T.C. Summary Opinion 2007-132
UNITED STATES TAX COURT
WEBBER DOUGLAS GILMER, Petitioner,
AND MINNIE PAYTON, Intervenor v.
COMMISSIONER OF INTERNAL REVENUE, Respondent
MINNIE RUTH PAYTON, f.k.a. MINNIE R. GILMER, Petitioner,
AND WEBBER DOUGLAS GILMER, Intervenor v.
COMMISSIONER OF INTERNAL REVENUE, Respondent
Docket Nos. 12669-05S, 18048-05S. Filed July 30, 2007.
Webber Douglas Gilmer, pro se.
Minnie Payton, pro se.
Charles J. Graves, for respondent.
GOLDBERG, Special Trial Judge: These consolidated cases
were heard pursuant to the provisions of section 7463 of the
Internal Revenue Code in effect at the time the petitions were
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filed. Pursuant to section 7463(b), the decisions to be entered
are 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
Revenue Code in effect for the year in issue, and all Rule
references are to the Tax Court Rules of Practice and Procedure.
In a joint notice of deficiency mailed to petitioners,
respondent determined a deficiency in petitioners’ 2001 Federal
income tax of $11,747 and an accuracy-related penalty of
$2,349.40 pursuant to section 6662(a).
Each petitioner filed a separate petition. Webber Douglas
Gilmer’s (petitioner) petition seeks a redetermination of the
deficiency and the accuracy-related penalty, and his amended
petition seeks relief from joint and several liability on their
joint return for 2001 pursuant to section 6015. Minnie Ruth
Payton’s (Ms. Payton) petition also seeks relief from joint and
several liability on their joint return for 2001. Each
petitioner filed a notice of intervention in the other’s case.
When these cases were called for trial, the parties in each
filed a stipulation of settled issues. In the stipulation,
petitioners stipulated a deficiency for 2001 in the amount of
$5,722, and an accuracy-related penalty of $1,144. Further, Ms.
Payton, at trial, conceded her claim for relief from joint and
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several liability, both in her case and as intervenor in Mr.
Gilmer’s case.
After the stipulations and Ms. Payton’s concession, the
remaining issue before this Court is whether petitioner is
entitled to relief from joint and several liability under section
6015(b), (c), or (f).
Background
Some of the facts are stipulated. The stipulated facts and
the exhibits received into evidence are incorporated herein by
reference. At the time that his petition was filed, Mr. Gilmer
resided in Kansas City, Missouri.
During the taxable year in issue, Mr. Gilmer was married to
Ms. Payton. There were no children born of the marriage.
Petitioner and Ms. Payton separated sometime in 2001 and divorced
in 2004. Petitioner is employed as a schoolteacher.
Petitioner and Ms. Payton filed a joint 2001 Federal income
tax return. Mr. Gilmer prepared the joint income tax return
reporting all sources of income, itemized deductions, and
Schedule C, Profit or Loss From Business, and Schedule E,
Supplemental Income and Loss. On their joint return, petitioners
reported losses on Schedules C and E. The Schedule C business
activity, known as World Works Diversified, encompassed two
separate lines of business: the selling of hats, flags, and other
Western-themed novelties, and an educational consulting activity.
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The Schedule E activity related to rental property held by
petitioners in Grandview, Missouri. In the notice, respondent
disallowed certain claimed Schedule C and E expenses, disallowed
certain itemized deductions claimed on Schedule A, Itemized
Deductions, and determined that petitioners had failed to report
income received from the aforementioned rental property and an
annuity.
In his petition, Mr. Gilmer requested relief under section
6015 on the grounds that his wife “used voodoo to trigger an IRS
audit of their 2001 tax return” and that “she promised to have
[him] killed” if he did not sign the joint return that “he
prepared with her assistance.” Although petitioner has fully
stipulated a deficiency of $5,722,1 as well as the imposition of
the accuracy-related penalty, for purposes of his request for
relief under section 6015, he disputes his knowledge “of the
unreported income at issue in this case.”
Discussion
Generally, spouses filing joint Federal income tax returns
are jointly and severally liable for the taxes due thereon. Sec.
