T.C. Memo. 2006-155
UNITED STATES TAX COURT
CHERYL McKNIGHT, Petitioner v.
COMMISSIONER OF INTERNAL REVENUE, Respondent
Docket No. 3398-05. Filed July 27, 2006.
Michael P. Merrion, for petitioner.
Michael W. Lloyd, for respondent.
MEMORANDUM FINDINGS OF FACT AND OPINION
SWIFT, Judge: The issue for decision is whether petitioner
is entitled to additional relief under section 6015 from joint
liability for 1995 Federal income taxes, and related penalty,
additions to tax, and interest.
Unless otherwise indicated, all section references are to
the Internal Revenue Code in effect for the year in issue, and
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all Rule references are to the Tax Court Rules of Practice and
Procedure.
FINDINGS OF FACT
Some of the facts have been stipulated and are so found.
At the time the petition was filed, petitioner resided in
Golden, Colorado.
Petitioner has a background in property management and has
completed 1 year of college. Petitioner has no children.
In September of 1986, petitioner met John McKnight (John).
In 1987, John and his then wife Sally Overton (Overton) divorced.
Shortly thereafter, petitioner and John began dating. John has a
son from his marriage to Overton.
John acted as a sales representative for construction
product manufacturers. John operated his business as a sole
proprietorship under the name of McKnight and Associates.
As petitioner and John’s dating relationship developed,
petitioner allowed John to use petitioner’s personal credit cards
to pay a number of John’s business expenses. Initially, John
promptly repaid petitioner so that petitioner could timely make
her credit card payments.
In 1990, John asked petitioner to work in his business.
John told petitioner that he needed her help to expand the
business and that he would pay petitioner the same amount that
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she earned in her prior job. Petitioner accepted John’s offer,
quit her job, and went to work for John.
Petitioner’s responsibilities working in John’s business
included answering phone calls, bookkeeping, taking orders for
products, and other clerical tasks.
After a month, petitioner asked John why she was not getting
paid. John explained to petitioner that he had not yet received
enough commissions to pay her but that he soon would do so.
However, from the time petitioner began working for John and his
business in 1990, petitioner never was paid any wages or other
compensation for her work.
On October 12, 1992, petitioner and John were married.
Around the time of their marriage, John sold his home in
Westminster, Colorado, and petitioner and John moved into a new
home in Castle Rock, Colorado (Castle Rock home). Using
petitioner’s poor credit as the excuse and even though John
himself was responsible for petitioner’s poor credit rating, John
titled the Castle Rock home only in his name. John promised
petitioner that at a later date he would put petitioner’s name on
the title to the home, which he never did.
To finance his business, John took out multiple second and
third mortgages on the Castle Rock home.
Sometime after they were married, petitioner and John
decided to trade in on a new car a car which petitioner had owned
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prior to their marriage. John titled the new car only in his
name. John told petitioner that he had mistakenly omitted
petitioner’s name from the car title, but John later acknowledged
that he had done so intentionally.
After petitioner married John, John’s spending began to
spiral out of control. John increased the amount and frequency
of charges he made on petitioner’s credit cards, and John became
increasingly delinquent in payments to petitioner to cover the
expenses so charged. At one point, John’s charges to
petitioner’s credit cards relating to John’s business reached a
total outstanding balance of $38,000.
With her own funds, petitioner eventually paid off a
significant portion of John’s charges to her credit cards.
On December 30, 1993, John incorporated his sales
representative business as MGI/McKnight Group, Inc. (MGI). An
election was filed with respondent to have MGI treated as an
S corporation.
At John’s insistence, petitioner signed the MGI articles of
incorporation, and petitioner, along with John, was listed on the
MGI articles of incorporation as a director of MGI. Petitioner,
however, was not aware of the legal significance of signing the
MGI articles of incorporation or of being listed as a director.
John always made it clear to petitioner that he regarded
himself as sole owner of the business and of MGI and that he did
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not recognize petitioner as having an ownership interest in MGI.
Shares of MGI stock apparently were never issued.
