, 2003, petitioner filed her 2002 Federal
income tax return along with Form 12507, Innocent Spouse
Statement, on which she stated that her former spouse
(intervenor) prepared their 1997 tax return, as he always had
1
On Apr. 15, 2001, respondent applied intervenor’s $1,944
overpayment from taxable year 2001 against the Easler’s 1997 tax
liability. On Sept. 10, 2001, respondent applied an additional
$500 due to intervenor with respect to his taxable year 2001
against the Easlers’ 1997 tax liability.
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throughout their marriage, and that she was told where to sign
and never looked at the return. On April 10, 2003, petitioner
filed a questionnaire for taxpayers requesting section 6015
relief. In that questionnaire petitioner detailed her claim and
requested a refund of her overpayments which were used to offset
the Easlers’ 1997 tax liability.
In a letter dated March 17, 2003, respondent’s innocent
spouse unit at the Cincinnati, Ohio, Service Center (innocent
spouse unit) notified intervenor that petitioner had requested
section 6015 relief with respect to taxable year 1997 and
requested that intervenor complete and submit Form 12507,
Innocent Spouse Statement, and Form 12508, Innocent Spouse
Information Request. Intervenor submitted the completed
requested forms by May 2, 2003. On Form 12508 he stated: That
he and petitioner filled out their 1997 tax return together; that
petitioner was fully aware of everything stated on, and omitted
from, the return; that petitioner wanted to omit intervenor’s
wages from the return in order to obtain a larger refund; and
that the divorce decree requires petitioner and intervenor to
share equally their marital debt.2
In a letter dated October 21, 2003, respondent’s innocent
spouse unit notified petitioner that her claim for section 6015
2
We do not address intervenor’s contentions because we
conclude, for reasons stated below, that petitioner is ineligible
for relief regardless of intervenor’s contentions and testimony.
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relief was being disallowed because petitioner filed her claim
more than 2 years after the first collection activity.
Similarly, respondent’s Appeals Office determined that
petitioner’s claim was untimely and, in a letter dated November
4, 2004, disallowed petitioner’s request for section 6015 relief
regarding taxable year 1997.
On January 31, 2005, petitioner timely filed a petition with
this Court seeking a review of respondent’s determination denying
her request for section 6015 relief. Respondent’s counsel
determined that petitioner’s request for section 6015 relief was
timely and asked the innocent spouse unit to determine whether
petitioner was entitled to relief. On August 12, 2005,
respondent’s innocent spouse unit determined that petitioner was
not entitled to relief under section 6015(b), (c), or (f) because
petitioner had actual knowledge of the omitted income giving rise
to the deficiency and, by not reviewing the return, she did not
satisfy her duty to inquire.
Discussion
In general, spouses filing a joint return are jointly and
severally liable for the accuracy of the return and for the full
tax liability. Sec. 6013(d)(3). Section 6015(b), (c), and (f)
provide exceptions to the general rule in certain circumstances.
Section 6015 applies to liabilities arising after July 22, 1998,
and to liabilities arising on or before July 22, 1998, that
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remain unpaid as of July 22, 1998. The tax liability in the
instant case arose during 1997 but remained unpaid as of July 22,
1998. Accordingly, section 6015 applies to the instant case.
Washington v. Commissioner, 120 T.C. 137, 145 (2003).
Section 6015(b)(1) requires the Commissioner to grant relief
from joint liability if the taxpayer satisfies the following
requirements: (a) The requesting spouse filed a joint return;
(b) on the joint return there is an understatement of tax
attributable to the erroneous items of one individual filing the
joint return; (c) the requesting spouse establishes that, in
signing the joint return, he or she did not know and had no
reason to know that there was such understatement; (d)
considering all the facts and circumstances, it is inequitable to
hold the requesting spouse liable for the deficiency in tax
attributable to such understatement; and (e) the requesting
spouse files her request for relief no later than 2 years from
the date the Secretary began collection activities against the
requesting spouse. A requesting spouse must satisfy all of these
requirements to qualify for section 6015 relief. Alt v.
Commissioner, 119 T.C. 306, 313 (2002), affd. 101 Fed. Appx. 34
(6th Cir. 2004). Except as otherwise provided in section 6015,
the requesting spouse bears the burden of proving she satisfies
each requirement of section 6015(b)(1). See Rule 142(a); Alt v.
Commissioner, supra at 311.
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In the instant case, petitioner knew or had reason to know
of the omitted item giving rise to the deficiency. A requesting
spouse has a duty of inquiry. Butler v. Commissioner, 114 T.C.
