T.C. Summary Opinion 2007-42
UNITED STATES TAX COURT
CONNIE J. MEADOWS, Petitioner v.
COMMISSIONER OF INTERNAL REVENUE, Respondent
Docket No. 874-06S. Filed March 15, 2007.
Connie J. Meadows, pro se.
Thomas L. Fenner, for respondent.
JACOBS, Judge: This case was heard pursuant to the
provisions of section 7463 of the Internal Revenue Code in effect
at the time the petition was filed. Unless otherwise indicated,
subsequent section references are to the Internal Revenue Code in
effect for the year in issue. Pursuant to section 7463(b), the
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decision to be entered is not reviewable by any other court, and
this opinion shall not be treated as precedent for any other case.
This case involves innocent spouse relief for the amount of
tax shown as due on petitioner and her then husband’s joint 1999
income tax return that has not been fully paid. Petitioner
contends that respondent’s allowance of only partial innocent
spouse relief was an abuse of discretion. Consequently, we must
decide whether respondent abused his discretion in denying
petitioner innocent spouse relief under section 6015(f) for $1,815
of the $7,100 shown as the amount owed on the 1999 return.
Background
Some of the facts have been stipulated and are so found. The
stipulation of facts and the attached exhibits are incorporated
herein by this reference. At the time of filing the petition,
petitioner resided in Houston, Texas.
Petitioner and her husband at that time, Todd Meadows, timely
filed a joint Form 1040, U.S. Individual Income Tax Return, for
1999. They reported Mr. Meadows’s wage income of $51,825.97 and
petitioner’s wage income of $39,455.81, together with other income
items such as a taxable distribution from a pension plan, interest
income, and dividend income. Their total income for 1999 was
shown as $107,208. The total tax shown was $20,395, with $7,100
owed (including a $256 estimated tax penalty).
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Petitioner was and is a middle school teacher. Mr. Meadows
was a property tax specialist employed by an energy company. In
March of 2001 petitioner and Mr. Meadows divorced. In June of
2001, respondent determined a deficiency of $5,464 in petitioner
and Mr. Meadows’s income tax for 1999 and issued a notice of
deficiency for a deficiency and a related penalty under section
6662(a). Neither petitioner nor Mr. Meadows petitioned this Court
for a review of respondent’s determination, and respondent
assessed the deficiency and the related penalty.
In August of 2004, petitioner requested innocent spouse
relief for the 1999 tax year pursuant to section 6015(c).
Respondent granted petitioner full relief with respect to the
deficiency in, and addition to, tax that had been assessed.
However, respondent denied relief under section 6015(f) for $1,815
of the unpaid liability shown on the joint 1999 tax return.
Respondent asserts that he is seeking recovery only of that part
of the tax liability shown on the joint return that is
attributable to the earnings of petitioner.
Respondent issued a final notice of determination with
respect to petitioner’s request for innocent spouse relief under
section 6015 in November 2005.
Discussion
Married couples may choose to file their Federal income tax
returns jointly. Sec. 6013(a). Couples filing joint returns are
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jointly and severally liable for the taxes due thereon. Sec.
6013(d)(3). Section 6015 provides relief from liability for
filers of joint returns in some circumstances. Under section
6015(b), a spouse may seek relief for understatements of tax
attributable to certain erroneous items on a return. Under
section 6015(c), the tax liability may be apportioned between two
former or separated spouses. These provisions apply when there is
a deficiency in tax. Petitioner was successful in obtaining
relief under section 6015(c) for the deficiency respondent
determined.
In cases of underpayment, section 6015(f) applies. 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) or (c). If relief is denied, then
to prevail the taxpayer must prove that the Commissioner’s denial
of equitable relief from joint liability under section 6015(f) was
an abuse of discretion. Butler v. Commissioner, 114 T.C. 276,
287-292 (2000). The Court defers to the Commissioner’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). Whether the Commissioner’s
determination was an abuse of discretion is a question of fact.
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The requesting spouse bears the burden of proving that there was
an abuse of discretion. Cheshire v. Commissioner, 115 T.C. 183,
198 (2000), affd. 282 F.3d 326 (5th Cir. 2002); Abelein v.