To the extent petitioner held an ownership interest in MGI,
it was only a nominal interest. Without consulting petitioner,
John made all of the decisions relating to MGI. Petitioner did
not make a capital contribution to MGI, did not receive MGI
stock, did not have signatory authority on MGI’s bank account,
did not know what title or position she nominally held in MGI,
received no distributions from MGI, and as explained, never
received wages or other compensation from MGI.
Throughout their marriage, petitioner generally kept track
of the household bills and expenses, but petitioner would show
the bills to John. John would decide which bills to pay and when
to pay them. Periodically, John would transfer just enough money
into the marital joint checking account for petitioner to write
checks to pay bills he had approved. Petitioner did not have
access to John’s personal and business bank accounts.
Prior to their marriage, in an effort to convince petitioner
to marry him, John had checked himself into an alcohol abuse
treatment center. However, on the night of their marriage John
resumed drinking.
Throughout his marriage to petitioner, John’s problems with
alcohol increased. On three occasions during the marriage, John
was arrested for driving under the influence.
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In November of 1994, a tractor-trailer hit and injured John.
The accident occurred as John was walking drunk on the shoulder
of a highway. John filed a lawsuit against the truck driver and
the trucking company. In a settlement of the lawsuit, the
trucking company awarded John and petitioner jointly an $80,000
deferred annuity.
In part as a result of John’s injuries from the accident,
MGI’s business began to do poorly. John could not leave his home
to make sales calls, and John became argumentative with his
clients, most of whom soon terminated their contracts with MGI.
In addition to not paying petitioner for her work, ruining
her credit, and putting major marital assets only in his name,
John became both mentally and physically abusive to petitioner,
which abuse escalated throughout the marriage.
Due to his drinking problem, John often would go into rages
where he would shove and hit petitioner.
John purchased firearms and other weapons which he kept in
the home. Petitioner feared John and believed that John might
use his weapons to seriously harm her.
In January of 1995, John beat petitioner with his crutches.
Upon petitioner’s request, the police removed 12 firearms from
the home. The night of the beating petitioner left the home to
stay with a friend.
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When petitioner returned home to retrieve her belongings,
John had changed the locks and boarded up the windows.
Petitioner did not have a job, credit, nearby family, or
other means of support, and only a few articles of clothing in
her possession. John apologized to petitioner for his behavior.
Because she felt she did not have an alternative, petitioner
moved back in with John. Thereafter, John’s conduct toward
petitioner became worse.
From the Internet John downloaded pornography and while on
trips was unfaithful to petitioner.
In one incident that occurred in the summer of 1997, John
broke a wine glass on a table and with the broken glass slashed
petitioner’s throat. Petitioner fought off John and managed to
lock herself in a room. Instead of going to a hospital,
petitioner did her best to stop the bleeding and to close up the
wound. Petitioner feared that if she sought medical treatment
John would be arrested and that he might seek to kill her.
Soon after the above incident, petitioner secretly packed up
many of her belongings and moved into a motel in a nearby
community.
Petitioner stayed in the motel for several weeks before
finding a job and moving into an apartment.
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In December of 1997, John filed for divorce from petitioner
so that he could marry another woman. On October 16, 1998,
petitioner and John’s divorce became final.
As of the time of the divorce, John had borrowed against all
of the equity in the Castle Rock home and had spent or consumed
all of the loan proceeds along with most other marital assets.
In the divorce, the $80,000 deferred annuity relating to
John’s accident was split into two $40,000 deferred annuities,
one of which petitioner received, and John received the other.1
Petitioner also received possession of a used car, which car
John, contrary to the divorce decree, never transferred into
petitioner’s name.
With regard to petitioner and John’s 1995 joint Federal
income taxes, the divorce decree stated: “[John] shall be solely
responsible for payment of all such taxes, including all interest
and penalties...and * * * [John] shall indemnify and hold * * *
[petitioner] harmless therefrom.”
In December of 1998, John remarried and moved to Tennessee.
Two weeks later, on January 4, 1999, John was found dead. John
died intestate.