6013(d)(3). Section 6015 provides three avenues for relief from
that liability to a taxpayer who has filed a joint return: (1)
Section 6015(b) allows relief for understatements of tax
1
We note that this amount is slightly less than one-half of
the total amount of deficiency. Although the record is devoid of
the reasoning behind this stipulation, petitioners each
stipulated a deficiency in this amount.
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attributable to certain erroneous items on a return; (2) section
6015(c) provides relief for a portion of an understatement of tax
to taxpayers who are separated or divorced; and (3) section
6015(f) more broadly confers on the Secretary discretion to grant
equitable relief to taxpayers who otherwise do not qualify under
section 6015(b) or (c).
The first avenue for relief is section 6015(b). Under
section 6015(b), the Court may grant a taxpayer full or
apportioned relief from joint and several liability for an
understatement of tax on a joint return attributable to erroneous
items of the other spouse if the taxpayer establishes that in
signing the return he “did not know, and had no reason to know”
of the understatement. Sec. 6015(b)(1)(C), (2).
At the outset, we note that petitioner testified in detail
with respect to the Schedule C business activity reported on the
2001 joint return. With respect to the remaining items that
respondent disallowed in the notice (Schedules C and E expenses,
certain Schedule A deductions), petitioner testified that he was
aware of all of the items listed as expenses or claimed as
itemized deductions on the 2001 joint return.
Petitioner argues that he is entitled to relief under
section 6015 because Ms. Payton failed to disclose to him income
received from all of the couple’s Schedule C business activities
in 2001, and that he, in turn, did not report that income on
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their joint return for that year. However, petitioner’s
testimony is not relevant to the matter before this Court, as the
unreported income stems from petitioners’ rental property and an
annuity and not, as petitioner believes, from the Schedule C
activity.
Mr. Gilmer testified as to the couple’s business activity
during the year in issue. He admitted that he kept records for
all World Works Diversified activities and knew all of the
general details with respect to these activities with the
exception of the educational consulting activity, which he
claimed was under the sole purview of Ms. Payton. As previously
stated, petitioner testified that he prepared the 2001 tax return
in question and reported all of the expenses and claimed
deductions at issue in these cases. The detailed information
that petitioner provided this Court about the couple’s business
activities in 2001 illustrates to us that petitioner was, in
fact, aware of all income from the couple’s various business
endeavors.
Ms. Payton credibly testified that Mr. Gilmer was aware of
and participated in all of the couple’s business endeavors during
the year in issue. We believe Ms. Payton’s testimony that
petitioner had knowledge and overall oversight of all the
couple’s business activity and records pertaining to such
activity in 2001.
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Simply put, petitioner was fully aware of all aspects of the
couple’s business activity in 2001. Accordingly, because
petitioner knew and had reason to know of all of the claimed
business expenses and income related to the Schedule C activity
for the year in issue, we hold that he is not entitled to relief
under section 6015(b).
The second avenue for relief from joint and several
liability lies in section 6015(c). Section 6015(c) affords
proportionate relief to the requesting spouse through allocation
to the responsible party. 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 no longer be married to, or must be legally separated
from, the individual with whom the tax return was filed and must
have elected the applicability of section 6015(c) not later than
2 years after the date on which collection activity began. Sec.
6015(c)(3). Furthermore, and perhaps most important to the
present facts, relief under section 6015(c) is not available to a
taxpayer if it is shown that the taxpayer had actual knowledge
when signing the return of any “item” giving rise to the
deficiency. Sec. 6015(c)(3)(C).
Petitioner is now divorced from Ms. Payton, and the divorce
decree was finalized before petitioner filed a petition with this
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court. Accordingly, the remaining issue is whether petitioner
had no actual knowledge of the income item leading to the
underpayment.
Based on our previous discussion of the facts and the
evidence presented in these cases, we believe that petitioner had
actual knowledge of all items of income received by the couple in
2001. Moreover, we again reiterate that petitioner did not deny
his knowledge of the items of unreported income at issue in these
cases.
