T.C. Memo. 2009-71
UNITED STATES TAX COURT
MARY ANN AND THOMAS O’MEARA, Petitioners v.
COMMISSIONER OF INTERNAL REVENUE, Respondent
Docket No. 7829-07L. Filed March 30, 2009.
Neal J. Shapiro and Saul A. Bernick, for petitioners.
Trent D. Usitalo, for respondent.
MEMORANDUM FINDINGS OF FACT AND OPINION
SWIFT, Judge: The issue for decision is whether petitioner
Mary Ann O’Meara is entitled to relief under section 6015(f) from
unpaid joint Federal income taxes, as follows:1
1
The record does not reflect the status of petitioners’
Federal income taxes for 1994, 1996, 1997, and 1998.
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Year Amount
1991 $26,819
1992 88,223
1993 37,899
1995 36,232
1999 22,571
2000 21,870
2001 1,138
Total $234,752
Unless otherwise indicated, all section references are to
the Internal Revenue Code, and all Rule references are to the Tax
Court Rules of Practice and Procedure. Hereinafter, references
to petitioner are to petitioner Mary Ann O’Meara, and references
to Thomas are to petitioner Thomas O’Meara.
FINDINGS OF FACT
Some of the facts have been stipulated and are so found.
At the time the petition was filed, petitioners resided in
Minnesota.
Petitioners have a long history of filing their joint
Federal income tax returns late and of not paying their Federal
income taxes.
Petitioners have been married since 1953 and have five
children. During their marriage, petitioner was the homemaker,
and Thomas provided financial support for the family.
Petitioners maintained several joint bank accounts to each
of which petitioner had full access. Together petitioners
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regularly discussed family finances and expenses, including the
home mortgage, household utilities, automobiles, insurance, and
groceries. Bills relating to the family expenses were received
by petitioners at their home. Petitioner usually opened the mail
and wrote the checks for monthly family expenses.
In 1955 Thomas founded Abbott Metals Co. (AMC) as a sole
proprietorship to buy, sell, and fabricate metal products. From
1955 until approximately 2004 Thomas owned and managed AMC, and
the income from AMC constituted petitioners’ family’s primary
source of income.
Although occasionally petitioner wrote checks on AMC’s bank
account to pay bills for AMC, generally petitioner was not
involved with AMC. Petitioner was not employed by and did not
receive compensation from AMC.
Petitioners also were involved in other business and
investment activities which generated income, including ownership
and management of rental real estate.
From 1991 through at least 2001, petitioners had financial
problems and often did not have sufficient funds to pay family
expenses. Generally, petitioners together decided which family
expenses to pay and when to pay them.
On February 19, 1997, petitioners commenced a proceeding
with this Court at docket No. 3118-97 in connection with
petitioner’s request for relief under section 6013(e) relating to
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petitioners’ unpaid joint Federal income tax liabilities for 1988
and 1989. On March 23, 1998, the parties agreed that petitioner
was entitled to such relief under section 6013(e), and on
April 2, 1998, a decision was entered in docket No. 3118-97
reflecting that agreement.
For some of the years in issue Thomas prepared petitioners’
joint Federal income tax returns. In other years Thomas hired a
professional tax preparer to do so. Generally, Thomas told
petitioner when and where to sign petitioners’ tax returns, and
petitioner signed the tax returns without reviewing the
information reported thereon and without inquiring of Thomas
whether a tax liability was due and was paid. Attached to each
year’s late-filed tax return was a Schedule C, Profit or Loss
From Business, relating to AMC.
However, on their 1992 joint Federal income tax return,
which was filed late on May 7, 1998, in order that petitioner
might build up her Social Security credits petitioners decided to
and did report $2,000 of AMC’s total net profits of $311,740 as
petitioner’s (not as Thomas’s) income.
On their 1991, 1993, and 1995 joint Federal income tax
returns, which were also filed late on May 7, 1998, petitioners
reported AMC’s total net profits as Thomas’s income.
However, on their late-filed Federal income tax returns for
1999, 2000, 2001, again in order that petitioner might build up
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her Social Security credits, petitioners reported all of AMC’s
net profits as petitioner’s (not as Thomas’s) income.
Also attached to petitioners’ joint Federal income tax
return for each year in issue was a Schedule D, Capital Gains and
Losses, relating to petitioners’ investment activities. On those
schedules petitioners reported the income relating thereto as
Thomas’s income.
Also attached to petitioners’ joint Federal income tax
return for each year in issue was a Schedule E, Supplemental
Income and Loss, relating to petitioners’ rental real estate. On
those schedules petitioners reported some of the rental real
estate income as both petitioner’s and Thomas’s and some of it as
just Thomas’s.