On November 27, 2000, Overton, John’s first wife, petitioned
the Chancery Court of Bedford County, Tennessee, to allow her to
1
As of the trial herein, petitioner had received total
installment payments of $30,000 on the $40,000 annuity. The
remaining $10,000 is scheduled to be paid to petitioner in 2006.
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administer John’s intestate estate. The Court granted Overton’s
petition, opened a probate proceeding relating to John’s estate,
and appointed Overton as personal representative.
John’s estate consisted primarily of one asset (namely, the
balance due on John’s separate $40,000 deferred annuity relating
to his 1994 accident).
Apparently, only two claims were filed against John’s
estate: (1) A claim filed by respondent for unpaid taxes; and
(2) a claim filed by Overton for support and for an allowance for
her then minor child.
Petitioner was not notified until 2003 about the probate of
John’s estate, by which time petitioner apparently was time-
barred from filing a claim against the estate for the portion of
the 1995 joint Federal income taxes, penalty, additions to tax,
and interest which petitioner had paid (see below) but all of
which John was obligated to pay under the divorce decree.
At the time of the trial herein, petitioner earned
approximately $52,000 a year, rented a comfortable home, and was
trying to rebuild her life.
On approximately August 19, 1996, petitioner and John
timely filed their 1995 joint Federal income tax return on which
was reflected a Federal income tax underpayment or balance due of
$17,516 (the underpayment). The tax return also reflected that
for 1995 petitioner and John had made no estimated income tax
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payments and that no income taxes had been withheld from wages or
salary on their behalf.2
All of the reported income on petitioner and John’s 1995
joint Federal income tax return, with the exception of a small
amount of interest income, consisted of income from MGI. On the
above tax return and on related Schedules K-1, Shareholder’s
Share of Income, Credits, Deductions, etc., MGI’s reported income
was reflected as allocable equally to petitioner and to John.
Petitioner was generally aware of the $24,050 interest
deductions on the mortgages and the $109,742 MGI income that were
reflected on her and John’s 1995 joint Federal income tax return.
From October of 1996 through December of 1997, with joint
marital assets, petitioner and John made 13 additional payments
totaling $11,657 on their $17,516 underpayment for 1995.
On January 13, 1998, after an audit of petitioner and John’s
1995 joint Federal income tax return, respondent mailed to
2
Also mailed to respondent with petitioner and John’s 1995
joint Federal income tax return was a $1,000 partial payment
toward the $17,516 balance due reflected on the return. As a
result, the amount of petitioner and John’s 1995 tax underpayment
apparently should be $16,516. Both parties, however, have
treated the entire $17,516 balance due as the underpayment. For
convenience herein, we refer to the underpayment amount as
$17,516 and leave any modification thereof to the parties’ Rule
155 computation. Further, with their 1995 tax return and the
$1,000 payment, petitioner and John mailed to respondent an
additional $7,235 check reflecting the balance due on their then
outstanding 1993 joint Federal income taxes, and petitioner and
John made a request to pay in installments the remaining $16,516
balance due on their 1995 income tax liability.
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petitioner and to John a notice of deficiency. In the notice of
deficiency, respondent disallowed $19,721 in mortgage interest
deductions, charged petitioner and John with self-employment
taxes on the MGI income, and determined a tax deficiency against
petitioner and John of $6,452 (the deficiency). Respondent also
determined that petitioner and John were liable for a $1,290
accuracy-related penalty.
Respondent mailed the above notice of deficiency to John’s
separate address. John did not inform petitioner that he had
received the notice of deficiency. Neither petitioner nor John
filed with this Court a petition for redetermination of the
deficiency.
Petitioner did not learn of the notice of deficiency until
after respondent had assessed the deficiency.
