T.C. Summary Opinion 2007-111
UNITED STATES TAX COURT
CHRISTINE ANN ELLIOTT, Petitioner v.
COMMISSIONER OF INTERNAL REVENUE, Respondent
Docket No. 676-06S. Filed July 2, 2007.
Christine Ann Elliott, pro se.
Catherine G. Chang, for respondent.
PANUTHOS, Chief Special Trial 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.
Pursuant to section 7463(b), the decision to be entered is not
reviewable by any other court, and this opinion shall not be
treated as precedent for any other case. Unless otherwise
indicated, subsequent section references are to the Internal
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Revenue Code in effect for the year in issue, and all Rule
references are to the Tax Court Rules of Practice and Procedure.
This case involves petitioner’s election to seek relief from
joint and several liability for Federal income tax for the tax
year 2001. The issue for decision is whether petitioner is
entitled to relief under section 6015(b), (c), or (f).
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 the filing
of the petition, petitioner resided in Kentfield, California.
Petitioner has a history of temporal lobe epilepsy and is
borderline learning disabled in arithmetic. When petitioner was
17 years old, she underwent involuntary electric shock treatment
after her parents admitted her to a hospital. Petitioner alleges
that the electric shock treatment left her with dyslexia, short-
term and long-term memory loss, cognitive deficiencies, and
seizure disorders for which she has had to compensate for the
past 34 years.
Petitioner married Kirk Elliott in 1999. During tax year
2001, petitioner held an individual retirement account (IRA) in
her own name with the Resources Trust Company. Petitioner had
been married previously, and her first husband established the
account for her pursuant to their divorce settlement. During tax
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year 2001, petitioner and Mr. Elliott agreed that petitioner
would request an early IRA distribution. Mr. Elliott filled out
at least two forms requesting early distributions from
petitioner’s IRA. The forms indicated that petitioner elected to
not have Federal income tax withheld from the gross distribution
amount requested. Petitioner signed all of the forms requesting
early distributions from her IRA and during tax year 2001
received distributions totaling $25,249. Resources Trust Company
directly deposited the early IRA distributions into a bank
account jointly held by petitioner and Mr. Elliott. Petitioner
and Mr. Elliott filed a joint Federal income tax return for tax
year 2001 but did not report the early distributions from
petitioner’s IRA.1 Petitioner and Mr. Elliott filed for divorce
in May 2003, but at the time of trial, the divorce was not yet
final.
Although an Internal Revenue Service Form 8857, Request for
Innocent Spouse Relief, was not made a part of the record,
respondent does not deny that petitioner submitted a request for
relief. On October 21, 2005, respondent issued a Notice of
Determination denying petitioner’s request for relief under
section 6015(b), (c), and (f). On January 9, 2006, petitioner
1
There is no indication in the record whether a Notice of
Deficiency was issued, but petitioner does not contest the amount
of tax due or that it was properly assessed.
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filed with this Court a stand-alone petition contesting
respondent’s determination.2
Discussion
Generally, married taxpayers may elect to file a joint
Federal income tax return. Sec. 6013(a). Each spouse filing a
joint return is jointly and severally liable for the accuracy of
the return and the entire tax due for that year. Sec.
6013(d)(3). A spouse who has filed a joint return may, however,
seek relief from joint and several liability by following
procedures established in section 6015. Sec. 6015(a).
Under section 6015(a), a requesting spouse may seek relief
from liability under section 6015(b) or, if eligible, may
allocate liability according to the provisions under section
6015(c). If relief is not available under section 6015(b) or
(c), then an individual may seek equitable relief under section
6015(f). Section 6015(f) permits relief from joint and several
liability where “it is inequitable to hold the individual liable
for any unpaid tax or any deficiency (or any portion of either)”.
