T.C. Summary Opinion 2008-69
UNITED STATES TAX COURT
LINDA C. RICE, Petitioner v.
COMMISSIONER OF INTERNAL REVENUE, Respondent
Docket No. 9281-06S. Filed June 19, 2008.
Trapper Stewart and Amy Kingston (specially recognized),
for petitioner.
Fred E. Green, Jr., for respondent.
SWIFT, Judge: This case was heard pursuant to the provisions
of section 7463 of the Internal Revenue Code in effect when 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.
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The issue for decision is whether petitioner is entitled to
relief from joint and several liability under section 6015(f)
with respect to Federal income taxes relating to 1998 and 1999.
Unless otherwise indicated, all section references are to
the Internal Revenue Code.
Background
Some of the facts have been stipulated and are so found.
At the time the petition was filed, petitioner resided in
Nevada.
In the early 1980s and after two semesters at the University
of Texas, petitioner attended and completed cosmetology school.
Since then, petitioner has been a cosmetologist, and at the time
of trial petitioner was working 20 hours per week.
In 1985, petitioner married Ronald Rice (Rice). During
their marriage, petitioner and Rice had two children together.
Until 1997 petitioner and Rice lived in Texas; thereafter they
lived in Nevada. On September 11, 2002, petitioner and Rice were
divorced.
During most of their 17-year marriage, Rice was employed as
an insurance agent with a health insurance broker. In the mid-
1990s, Rice became a self-employed health insurance broker.
After moving to Nevada in 1997, Rice maintained in Texas his
insurance business, and he employed in Texas a secretary to
manage his Texas office.
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During their marriage, petitioner and Rice maintained a
joint bank account from which family bills were paid, but each
also maintained separate bank accounts. Occasionally petitioner
deposited her cosmetology earnings into the joint bank account.
Generally, Rice or his secretary in Texas paid the bills and
handled the family finances.
Generally, Rice opened the mail and kept to himself all
bills. Rice maintained his own post office box at which he
regularly received mail.
During the years in issue, Rice never informed petitioner of
any financial problems relating to the family, and petitioner
never inquired of Rice as to the status of the family finances.
In 1998, petitioner’s father lent to petitioner and to Rice
funds to make delinquent mortgage payments on their Nevada
residence and to pay several of petitioner and Rice’s joint
credit card debts. After petitioner’s father’s loan, petitioner
thought that the couple’s financial affairs were back in order.
Thereafter, however, without petitioner’s knowledge Rice
incurred additional credit card debt, and in 2001 Rice filed for
bankruptcy. During Rice’s bankruptcy proceeding, petitioner
became aware that taxes reported due on some of petitioner and
Rice’s filed joint Federal income tax returns had not been paid.
As a result of petitioner and Rice’s divorce in 2002,
petitioner was given custody of both children. Under the divorce
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decree between petitioner and Rice, Rice was to pay to petitioner
$1,000 a month for child support, and Rice was to pay the
couple’s outstanding Federal income taxes attributable to Rice’s
separate income.1 At the time of trial, one of the children,
age 16, lived with and was financially supported by petitioner.
Petitioner and Rice filed their joint Federal income tax
returns late for 1994 through 1997, each return reporting tax due
which was not paid.
For 1998 and 1999, either Rice’s secretary or Rice prepared
petitioner and Rice’s joint Federal income tax returns.
Petitioner did not review the joint Federal income tax returns,
and petitioner did not ask Rice whether and how the taxes
reported due thereon would be paid; but petitioner “signed where
* * * [Rice] told * * * [her] to sign.”
On October 18, 1999, petitioner and Rice filed their 1998
joint Federal income tax return reporting a tax due of $3,453.
On October 19, 2000, petitioner and Rice filed their 1999 joint
Federal income tax return reporting a tax due of $1,466. Those
taxes were not paid at the time of filing either return.
1
The parties agree that the taxes in issue are
attributable to Rice’s separate income.
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In 2003 and 2004, petitioner overpaid to respondent a total
of $2,363 with respect to petitioner’s 2002 and 2003 individual
Federal income taxes. After respondent’s application of
petitioner’s 2002 and 2003 tax overpayments to petitioner and
Rice’s outstanding 1998 and 1999 joint Federal income taxes and
after several subsequent payments, $444 and $1,172 remain due on
petitioner and Rice’s Federal income taxes for 1998 and 1999.
On May 31, 2005, petitioner submitted to respondent a
Form 8857, Request for Innocent Spouse Relief, in which
petitioner requested a refund of taxes she paid and relief from
the remaining unpaid taxes due on petitioner and Rice’s 1998 and
1999 joint Federal income taxes.