In further payment of the balance due on the underpayment,
the deficiency, the related penalty, and the additions to tax
(that were later assessed) and interest, respondent offset and
applied Federal income tax refunds that were due to petitioner
for 1999 through 2002, and petitioner individually made a number
of additional $938 installment payments to respondent. Also,
John’s estate made a $12,663 payment. The below schedule
summarizes the various payments made jointly by petitioner and
John, as well as the separate payments made by petitioner and by
John’s Estate:
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Payments Petitioner & John’s Total 1995
John’s Federal Income Taxes, Penalty,
Joint Petitioner Estate Additions to Tax, & Interest
$12,657 $8,234 $12,663 $33,554*
* Respondent’s certificate of assessment reflects that
petitioner and John’s total 1995 Federal income tax
liability and related amounts as determined by respondent
consist of the $17,516 tax underpayment, the $6,452 tax
deficiency, the $1,290 accuracy-related penalty, two
separately assessed sec. 6651(a)(2) failure-to-pay additions
to tax of $513 and $3,004, and interest of $4,779, all
totaling $33,554.
For years following 1995, petitioner has made a good faith
effort to comply with the Federal income tax laws.
On February 24, 2004, petitioner requested relief under
section 6015(b), (c), and (f) from her joint 1995 Federal income
tax liability, including penalty, additions to tax, and related
interest paid.
On May 26, 2004, respondent’s Compliance Office proposed to
grant petitioner full relief from liability for the underpayment
and deficiency under a combination of section 6015(f) and (b), as
follows, subject to any applicable refund limitations under Rev.
Proc. 2003-61, sec. 4.04(2), 2003-2 C.B. 296, 299:
Nature of Amount of Compliance Office Proposed Relief
Liability Liability Amount* Basis for
Underpayment $17,516 $17,516 Sec. 6015(f)
Deficiency $ 6,452 $ 6,452 Sec. 6015(b)
* Plus additional amounts for the related penalty, additions
to tax, and interest.
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Overton, however, as executor of John’s estate, contacted
respondent’s Compliance Office and objected to petitioner’s
request for innocent spouse relief. At the hearing, Overton
alleged that petitioner actively participated in the day-to-day
operation of John’s business, that petitioner owned a 50-percent
interest in MGI, and that petitioner was financially able to bear
the burden of payment of petitioner and John’s 1995 joint Federal
income taxes. Overton also expressed concern that if petitioner
were granted relief, respondent’s claim for payment from John’s
estate of additional amounts likely would reduce any payment her
son might receive from John’s estate.
Respondent’s Compliance Office reviewed Overton’s objection
to petitioner’s request for innocent spouse relief but did not
alter the proposal to grant full relief to petitioner.
On August 20, 2004, Overton mailed a letter to respondent’s
Compliance Office in which she formally objected to any relief
being given to petitioner. Based on Overton’s written objection,
respondent’s Compliance Office transferred petitioner’s request
for innocent spouse relief to respondent’s Appeals Office for
further review.3
On November 17, 2004, respondent’s Appeals Office determined
that petitioner qualified for relief from joint liability under
3
At the trial herein, Overton did not participate as a
party, but she did testify as a witness.
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section 6015(f) only with respect to 50 percent of petitioner’s
and John’s $17,516 underpayment and under section 6015(c) only
with respect to 50 percent of petitioner and John’s $6,452
deficiency, as follows, subject to any applicable limitations
under Rev. Proc. 2003-61, sec. 4.04(2) and sec. 6015(g)(3):
Nature of Amount of Appeals Office Relief
Liability Liability Amount Basis for
Underpayment $17,516 $8,792 Sec. 6015(f)
Deficiency $6,452 $3,226 Sec. 6015(c)
Respondent’s Appeals Office’s determination (to grant
petitioner relief from joint liability only as to 50 percent of
the $17,516 underpayment and as to 50 percent of the $6,452
deficiency) was based primarily on respondent’s analysis that the
other 50 percent of the underpayment and the other 50 percent of
the deficiency were attributable to what respondent regarded as
petitioner’s 50-percent ownership interest in MGI.
With regard to the portion of the underpayment from which
respondent determined that petitioner should be granted relief
under section 6015(f), respondent’s Appeals Office determined
that the factors set forth in Rev. Proc. 2003-61, sec. 4.03,
2003-2 C.B. at 298, supported such relief.
