T.C. Summary Opinion 2007-178
UNITED STATES TAX COURT
AMY A. CHRISTMAN, Petitioner v.
COMMISSIONER OF INTERNAL REVENUE, Respondent
Docket No. 11856-05S. Filed October 22, 2007.
Matthew T. Kelly, for petitioner.
Jack T. Anagnostis, for respondent.
COUVILLION, Special Trial Judge:1 This case was heard
pursuant to section 7463 of the Internal Revenue Code in effect
at the time the petition was filed.2 Pursuant to the provisions
1
With the consent of the parties, the Chief Judge
reassigned this case, after the death of Special Trial Judge
Carleton D. Powell, to Special Trial Judge D. Irvin Couvillion,
for disposition on the existing record.
2
Unless otherwise indicated, section references are to the
(continued...)
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of 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.
This case arises from a request for innocent spouse relief
under section 6015(f) with respect to petitioner’s 1998 and 1999
taxable years. No notice of deficiency was issued for either of
these years. Petitioner requested relief by filing Form 8857,
Request for Innocent Spouse Relief, for the years 1997, 1998, and
1999. In her application, petitioner sought relief under section
6015(f) and specifically stated she was not seeking relief under
section 6015(b) or (c). Respondent determined that petitioner
was not entitled to relief under section 6015(f); thus, the issue
is whether respondent’s denial of relief under section 6015(f)
was an abuse of discretion with respect to petitioner’s taxable
years 1998 and 1999.3
Background
The facts may be summarized as follows. At the time the
petition was filed petitioner resided in Temple, Pennsylvania.
2
(...continued)
Internal Revenue Code as amended, and all Rule references are to
the Tax Court Rules of Practice and Procedure.
3
The record is unclear as to the status of petitioner’s
request for relief for taxable year 1997. Neither the
preliminary determination letter nor the notice of determination
addressed any request for relief for taxable year 1997.
Moreover, in her petition to this Court, petitioner only
requested a review of the denial of relief for taxable years 1998
and 1999. The year 1997, therefore, is not before the Court.
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Petitioner is a high school graduate. Petitioner also
attended college but did not graduate from college. She and Mark
C. Christman (Mr. Christman) married on October 24, 1992, and had
one son. Petitioner moved out of the marital home sometime in
mid-to-late 1999 and opened separate bank accounts in her name.
She and Mr. Christman divorced on October 6, 2000.
Petitioner earned income during taxable years 1998 and 1999
from her employment with The Bon-Ton Stores, Inc.; Brooks
Brothers, Inc.; Eugene Davids Co., Inc.; Tutor Time; and York
Beauty Supply & Equipment Co., Inc. During the same years, Mr.
Christman was employed by local architects. Additionally, he
earned income as a draftsman for Draft Tech, Inc., a business he
wholly owned, the income and expenses of which were reported on
Schedule C, Profit or Loss From Business, on their joint income
tax returns for the years at issue.
In 2000, Mr. Christman approached petitioner on different
occasions to obtain her signature on the joint income tax returns
for 1996, 1997, 1998, and 1999. On July 7, 2000, petitioner and
Mr. Christman filed a joint return for 1998 reporting a tax
liability of $7,744. A payment of $744 was submitted with the
return. No notice of deficiency was issued by respondent for
taxable year 1998. Additions to tax were thereafter assessed for
1998 under sections 6651(a)(1) and (2) and 6654.
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On October 5, 2000, petitioner and Mr. Christman filed a
joint return for 1999, reporting a tax liability of $11,241 which
was paid in full at the time of filing the return. No notice of
deficiency was issued by respondent for taxable year 1999.
Additions to tax were assessed for 1999 under sections
6651(a)(1), (2), and 6654.
Petitioner contends that she did not know taxes were due and
owing for either of the years at issue because she did not review
the 1998 and 1999 returns. Moreover, petitioner claims that Mr.
Christman did not tell her there were any taxes due, and she had
no reason to believe that if there were taxes due Mr. Christman
would not pay them. She admits, however, that at the time she
signed the returns she believed there would be penalties or
additions to tax for not timely filing the returns.
Petitioner and Mr. Christman signed a postnuptial agreement
on August 14, 2000, to stipulate the terms of their divorce.
Neither this agreement nor the divorce decree addressed the
couple’s outstanding tax liabilities.
Petitioner submitted a Form 8857 on March 24, 2004,
requesting relief from joint and several liability for the years
1998 and 1999. Petitioner contends that Mr. Christman handled
their financial affairs after she left the marital home and that,
since 1994, a return preparer prepared all of their income tax
returns. On April 29, 2005, respondent issued a Notice of
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Determination Concerning Your Request for Relief under the
Equitable Relief Provision of Section 6015(f) denying petitioner
her request for relief from joint and several liability under
section 6015(f) for the years 1998 and 1999.
On June 27, 2005, the petition was filed with this Court
with respect to petitioner’s 1998 and 1999 taxable years.
Petitioner claims she is entitled to relief from joint and
several liability for those years under section 6015(f).
