T.C. Summary Opinion 2007-77
UNITED STATES TAX COURT
MARY ELIZABETH CUMINGS, Petitioner v.
COMMISSIONER OF INTERNAL REVENUE, Respondent
Docket No. 11623-05S. Filed May 21, 2007.
Mary Elizabeth Cumings, pro se.
Michael W. Lloyd, for respondent.
MARVEL, 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 Pursuant to section 7463(b), the
decision to be entered is not reviewable by any other court, and
1
All subsequent section references are to the Internal
Revenue Code, unless otherwise indicated.
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this opinion shall not be treated as precedent for any other
case.
This case arises from a request for relief under section
6015(f) with respect to petitioner’s 2002 taxable year.
Respondent determined petitioner was not entitled to any relief
from joint and several liability under section 6015(f).
Petitioner timely filed a petition seeking review of respondent’s
determination.2 The issue for decision is whether respondent’s
denial of relief under section 6015(f) was an abuse of
discretion.
Background
Some of the facts have been stipulated. We incorporate the
stipulated facts into our findings by this reference. Petitioner
resided in Loveland, Colorado, when her petition in this case was
filed.
2
Respondent filed a motion to dismiss this case for lack of
jurisdiction in which he contended that the Tax Court did not
have jurisdiction to review respondent’s denial of relief under
sec. 6015(f) in nondeficiency cases. However, in response to an
order to show cause dated Jan. 5, 2007, respondent concedes that
the Tax Relief and Health Care Act of 2006, Pub. L. 109-432, div.
C, sec. 408(a), (c), 120 Stat. 3061, 3062, amended sec.
6015(e)(1) to confer jurisdiction on the Court over stand-alone
requests for equitable relief under sec. 6015(f), effective for
tax liabilities arising or remaining unpaid on or after Dec. 20,
2006, and requests that his motion to dismiss for lack of
jurisdiction be denied. An appropriate order denying the motion
will be issued in accordance with respondent’s request.
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During 2002, petitioner was married to Robert Parker (Mr.
Parker). In October 2002, petitioner and Mr. Parker separated,
and in 2004 they divorced.
Mr. Parker was the sole proprietor of two businesses: Bob’s
Drywall and Parker Custom Homes. During 2002 petitioner was a
laborer and a bookkeeper for Mr. Parker’s drywall business.
During their marriage, petitioner and Mr. Parker maintained
a joint checking account from which they both paid household
bills. Among other things, petitioner made deposits into the
account, wrote checks for household, business, and personal
purposes, reviewed the monthly bank statements, and reconciled
the checkbook. Petitioner also opened the household mail. After
petitioner and Mr. Parker separated in October 2002, petitioner’s
access to the joint checking account apparently was restricted.
Petitioner and Mr. Parker timely filed a joint Federal
income tax return for 2002. Their return reflected an unpaid
income tax liability of $506.3 The tax liability resulted from
an underpayment of self-employment tax arising from Mr. Parker’s
sole proprietorships.
3
The original tax return filed with the Internal Revenue
Service (IRS) did not contain the signature page. Petitioner and
Mr. Parker subsequently filed a document confirming that they had
signed the return.
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Petitioner and Mr. Parker’s 2002 joint return was prepared
by a tax return preparer. Petitioner compiled the necessary
paperwork and gave it to the preparer. Petitioner faxed the
completed tax return to Mr. Parker for his signature and mailing.
Petitioner reviewed the return and was aware that there was a
reported unpaid tax liability. Petitioner and Mr. Parker did not
discuss payment of the tax liability at the time they filed their
return.
On November 12, 2003, less than 1 month after petitioner and
Mr. Parker filed their return, petitioner filed Form 8857,
Request for Innocent Spouse Relief, and Form 12510, Questionnaire
for Requesting Spouse. Petitioner requested equitable relief
under section 6015(f).
On or about May 25, 2004, Tax Examiner M. Wilce (Ms. Wilce)
evaluated petitioner’s request for relief under section 6015(f).