With regard to the portion of the deficiency from which
respondent determined that petitioner should be granted relief
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under section 6015(c), respondent’s Appeals Office determined
that petitioner satisfied the requirements of section 6015(c).4
Petitioner contends that under section 6015(b), (c), or (f)
she is entitled to full relief for the entire $17,516
underpayment, the entire $6,452 tax deficiency, and the related
penalty, additions to tax, and interest.
OPINION
Taxpayers filing joint Federal income tax returns are
generally jointly liable for all taxes due thereon. Sec.
6013(d)(3). Limited relief from joint liability, however, may be
available under section 6015(b), (c), and (f).
Based on the express statutory language, relief from joint
liability under section 6015(b) and (c) is limited to tax
deficiencies and is not available for underpayments. Hopkins v.
Commissioner, 121 T.C. 73, 88 (2003).
Under section 6015(b), relief from joint liability for a
Federal income tax deficiency is available only where:
4
Although respondent determined that petitioner met the
statutory requirements for relief under sec. 6015(c), in an
alternate writeup respondent concluded that even though
petitioner had actual knowledge of the items giving rise to the
deficiency, petitioner, because of the abuse she suffered from
John, still should be regarded as generally qualified for such
relief. See sec. 1.6015-3(c)(2)(v), Income Tax Regs. (abused
spouse not treated as having actual knowledge of items on joint
return for purposes of sec. 6015(c) where her failure to question
the tax return treatment of such items was caused by fear of
retaliation).
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(1) The joint tax return contains an
understatement of tax attributable to the spouse not
requesting relief;
(2) the spouse seeking relief establishes that in
signing the return he or she did not know, and had no
reason to know, that there was such a tax
understatement;
(3) taking into account all the facts and
circumstances, it would be inequitable to hold the
spouse requesting relief liable for the tax deficiency
related to such a tax understatement; and
(4) the spouse requesting relief timely elects the
benefit of section 6015(b).
Under section 6015(b), a requesting spouse is regarded as
knowing or as having reason to know of a tax deficiency if the
spouse was aware of the transactions or items that gave rise to
the tax deficiency or had reason to know that a deduction would
give rise to an understatement of tax. Purcell v. Commissioner,
826 F.2d 470, 473-474 (6th Cir. 1987), affg. 86 T.C. 228 (1986);
Jonson v. Commissioner, 118 T.C. 106, 115 (2002), affd. 353 F.3d
1181 (10th Cir. 2003).
Under section 6015(c), relief from joint liability for a
Federal income tax deficiency is available if the following
conditions, among others, are satisfied:
(1) At the time the election of section 6015(c)
is filed, the two spouses are divorced, legally
separated, or otherwise have been living apart for the
preceding 12 months; and
(2) the requesting spouse, at the time the return
was signed, did not have actual knowledge of the items
giving rise to the deficiency.
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Relief under section 6015(c) generally is limited to the
portion of a tax deficiency that would be allocated to the
nonrequesting spouse if separate returns were filed. Sec.
6015(c)(1), (c)(3), (d).
Under section 6015(f), so called “equitable” relief from
joint liability may be available for tax deficiencies with
respect to which section 6015(b) and (c) relief has been denied
and for underpayments of Federal income taxes reported on Federal
income tax returns.
Equitable relief under section 6015(f) from joint liability
may be available where the facts and circumstances indicate that
it would be inequitable to hold the requesting spouse liable for
the tax underpayment or the tax deficiency. Sec. 6015(f)(1).
The relief available under section 6015(f) generally is
limited further to the portion of a tax underpayment or
deficiency attributable to an item of the nonrequesting spouse.
Rev. Proc. 2003-61, sec. 4.01(7), 2003-2 C.B. at 297.
Under Revenue Procedure 2003-61, section 4.01(7)(b), an
exception is provided to the above limitation denying section
6015(f) equitable relief from the portion of a tax liability
attributable to an item of the requesting spouse where the
requesting spouse establishes that her ownership of the assets
producing the income was only nominal.
