T.C. Memo. 2009-40
UNITED STATES TAX COURT
ALINA KARP, Petitioner,
AND ORRIN E. KARP, Intervenor v.
COMMISSIONER OF INTERNAL REVENUE, Respondent
Docket No. 26617-06. Filed February 18, 2009.
Dennis G. Harkavy, for petitioner.
Orrin E. Karp, pro se.
Steven M. Roth, for respondent.
MEMORANDUM FINDINGS OF FACT AND OPINION
VASQUEZ, Judge: Pursuant to section 6015(e),1 petitioner
seeks review of respondent’s determination with respect to her
1
Unless otherwise indicated, all section references are to
the Internal Revenue Code.
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request for section 6015 relief from joint income tax liabilities
for the tax years 2000, 2001, and 2003. Respondent determined
that petitioner was entitled to partial relief pursuant to
section 6015(c) and denied relief pursuant to section 6015(b) and
(f). Petitioner seeks review of respondent’s denial of relief
pursuant to section 6015(b), (c), and (f).
If the Court determines that petitioner is entitled to
relief pursuant to section 6015(b) or (f), then petitioner seeks
a refund of community property proceeds (the proceeds from the
sale of her family home) used to satisfy the joint income tax
liabilities.
FINDINGS OF FACT
Some of the facts have been stipulated and are so found.
The stipulation of facts and the attached exhibits are
incorporated by this reference.
Petitioner resided in California when the petition was
filed. Petitioner’s former spouse, Orrin Karp (Mr. Karp),
intervened.
Petitioner and Mr. Karp were married on March 30, 1993.
During their marriage Mr. Karp worked in the commercial real
estate business. Petitioner worked as a legal secretary until
approximately June 1994 and did not work outside the home for the
rest of their marriage. Petitioner and Mr. Karp separated on
April 29, 2004, and were divorced on March 29, 2007.
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During their marriage the couple lived in a home originally
purchased by Mr. Karp as separate property. Mr. Karp used his
separate funds as a downpayment in purchasing the house and in
making significant improvements to the house. On December 2,
1993, Mr. Karp quitclaimed his separate property interest in the
house to petitioner and himself as community property. This
house thereby became the community property of petitioner and Mr.
Karp.
Petitioner and Mr. Karp did not initially file tax returns
for 1995 through 2002. The Internal Revenue Service (IRS)
contacted petitioner and Mr. Karp about their failure to file tax
returns. Petitioner and Mr. Karp, with an accountant’s
assistance, filed delinquent tax returns for years 1995 through
2001.
Approximately 1 year after the 1995 through 2001 returns
were filed, petitioner and Mr. Karp were contacted by and met
with an IRS collection officer. Petitioner and Mr. Karp then
hired a different accountant to prepare amended returns for 1995
through 2001. After the amended returns were filed, the IRS
audited them. The IRS questioned some of the business deductions
and other deductions claimed on their amended joint returns. The
IRS sent notices of deficiency to petitioner and Mr. Karp on
October 17, 2005, for their 2000 return and on October 31, 2005,
for their 2001 return.
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Petitioner and Mr. Karp timely filed their 2003 joint income
tax return. The IRS disallowed certain expenses claimed on
Schedule C, Profit or Loss from Business, such as commissions and
fees paid to others. On November 7, 2005, the IRS sent
petitioner and Mr. Karp a notice of deficiency regarding their
2003 tax return.
The years in issue before this Court are 2000, 2001, and
2003, and the following amounts include tax, penalties, and
interest that had accrued as of July 10, 2006. For 2000 there is
an underpayment2 of $42,820.22 and an understatement3 of
$110,064.24; part of this understatement resulted from a math
error made by petitioner and Mr. Karp. For 2001 there is an
understatement of $6,285.53. For 2003 there is an understatement
of $130,804.33.
On July 10, 2006, petitioner’s outstanding tax liabilities
(including the underpayment for 2000 and understatements for
2000, 2001, and 2003) were paid from the proceeds of the sale of
petitioner’s and Mr. Karp’s family home.
2
An “underpayment” is the taxpayer’s failure to pay the
tax shown as due on a return. It may be determined by
subtracting the amount of the tax actually paid by the taxpayer
from the amount of tax reported on the return.