Among other things, Ms. Wilce determined that petitioner had
filed a joint return with Mr. Parker, had filed a timely claim
for relief under section 6015, had not yet paid the outstanding
tax liability for the year in issue, did not prepare a fraudulent
return, did not receive a fraudulent transfer of assets, and did
not receive disqualified assets. However, Ms. Wilce also
determined that petitioner had received a portion of the income
from which the liability arose and that petitioner was ineligible
for relief to the extent of the partial attribution. Ms. Wilce
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did not determine at that time what portion of the underpayment
was attributable to petitioner, but she did conclude that
petitioner was not entitled to relief under section 6015(f).
On or about July 19, 2004, petitioner appealed Ms. Wilce’s
denial of relief. On or about March 30, 2005, Appeals Officer
Leslie Hackmeister (Ms. Hackmeister) reviewed petitioner’s
appeal. In the case memorandum she prepared reflecting her
review, Ms. Hackmeister stated, among other things, that the
underpayment is attributable to Mr. Parker’s self-employment
income.
On March 30, 2005, respondent issued a Notice of
Determination denying petitioner’s request for relief under
section 6015(f). On June 24, 2005, a petition contesting
respondent’s determination was filed with this Court.
Discussion
In general, spouses who file a joint Federal income tax
return are jointly and severally liable for the full amount of
the tax liability shown or required to be shown on the return.
Sec. 6013(d)(3); Butler v. Commissioner, 114 T.C. 276, 282
(2000). However, a spouse may seek relief from joint and several
liability under section 6015 if certain requirements are met.
In this case petitioner seeks equitable relief under section
6015(f). Section 6015(f) provides:
SEC. 6015(f). Equitable Relief.--Under procedures
prescribed by the Secretary, if--
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(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.[4]
This Court is a court of limited jurisdiction, and it may
exercise its jurisdiction only to the extent authorized by
Congress. Sec. 7442; Moore v. Commissioner, 114 T.C. 171, 175
(2000); Naftel v. Commissioner, 85 T.C. 527, 529 (1985). On
December 20, 2006, Congress amended section 6015(e)(1) to provide
that this Court has jurisdiction over stand-alone section 6015(f)
cases.5 Tax Relief and Health Care Act of 2006, Pub. L. 109-432,
div. C, sec. 408(a), (c), 120 Stat. 3061, 3062.6 Respondent
4
Because petitioner seeks relief from an underpayment of tax
rather than understatements of tax, relief under subsecs. (b) and
(c) of sec. 6015 is not available to her. Sec. 6015(b) and (c);
see also Washington v. Commissioner, 120 T.C. 137, 145-147
(2003).
5
Sec. 408(c) of the Tax Relief and Health Care Act of 2006,
Pub. L. 109-432, div. C, 120 Stat. 3062, provides that “The
amendments made by * * * [sec. 408] shall apply with respect to
liability for taxes arising or remaining unpaid on or after [Dec.
20, 2006].”
6
Sec. 6015(e) now provides:
SEC. 6015(e). Petition for Review by Tax Court.--
(1) In general.--In the case of an individual
against whom a deficiency has been asserted and who
elects to have subsection (b) or (c) apply, or in the
(continued...)
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concedes that we have jurisdiction over this case under section
6015(e) as amended.
The Commissioner uses guidelines prescribed in Rev. Proc.
2003-61, 2003-2 C.B. 296, to determine whether a taxpayer
qualifies for relief from joint and several liability under
section 6015(f).7 We review the Commissioner’s determination
using an abuse of discretion standard. See Washington v.
Commissioner, 120 T.C. 137, 146 (2003); Butler v. Commissioner,
supra at 291-292. Under this standard of review, we defer 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). The
taxpayer requesting section 6015(f) relief bears the burden of
proof. See Rule 142(a); Jonson v. Commissioner, supra at 113.
6
(...continued)
case of an individual who requests equitable relief
under subsection (f)--
(A) In general.-- * * * the individual may
petition the Tax Court (and the Tax Court shall
have jurisdiction) to determine the appropriate
relief available to the individual under this
section * * * [Emphasis added.]
7
Rev. Proc. 2003-61, 2003-2 C.B. 296, supersedes Rev. Proc.
2000-15, 2000-1 C.B. 447, effective for requests for relief filed
on or after Nov. 1, 2003, and for requests for relief pending on
Nov. 1, 2003, for which no preliminary determination letter has
been issued as of that date. Rev. Proc. 2003-61, secs. 6 and 7,
2003-2 C.B. at 299.