Pursuant to Rule 325 and King v. Commissioner, 115 T.C. 118
(2000), respondent served Mr. Christman with notice of this
proceeding and his right to intervene. Mr. Christman did not
file a notice of intervention and did not appear or participate
in the trial of this case.
Discussion
Generally, married taxpayers may elect to file a Federal
income tax return jointly. 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. Sec. 6013(d)(3). Under
certain circumstances, however, section 6015 provides relief to a
spouse from this general rule.4
4
Sec. 6015 applies to any liability for tax arising after
July 22, 1998, and to any liability for tax arising on or before
July 22, 1998, remaining unpaid as of such date. Internal
Revenue Service Restructuring and Reform Act of 1998, Pub. L.
105-206, sec. 3201(g), 112 Stat. 734, 740. The Tax Relief and
Health Care Act of 2006, Pub. L. 109-432, div. C, sec. 408, 120
(continued...)
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A taxpayer may be considered for relief under section
6015(f) when relief is not available under section 6015(b) or
(c).5 Sec. 6015(f)(2). 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. This Court reviews the Commissioner’s denial of relief
pursuant to section 6015(f) under an abuse of discretion
standard. Butler v. Commissioner, 114 T.C. 276, 287-292 (2000).
The Court defers 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). Whether the Commissioner’s determination constitutes
an abuse of discretion is a question of fact. Cheshire v.
Commissioner, 115 T.C. 183, 198 (2000), affd. 282 F.3d 326 (5th
Cir. 2002). The requesting spouse bears the burden of proving
4
(...continued)
Stat. 3061, amended sec. 6015(e)(1) to give the Tax Court
jurisdiction to determine the appropriate relief available to a
taxpayer under sec. 6015, including relief under sec. 6015(f) in
cases where no deficiency has been determined for the tax year.
The amendment applies with respect to liability for taxes arising
or remaining unpaid on or after Dec. 20, 2006, the date of
enactment, and thus it applies here. See Schmick v.
Commissioner, T.C. Memo. 2007-220 n.1.
5
A prerequisite to granting relief under sec. 6015(b) or
(c) is the existence of a tax deficiency or, as referred to in
various cases, an “understatement of tax”. Sec. 6015(b)(1)(B)
and (c)(1); Block v. Commissioner, 120 T.C. 62, 65-66 (2003).
That requirement precludes petitioner from seeking relief under
sec. 6015(b) or (c) for 1998 and 1999 because no deficiencies
were asserted for those years.
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that there was an abuse of discretion. Abelein v. Commissioner,
T.C. Memo. 2004-274.
The Commissioner has prescribed guidelines that are
considered in determining whether it is inequitable to hold a
requesting spouse liable for all or part of the liability for any
unpaid tax or deficiency. Rev. Proc. 2003-61, sec. 4.01, 2003-2
C.B. 296, 297, sets forth seven threshold conditions that the
requesting spouse must satisfy before the Commissioner will
consider a request for relief under section 6015(f).6 Respondent
does not dispute that petitioner has satisfied the seven
threshold conditions.
Where the requesting spouse satisfies the threshold
conditions, Rev. Proc. 2003-61, sec. 4.02, 2003-2 C.B. at 298,
lists factors to be considered in determining whether equitable
relief is warranted as to liability for underpayments of tax,
which is the situation in this case. Equitable relief under
section 6015(f) from liability for an underpayment of tax on a
joint return will ordinarily be granted by the Commissioner if
all three of the following criteria are met: (1) The requesting
spouse is divorced, legally separated, or has been physically
separated for 1 year from the nonrequesting spouse at the time
6
Rev. Proc. 2003-61, 2003-2 C.B. 296, which supersedes
Rev. Proc. 2000-15, 2000-1 C.B. 447, is effective for requests
for relief filed on or after Nov. 1, 2003, or requests for relief
pending on Nov. 1, 2003, for which no preliminary determination
letter has been issued as of that date. Petitioner’s request for
relief was submitted on Mar. 24, 2004. Accordingly, the
guidelines of Rev. Proc. 2003-61, supra, apply in this case.
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relief is requested; (2) the requesting spouse did not know or
have reason to know that the income tax liability would not be
paid at the time the joint return was signed; and (3) the
requesting spouse would, absent relief, suffer economic hardship.
Although petitioner was divorced from Mr. Christman at the
time relief was requested, the Court concludes on this record
that petitioner was aware of or had reason to know that the
income tax liability would not be paid at the time she signed the
return for taxable year 1998.7 Petitioner contends she was
unaware that there was a reported tax liability due for 1998. It
is well established that a spouse requesting relief under section
6015 has a duty of inquiry. Butler v. Commissioner, supra at
284. Furthermore, this Court has held that signing a return
imputes constructive knowledge of the contents of that return to
the signer. Simon v. Commissioner, T.C. Memo. 2005-220.
At trial, petitioner claimed she had no reason to know that
if taxes were due for 1998 Mr. Christman would not pay the amount
due at the time the return was filed. Following their failure to
timely file joint returns for 1996 through 1999, it is not
anomalous to presume that there would be taxes, additions to tax,
and/or interest due for those years. The Court does not find
7
At the time their joint income tax return for 1999 was
filed, the amount of tax shown as due was paid in full. Because
relief pursuant to Rev. Proc. 2003-61, sec. 4.02, 2003-2 C.B. at
298, requires an underpayment of tax, petitioner does not qualify
for relief under that section for the year 1999. See Knorr v.
