T.C. Summary Opinion 2008-49
UNITED STATES TAX COURT
ANDREA C. CASULA, Petitioner v.
COMMISSIONER OF INTERNAL REVENUE, Respondent
Docket No. 3385-05S. Filed May 5, 2008.
Paul Kalinich (specially recognized), for petitioner.
Mayer Silber, for respondent.
GOLDBERG, 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 Revenue Code in effect for
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the years in issue, and all Rule references are to the Tax Court
Rules of Practice and Procedure.
This cases arises from petitioner’s request for relief from
joint income tax liability for the taxable year 2000. A notice
of deficiency was not issued. Petitioner filed Form 8857,
Request for Innocent Spouse Relief (And Separation of Liability
and Equitable Relief), seeking relief under section 6015(f).
Respondent denied petitioner’s request, and the sole issue for
decision is whether respondent abused his discretion.
Background
The stipulation of facts and the attached exhibits are
incorporated herein by reference. At the time the petition was
filed, petitioner resided in Illinois.
Petitioner married Christopher Casula (Mr. Casula) on April
23, 1963. On the day of the trial--April 23, 2007--petitioner
and Mr. Casula (the Casulas) were celebrating their 44th wedding
anniversary.
From 1963 through 1983, Mr. Casula worked for Montgomery
Ward. During this time, he received his M.B.A. from the Kellogg
School of Management at Northwestern University. Petitioner was
not employed outside of the home between 1963 and 1983.
Mr. Casula ended his employment with Montgomery Ward in 1983
and began working as vice president for a Montgomery Ward
subsidiary that same year. Mr. Casula was employed in this
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capacity until approximately 1987, when he decided to start his
own Internet-based customer service company.
At or around the time that Mr. Casula left Montgomery Ward
petitioner entered the workforce, first with Northern Trust Bank
and then with the firm of Marsh & McLennan. Petitioner has
worked for Marsh & McLennan for the past 20 years. The Casulas’
tax return for 2000 lists petitioner’s job title as “executive”.
In 2000 Mr. Casula began experiencing business setbacks that
prevented him from taking any salary whatsoever. In order to
help provide capital for his operation, Mr. Casula sought
assistance from two personal funding sources; namely, employee
stock held by petitioner in Marsh & McLennan and Mr. Casula’s
section 401(k) account.
At Mr. Casula’s request, petitioner sold a portion of her
Marsh & McLennan stock in 2000 for $16,375. During the same
year, Mr. Casula took an early distribution of $53,680 from his
section 401(k) account. Mr. Casula used the proceeds of these
transactions for his business.
Mr. Casula’s business continued to experience financial
difficulties throughout 2001. His difficulties were compounded
by a series of medical problems that affected him and both of his
parents. Mr. Casula eventually decided to cease business
operations in December 2001. From 2001 through 2006 Mr. Casula
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was unemployed and seeking work. He presently works for a
Washington, D.C.-based nonprofit organization.
The Casulas had an accountant prepare their 2000 Federal
income tax return. They filed a joint 2000 Form 1040, U.S.
Individual Income Tax Return on April 13, 2002. The Casulas
reported total income of $120,978 from the following sources:
(1) $50,304 of wages, salaries, tips, etc.; (2) $454 of ordinary
dividends; (3) a $162 State tax refund; (4) $16,375 of capital
gain; (5) a $51,659 IRA distribution; and (6) $2,023 of pensions
and annuities. From their $120,977 of adjusted gross income the
Casulas subtracted $19,168 of itemized deductions and $5,600 of
exemption deductions to arrive at $96,209 of taxable income,
which resulted in a $19,981 tax. After adding a $4,413 10-
percent additional tax for an early IRA distribution, the total
tax reported due was $24,394. After they applied $4,954 in total
payments, their return reported $19,440 tax due, but they
remitted zero. Respondent accepted the return and assessed
additions to tax for late filing and failure to pay and interest
on the balance due. As of March 27, 2007, the total unpaid
liability for taxable year 2000 is $19,986.65. Petitioner
submitted her Form 8857 on August 6, 2003, and respondent denied
her request for relief on November 17, 2004.
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Discussion
Except as otherwise provided under section 6015, petitioner
bears the burden of proof with respect to her entitlement to
relief under section 6015. See Rule 142(a); Alt v. Commissioner,
119 T.C. 306, 311 (2002), affd. 101 Fed. Appx. 34 (6th Cir.
2004).