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A. Rev. Proc. 2003-61, Sec. 4.01
Before the Commissioner will consider a taxpayer’s request
for relief under section 6015(f), the taxpayer must satisfy the
following seven threshold conditions listed in Rev. Proc. 2003-
61, sec. 4.01, 2003-2 C.B. at 297:
(1) The requesting spouse filed a joint return for
the taxable year for which he or she seeks relief.
(2) Relief is not available to the requesting
spouse under section 6015(b) or (c).
(3) The requesting spouse applies for relief no
later than two years after the date of the Service’s
first collection activity * * *
(4) No assets were transferred between the spouses
as part of a fraudulent scheme by the spouses.
(5) The nonrequesting spouse did not transfer
disqualified assets to the requesting spouse. * * *
(6) The requesting spouse did not file or fail to
file the return with fraudulent intent.
(7) The income tax liability from which the
requesting spouse seeks relief is attributable to an
item of the individual with whom the requesting spouse
filed the joint return (the “nonrequesting spouse”)
* * *
Review of the administrative record, particularly Ms.
Wilce’s workpaper and Ms. Hackmeister’s case memorandum, confirms
that petitioner satisfies each of these conditions. Petitioner
and Mr. Parker filed a joint Federal income tax return for 2002.
Relief is not available to petitioner under section 6015(b) or
(c) because relief under those subsections is available only with
respect to underreported liabilities; petitioner and Mr. Parker
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did not underreport their tax liability on their 2002 return.
Petitioner requested relief promptly after the return was filed.
Ms. Wilce concluded that there was no fraudulent transfer of
assets or transfer of disqualified assets to petitioner, and
there is no evidence in the record supporting a different
conclusion. Neither Ms. Wilce nor Ms. Hackmeister claim that
petitioner and Mr. Parker filed their 2002 return with a
fraudulent intent, and there is no evidence in the record
supporting such an intent. Finally, Ms. Hackmeister determined
that the income tax liability in question arose from Mr. Parker’s
sole proprietorship income, and the administrative record
overwhelmingly supports her conclusion.
We conclude that petitioner has satisfied the conditions in
Rev. Proc. 2003-61, sec. 4.01.
B. Rev. Proc. 2003-61, Sec. 4.02
1. In general
Rev. Proc. 2003-61, sec. 4.02(1), 2003-2 C.B. at 298,
provides that equitable relief will ordinarily be granted as to
unpaid liabilities if, in addition to the seven threshold
conditions, each of the following elements is satisfied:
(a) On the date of the request for relief, the
requesting spouse is no longer married to, or is
legally separated from, the nonrequesting spouse, or
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 of the request for relief.
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(b) On the date the requesting spouse signed the
joint return, the requesting spouse had no knowledge or
reason to know that the nonrequesting spouse would not
pay the income tax liability. The requesting spouse
must establish that it was reasonable for the
requesting spouse to believe that the nonrequesting
spouse would pay the reported income tax liability.
* * *
(c) The requesting spouse will suffer economic
hardship if the Service does not grant relief. * * *
Petitioner and Mr. Parker were separated at the time
petitioner filed her request for relief. The parties dispute
only whether petitioner had knowledge or reason to know that Mr.
Parker would not pay the reported tax liability and whether
petitioner would suffer economic hardship if relief were not
granted.
2. Knowledge or reason to know
This element is satisfied if the requesting spouse did not
know or have reason to know when she signed the return that the
taxes would not be paid. Rev. Proc. 2003-61, sec. 4.02(1)(b).
Accordingly, petitioner must establish that it was reasonable for
her to believe that Mr. Parker would pay the reported liability.
Petitioner was aware of the reported tax liability when she
signed the return. Petitioner also admitted that at the time she
signed the return she did not know whether Mr. Parker would pay
the outstanding balance and that no funds were available at that
time to pay the liability. Petitioner was aware that Mr. Parker
intended to file a petition in bankruptcy.