3
An “understatement”, generally equated with a
“deficiency”, is the taxpayer’s failure to correctly report on a
return the amount of tax due. It may be determined by
subtracting the amount of the tax imposed which is shown on the
return from the amount of the tax required to be shown on the
return. Secs. 6015(b)(3), 6662(d)(2)(A), 6211(a).
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On August 23, 2005, petitioner filed Form 8857, Request for
Innocent Spouse Relief. Petitioner requested section 6015 relief
from the underpayment for 2000 and the understatements for 2000,
2001, and 2003. Respondent awarded and denied section 6015
relief to petitioner as follows:
• 2000 Underpayment: Respondent denied section 6015(f)
relief on September 22, 2006.
• 2000 Understatement: Respondent awarded partial
section 6015(c) relief and denied section 6015(b)
relief on September 22, 2006. Respondent’s award of
partial section 6015(c) relief was for the portion of
the understatement that was not due to a math error on
petitioner’s part.
• 2001 Understatement: Respondent awarded full section
6015(c) relief and denied section 6015(b) relief on
September 25, 2006.
• 2003 Understatement: Respondent awarded full section
6015(c) relief and denied section 6015(b) relief on
September 25, 2006.
On December 26, 2006, petitioner filed her petition with
this Court to review respondent’s determination with respect to
her request for section 6015 relief for 2000, 2001, and 2003.
Petitioner alleges that the tax liabilities for these years were
satisfied using the proceeds from the sale of community property
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(petitioner’s former family home). If petitioner is entitled to
section 6015(b) or (f) relief, then petitioner seeks a refund of
her share of the community property proceeds used to satisfy the
joint income tax liabilities for 2000, 2001, and 2003.
OPINION
Section 6015(g)(3) precludes a refund in the case of section
6015(c) relief. Accordingly, we look to section 6015(b) and (f)
to determine whether petitioner is entitled to such relief. Even
if petitioner is otherwise entitled to section 6015(b) or (f)
relief, Ordlock v. Commissioner, 126 T.C. 47 (2006), affd. 533
F.3d 1136 (2008), is the controlling precedent, and a refund is
precluded.
Mr. Karp deeded the family home to petitioner and himself as
community property. Subsequently, the family home was sold, and
the proceeds were used to pay the joint tax liabilities of
petitioner and Mr. Karp. Petitioner has asked for a review of
her eligibility for section 6015 relief and has asked for a
refund of the family home proceeds.
We have faced a similar factual scenario before. In Ordlock
v. Commissioner, supra, payments of joint income tax liabilities
were made using community property and the separate property of
the taxpayer. The taxpayer had sought innocent spouse relief
from the IRS and was granted section 6015(b) relief. Afterward,
the taxpayer sought in this Court a refund of payments made using
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community property assets. In Ordlock, the Commissioner conceded
that the taxpayer was entitled to a refund of the payments made
from her separate property. In denying her request for a refund
of the payments made from community property, we stated: “The
nature of a marital community in California is to generally allow
the individual debts of the spouses to be collected out of
community assets.” Id. at 59. “If Mr. Ordlock had been
personally liable to a nongovernment creditor, the community
assets would have been a potential source of payment to that
creditor.” Id.
Even if petitioner is entitled to section 6015(b) or (f)
relief, petitioner could not be refunded the amounts paid from
community property. Petitioner has not alleged that any part of
the payments was made from separate property of petitioner or
intervenor. In Ordlock, we held that section 6015 did not
preempt community property law so as to allow for the refund of
payments made from community property. Our decision was affirmed
by the U.S. Court of Appeals for the Ninth Circuit, 533 F.3d 1136
(2008). In the absence of stipulation to the contrary, any
appeal of this case would be to that Court of Appeals.
Therefore, we are precluded from refunding to petitioner any of
her community property used to pay the 2000, 2001, and 2003 tax
liabilities, even if she were otherwise eligible for section
6015(b) or (f) relief.
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Accordingly, since we are precluded from providing
petitioner a refund, we are unable to grant her relief under
section 6015(b), (c), or (f).
To reflect the foregoing,
Decision will be entered
for respondent.