T.C. Summary Opinion 2007-124
UNITED STATES TAX COURT
VICTORIA K.M. FREULICH, Petitioner v.
COMMISSIONER OF INTERNAL REVENUE, Respondent
Docket No. 21827-05S. Filed July 23, 2007.
Victoria K.M. Freulich, pro se.
Robert V. Boeshaar, for respondent.
DEAN, Special Trial Judge: This case was heard pursuant to
the provisions of section 7463 of the Internal Revenue Code.
Unless otherwise indicated, all section references are to the
Internal Revenue Code in effect for the year at issue, and all
Rule references are to the Tax Court Rules of Practice and
Procedure. 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.
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Respondent determined for 2003 a deficiency in petitioner’s
Federal income tax of $505 and an accuracy-related penalty of
$101. Petitioner concedes the deficiency and penalty in this
case. The issues for decision are whether petitioner is entitled
to relief under section 6015(b) or (c) and whether respondent’s
determination that petitioner is not entitled to relief under
section 6015(f) is an abuse of discretion.
Background
The stipulation of facts and the exhibits received into
evidence are incorporated herein by reference. At the time the
petition in this case was filed, petitioner resided in Auburn,
Washington.
Petitioner and her husband, now deceased, electronically
filed a joint Form 1040, U.S. Individual Income Tax Return, for
2003. Petitioner worked as a cook for the Muckleshoot Indian
Nation Casino (Casino), where she also gambled. In 2003,
petitioner won $5,000 at the Casino for which she received a Form
W2-G, Certain Gambling Winnings. The gambling winnings were
deposited into petitioner and her husband’s joint bank account.
She did not report the income to her return preparer.
During 2003, petitioner also failed to report as income
interest of $27 and dividends of $17.
Petitioner’s husband passed away on September 19, 2004.
Petitioner filed her Form 12510, Questionnaire for Requesting
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Spouse (Used in Conjunction with Form 8857, Request for Innocent
Spouse Relief) on May 22, 2006. Respondent evaluated her request
for relief and determined that petitioner is not entitled to
relief from joint and several liability for the deficiency and
penalty.
Discussion
Relief From Joint and Several Liability Under Section 6015
Generally, married taxpayers may elect to file a joint
Federal income tax return. Sec. 6013(a). After making the
election, each spouse is jointly and severally liable for the
entire tax due. Sec. 6013(d)(3). A spouse may seek relief from
joint and several liability under section 6015(b), or if
eligible, may allocate liability for the item giving rise to the
deficiency under section 6015(c) .
Where an individual elects to have section 6015(b) or (c)
apply, or in the case of an individual who requests equitable
relief under section 6015(f), section 6015(e) gives jurisdiction
to the Court “to determine the appropriate relief available to
the individual under this section”.
Except as otherwise provided in section 6015, the taxpayer
bears the burden of proof to show her entitlement to relief.
Rule 142(a); Alt v. Commissioner, 119 T.C. 306, 311 (2002), affd.
101 Fed. Appx. 34 (6th Cir. 2004).
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Relief Under 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 one 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 [makes a valid
election] * * *.
Respondent concedes that petitioner has satisfied the
requirements under subparagraphs (A) and (B) of section
6015(b)(1). At issue are the requirements under subparagraphs
(C), (D), and (E) of section 6015(b)(1).
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Although there is, under section 6015(b)(1)(B), an
understatement of tax attributable to the erroneous items1 of “one
individual”, petitioner, “the other individual”, her deceased
husband, would be the one entitled to make the election under
section 6015(b)(1)(E), not petitioner. In addition, under
section 6015(b)(1)(C), the requesting spouse must establish that
in signing the return, he or she did not know or have reason to
know of the understatement.
Petitioner agrees that she knew that she had received the
gambling winnings and omitted interest and dividend income.
Petitioner contends, merely, that she “forgot to include the
items on her return.”
Where a spouse seeking relief has actual knowledge of the
underlying transaction that produced the omitted income, innocent
spouse relief is denied. Cheshire v. Commissioner, 115 T.C. 183,
192-193 (2000), affd. 282 F.3d 326 (5th Cir. 2002).
Since the items that were omitted were the income items of
petitioner herself, it would not be inequitable to hold her
liable for the understatement under section 6015(b)(1)(D).