Commissioner, T.C. Memo. 2004-274.
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. Respondent, in denying relief to petitioner,
applied guidelines found in Rev. Proc. 2000-15, supra, which we
will refer to as the superseded guidelines. The superseded
guidelines were modified by guidelines found in Rev. Proc. 2003-
61, supra, which we will refer to as the applicable guidelines.
The applicable guidelines are effective as to requests for relief
filed on or after November 1, 2003, and for requests for relief
pending on November 1, 2003, as to which no preliminary
determination letter had been issued as of that date. Rev. Proc.
2003-61, sec. 7, 2003-2 C.B. at 299. Petitioner’s application for
relief was filed after November 1, 2003, on August 5, 2004.
Respondent’s determination letter was issued on November 10, 2005.
According to section 4.01 in both sets of guidelines, the
requesting spouse must satisfy seven conditions (threshold
conditions) before the Commissioner will consider a request for
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relief under section 6015(f). Rev. Proc. 2003-61, sec. 4.01,
2003-2 C.B. at 297; Rev. Proc. 2000-15, sec. 4.01, 2000-1 C.B. at
448. The threshold conditions in the modified guidelines,
however, are different from the threshold conditions in the
superseded guidelines. The modified guidelines contain a
threshold requirement that the income tax liability from which the
requesting spouse seeks relief be attributable to an item of the
individual with whom the requesting spouse filed the joint return
(with exceptions not applicable here). Respondent, at trial and
in his pretrial memorandum, stated that petitioner satisfied the
threshold conditions, but when respondent made this concession, he
was referring to the threshold conditions found in the superseded
guidelines, which did not include the threshold requirement
pertaining to attribution.1
Respondent contends that he is seeking to recover only that
portion of the 1999 tax liability that is attributable to the
earnings of petitioner. Petitioner does not dispute that claim.
Consequently, pursuant to the applicable guidelines, innocent
spouse relief would be denied, because petitioner does not meet
1
This factor, attribution of the item generating the income
tax liability, appears in sec. 4.03 of the superseded guidelines,
rather than as a threshold requirement of sec. 4.01 of those
guidelines. Therefore, respondent considered this factor in
denying petitioner’s request for innocent spouse relief but did
not regard it as a threshold condition.
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the threshold condition that the tax liability be attributable to
an item of the nonrequesting spouse.
Although petitioner has not met the threshold requirements
for relief found in section 4.01 of the applicable guidelines, we
consider other factors to be taken into consideration when the
threshold requirements are met, because respondent, applying the
superseded guidelines, conceded that petitioner had met the
threshold conditions and denied petitioner’s claim for innocent
spouse relief on other bases.
The applicable guidelines specify, in section 4.02, three
other conditions (assuming that the threshold conditions were met,
which respondent erroneously assumed was the case) that, if met,
will normally entitle the spouse to relief. Rev. Proc. 2003-61,
sec. 4.02, 2003-2 C.B. at 298. To qualify, petitioner must show
that: (a) She is no longer married; (b) it was reasonable for her
to believe that Mr. Meadows would pay the reported tax liability;
and (c) she will suffer economic hardship if she is not granted
innocent spouse relief. Economic hardship generally means that
the individual is unable to pay reasonable basic living expenses.2
Petitioner showed that she and Mr. Meadows are divorced,
thereby satisfying the first condition. However, we cannot find
2
See sec. 301.6343-1(b)(4), Proced. & Admin. Regs., referred
to in the revenue procedure in making the determination of
whether economic hardship is present.
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that petitioner reasonably believed that Mr. Meadows would pay the
tax liability reported on the 1999 joint return.
It appears from the record that petitioner filed tax returns
for at least the preceding 3 years as a married taxpayer filing
separately. Petitioner testified that Mr. Meadows prepared those
returns for her and that she merely signed them. On one occasion,
Mr. Meadows signed her name to the return. Petitioner testified
that Mr. Meadows convinced her that it would be advantageous to
them to file a joint return for 1999, even though at the time the
return was due they were contemplating divorce. Petitioner
asserts that at Mr. Meadows’s request, she signed the joint 1999
return while it was blank; i.e., before any figures appeared on
it. Petitioner testified that in doing this, she “should have
known better than to trust” Mr. Meadows. According to petitioner,
Mr. Meadows then filed the return, which showed the tax liability
and the balance still owed. The address on the tax return was a
mailbox to which Mr. Meadows had access but petitioner did not.