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While we are sympathetic to petitioner’s situation with her
former husband, we cannot find that respondent abused his
discretion in determining that petitioner had reason to know at
the time she signed the return that the tax liability would not
be paid. Petitioner has not established that it was reasonable
for her to believe Mr. Parker would pay the liability. We
conclude, therefore, that respondent did not abuse his discretion
in determining that petitioner did not satisfy the knowledge or
reason to know element of Rev. Proc. 2003-61, sec. 4.02, and thus
does not qualify for equitable relief under that section of the
revenue procedure.
C. Rev. Proc. 2003-61, Sec. 4.03
Where the requesting spouse fails to qualify for relief
under Rev. Proc. 2003-61, sec. 4.02, the Commissioner may
nonetheless grant relief under Rev. Proc. 2003-61, sec. 4.03,
2003-2 C.B. at 298-299. Rev. Proc. 2003-61, sec. 4.03, provides
that, where the seven threshold conditions have been satisfied
and the requesting spouse does not qualify for relief under Rev.
Proc. 2003-61, sec. 4.02, 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. 2003-61, sec. 4.03, contains a list of
factors that the Commissioner will take into account in
determining, on the facts and circumstances, whether to grant
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full or partial equitable relief under section 6015(f). As Rev.
Proc. 2003-61, sec. 4.03, makes clear, no single factor is
determinative in any particular case, all factors are to be
considered and weighed appropriately, and the listing of factors
is not intended to be exclusive.
Rev. Proc. 2003-61, sec. 4.03(2)(a), 2003-2 C.B. at 298-299,
lists the following factors that the Commissioner will weigh in
determining whether to grant equitable relief:
(i) Marital status. Whether the requesting spouse
is separated * * * or divorced from the nonrequesting
spouse. * * *
(ii) Economic hardship. Whether the requesting
spouse would suffer economic hardship (within the
meaning of section 4.02(1)(c) of this revenue
procedure) if the Service does not grant relief from
the income tax liability.
(iii) Knowledge or reason to know.
(A) Underpayment cases. * * * whether the
requesting spouse did not know and had no reason to
know that the nonrequesting spouse would not pay the
income tax liability.
* * * * * * *
(iv) 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. * * *
(v) Significant benefit. Whether the requesting
spouse received significant benefit (beyond normal
support) from the unpaid income tax liability * * *
(vi) 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
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following the taxable year or years to which the
request for relief relates.
Rev. Proc. 2003-61, sec. 4.03(2)(b), 2003-2 C.B. at 299,
lists the following two positive factors that the Commissioner
will weigh in favor of granting equitable relief:
(i) Abuse. Whether the nonrequesting spouse
abused the requesting spouse. * * *
(ii) Mental or physical health. Whether the
requesting spouse was in poor mental or physical health
on the date the requesting spouse signed the return or
at the time the requesting spouse requested relief.
* * *
We consider the factors below.
1. Marital status
Petitioner and Mr. Parker separated in October 2002 and
divorced in 2004. Both Ms. Wilce and Ms. Hackmeister admitted
that this factor weighs in favor of granting relief.
2. Economic hardship
Rev. Proc. 2003-61, sec. 4.02(1)(c), requires respondent to
apply the rules in sec. 301.6343-1(b)(4), Proced. & Admin. Regs.,
in making the determination of whether a requesting spouse will
suffer economic hardship. Sec. 301.6343-1(b)(4), Proced. &
Admin. Regs., provides that economic hardship is present if
satisfaction of the tax liability in whole or in part will render
a taxpayer unable to pay her reasonable basic living expenses.8
8
Sec. 301.6343-1(b)(4)(ii), Proced. & Admin. Regs., lists
factors that will be considered in determining a reasonable
(continued...)
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In November 2003, petitioner submitted a Form 12510 to
respondent. Petitioner reported on the Form 12510 monthly income
of $1,7109 and monthly expenses of $2,555. Petitioner’s stated
monthly expenses included housing, food, and utility expenses of
$2,107, transportation expenses of $133, and other expenses of
$315.
The administrative record establishes that petitioner was
the sole owner of the marital residence and jointly owned a
mobile home with Mr. Parker, that petitioner had significant
credit card debt, and that the mortgage company holding the
mortgage on the marital residence had begun foreclosure
proceedings against the marital residence at the time petitioner
filed her request for relief. The administrative record also
establishes that although petitioner was working two jobs in
2003, she could not pay her reasonable basic living expenses
without going further into debt.
