T.C. Memo. 2007-127
UNITED STATES TAX COURT
JANET MARIE WILSON, Petitioner, AND KENNETH E. WILSON, Intervenor
v.
COMMISSIONER OF INTERNAL REVENUE, Respondent
Docket No. 7509-05. Filed May 21, 2007.
Steven T. Barta, for petitioner.
Kenneth E. Wilson, pro se.
David Lau, for respondent.
MEMORANDUM FINDINGS OF FACT AND OPINION
HAINES, Judge: Respondent determined deficiencies in
petitioner and intervenor’s joint Federal income tax and
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accuracy-related penalties under section 6662(a) as follows:1
Year Deficiency Sec. 6662(a) Penalty
2001 $22,178 $4,436
2002 8,669 1,734
The sole issue for decision is whether petitioner is entitled to
relief from joint and several liability under section 6015(c) for
2001 and 2002 (the years in issue).
FINDINGS OF FACT
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 she filed her
petition, petitioner resided in Hawaii. At the time he filed his
notice of intervention, intervenor resided in Nevada.
Petitioner and intervenor were married on or about February
4, 1984. They legally separated in February 2003, and on
September 23, 2004, the Superior Court of Arizona, Maricopa
County, officially dissolved their marriage.
Throughout their marriage, intervenor physically and
verbally abused petitioner and petitioner’s son. During the
years in issue, the abuse included threats against petitioner’s
1
All section references are to the Internal Revenue Code,
as amended, and all Rule references are to the Tax Court Rules of
Practice and Procedure. All amounts are rounded to the nearest
dollar.
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and petitioner’s son’s lives, physical assaults, and manipulative
and controlling behavior.
During the years in issue, petitioner and intervenor
participated in Sign Sellers and Rocky Creations (the
businesses), which sold engraved stones and other items.
Petitioner designed the artwork that was etched onto the stones,
while intervenor maintained the business records and handled all
of the money. Occasionally, petitioner’s son worked for the
businesses and was paid on an hourly basis.
Petitioner and intervenor maintained at least five checking
accounts at various times during the years in issue, all of which
were used in the operation of the businesses. Intervenor had
signatory authority over four of the five checking accounts. The
fifth checking account (the Bank One account) was opened by
petitioner and petitioner’s son, and only they had signatory
authority. Intervenor instructed petitioner and petitioner’s son
to open the Bank One account. While intervenor did not have
signatory authority over the Bank One account, he exercised
complete control over the account. Intervenor instructed
petitioner what to deposit into the account and when. When
intervenor needed money, he instructed petitioner to sign a blank
check, and he filled in the rest.
With the aid of a tax return preparer, intervenor prepared
and filed joint Federal income tax returns for the years in
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issue. On the returns, intervenor indicated he was self-employed
and petitioner was a “homemaker”. On attached Schedules C,
Profit or Loss From Business, intervenor listed himself as the
sole proprietor of an engraving business, which he identified as
“Rocky Creations” on the 2002 Schedule C. On the Schedules C,
intervenor reported net profits from the business activity of
$255 and $6,953 for 2001 and 2002, respectively. Intervenor
reported total taxes of $538 and $982, respectively. Petitioner
did not participate in the making or filing of the returns, nor
did she review them prior to filing. Intervenor signed both his
and petitioner’s names on the returns. However, petitioner would
have signed the returns if intervenor had shown them to her and
asked her to sign.
On February 24, 2005, respondent issued petitioner and
intervenor a notice of deficiency. Respondent disallowed certain
claimed Schedule C expenses, increased Schedule C gross receipts
based on bank deposits and cash expenditures, and increased self-
employment tax. Respondent determined deficiencies in petitioner
and intervenor’s Federal income tax of $22,178 and $8,669 for
2001 and 2002, respectively. Respondent also determined
petitioner and intervenor were liable for accuracy-related
penalties under section 6662(a) of $4,436 and $1,734,
respectively.
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In response to the notice of deficiency, petitioner filed a
petition with this Court on April 22, 2005. Also on April 22,
2005, petitioner submitted to respondent a Form 8857, Request for
Innocent Spouse Relief (And Separation of Liability and Equitable
Relief), and a Form 12510, Questionnaire for Requesting Spouse.