The Court finds that petitioner has failed to satisfy the
requirements of section 6015(b)(1)(C), (D), and (E). Therefore,
petitioner is not entitled to relief under section 6015(b).
1
See sec. 1.6015-1(h)(4), Income Tax Regs., Erroneous Item.
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Relief Under Section 6015(c)
Section 6015(c) allows proportionate tax relief (if a timely
election is made) through allocation of the deficiency between
individuals who filed a joint return and are no longer married,
are legally separated, or have been living apart for a 12-month
period.
Petitioner’s husband passed away before she received the
statutory notice of deficiency and filed her election for relief
under section 6015. A widow or widower is treated as a taxpayer
who is no longer married. See Jonson v. Commissioner, 118 T.C.
106, 124 (2002), affd. 353 F.3d 1181 (10th Cir. 2003).
Therefore, petitioner is eligible to elect the application of
section 6015(c).
Relief under section 6015(c), however, is not available if
respondent 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) that is not allocable
to such individual. Sec. 6015(c)(3)(C); Hopkins v. Commissioner,
121 T.C. 73, 86 (2003); Cheshire v. Commissioner, supra at 193-
194. The knowledge requirement under section 6015(c)(3)(C) does
not require the requesting spouse to possess actual knowledge of
the tax consequences arising from the item giving rise to the
deficiency. Hopkins v. Commissioner, supra at 86; Cheshire v.
Commissioner, supra at 194; sec. 1.6015-3(c)(2), Income Tax Regs.
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Rather, the statute mandates only a showing that the requesting
spouse actually knew of the item on the return that gave rise to
the deficiency (or portion thereof), without regard as to whether
he knew of the tax consequences. Mitchell v. Commissioner, 292
F.3d 800, 805 (D.C. Cir. 2002), affg. T.C. Memo. 2000-332;
Cheshire v. Commissioner, supra.
The items giving rise to the deficiency are the gambling
winnings and dividend and interest income of petitioner, the
actual knowledge of which she admits. Therefore, petitioner is
not entitled to relief under section 6015(c).
Relief Under Section 6015(f)
Section 6015(f) grants the Commissioner discretion to
relieve an individual, where relief is not available under
section 6015(b) or (c), from joint liability if taking into
account all the facts and circumstances, it is inequitable to
hold the individual liable for any unpaid tax or deficiency.
Sec. 6015(f). A requesting spouse bears the burden of proving
that the Commissioner abused his discretion in denying the spouse
equitable relief from joint liability under section 6015(f).
Jonson v. Commissioner, supra at 114; Cheshire v. Commissioner,
supra at 198; Butler v. Commissioner, 114 T.C. 276, 292 (2000).
As previously discussed, petitioner is not entitled to
relief under section 6015(b) or (c). The parties dispute whether
it is inequitable to hold petitioner liable for the 2003
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deficiency.
As contemplated by section 6015(f), the Commissioner has
prescribed guidelines in Rev. Proc. 2003-61 to be used in
determining whether an individual qualifies for relief under that
section.2 Rev. Proc. 2003-61, sec. 4.01, 2003-2 C.B. 296, 297,
sets forth seven threshold conditions that must be satisfied
before the Commissioner will consider a request for equitable
relief under section 6015(f).
Condition seven of Rev. Proc. 2003-61, sec. 4.01, requires
that the income tax liability from which the requesting spouse
seeks relief is attributable to an item of the “nonrequesting
spouse”, i.e. petitioner’s husband, unless one of the enumerated
exceptions applies. None of the exceptions apply to petitioner.
Petitioner is therefore not entitled to relief under section
6015(f). Respondent’s determination that petitioner is not
entitled to relief under section 6015(f) is not an abuse of
discretion.
2
Rev. Proc. 2003-61, 2003-2 C.B. 296, supersedes Rev. Proc.
2000-15, 2000-1 C.B. 447. The guidelines set forth in Rev. Proc.
2003-61, supra, are effective for requests for relief filed on or
after Nov. 1, 2003, and for requests for relief pending as of
Nov. 1, 2003, for which no preliminary determination letter has
been issued as of Nov. 1, 2003. Rev. Proc. 2003-61, sec. 7,
2003-2 C.B. at 299.
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The Court holds that respondent did not err in denying
petitioner relief from joint and several liability under section
6015(b), (c), and (f) for the amounts set forth in his notice of
deficiency dated August 22, 2005.
To reflect the foregoing,
Decision will be entered
for respondent.