As to the other items at issue, petitioner stated that he
had knowledge of the deductions claimed on the Schedule A, and
expenses reported on the Schedules C and E, as well as all
activity and accounts pertaining to World Works Diversified. The
majority of the deficiency at issue stems from respondent’s
denial of the expenses reported on Schedule C. Again, petitioner
testified that he knew about and believed in the veracity of all
items reported on the Schedule C for 2001 when he prepared it.
Therefore, because petitioner had actual knowledge of all of the
items that respondent disallowed and because he prepared the 2001
joint return at issue with this knowledge, we find that he is not
eligible for relief under section 6015(c).
Because petitioner is not eligible for relief under section
6015(b) and (c), we finally consider the equitable relief
provisions of section 6015(f). Section 6015(f) provides, in
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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).
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 deficiency.2
Rev. Proc. 2003-61, sec. 4.01, 2003-2 C.B. at 297, provides the
following seven threshold conditions that must be satisfied
before a request for relief will be considered: (1) The
requesting spouse filed a joint return for the year for which
relief is sought; (2) relief is not available under section
6015(b) or (c); (3) the application for relief is made no later
that 2 years after the date of the Commissioner’s first
collection activity; (4) no assets were transferred between
spouses as part of a fraudulent scheme; (5) the nonrequesting
spouse did not transfer disqualifying assets to the requesting
2
Rev. Proc. 2000-15, 2000-1 C.B. 447, was superseded by Rev.
Proc. 2003-61, 2003-2 C.B. 296, and is effective as to requests
for relief filed on or after Nov. 1, 2003, and for requests for
relief pending on Nov. 1, 2003, as to which no preliminary
determination letter had been issued as of that date.
Petitioner’s application for relief was filed after Nov. 1, 2003,
on July 11, 2005.
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spouse; (6) the requesting spouse did not file or fail to file
the return with fraudulent intent; and (7) absent enumerated
exceptions, the liability from which relief is sought is
attributable to an item of the nonrequesting spouse. Respondent
here concedes that petitioners meet these seven threshold
conditions.
Rev. Proc. 2003-61, sec. 4.03(2), 2003-2 C.B. at 298, then
lists the eight nonexclusive factors that the Commissioner will
consider in determining whether, taking into account all the
facts and circumstances, it is inequitable to hold the requesting
spouse liable for all or part of the deficiency, and full or
partial equitable relief under section 6015(f) should be granted.
These nonexclusive factors include whether: (1) The requesting
spouse is separated or divorced from the nonrequesting spouse;
(2) the requesting spouse will suffer economic hardship without
relief; (3) the requesting spouse did not know or have reason to
know of the item giving rise to the deficiency; (4) the
nonrequesting spouse had a legal obligation to pay the
outstanding liability; (5) the requesting spouse received a
significant benefit from the item giving rise to the deficiency;
(6) the requesting spouse has made a good faith effort to comply
with income tax laws in subsequent years; (7) the requesting
spouse was abused by the nonrequesting spouse; and (8) the
requesting spouse was in poor mental or physical health when
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signing the return or requesting relief. Rev. Proc. 2003-61,
sec. 4.03(2), further provides that no single factor will be
determinative, but that all relevant factors will be considered.
We will now consider petitioner’s request in the light of these
relief factors.
In this case, petitioner divorced Ms. Payton in 2000;
therefore, he satisfies the first factor. With respect
to the second factor, petitioner must show that he would be
unable to pay basic reasonable living expenses if relief were not
granted. See Monsour v. Commissioner, T.C. Memo. 2004-190.
Being unable to pay basic reasonable living expenses would amount
to economic hardship. Sec. 301.6343-1(b)(4)(i), Proced. & Admin.
Regs. Petitioner has alleged that denial of his request for
relief would result in economic hardship for his family “for the
next 140 years.” He is gainfully employed as a schoolteacher and
has no dependents. The Court fails to see, and petitioner has
neither raised as an issue nor established, that he would suffer
economic hardship if his request for relief from joint liability
were denied.