On July 12, 2005, intervenor filed a notice of intervention
and objected to petitioner’s being relieved of liability under
section 6015.2
OPINION
Petitioner does not dispute the deficiencies and penalties
determined by respondent for the years in issue. Instead, she
seeks relief from joint and several liability under section
6015(c). Respondent agrees that petitioner is entitled to relief
from the entire joint tax liability under section 6015(c).3
However, as previously mentioned, intervenor objects to
petitioner’s being relieved of liability under section 6015.
2
On March 17, 2005, intervenor filed a separate petition
in response to the notice of deficiency. See Wilson v.
Commissioner, docket No. 5184-05S. In his petition, intervenor
sought a redetermination of the deficiencies determined by
respondent and requested relief from liability under sec. 6015.
3
Petitioner also argues, and respondent agrees, that if
she is not entitled to relief under sec. 6015(c), then she is
entitled to relief under sec. 66(c). Because we find petitioner
is entitled to relief under sec. 6015(c), we do not address
petitioner’s alternative claim under sec. 66(c).
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Section 6015(e)(4) grants the nonelecting spouse
(intervenor) some participatory entitlement in an action to
determine the electing spouse’s (petitioner’s) right to relief
from joint and several liability pursuant to section 6015. Rule
325; Corson v. Commissioner, 114 T.C. 354, 364-365 (2000). By
exercising that right, intervenor became a party to this case.4
Tipton v. Commissioner, 127 T.C. 214, 217 (2006). Therefore, in
light of intervenor’s opposition to petitioner’s being granted
relief, we shall proceed to examine the requirements of section
6015(c) to decide whether petitioner is entitled to relief under
this subsection.
As a prerequisite to relief under section 6015(c), the
requesting spouse must be legally separated or no longer married
to the nonrequesting spouse at the time the request for relief is
made. Sec. 6015(c)(3)(A)(i)(I). The request for relief under
section 6015(c) may be made at any time after a deficiency for
such year is asserted, but no later than 2 years after the date
on which the Commissioner has begun collection activities with
respect to the requesting spouse. Sec. 6015(c)(3)(B).
Petitioner and intervenor were divorced on September 23, 2004,
4
However, as the intervening party, intervenor may not
enlarge the issues or alter the nature of this proceeding. See
Tipton v. Commissioner, 127 T.C. 213, 217 (2006). This
proceeding concerns only whether petitioner is entitled to relief
from joint and several liability. We do not consider arguments
raised by intervenor regarding the underlying liability or his
entitlement to innocent spouse relief.
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and petitioner submitted the Form 8857 shortly after her receipt
of the notice of deficiency. Therefore, petitioner is eligible
to request relief under section 6015(c).
In general, section 6015(c) allows proportionate relief from
joint and several liability by relieving the requesting spouse
from liability for items giving rise to a deficiency that would
have been allocable to the nonrequesting spouse had they filed
separate returns. See sec. 6015(c)(1); see also sec.
6015(d)(3)(A). Thus, we must determine whether the items giving
rise to the deficiencies in this case are allocable to petitioner
or intervenor.
The items giving rise to the deficiencies, including the
unreported gross receipts, related to the operation of the
businesses. Section 1.6015-3(d)(2)(iii), Income Tax Regs.,
provides that omitted items of business income are allocated to
the spouse who owned the business. Petitioner and respondent
agree that all items giving rise to the deficiencies are
allocable to intervenor because intervenor was the true owner of
the businesses. Intervenor argues that the unreported gross
receipts are allocable to petitioner.5
5
Other items giving rise to the deficiencies include the
disallowed Schedule C expenses and the self-employment taxes.
Intervenor does not address these items on brief. We assume
that, since intervenor listed himself as the sole proprietor on
the Schedules C on which the expense deductions were claimed and
because he identified himself as “self-employed” while he
(continued...)