Consequently, petitioner testified that she was unaware of any
further developments or correspondence from respondent pertaining
to the 1999 tax year and did not obtain a copy of the joint return
until respondent began collection efforts.
Petitioner could not reasonably have believed that Mr.
Meadows would pay the reported tax liability because petitioner
was unaware they had any tax liability, having signed a blank
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return. Petitioner testified that even though Mr. Meadows assured
her that he would properly manage their tax obligations, she was
aware that she could not trust him to actually do so. Moreover,
petitioner testified that Mr. Meadows had always prepared and
filed her tax returns, both the joint and separate returns, and
that several years before 1999, respondent had garnished her
wages.
Nothing in petitioner’s testimony establishes that petitioner
believed that Mr. Meadows would pay the reported tax liability.
Even if we could find (which we do not) that petitioner believed
that Mr. Meadows would pay the reported tax liability, we could
not find that her belief was reasonable. On the contrary,
petitioner’s experience in relying on Mr. Meadows to pay income
taxes had resulted in the garnishing of her wages.
Further, we do not find that petitioner will suffer economic
hardship if she is not granted innocent spouse relief. The record
shows that petitioner earned more than $46,000 in 2005. The
unpaid tax that respondent seeks to recover, including interest as
of the date of trial, is approximately $2,300. Petitioner did not
provide any supporting documentation, but she testified that she
contributes to the support of her young adult children and her
elderly parents. Even if we were persuaded that petitioner’s
living expenses include the cost of supporting adult children and
elderly parents, these costs were not quantified, and we cannot
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conclude from this record that petitioner will not be able to pay
her reasonable basic living expenses if she is not granted relief.
In sum, assuming petitioner met the threshold requirements
found in section 4.01 of the modified guidelines, we conclude
petitioner does not qualify for relief because she did not meet
the additional requirements found in section 4.02 of the modified
guidelines.
Where the requesting spouse meets the seven threshold
conditions set forth in section 4.01 of the modified guidelines,
but does not qualify for relief under section 4.02 of those
guidelines, we employ a balancing test to determine whether,
taking into account all the facts and circumstances, it would
nevertheless be inequitable to hold the requesting spouse liable
for all or part of the unpaid liability. Section 4.03 of the
modified guidelines enumerates six nonexclusive factors that may
be considered in making this determination.
Because respondent applied the superseded guidelines, he
considered petitioner’s request for relief in the light of eight
factors listed in section 4.03 of the superseded guidelines. We
now examine section 4.03 of the modified guidelines, which
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includes six factors to be considered. A description of each
factor, underscored, and our evaluation of that factor in this
case, follows.3
(a) Marital status. The requesting spouse is separated or
divorced from the nonrequesting spouse. Petitioner has shown that
she is divorced from Mr. Meadows. This factor weighs in her
favor.
(b) Economic hardship. The requesting spouse will suffer
economic hardship if relief from the liability is not granted.
For reasons explained supra, we do not find that petitioner would
suffer economic hardship if relief were not granted. This factor
weighs against her.
(c) Knowledge or reason to know. In the case of an income tax
liability that was properly reported but not paid, whether the
requesting spouse did not know and had no reason to know that the
nonrequesting spouse would not pay the income tax liability. We
are unable to determine petitioner’s actual knowledge as to
whether her husband would pay the tax shown on their joint return
for 1999. Indeed, because she signed the return in blank, we are
3
In addition to these six factors, the superseded guidelines
included as a factor in sec. 4.03 whether the income tax
liability was attributable to an item of the nonrequesting
spouse. As explained supra note 1, this factor is a threshold
requirement found in sec. 4.01 of the modified guidelines. In
addition, the superseded guidelines included spousal abuse as a
factor to be considered in sec. 4.03. That factor is part of the
threshold considerations of sec. 4.01 in the modified guidelines;
the parties agree that there was no such abuse in this case.