Except as otherwise provided in section 6015, petitioner bears
2
Sec. 6015(e) vests the Court with jurisdiction to review
an election for relief from joint and several liability arising
from a stand-alone petition. Cases brought under sec. 6015(e)
have become known as “stand alone” cases because only the right
to spousal relief is in issue, independent of any deficiency
proceeding. See Corson v. Commissioner, 114 T.C. 354, 363
(2000); Fernandez v. Commissioner, 114 T.C. 324, 329 (2000).
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the burden of proof. Rule 142(a); Alt v. Commissioner, 119 T.C.
306, 311 (2002), affd. 101 Fed. Appx. 34 (6th Cir. 2004).
1. Section 6015(b)
Section 6015(b) provides relief from joint and several
liability for tax (including interest, penalties, and other
amounts) to the extent that such liability is attributable to an
understatement of tax. To be eligible for relief, the requesting
spouse must satisfy the following five elements of section
6015(b)(1):
(A) a joint return has been made for a taxable
year;
(B) on such return there is an understatement of
tax attributable to erroneous items of 1 individual
filing the joint return;
(C) the other individual filing the joint return
establishes that in signing the return he or she did
not know, and had no reason to know, that there was
such understatement;
(D) taking into account all the facts and
circumstances, it is inequitable to hold the other
individual liable for the deficiency in tax for such
taxable year attributable to such understatement; and,
(E) the other individual [timely] elects (in such
form as the Secretary may prescribe) the benefits of
this subsection * * *.
With respect to the last three elements, petitioner is not
the “other individual” described in section 6015(b)(1). The IRA
was petitioner’s separate account, to which Mr. Elliott had no
access without petitioner’s signature. Petitioner admitted that
she signed the early distribution forms, and that the money was
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transferred from her individual IRA to her joint account with Mr.
Elliott. She knew of the transactions and did not ask Mr.
Elliott whether the amounts were reported on their joint Federal
income tax return. Petitioner cannot be granted relief for
understatements that are attributable to her own erroneous items.
See Hopkins v. Commissioner, 121 T.C. 73, 77 (2003). We agree
with respondent that petitioner is not entitled to relief under
section 6015(b).
2. Section 6015(c)
Section 6015(c) allows a taxpayer who is eligible and so
elects to limit his or her liability to the portion of a
deficiency that is properly allocable to the taxpayer as provided
in section 6015(d). Sec. 6015(c)(1). Generally, this avenue of
relief allows a spouse to elect to be treated as if a separate
return had been filed. Rowe v. Commissioner, T.C. Memo. 2001-
325. To be eligible for relief under section 6015(c), the
requesting spouse must be no longer married to, be legally
separated from, or have lived at least 12 months apart from the
individual with whom the tax return was filed. Sec.
6015(c)(3)(A)(i). Relief under section 6015(c) is not available,
however, to a taxpayer if it is shown that the taxpayer had
actual knowledge when signing the return of any “item” giving
rise to a deficiency. Sec. 6015(c)(3)(C). In the case of
omitted income, knowledge of the item includes knowledge of
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receipt of the income. See Reser v. Commissioner, 112 F.3d 1258,
1265 (5th Cir. 1997), affg. in part and revg. in part T.C. Memo.
1995-572; sec. 1.6015-3(c)(2)(i)(A), Income Tax Regs.
Petitioner and Mr. Elliott separated in 2003, and they had
lived apart for over 12 months at the time of the filing of the
petition. However, as noted above, the items giving rise to the
deficiency on the joint return are the unreported early
distributions from petitioner’s separate IRA. Petitioner allowed
Mr. Elliott to fill out the early distribution forms, petitioner
signed her name to the forms, and the distribution was deposited
into petitioner and Mr. Elliott’s joint bank account. Petitioner
admitted that she knew about the IRA withdrawals, and that she
discussed it with Mr. Elliott before they withdrew the amounts.