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While the record is unclear on this point, intervenor
alleges that respondent determined the unreported gross receipts
by analyzing deposits made into the Bank One account. Intervenor
alleges that the Bank One account was petitioner’s “secret bank
account” and that, because only petitioner and petitioner’s son
had signatory authority over the account, he “did not know and
did not have reason to known [sic] of the unreported income of
her secret bank account.” Intervenor’s allegations are against
the manifest weight of the evidence.6
Although petitioner provided services for the businesses
and opened the Bank One account in her and her son’s name, it is
clear that intervenor maintained control of the businesses and
the Bank One account at all times. Intervenor was extremely
abusive and demanded to have absolute authority over all
financial aspects of the marriage and the businesses. He did not
allow petitioner to review business records, nor did he allow her
to review the tax returns for the years in issue. This pattern
5
(...continued)
identified petitioner as “homemaker”, intervenor concedes that
any deficiencies arising from the disallowed Schedule C expenses
and the increased self-employment taxes are allocable to him.
6
It is worth noting that, while intervenor appeared at
trial, he did not testify, nor did he offer any evidence outside
of the stipulation of facts. Instead, in his opening brief,
which he titled “Intervenor’s Brief and Affidavit”, intervenor
attempted to testify. Pursuant to Rule 143(b), statements in
briefs do not constitute evidence, and we give such statements
made by intervenor no consideration.
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also held true with respect to the Bank One account. Even though
the account was opened in petitioner’s name and she, not
intervenor, had signatory authority, intervenor exercised
complete control over the account. He told petitioner what to
deposit into that account and when. He instructed petitioner to
sign blank checks, which he later filled in. Because of the
severity of the abuse, petitioner was under intervenor’s absolute
control, such that petitioner believed that if she disobeyed
intervenor’s instructions, her and her son’s lives would be in
jeopardy.
We find that, on the basis of intervenor’s control over
petitioner and all aspects of the businesses, he was the true
owner of the businesses. Our finding is consistent with the
Schedules C prepared by intervenor, on which he listed himself as
the sole proprietor of an unnamed engraving business in 2001 and
as the sole proprietor of Rocky Creations in 2002. Thus, all
items relating to the operation of the businesses, including the
understatement of gross receipts, are allocable to intervenor.
See sec. 1.6015-3(d)(2)(iii) and (iv), Income Tax Regs.
Even if the requesting spouse otherwise qualifies for relief
under section 6015(c), relief is not available if the
Commissioner demonstrates that the requesting spouse had actual
knowledge, at the time the return was signed, of any item giving
rise to a deficiency (or portion thereof). Sec. 6015(c)(3)(C);
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King v. Commissioner, 116 T.C. 198, 203 (2001). The “knowledge
standard” for purposes of section 6015(c)(3)(C) “‘is an actual
and clear awareness (as opposed to reason to know) of the
existence of an item which gives rise to the deficiency (or
portion thereof).’” King v. Commissioner, supra at 203 (quoting
Cheshire v. Commissioner, 115 T.C. 183, 195 (2000), affd. 282
F.3d 326 (5th Cir. 2002)). “‘In the case of omitted income * *
*, the electing spouse must have an actual and clear awareness of
the omitted income.’” Id. Respondent concedes that he cannot
demonstrate petitioner had actual knowledge of the items giving
rise to the deficiencies. However, if intervenor offers
sufficient evidence that petitioner had “actual knowledge” of the
omitted gross receipts, then petitioner should not be entitled to
relief under section 6015(c).
Intervenor alleges that petitioner had actual knowledge of
the omitted gross receipts because she controlled the Bank One
account. As discussed above, intervenor controlled the Bank One
account, not petitioner. Additionally, intervenor controlled all
of the business records, prepared the tax returns for the years
at issue, did not allow petitioner to review the tax returns, and
forged petitioner’s signature on the tax returns. We find that
petitioner had no actual knowledge of the omitted gross
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receipts.7 Accordingly, we hold that petitioner is entitled to
relief from joint and several liability under section 6015(c) for
the years in issue.
In reaching our holding herein, we have considered all
arguments made, and, to the extent not mentioned above, we
conclude that they are moot, irrelevant, or without merit.
To reflect the foregoing,
Decision will be
entered for petitioner.
7
Even if petitioner had actual knowledge, the regulations
would excuse her from disqualification based on actual knowledge
because of the abuse present in her relationship with intervenor.
See sec. 1.6015-3(c)(2)(v), Income Tax Regs.