As to the third factor, as discussed earlier, petitioner had
actual knowledge of all of the claimed Schedules C and E business
and rental expenses, rental income, and itemized deductions when
he completed the 2001 income tax return. Rev. Proc. 2003-61,
sec. 4.03, specifically states that actual knowledge by the
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requesting spouse of the item giving rise to the deficiency is a
strong factor weighing against relief. This strong factor may be
overcome only if the factors in favor of equitable relief are
particularly compelling. We conclude that they are not.
As to the fourth factor, the Judgment of Dissolution of
Marriage states that petitioner “shall pay * * * and hold [Ms.
Payton] harmless from the payment of * * * any federal, state,
and local tax obligations * * * for the joint return for the tax
year 2001.” Petitioner asks this Court to disregard this
language, however, on the grounds that “there is no evidence that
[he] entered in the correct numbers into Turbo Tax” and that “he
even signed the return.” First, we fail to see how petitioner’s
arguments are relevant to the obligation imposed on him by the
Judgment. Moreover, petitioner’s statements contradict his
admission that he prepared and signed the return at issue.
Second, under Rev. Proc. 2003-61, sec. 4.03 (2)(a)(iv), if a
divorce decree or judgment places an obligation to pay taxes on
the requesting spouse, then that fact weighs against granting him
relief. Here, the Judgment specifically designates
responsibility for any deficiency for the couple’s 2001 Federal
income tax return to petitioner, and we find that this factor
strongly favors denying petitioner relief.
As to the fifth factor, petitioner received a substantial
benefit when he received a refund in the amount of $8,861 for
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2001. When specifically questioned about the refund at trial,
petitioner neither confirmed nor denied that he had received the
refund. Petitioner included his personal checking account number
on the return for direct deposit of the refund. Petitioner
provided no credible evidence to show that Ms. Payton either had
access to or withdrew the refund from this account. Moreover, we
find Ms. Payton’s testimony credible that the refund was
deposited to petitioner’s account alone and that she neither had
access to this account nor did she withdraw the funds in any
other way. The Court is therefore convinced that the substantial
benefit factor weighs against granting relief.
The sixth factor concerns compliance with income tax laws
and, particularly, the good faith efforts of the requesting
spouse in subsequent years. Rev. Proc. 2003-61, sec.
4.03(2)(a)(vi), 2003-2 C.B. at 299. With respect to this
inquiry, there is no evidence outside of the year at issue.
Accordingly, we find this factor neutral to our decision.
As to the seventh factor, abuse, petitioner has maintained
from the inception of his case that he is entitled to relief
based solely on the numerous wrongs allegedly done to him by Ms.
Payton including: Mental abuse, physical abuse, extortion,
bribery, voodoo, falsification of police reports, kidnaping,
larceny, and theft. Contrary to petitioner’s statements, Ms.
Payton testified that it was petitioner, not she, who was
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abusive, and that petitioner had been arrested and put on
probation as a result of his assaulting her. Petitioner admitted
that he had been put on probation for assaulting Ms. Payton and
did not submit any evidence showing that the probation imposed
was improper. Petitioner failed to credibly corroborate any of
the allegations which he made regarding Ms. Payton’s behavior,
and he did not explain how his accusations related to the
deficiency at issue. Finally, we note that there is nothing in
the Judgment of Dissolution of Marriage relating to abuse on the
part of either party. Accordingly, we find that the lack of
credible evidence on the issue of abuse weighs strongly against
granting relief.
Finally, as to the final factor, whether the requesting
spouse seeking relief was in poor mental or physical health when
signing the return, there is nothing in the record to show that
petitioner suffered from any ailment that would have impacted
upon his ability to pay his Federal income tax obligation for the
year in issue. As this factor weighs only in favor of, and not
against, relief, we consider it neutral to our present inquiry.
Id. sec. 4.03(2)(b)(ii), 2003-2 C.B. at 299.
Accordingly, since none of the relevant factors identified
in the pertinent revenue procedure weigh in favor of granting
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relief, the Court holds that there was no abuse of discretion by
respondent in denying relief to petitioner under section 6015(f).
Decisions will be entered in
each case for respondent in
the amounts of $5,722 for the
deficiency and $1,144 for the
accuracy-related penalty.