T.C. Memo. 2008-211
UNITED STATES TAX COURT
KATHY LORRAINE STOLKIN, Petitioner v.
COMMISSIONER OF INTERNAL REVENUE, Respondent
Docket No. 5203-06. Filed September 4, 2008.
Kathy Lorraine Stolkin, pro se.
Steven M. Roth, for respondent.
MEMORANDUM FINDINGS OF FACT AND OPINION
KROUPA, Judge: This case arises from a request for relief
from joint and several liability under section 6015(f) for the
year 1993.1 Respondent denied petitioner’s request for relief,
and petitioner timely filed a petition. The issue for decision
1
All section references are to the Internal Revenue Code,
unless otherwise indicated.
2
is whether petitioner is entitled to relief from joint and
several liability under section 6015(f). We hold that she is
not.
FINDINGS OF FACT
Some of the facts have been stipulated and are so found.
The stipulation of facts and the accompanying exhibits are
incorporated by this reference. Petitioner resided in California
at the time she filed the petition.
Petitioner married Mr. Stolkin in 1981. They had one son in
1982 and a second son in 1985. The Stolkins enjoyed a relatively
lavish lifestyle, with live-in maids as well as pool and grounds
help. Mr. Stolkin earned over $100,000 a year as a pilot for
Federal Express, formerly known as the Flying Tigers, and had
separate trust fund and oil income.
The Stolkins’ only bank account was a joint checking account
into which Mr. Stolkin would transfer funds. Petitioner paid all
the household expenses from the joint checking account. In
addition, she would pay all the invoices for any items Mr.
Stolkin had purchased. Petitioner admitted that Mr. Stolkin was
a compulsive spender and a shopaholic. She worried about his
spending because she knew that they did not have the income to
cover all their expenses and his purchases. Mr. Stolkin
purchased guns, a gun safe, a customized motor home, and, at one
3
point, purchased a new truck every few months. He made no
efforts to conceal his excessive purchases from petitioner.
The Stolkins experienced financial difficulties because
their expenses generally exceeded their income. The couple sold
their $2.2 million Beverly Hills home in 1990 and relocated to a
$900,000 home in Ojai, California, to reduce costs. They used
$500,000 of the proceeds from the Beverly Hills sale as a down
payment (and thus had $500,000 of equity) in the Ojai house. The
house was titled in the names of both petitioner and Mr. Stolkin.
The Stolkins continued to experience financial difficulties after
their move to Ojai. Mr. Stolkin’s spending habits exacerbated
the Stolkins’ financial problems and strained their marriage.
The couple received a $220,000 distribution from Mr.
Stolkin’s individual retirement account (IRA) in 1993, and
petitioner was aware of this. She discussed the distribution
with Mr. Stolkin before they received the money, and she used the
money to pay the expenses that were necessary to maintain the
comfortable lifestyle to which the Stolkins had grown accustomed.
The Stolkins’ marriage seemed to be plagued with financial
problems, however, and eventually they filed for bankruptcy in
June 1994.2
2
Mr. Stolkin continued to fail to make mortgage payments
and the Stolkins’ Ojai home was foreclosed after 1994.
4
The Stolkins filed a joint Federal income tax return for
1993 on October 16, 1994, approximately 4 months after filing
bankruptcy.3 The return for 1993 showed an $81,559 tax
underpayment that was attributable, in part, to the $220,000 IRA
distribution. Petitioner knew that there was an underpayment for
which she was liable, but petitioner did not assist with
preparation of the return, nor did she discuss the return with
Mr. Stolkin.
The Stolkins divorced in June 1995. The California divorce
court ordered Mr. Stolkin to pay petitioner $4,500 in monthly
spousal support and a separate amount for child support.
Petitioner was earning $1,000 per month in wages at that time.
In addition, petitioner received half of her husband’s Federal
Express pension and will be entitled to between $900 and $1000
per month from the pension when she reaches the age of 59½ in
2009. Mr. Stolkin also agreed to hold petitioner harmless from
the Federal income tax liability for 1993 as part of the divorce
settlement.
Petitioner filed a request for section 6015 relief of
$55,473 in 2004, claiming that a denial of relief would be
inequitable and would impose undue hardship on her. Petitioner
asserted that most of the tax liability was attributable to her
3
The Stolkins were granted two extensions for filing the
return for 1993.