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Rev. Proc. 2003-61, sec. 4.03(2), elaborates further on
various factors to consider in reviewing requests for section
6015(f) equitable relief. No one factor will control, and all
relevant factors are to be considered and weighed. The factors
set forth in Rev. Proc. 2003-61, supra, are not intended to be
exhaustive. Rev. Proc. 2003-61, supra.
We review respondent’s denial of section 6015(f) equitable
relief for an abuse of discretion. Hopkins v. Commissioner,
supra at 87; Cheshire v. Commissioner, 115 T.C. 183, 198 (2000),
affd. 282 F.3d 326 (5th Cir. 2002).
Section 6015(b) Relief
As explained, section 6015(b) relief is available only for
tax deficiencies, not underpayments. Respondent correctly
concluded that petitioner fails to qualify for relief under
section 6015(b) as to her joint liability for the $6,452 tax
deficiency.
Petitioner had knowledge of the interest on the home
mortgages and of the various business activities and income of
MGI. Cf. sec. 1.6015-3(c)(4), Example (1), Income Tax Regs.
Although John made all the financial decisions, petitioner
tracked and paid the bills, including the mortgage payments.
Petitioner does not qualify for section 6015(b) relief for
any portion of the tax deficiency at issue herein.
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Section 6015(c) Relief
As explained, respondent concluded that petitioner qualified
generally for relief under section 6015(c). Respondent, however,
concluded that only 50 percent of the $6,452 deficiency was
attributable to John and therefore granted relief to petitioner
from joint liability under section 6015(c) only as to 50 percent
(or $3,226) of the $6,452 tax deficiency.
The entire $6,452 deficiency, however, is attributable to
John. John owned all of MGI beneficially, and whatever interest
in MGI petitioner may have held was only as a nominee.
Petitioner has established that none of the income from MGI
should be attributable to her. Further, John, not petitioner,
owned the Castle Rock home to which the disallowed mortgage
interest deductions relate.
Petitioner therefore qualifies under section 6015(c) for
relief from joint liability as to the entire $6,452 deficiency.5
5
Sec. 6015(g)(3), however, provides that no credit or
refund will be allowed as a result of sec. 6015(c) relief.
Herein, the entire $6,452 deficiency has been paid, and therefore
petitioner is not entitled to a refund of any amounts that
petitioner paid on the deficiency. If, however, we were to hold
that petitioner did not qualify for relief from the deficiency
under sec. 6015(c), and then grant petitioner equitable relief
from the deficiency under sec. 6015(f), under Rev. Proc. 2003-61,
sec. 4.04(1), 2003-2 C.B. 296, 299, petitioner apparently still
would be disallowed a refund of amounts petitioner has paid on
the deficiency (i.e., payments petitioner made on the deficiency
prior to her request for sec. 6015(f) equitable relief relating
thereto would not be refundable).
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Sec. 6015(f) Relief
As explained, whatever interest in MGI petitioner may have
held was only as a nominee, and none of the MGI income should be
attributed to her. Rev. Proc. 2003-61, sec. 4.01(7)(b).
Petitioner is potentially eligible for section 6015(f) equitable
relief from the entire $17,516 underpayment.
As respondent acknowledges, most of the equitable factors
set forth in Rev. Proc. 2003-61, supra, support the relief
petitioner requests under section 6015(f): (1) Petitioner and
John are divorced; (2) under the divorce decree, John had a legal
obligation to pay the 1995 unpaid Federal income taxes and any
penalties and interest relating thereto; (3) petitioner did not
receive a significant benefit (beyond support) from the unpaid
underpayment; and (4) petitioner has complied with the income tax
laws in the years following 1995.
Three remaining factors require further analysis.
(1) Economic Hardship
A requesting spouse will be regarded as suffering economic
hardship if the requesting spouse, if not granted relief, will be
unable to pay his or her reasonable basic living expenses. Rev.
Proc. 2003-61, sec. 4.02(1)(c), 2003-2 C.B. at 298, sec.