Commissioner, T.C. Memo. 2004-212.
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petitioner’s testimony to be convincing, because, according to
her testimony, she was unaware that there was a tax due and owing
for 1998. At the very least, petitioner knew that failure to
timely file a return would result in penalties and additions to
tax. There is nothing in the record to indicate that petitioner
had reason to believe the tax liability or penalties for 1998
would be paid at the time the return was filed. The Court
concludes, on the record, that petitioner knew or had reason to
know that the tax liability for 1998 would not be paid at the
time the return was filed.
A taxpayer might experience economic hardship if he or she,
as a result of being held liable for a tax liability, would be
unable to pay basic reasonable living expenses. Sec. 301.6343-
1(b)(4)(i), Proced. & Admin. Regs. On the record of this case,
petitioner has not shown to the Court’s satisfaction that she
would experience economic hardship if she were forced to pay the
tax liability for 1998.
Because petitioner does not qualify for relief under Rev.
Proc. 2003-61, sec. 4.02, the Court next considers whether she is
entitled to relief under Rev. Proc. 2003-61, sec. 4.03, which
provides factors to be considered as to requests for relief under
section 6015 for spouses who filed a joint return and do not
qualify for relief under Rev. Proc. 2003-61, sec. 4.02. Rev.
Proc. 2003-61, sec. 4.03(2)(a), 2003-2 C.B. at 298, offers a
nonexclusive list of factors to be considered, including: (1)
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Marital status; (2) economic hardship; (3) no knowledge or reason
to know that the nonrequesting spouse would not pay the income
tax liability; (4) whether the nonrequesting spouse had a legal
obligation to pay the liability; (5) whether the requesting
spouse benefited significantly from the unpaid income tax
liability; and (6) whether the requesting spouse made a good
faith attempt to comply with the tax laws in subsequent years.
These factors are considered in determining whether there was an
abuse of discretion by respondent in denying equitable relief
under section 6015(f).
For a taxpayer who seeks relief from an underpayment of tax,
as in this case, Rev. Proc. 2003-61, sec. 4.03(2)(a)(iii)(A),
addresses whether the requesting spouse knew or had reason to
know that the underpayment would not be paid at the time the
return was filed. Petitioner contends she was unaware of a tax
liability for 1998. However, as noted earlier, petitioner and
Mr. Christman filed a joint return for 1998 on July 7, 2000, on
which there was a tax liability of $7,744 and on which a payment
of $744 was submitted with the return. Petitioner, therefore,
knew that there was an underpayment of tax for 1998 and knew that
such underpayment was not paid at the time the return was filed.
With respect to the additions to tax for 1998 and 1999,
petitioner must show that it was reasonable for her to believe
that Mr. Christman would pay the additions to tax at the time she
signed the returns. See, e.g., Knorr v. Commissioner, T.C. Memo.
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2004-212. When she signed the 1998 and 1999 joint income tax
returns in July and October 2000, respectively, petitioner was
aware that she and her former spouse had failed to timely file
and timely pay income taxes for 1996 through 1999. At no point
did she question Mr. Christman as to how and when the taxes and
any additions to tax would be paid. For these reasons, the Court
concludes that petitioner has not shown that it was reasonable
for her to believe that any additions to tax for 1998 and 1999
would be paid at the time she signed the joint income tax returns
for the years at issue, particularly since she had no reason to
believe that the taxes for those years would be paid at the time
the returns were filed.
Petitioner’s filing for divorce prior to requesting relief
under section 6015(f) favors granting her relief. Rev. Proc.
2003-61, sec. 4.03(2)(a)(i). Yet, in those cases where the
requesting spouse’s marital status favors granting relief, Rev.
Proc. 2003-61, sec. 4.03(2)(a)(ii), conditions that relief on a
showing that the requesting spouse will suffer economic hardship
in the absence of relief. Relief has been granted to taxpayers
who establish that they would suffer economic hardship by being
unable to afford basic living expenses in the absence of such
relief. See, e.g., Knorr v. Commissioner, supra; Foor v.
Commissioner, T.C. Memo. 2004-54; Ferrarese v. Commissioner, T.C.
Memo. 2002-249; August v. Commissioner, T.C. Memo. 2002-201; Rowe
v. Commissioner, T.C. Memo. 2001-325. Petitioner was gainfully
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employed during the years at issue and failed to establish that
she would be unable to pay basic living expenses if she were
required to pay the outstanding tax liabilities for 1998 and
1999.
Upon consideration of all of the facts and circumstances,
the Court holds that respondent’s determination to deny
petitioner relief under section 6015(f) was not an abuse of
discretion. Weighing all of the factors in this case both
supporting and opposing granting relief to petitioner, the Court
is satisfied that it is not inequitable to deny petitioner relief
under section 6015(f).
Decision will be entered
for respondent.