5
ex-husband’s separate property and that at the time the return
was filed, petitioner reasonably believed her ex-husband would
pay the tax. Petitioner further asserted that it would be
inequitable to hold her liable for the underpayment when her ex-
husband earned far more than petitioner’s $60,000 salary and when
petitioner had mortgage payments to make while her ex-husband
lived in property owned by his mother. At the time she filed the
request for relief, petitioner owned a town house valued at
$500,000 with $80,000 in equity and leased a BMW at $600 per
month. Petitioner was also attending law school. Respondent
denied petitioner’s request for relief, and petitioner filed a
stand-alone petition to this Court.
Petitioner failed to timely file a return for 1997.
Petitioner’s ex-husband has not filed a tax return for the past
12 years.
OPINION
We are asked to decide whether respondent erred in denying
petitioner relief from an unpaid tax liability that was reported
some 4 short months after the Stolkins filed for bankruptcy.
Petitioner argues that, although she was aware there was an
underpayment, she reasonably believed that Mr. Stolkin would pay
the underpayment as the taxes had always been paid in the past.
Petitioner further argues that it is inequitable to hold her
6
liable when the underpayment was attributable to her ex-husband
and her ex-husband had the means to pay it.
Only section 6015(f) applies as this case involves an
underpayment of taxes shown on a joint return for 1993.4 The
Commissioner has the discretion to relieve the spouse or former
spouse of joint liability if, taking into account all the facts
and circumstances, it is inequitable to hold that spouse liable
for any deficiency or unpaid tax. Sec. 6015(f); sec. 1.6015-
4(a), Income Tax Regs.
We begin with whether we have jurisdiction. This Court has
jurisdiction to determine whether section 6015(f) relief is
warranted after a request for relief has been denied by the
Commissioner. See sec. 6015(e)(1). The Court may consider
evidence outside the administrative record when determining
whether relief should be granted. Porter v. Commissioner, 130
T.C. __ (2008).
The Commissioner has outlined procedures for determining
whether a requesting spouse qualifies for equitable relief under
section 6015(f). See Rev. Proc. 2003-61, 2003-2 C.B. 296. The
4
Married taxpayers who elect to file a joint return are
jointly and severally liable for the entire tax due. See sec.
6013(d)(3). A spouse or former spouse may petition the
Commissioner for relief from joint and several liability in
certain circumstances. See sec. 6015(a). In cases involving an
underpayment of tax, as here, sec. 6015(b) and (c) does not apply
but equitable relief may be available under subsec. (f). Sec.
1.6015-4, Income Tax Regs.; Rev. Proc. 2003-61, sec. 2.04, 2003-2
C.B. 296, 297.
7
requesting spouse must meet seven threshold conditions before the
Commissioner will consider a request for relief. Rev. Proc.
2003-61, sec. 4.01, 2003-2 C.B. at 297. The parties agree that
petitioner has met the preliminary requirements for relief.
I. Safe Harbor for Section 6015(f) Relief
We now turn to whether petitioner satisfies the three
conditions of a safe harbor under section 6015(f) that the
Commissioner has established. See Gonce v. Commissioner, T.C.
Memo. 2007-328; Billings v. Commissioner, T.C. Memo. 2007-234;
Rev. Proc. 2003-61, sec. 4.02, 2003-2 C.B. at 298. Equitable
relief will ordinarily be granted if the requesting spouse
fulfills all three conditions of the safe harbor. The parties
agree that petitioner satisfies the condition that she is no
longer married to Mr. Stolkin. Id. sec. 4.02(1)(a). In dispute
is whether (a) petitioner at the time of signing the return had
no knowledge or reason to know that Mr. Stolkin would not pay the
tax liability, and (b) petitioner would suffer economic hardship
if relief is not granted. See id. sec. 4.02(1)(b) and (c). We
address these two conditions in turn to determine whether
petitioner comes within the safe harbor.
A. Petitioner Had Knowledge or Reason To Know That Mr.
Stolkin Would Not Pay the Liability
Respondent argues that it was not reasonable for petitioner
to think that Mr. Stolkin would pay the tax only 4 months after
8
filing for bankruptcy. We agree. Petitioner had reason to
believe at the time she signed the return that her ex-husband
would not pay the joint income tax liability. Moreover, we have
consistently found that a requesting spouse’s knowledge of the
couple’s financial difficulties deprives the requesting spouse of
reason to believe that his or her ex-spouse will pay the tax
liability. Gonce v. Commissioner, supra; Butner v. Commissioner,
T.C. Memo. 2007-136.