4.03(2)(a)(ii).
Respondent determined, and we agree, that it appears that
petitioner will not suffer economic hardship if relief is not
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granted. Petitioner earns approximately $52,000 a year, and
rents a comfortable home. Petitioner and John’s $17,516
underpayment has already been paid in full, and thus no further
payments will be required from petitioner if relief is not
granted.
We note, however, that petitioner did pay significant other
debts attributable to John and to his business. Petitioner also
has had to rebuild her credit due to John’s conduct. For 6 years
petitioner worked for John without being paid. John squandered
most of the marital assets, including the equity in the Castle
Rock home, leaving little for petitioner after the divorce.
These additional factors mitigate the weight to be given the
economic hardship factor.
(2) Knowledge or Reason To Know
It appears that petitioner should have been on notice that
the $17,516 underpayment might not be paid. Enclosed with the
tax return was a letter from petitioner and John stating that
full payment could not be made with the return. In previous
years, petitioner and John had had difficulty paying their
Federal income taxes. These facts combined with John’s
continuing business and financial difficulties should have put
petitioner on notice that the $17,516 underpayment reflected on
the 1995 joint Federal income tax return might not be paid in
full.
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Respondent correctly concluded that this factor weighs
against granting relief to petitioner.
(3) Abuse
Respondent minimized the abuse petitioner suffered. An
alternate writeup accompanying respondent’s Appeals Office
determination states:
The abuses outlined in the claimant’s arguments do not
appear to have been more than her willingness to hold a
subservient role in the relationship. There is no
indication that she was called names, ridiculed,
criticized or belittled.
We disagree. The material petitioner submitted to
respondent and which is found in the administrative record in
this case, as well as vivid and credible trial testimony herein,
thoroughly establishes the extensive and severe abuse petitioner
suffered from John.
Due to the severity of the abuse suffered by petitioner,
this factor strongly favors granting relief to petitioner.
Further, John’s extensive abuse of petitioner mitigated
petitioner’s reason to know that John might not pay the
underpayment. See Rev. Proc. 2003-61, sec. 4.03(2)(b)(i).
Overton’s Son
Respondent also considered the impact on Overton’s son of
granting petitioner equitable relief. Respondent concluded that
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because granting relief to petitioner might reduce John’s estate
and the inheritance Overton’s son might be entitled to receive,
this factor weighed against granting equitable relief to
petitioner.
Although sympathetic to the potential adverse financial
effect of our decision herein on Overton’s son, we do not find
this factor particularly relevant, nor does it outweigh the
factors which weigh in favor of granting petitioner equitable
relief.6
Conclusion
Respondent correctly concluded that petitioner does not
qualify for relief under section 6015(b).
Respondent correctly concluded that petitioner qualified
generally for relief under section 6015(c); however, we hold that
petitioner qualified for relief with regard to the entire $6,452
deficiency, not just 50 percent thereof.
Respondent incorrectly rejected petitioner’s request for
section 6015(f) equitable relief as to the 50 percent of the
$17,516 income tax underpayment nominally attributable to
petitioner.
We agree with respondent’s conclusion that petitioner is
entitled to section 6015(f) equitable relief as to 50 percent of
6
John’s third wife, with proceeds from insurance on John’s
life, provided Overton’s son with a $30,000 trust fund.
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the $17,516 underpayment, but we hold that respondent abused his
discretion in not granting petitioner relief for the balance of
the $17,516 underpayment and the related penalty, additions to
tax, and interest. Such additional relief is to be granted to
petitioner.
To reflect the foregoing,
Decision will be entered
under Rule 155.7
7
Under our holding herein, refunds to petitioner relating
to petitioner and John’s underpayment and deficiency may be
limited, respectively, under Rev. Proc. 2003-61, sec. 4.04(2),
and sec. 6015(g)(3). In the Rule 155 computation, the parties
are to resolve how petitioner’s various payments are to be
allocated among the underpayment, the deficiency, and the
penalty, additions to tax, and interest.