Petitioner argues that her cognitive deficiencies and
learning disabilities prevent her from understanding forms and
numbers, so she had to rely on others, including Mr. Elliott, to
prepare her tax returns and handle her finances. Petitioner
testified that Mr. Elliott filled out financial forms, and she
signed them, trusting that her husband was doing what was in her
best interest since she could not comprehend the forms. Even
though petitioner could not comprehend forms, she testified that
she asked Mr. Elliott questions to determine whether the amounts
on the return were correct. She admitted, however, that she did
not ask him whether the IRA distributions were reported on the
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return. The Court is sympathetic to petitioner’s situation, but
a spouse requesting relief under section 6015 has a duty of
inquiry. Butler v. Commissioner, 114 T.C. 276, 284 (2000).
Based on the foregoing, petitioner had actual knowledge of the
distribution from her IRA, see sec. 1.6015-3(c)(2)(i)(A), Income
Tax Regs., and this precludes the Court from granting her relief
under section 6015(c).
3. Section 6015(f)
Since petitioner is not entitled to relief under section
6015(b) or (c), we consider whether petitioner qualifies for
relief under section 6015(f). Section 6015(f)(1) provides that a
taxpayer may be relieved from joint and several liability if it
is determined, after considering all the facts and circumstances,
that it is inequitable to hold the taxpayer liable for the unpaid
tax or deficiency. This Court reviews the Commissioner’s denial
of relief pursuant to section 6015(f) under an abuse of
discretion standard. Fernandez v. Commissioner, 114 T.C. 324,
331 (2000); Butler v. Commissioner, supra at 287-292. Petitioner
bears the burden of proving that respondent’s denial of equitable
relief under section 6015(f) was an abuse of discretion. See
Rule 142(a); Alt v. Commissioner, supra at 311. Petitioner must
demonstrate that respondent exercised his discretion arbitrarily,
capriciously, or without sound basis in fact. Jonson v.
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Commissioner, 118 T.C. 106, 125 (2002), affd. 353 F.3d 1181 (10th
Cir. 2003).
As directed by section 6015(f), the Commissioner has
prescribed guidelines for determining whether a spouse qualifies
for relief under subsection (f). The applicable provisions are
found in Rev. Proc. 2003-61, 2003-2 C.B. 296, modifying Rev.
Proc. 2000-15, 2000-1 C.B. 447. According to Rev. Proc. 2003-61,
sec. 4.01, 2003-2 C.B. at 297 of the guideline, the requesting
spouse must satisfy seven conditions (threshold conditions)
before the Commissioner will consider a request for relief under
section 6015(f). The threshold conditions of this section are
stated in the conjunctive, and each condition must be satisfied
to be eligible to submit a request for equitable relief under
section 6015(f). Id.
Under Rev. Proc. 2003-61, sec. 4.01(7), the income tax
liability from which the requesting spouse seeks relief must be
attributable to an item of the individual with whom the
requesting spouse filed the joint return, unless one of four
stated exceptions applies. The only exception relevant to
petitioner’s case applies if the requesting spouse establishes
that he or she was the victim of abuse prior to the time the
return was signed, and that fear of retaliation prevented the
requesting spouse from challenging the treatment of items on the
return. Rev. Proc. 2003-61, sec. 4.01(7)(d), 2003-2 C.B. at 298.
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Petitioner alleges that Mr. Elliott was abusive, but the abuse
she reported was toward her daughter, and she was not aware of
the abuse until 2 years after the return at issue was signed.
Since the reported abuse does not meet the requirements of this
exception, and the disbursement from petitioner’s IRA is
attributable to her, we agree with respondent that petitioner has
not met the threshold requirements for relief found in Rev. Proc.
2003-61, sec. 4.01 of the applicable guidelines. Since
petitioner has not met the threshold requirements, we find that
respondent did not act arbitrarily, capriciously, or without
sound basis in fact, and therefore conclude that petitioner does
not qualify for relief under section 6015(f).
To reflect the foregoing,
Decision will be entered
for respondent.