The Stolkins’ financial difficulties throughout their 14-
year marriage should have put petitioner on notice that Mr.
Stolkin would not pay the tax liability. Mr. Stolkin did not
hide his shopaholic tendencies from petitioner. Moreover,
petitioner was aware that the couple’s expenses exceeded their
income because she paid the household expenses and all the bills,
including bills for Mr. Stolkin’s “toys.” We agree with
respondent that petitioner’s testimony that she believed her ex-
husband would pay the tax liability is disingenuous given
petitioner’s knowledge of the Stolkins’ financial difficulties
and her ex-husband’s financial irresponsibility.
We also reject petitioner’s argument that it was reasonable
for her to assume that Mr. Stolkin would pay the tax liability
with the $500,000 of equity they had in the Ojai house. First,
the relevant date for determining the requesting spouse’s
knowledge is the time at which he or she signs the tax return.
9
See Rev. Proc. 2003-61, sec. 4.02(1)(b). Second, any refinancing
would have to have involved petitioner because her name was on
the title to the Ojai property. Petitioner did not provide any
evidence that she assisted her ex-husband with obtaining a home
equity loan. Moreover, Mr. Stolkin’s history of spending beyond
the couple’s means belies petitioner’s alleged belief. We
therefore find that petitioner had reason to know at the time she
signed the return that her ex-husband would not pay the joint tax
liability.
B. Petitioner Will Not Suffer Economic Hardship If Relief
Is Denied
We now address whether petitioner will suffer economic
hardship if relief is denied. We find that she will not. A
denial of section 6015(f) relief imposes economic hardship if it
prevents the requesting spouse from being able to pay his or her
reasonable basic living expenses. Butner v. Commissioner, supra;
Sec. 301.6343-1(b)(4)(i), Proced. & Admin. Regs. Reasonable
basic living expenses are based on the taxpayer’s circumstances
but do not include amounts needed to maintain a luxurious
standard of living. Sec. 301.6343-1(b)(4)(i), Proced. & Admin.
Regs. Relevant circumstances include the taxpayer’s age, ability
to earn an income, number of dependents and status as a
dependent. Sec. 301.6343-1(b)(4)(ii)(A), Proced. & Admin. Regs.
The amount of property available to satisfy the taxpayer’s
10
expenses is also a relevant factor. Butner v. Commissioner,
supra; sec. 301.6343-1(b)(4)(ii)(D), Proced. & Admin. Regs.
Petitioner was receiving $4,500 in monthly spousal support
and $1,000 per month in salary at the time she filed the request
for relief in the amount of $55,473. Petitioner had assets
available to satisfy the tax liability, including a $500,000
townhouse with $80,000 of equity and an interest in her ex-
husband’s pension. Petitioner’s monthly expenses included $600
monthly lease payments on a BMW. Furthermore, respondent
determined that, based on petitioner’s spousal support and
salary, petitioner had monthly disposable income of $600 which
could have been applied to the tax liability.
Petitioner argues that she would suffer economic hardship if
she were held liable for the joint tax liability but her husband
would not. Petitioner argues that her ex-husband, unlike her,
has no monthly housing expense because he lives in a place owned
by his mother. In addition, he earns much more than petitioner.
We find these factors irrelevant. This Court was not asked to
decide who should bear the burden of the tax liability. Instead,
our focus is on whether petitioner is entitled to relief from the
liability. We find that petitioner had the means to make monthly
payments to reduce the tax liability and that denying her relief
will not impose economic hardship on her.
11
II. Balancing Test for Determining Whether Section 6015(f)
Equitable Relief Would Be Appropriate
When a requesting spouse fails to satisfy the safe harbor
conditions, the Commissioner may determine through a balancing
test whether equitable relief is appropriate. The Commissioner
has listed relevant positive, neutral, and negative factors to be
weighed by the Commissioner in determining relief. See Rev.