Section 6013(d)(3) provides that if a joint return is filed,
the tax is computed on the taxpayer’s aggregate income, and
liability for the resulting tax is joint and several. See also
sec. 1.6013-4(b), Income Tax Regs. Relief may be granted under
section 6015 under limited circumstances.
Generally, in order to obtain relief from joint and several
liability a spouse must qualify under section 6015(b) or, if
eligible, allocate liability under section 6015(c). The parties
agree that petitioner is not entitled to seek relief under
section 6015(b) or (c). If relief is not available under section
6015(b) or (c), a spouse may seek equitable relief under section
6015(f). Fernandez v. Commissioner, 114 T.C. 324, 329-331
(2000); Butler v. Commissioner, 114 T.C. 276, 287-292 (2000).
The Internal Revenue Service (IRS) may relieve an individual
from joint and several liability under section 6015(f) if, taking
into account all the facts and circumstances, it is inequitable
to hold the taxpayer liable for any unpaid tax or deficiency and
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she or he does not qualify for relief 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.1
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
than 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
spouse; (6) the requesting spouse did not file or fail to file
the return with fraudulent intent; and (7) absent enumerated
1
Rev. Proc. 2000-15, 2000-1 C.B. 447, was superseded by Rev.
Proc. 2003-61, 2003-2 C.B. 296, which 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. Although
petitioner’s application for relief was filed on Sept. 12, 2003,
it was still pending on Nov. 1, 2003. The preliminary
determination letter was issued on Nov. 17, 2004.
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exceptions, the liability from which relief is sought is
attributable to an item of the nonrequesting spouse. Respondent
argues that because part of the unpaid liability stems from
petitioner’s sale of her Marsh & McLennan stock, this last
threshold requirement has not been met. We agree. Where as here
the requesting spouse might fail to qualify for relief under Rev.
Proc. 2003-61, sec. 4.01, the Court, for the sake of
completeness, will nevertheless examine whether we may grant
relief under Rev. Proc. 2003-61, sec. 4.03, 2003-2 C.B. at 298.
Rev. Proc. 2003-61, sec. 4.03(2), 2003-2 C.B. at 298, 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
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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
signing the return or requesting relief. Rev. Proc. 2003-61,
supra, 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.
The Casulas are still married, and therefore petitioner
fails to meet the first factor.
With respect to the second factor, petitioner must show that
she 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 was silent as to how
respondent’s denial of her request for relief would result in
economic hardship. She is gainfully employed as an executive
with Marsh & McLennan. The Court fails to see, and petitioner
has neither raised as an issue nor established, that she would
suffer economic hardship if her request for relief from joint
liability were denied.
As to the third factor, as discussed earlier petitioner sold
her Marsh & McLennan stock in 2000. Petitioner sold the stock at
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the request of her husband, and therefore she had knowledge of
the sale as well as the distribution taken from her husband’s
section 401(k) account. She also testified that she had actual
knowledge of all of the items reported on the Casulas’ 2000 tax
return. Rev. Proc. 2003-61, sec. 4.03, specifically states that
actual knowledge by the 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 the Casulas are still married, the fourth factor is
inapplicable.
As to the fifth factor, we have insufficient evidence to
determine whether petitioner received a substantial benefit when
her husband purportedly used the proceeds of the sale of her
Marsh & McLennan stock or his IRA distribution to help keep his
business afloat. We are convinced that petitioner did not have
access to Mr. Casula’s business funds, although she did have
access to the couple’s personal checking account and there is
evidence that both of these funds--the proceeds from the stock
sale and the IRA distribution--were distributed to Mr. Casula’s
business through the couple’s personal account. We also
recognize that by using these funds to keep his business afloat
Mr. Casula prevented the couple from losing their home or other
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personal assets. 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.
As to the seventh factor, abuse, petitioner has offered no
evidence that she suffered any abuse at the hands of her husband.
Likewise, and 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 affected her
ability to pay her Federal income tax obligation for the year in
issue. As these last two factors weigh only in favor of, and not
against, relief, they are neutral. 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
relief, the Court holds that there was no abuse of discretion by
respondent in denying relief to petitioner under section 6015(f).
Decision will be entered
for respondent.