Ms. Wilce determined that petitioner would not suffer
economic hardship because the Internal Revenue Service (IRS)
8
(...continued)
amount for basic living expenses. These factors include the
taxpayer’s age, employment status and history, ability to earn,
number of dependents, extraordinary circumstances, and any other
factor that the taxpayer claims bears on economic hardship and
brings to the attention of the director.
9
Petitioner’s Form 12510 is inconsistent with IRS documents
that show petitioner reported only a total of $3,339 in wage
income and $255 as Schedule C, Profit or Loss From Business,
income in 2003.
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computer records showed that petitioner had received a Form 1099-
MISC, Miscellaneous Income, reporting $127,932 of income during
2002. However, the Social Security number on the Form 1099-MISC
did not match petitioner’s Social Security number. Petitioner
learned of Ms. Wilce’s determination incorrectly attributing the
income from the Form 1099-MISC to petitioner. On December 2,
2004, petitioner faxed to Ms. Hackmeister an affidavit from Ryan
Scallon, the issuer of the Form 1099-MISC, stating that the form
was issued to C&C Contracting and not to petitioner or Mr.
Parker. Ms. Hackmeister erroneously concluded that the Social
Security number referenced in the fax matched petitioner’s Social
Security number and that the income had not been reported on the
2002 return.
We conclude that petitioner has established that she will
suffer economic hardship if she is not granted equitable relief.
This factor weighs in favor of granting relief.
3. Knowledge or reason to know
For the reasons stated in our analysis of this factor under
Rev. Proc. 2003-61, sec. 4.02, we conclude petitioner has failed
to establish that she did not have reason to know when the return
was filed that the tax liability shown as due would not be paid.
This factor weighs against granting relief.
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4. Nonrequesting spouse’s legal obligation
Petitioner and Mr. Parker’s divorce decree was not included
in the record, and petitioner did not testify to the contents of
it regarding the unpaid tax liability. Therefore, we cannot
determine which spouse had the legal obligation under the decree
to pay the outstanding tax liability. This factor is neutral.
5. Significant benefit
Both Ms. Wilce and Ms. Hackmeister admitted that petitioner
did not significantly benefit from the unpaid liability, and the
record does not reflect otherwise. This factor weighs in favor
of granting relief.
6. Compliance with income tax laws
Respondent does not appear to contend that this factor
applies, and he did not otherwise argue at trial that petitioner
did not make a good faith effort to comply with her Federal
income tax obligations in the years subsequent to 2002.
Moreover, both Ms. Wilce and Ms. Hackmeister noted that
petitioner met this requirement. Therefore, this factor weighs
in favor of granting relief.
7. Abuse/mental or physical health
Neither of these positive factors applies in this case.
Petitioner was not abused by Mr. Parker, and there is no evidence
in the administrative record that she suffered poor mental or
physical health.
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8. Liability attribution
Under Rev. Proc. 2000-15, sec. 4.03(1)(f) and (2)(a), 2000-1
C.B. 447, 449, the IRS considered whether the outstanding
liability was attributable to the requesting spouse or the
nonrequesting spouse when determining whether equitable relief
was appropriate. Although Rev. Proc. 2003-61, sec. 4.03, does
not list liability attribution as one of the factors for
consideration, we note that the list in Rev. Proc. 2003-61, sec.
4.03, is not exclusive.
The entire outstanding liability is attributable to self-
employment taxes arising from Mr. Parker’s self-employment income
from two sole proprietorships. None of the self-employment
income or self-employment taxes arising therefrom is attributable
to petitioner. This factor weighs in favor of granting relief.
D. Conclusion
At trial, petitioner’s testimony was consistent with her
assertions in the Form 8857, her responses to information
requests from respondent, and the statements outlined in the
revenue agent’s workpapers. Respondent has not challenged
petitioner’s truthfulness on these matters. Although we find
that petitioner had reason to know that the tax liability would
not likely be paid in light of Mr. Parker’s intent to file a
petition in bankruptcy, we nevertheless conclude that respondent
abused his discretion in determining that petitioner was not
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entitled to relief under section 6015(f) because all of the other
factors either weigh in favor of granting relief to petitioner or
are neutral.
To reflect the foregoing,
An appropriate order and
decision will be entered for
petitioner.