Proc. 2003-61, sec. 4.03, 2003-2 C.B. at 298. The factors
include whether the requesting spouse (1) had knowledge or reason
to know that the nonrequesting spouse would not pay the income
tax liability; (2) would suffer economic hardship if relief were
denied; (3) complied with income tax laws in years after the year
at issue; (4) received significant economic benefit from the
items giving rise to the liability; (5) was abused by the
nonrequesting spouse; and (6) was in poor health when signing the
return or requesting relief; and (7) whether the nonrequesting
spouse had a legal obligation to pay the outstanding liability.
Id. sec 4.03(2). The list is nonexhaustive and no single factor
is determinative. Id. We address each of the factors in turn.
A. Knowledge That Petitioner’s Ex-Spouse Would Not Pay the
Liability
We have already explained our finding that petitioner did
not have reason to believe that her ex-husband would pay the tax
liability. This factor weighs against relief.
12
B. Economic Hardship
We have already explained our finding that a denial of
relief would not impose economic hardship on petitioner. This
factor weighs against relief.
C. Compliance With Tax Laws After 1993
Petitioner admits that she failed to timely file a return
for 1997. This factor weighs against relief. Petitioner urges
us to consider her compliance with tax laws in comparison with
her ex-husband’s failure to comply with tax laws for the past 12
years. We find petitioner’s ex-husband’s lack of compliance to
be irrelevant. It does not shift the balance in favor of relief.
D. Economic Benefit From Items Giving Rise to Liability
A significant benefit for purposes of section 6015(f) is any
benefit in excess of normal support. Sec. 1.6015-2(d), Income
Tax Regs. Respondent concedes that there is no evidence that
petitioner benefited significantly from the unpaid tax liability.
We agree with respondent and find this factor weighs in favor of
relief.
E. Abuse by Nonrequesting Spouse
Petitioner argues that her ex-husband’s financial
irresponsibility constituted a form of emotional abuse against
petitioner. We have indicated, however, that nonphysical abuse
will weigh in favor of relief only where it is severe enough to
incapacitate a requesting spouse in the same manner he or she
13
would be incapacitated by physical abuse. Nihiser v.
Commissioner, T.C. Memo. 2008-135. There is no evidence that
petitioner’s ex-husband’s spending incapacitated petitioner to
that extent or that his spending was greater in 1993 than when
their marriage began. We find this factor to be neutral.
F. Poor Health
Petitioner did not allege that she was in poor health when
she signed the petition. Respondent determined that this factor
is neutral, and we have no information to find otherwise.
G. Nonrequesting Spouse’s Legal Obligation To Pay Liability
Petitioner argues that she should be relieved of liability
for the tax underpayment because the divorce agreement
specifically required her ex-spouse to pay the underpayment for
1993. Respondent does not question the validity of the
California court order. A legal obligation to pay is not a
persuasive factor in favor of relief, however, if the requesting
spouse had reason to believe upon entering the agreement that it
would not be upheld by the nonrequesting spouse. Rev. Proc.
2003-61, sec. 4.03(2)(a)(iv), 2003-2 C.B. at 298. Petitioner was
aware of her ex-husband’s tendency to spend beyond his means. We
find that petitioner had reason to believe, at the time the
divorce agreement was issued in 2001, that her ex-husband would
not pay the underpayment. Thus, petitioner’s ex-husband’s legal
obligation under the divorce agreement does not weigh in favor of
14
relief. We agree with respondent that Mr. Stolkin’s legal
obligation to pay the tax liability is a neutral factor.
H. Additional Factors Cited by Petitioner
Petitioner cites two additional factors that we do not find
to be persuasive. First, petitioner argues that it is
inequitable to deny her relief because the underpayment is
attributable in part to the separate property of her ex-husband.
Petitioner was aware of the underpayment and agreed to joint and
several liability with Mr. Stolkin when she signed the return,
however, and she could have filed a married filing separate
return. Petitioner argues further that the IRA distribution was
the separate property of Mr. Stolkin. We agree with respondent
that the IRA distribution became community property once it was
commingled in the Stolkins’ joint checking account. See Gee v.
Commissioner, 127 T.C. 1, 4-5 (2006). We find these additional
factors to be neutral.
III. Conclusion
After taking into account all the facts and circumstances
presented, we find that petitioner is not entitled to equitable
relief under section 6015(f).
To reflect the foregoing,
Decision will be entered for
respondent.