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unable to say whether petitioner knew that any tax was due.
However, if petitioner was aware that any tax was due, on the
basis of past experience she would have had reason to believe that
her husband might not pay the tax liability. It is also true that
the address shown on the return was a business mailbox to which
petitioner did not have access, so that she was not aware of any
correspondence between respondent and Mr. Meadows after the filing
of the return. This factor weighs neither in favor of nor against
petitioner.
(d) Nonrequesting spouse’s legal obligation. Whether the
nonrequesting spouse has a legal obligation to pay the outstanding
income tax liability pursuant to a divorce decree or agreement.
This factor will not weigh in favor of relief if the requesting
spouse knew or had reason to know, when entering into the divorce
decree or agreement, that the nonrequesting spouse would not pay
the income tax liability. Petitioner’s divorce decree assigns
responsibility for all Federal income tax liability from the date
of marriage through December 31, 2001, to Mr. Meadows. We are
unable to determine petitioner’s actual knowledge, at the time
of the decree, as to whether Mr. Meadows would pay the income tax
liability. On the basis of past experience, petitioner had reason
to believe that her husband would not pay the income tax
liability. This factor weighs neither in favor of nor against
petitioner.
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(e) Significant benefit. Whether the requesting spouse
received significant benefit (beyond normal support) from the
unpaid income tax liability. Petitioner credibly testified that
she received no gifts or other benefits from the unpaid tax
liability. Mr. Meadows did not honor his child support
obligations under the divorce decree and at one point simply
remained out of touch with his family for 2 years. This factor
weighs in favor of petitioner.
(f) Compliance with income tax laws. Whether the requesting
spouse has made a good faith effort to comply with income tax laws
in the taxable years following the taxable year to which the
request for relief relates. Petitioner filed a tax return for the
2000 tax year, but did not file tax returns for any subsequent
years. Petitioner testified that the reason for her failure to
file was that she believed she was owed a tax refund with respect
to the 2000 tax year which, according to her accountant, would
have been jeopardized by subsequent filings that might have shown
tax due. In other words, petitioner admitted that she might owe
taxes for years after 2000, as she had owed taxes for some years
before 1999, and that the Government might offset her claimed
refund for the 2000 tax year against taxes owed for subsequent tax
years.4
4
We note that petitioner’s youngest child, for whom she
claimed the child tax credit in 1999, attained the age of 17 in
(continued...)
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Petitioner testified that she relied on her accountant, who
is a certified public accountant. Petitioner further testified
that she provided her accountant with the necessary information
for him to prepare returns and that she believed her accountant
had requested extensions of the time to file. We are not
satisfied that petitioner’s actions amounted to a good faith
effort to comply with income tax laws. Even giving petitioner the
benefit of the doubt that she relied on, or more likely
misunderstood, her accountant’s advice, petitioner was certainly
aware of the obligation to file income tax returns, which she did
for 2000, the tax year for which she believed she was entitled to
a refund. Her understanding (or, more likely, misunderstanding)
of her accountant’s advice with respect to later years amounts to
an endorsement of a strategy of preventing the Government from
applying the refund she expected with respect to the 2000 tax year
to a tax that she might owe in later years. This does not
constitute a good faith effort to comply with income tax laws.
Consequently, this factor weighs against petitioner.
Not all the factors in section 4.03 of the modified
guidelines weigh against petitioner, just as not all of the
factors in section 4.01 or 4.02 of the modified guidelines weigh
against her. However, because we find that: Respondent is
4
(...continued)
2001; petitioner was therefore not entitled to this tax credit
for years after 2000.
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seeking to collect the portion of the 1999 income tax that is
attributable to petitioner; petitioner did not in good faith
believe that Mr. Meadows would pay the income tax owed; petitioner
has not shown that she would suffer economic hardship if relief
were not granted; and petitioner did not make a good faith effort
to comply with income tax laws in subsequent years, we conclude
that respondent did not abuse his discretion in denying innocent
spouse relief to petitioner under section 6015(f).
To reflect the foregoing,
Decision will be entered
for respondent.