On June 28, 2005, petitioner submitted to respondent
Form 12510, Questionnaire for Requesting Spouse, relating to
petitioner’s request for relief from joint liability, on which
petitioner stated that: (1) Until 2001 when Rice filed the
bankruptcy proceeding, petitioner was unaware of any unpaid
Federal income taxes; (2) petitioner’s monthly income was $2,868,
including $1,000 in child support from Rice (which she rarely
received); (3) petitioner’s monthly household expenses were
$2,868; and (4) petitioner spent $365 a month on recreation.
On or around September 30, 2005, respondent mailed to
petitioner a preliminary determination letter denying
petitioner’s request for innocent spouse relief. Respondent
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explained that because petitioner and Rice’s 1994 through 1997
joint Federal income tax returns reported taxes due which were
not paid with the filing of the tax returns, petitioner should
have known that the taxes reported due on their 1998 and 1999
joint Federal income tax returns also would not be paid.
Respondent also explained that because petitioner claimed
unnecessary monthly recreation expenses of $365, petitioner would
not suffer economic hardship if not granted the requested relief.
On November 9, 2005, petitioner submitted to respondent Form
12509, Statement of Disagreement, on which petitioner noted that:
(1) Petitioner had additional monthly household expenses;
(2) petitioner’s parents owned the residence in which petitioner
lived; (3) only when Rice paid to petitioner child support did
petitioner pay to her parents monthly rent; (4) Rice was 2 months
behind in child support; and (5) petitioner’s parents paid her
life insurance premiums and her recreation expenses.
Subsequently, petitioner also submitted bank statements from her
individual bank account which showed transfers between
petitioner’s individual bank account and other unidentified
savings and business checking accounts.
On March 9, 2006, respondent issued a notice of
determination denying petitioner’s request for relief.
For 2002 and subsequent years, petitioner has been in
compliance with the Federal income tax laws.
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Discussion
Generally, taxpayers filing joint Federal income tax returns
are jointly liable for taxes reported due thereon. Sec.
6013(d)(3). However, equitable relief from joint liability for
tax underpayments and a refund of taxes paid may be available to
a spouse where it would be inequitable to hold the spouse liable.
Sec. 6015(f)(1), (g)(1).
Rev. Proc. 2003-61, sec. 4.03(2), 2003-2 C.B. 296, 298, sets
forth facts to consider in reviewing requests for section 6015(f)
equitable relief. No one fact controls. Id.
With regard to whether petitioner would suffer economic
hardship, bank statements show transfers between petitioner’s
separate bank account and other accounts. Funds in these other
accounts may represent additional capital available to petitioner
to pay her basic living expenses. Absent more specific and
detailed evidence regarding her income, assets, and expenses,
petitioner has failed to provide a complete picture of her
financial situation and has not established that she would suffer
economic hardship if she were denied equitable relief from the
taxes in question.
Petitioner appears to have the ability to work more than 20
hours a week and to earn more income. On the record before us
petitioner has not established that she does not have the
ability, time, or resources to earn more income. Petitioner has
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not established that she would suffer economic hardship if not
granted relief.
With regard to whether petitioner had reason to know of the
underpayments of taxes reported due on the 1998 and 1999 joint
Federal tax returns petitioner and Rice filed, petitioner
generally had a “duty of inquiry” to verify that the reported
taxes for 1998 and 1999 were to be paid with the filing of the
tax returns. See Butler v. Commissioner, 114 T.C. 276, 284
(2000). Petitioner is not relieved of this duty of inquiry
simply because Rice controlled the preparation and filing of the
tax returns. See Hayman v. Commissioner, 992 F.2d 1256, 1262
(2d Cir. 1993), affg. T.C. Memo. 1992-228.
The record establishes that petitioner, at the time she
signed the 1998 and 1999 joint Federal income tax returns, was
aware that: (1) Rice’s Texas secretary had not been paying some
bills; and (2) petitioner and Rice needed petitioner’s father’s
loan to avoid foreclosure on their residence and to pay joint
credit card debt.
We conclude that at the time she signed the 1998 and 1999
joint Federal income tax returns petitioner had reason to know
that Rice would not and did not pay the taxes reported due
thereon.
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Other facts in this case generally are neutral. The record
does not establish whether petitioner received significant
benefit from the unpaid income taxes and whether petitioner was
subject to abuse from Rice, and no facts indicate that
petitioner’s mental or physical health was poor. See Rev.
Proc. 2003-61, sec. 4.03(2)(b)(i) and (ii), 2003-2 C.B. at 299.
Under petitioner and Rice’s divorce decree, Rice was
responsible for paying the taxes reported due for the years in
issue. However, if petitioner had reason to know, as she did,
that Rice would not and did not pay the taxes relating to
petitioner and Rice’s 1998 and 1999 joint Federal income tax
returns, this fact is neutral. See id. sec. 4.03(2)(a)(iv),
2003-2 C.B. at 298.
We are sympathetic to petitioner’s plea for relief.
Nevertheless, respondent’s denial to petitioner of equitable
relief under section 6015(f) is sustained.
To reflect the foregoing,
Decision will be entered for
respondent.