276, 284 (2000). A requesting spouse has reason to know of an
understatement if a “reasonably prudent person with knowledge of
the facts possessed by the person claiming * * * [relief] should
have been alerted to the possibility of a substantial
understatement.” Flynn v. Commissioner, 93 T.C. 355, 365 (1989).
There is no question that petitioner was aware intervenor was
employed by Greenwood Mills throughout 1997. The top line of
page two of the Easlers’ 1997 tax return shows an adjusted gross
income of $12,030.78. A few inches above where petitioner signed
her name on page two, line 29a shows total tax withholdings from
Forms W-2 of just $444.24. Such circumstances should have
alerted a reasonably prudent person that there was an
understatement of tax. Section 6015 relief was not intended for
spouses who simply did not look at the amount of income reported
on the return, unless it is clearly established that the spouse
was forced under duress to sign the return without looking at it.
Frederick v. Commissioner, T.C. Memo. 1981-602. The record in
the instant case does not support a conclusion that petitioner
was forced to sign the return under duress. Even though
petitioner did not have a college degree or any business
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background, we do not think her failure to inquire was
reasonable. Cohen v. Commissioner, T.C. Memo. 1987-537.
Accordingly, petitioner is not entitled to relief under section
6015(b).
We do not need to engage in a lengthy discussion of whether
petitioner qualifies for relief under section 6015(c) because the
only relief she seeks is a refund. Section 6015(g)(3) prohibits
refunds under section 6015(c). Accordingly, petitioner does not
qualify for relief under section 6015(c).
The Commissioner has discretion, pursuant to section
6015(f), to grant relief from joint and several liability, where
relief is not available under section 6015(b) or (c), if the
facts and circumstances indicate that it would be inequitable to
hold the requesting spouse liable for the deficiency. This Court
reviews the Commissioner’s denial of relief pursuant to section
6015(f) under an abuse of discretion standard. Butler v.
Commissioner, 114 T.C. 276, 287-292 (2000). We defer to
respondent’s determination unless it is arbitrary, capricious, or
without sound basis in fact. Jonson v. Commissioner, 118 T.C.
106, 125 (2002), affd. 353 F.3d 1181 (10th Cir. 2003).
Petitioner bears the burden of proving that there was an abuse of
discretion. Abelein v. Commissioner, T.C. Memo. 2004-274.
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Rev. Proc. 2000-15, 2000-1 C.B. 447,3 provides factors that
weigh in favor of, and against, granting relief. Factors that
favor granting relief include: (1) Marital status; (2) economic
hardship; (3) abuse; (4) no knowledge or reason to know of the
item giving rise to the deficiency; (5) whether the nonrequesting
spouse had a legal obligation to pay the deficiency; and (6)
whether the item giving rise to the deficiency is attributable
to the nonrequesting spouse. Id. sec. 4.03, 2000-1 C.B. at
448-449. Factors that weigh against granting relief include:
(1) The item giving rise to the deficiency is attributable to the
requesting spouse; (2) the requesting spouse knew or had reason
to know of the item giving rise to the deficiency (an extremely
strong factor); (3) the requesting spouse has benefited, beyond
normal support, from the item giving rise to the deficiency; (4)
the requesting spouse will not experience economic hardship if
relief is not granted; (5) the requesting spouse has not made a
good faith attempt to comply with the tax laws in subsequent
years; and (6) the requesting spouse has a legal obligation to
pay the liability. Id. at 449.
3
Rev. Proc. 2000-15, 2000-1 C.B. 447, applies to the instant
case because the preliminary determination letter was issued on
Oct. 21, 2003. Rev. Proc. 2003-61, 2003-2 C.B. 296, which
superseded Rev. Proc. 2000-15, supra, is effective for pending
requests for sec. 6015 relief for which no preliminary
determination letter was issued as of Nov. 1, 2003.
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The record in the instant case does not demonstrate that it
would be inequitable to deny petitioner relief. Petitioner had
knowledge of the item giving rise to the deficiency and failed to
fulfill her duty of inquiry when she signed the return without
any review. Butler v. Commissioner, supra. We do not believe
petitioner’s actions were reasonable under the circumstances.
Petitioner has also failed to prove that she will suffer economic
hardship if relief is not granted. See sec. 301.6343-1(b)(4),
Proced. & Admin. Regs. (defining economic hardship as causing the
taxpayer to be unable to pay his or her basic living expenses).
Accordingly, we conclude that it was not an abuse of discretion
for respondent to deny petitioner relief under section 6015(f).
We have considered all of petitioner’s contentions. To the
extent not addressed herein, those contentions are without merit
or unnecessary to reach.
To reflect the foregoing,
Decision will be entered
for respondent.