Reflected in the table below for each year in issue are the
dates on which petitioners filed their joint Federal income tax
returns late, the Schedule C AMC income that was reported as
petitioner’s (P) and as Thomas’s, the Schedules D and E income
(Other income) that was reported as both petitioner’s and
Thomas’s (Both Ps), the other income reported as just Thomas’s,
and the total taxes reported due and the taxes that have been
paid to date:
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AMC Income Other Income
Reported As Reported As
Ps’ Tax Returns Income of Income of Taxes
Year Filing Date P Thomas Both Ps Thomas Due Paid
1991 05/07/1998 -0- $128,336 -0- $130 $26,819 -0-
1992 05/07/1998 $2,000 309,740 $1,004 6,558 88,223 -0-
1993 05/07/1998 -0- 158,167 -0- 4,323 37,899 -0-
1995 05/07/1998 -0- 97,622 -0- 46,353 36,232 -0-
1999 10/11/2001 42,931 -0- 58,501 35,150 22,571 -0-
2000 10/17/2001 32,676 -0- 57,051 345 21,870 -0-
2001 10/16/2002 25,243 -0- 10,774 -0- 1,138 -0-
Respondent examined petitioners’ joint Federal income tax
returns for the years in issue and assessed the tax liabilities
reported thereon.2
On June 29, 2005, respondent mailed to petitioners a notice
of intent to levy relating to petitioners’ unpaid Federal income
tax liabilities for the years in issue.
Petitioners timely filed an appeal with respondent’s Appeals
Office relating to respondent’s June 29, 2005, notice of intent
to levy. On September 6, 2006, during the pendency of
petitioner’s appeal petitioner also filed with respondent a
request for equitable relief under section 6015(f) relating to
the unpaid joint Federal income tax liabilities for the years in
issue. Petitioner attached to her request a Form 12510,
Questionnaire for Requesting Spouse, on which petitioner listed
$2,150 as petitioners’ monthly combined income and $3,675 as
petitioners’ monthly combined expenses.
2
During respondent’s audit respondent also determined
deficiencies in petitioners’ joint Federal income taxes for each
year in issue. Respondent concedes that petitioner is entitled
to relief under sec. 6015(b) for these deficiencies.
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On October 31, 2006, petitioners submitted to respondent’s
Appeals Office a Form 433-A, Collection Information Statement for
Wage Earners and Self-Employed Individuals. On the Form 433-A
petitioners listed assets with values indicated as follows:
Assets Value
Cash $25,848
Boats 7,000
Snowmobiles 5,000
Automobiles -0-
Real estate
Home 161,000
Cabin 85,721
Rental properties Unknown
Total reported value $284,569
After receiving more information relating to the value of
petitioners’ rental properties, respondent’s Appeals Office
determined that petitioners’ reasonable collection potential was
$521,600.
On the Form 433-A petitioners also listed monthly
income of $2,202 and monthly expenses of $3,623 as follows:
Monthly Amount
Social security income
Petitioner $687
Thomas 1,515
Other income -0-
Total income $2,202
Expenses
Food/clothing 727
Housing/utilities 1,182
Transportation 1,154
Health care 520
Life insurance 40
Total expenses $3,623
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On March 12, 2007, respondent mailed to petitioners a notice
of determination sustaining respondent’s June 29, 2005, notice of
intent to levy.
On March 12, 2007, respondent also mailed to petitioner a
notice of determination denying petitioner’s request for section
6015(f) relief for all years in issue. Respondent concluded that
at the time petitioner signed the joint tax returns for the years
in issue petitioner had reason to know that tax liabilities were
due and were unlikely to be paid. Respondent also determined
that although petitioners’ monthly expenses exceeded petitioners’
monthly income, because petitioners were married and jointly
owned assets with a value of at least $284,569 and because
petitioners’ collection potential was $521,600, petitioner had
not established that an economic hardship would result if
petitioner were held jointly liable for the unpaid taxes.
On April 5, 2007, petitioners filed a petition relating to
respondent’s March 12, 2007, adverse determination on the notice
of intent to levy and on the request for relief under section
6015(f).
As stated, after settlement of some issues the only issue
remaining in dispute is whether petitioner is entitled to relief
under section 6015(f) from the unpaid tax liabilities for the
years in issue.
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On April 15, 2004, petitioner filed her 2003 individual
Federal income tax return late reporting taxes due of $4,733,
which remain unpaid. On April 20, 2007, petitioner filed her
2005 individual Federal income tax return late reporting no taxes
due.
OPINION
Generally, taxpayers filing joint Federal income tax returns
are jointly liable for taxes reported due thereon. Sec.
6013(d)(3). However, under section 6015(f)(1) relief from joint
liability for Federal income taxes may be available to a
requesting spouse where it would be inequitable to hold the
requesting spouse liable for a tax underpayment or a tax
deficiency.
This Court has jurisdiction to determine whether a
requesting spouse is entitled to equitable relief under section
6015(f). Sec. 6015(e); see also Martino v. Commissioner, T.C.
Memo. 2009-43; Farmer v. Commissioner, T.C. Memo. 2007-74.
Petitioner bears the burden of proving that she is entitled to
equitable relief under section 6015(f). See Rule 142(a).
In order to qualify for equitable relief under section
6015(f), a requesting spouse must first satisfy seven so-called
threshold eligibility requirements set forth in Rev. Proc. 2003-
61, sec. 4.01, 2003-2 C.B. 296, 297. In particular, the
requesting spouse must establish that the tax underpayment or the
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tax deficiency is attributable to income of the nonrequesting
spouse. Id. sec. 4.01(7), 2003-2 C.B. at 297.
If the income giving rise to the tax underpayment or
deficiency is reported on a joint Federal income tax return as
earned by the requesting spouse, the income and the tax
underpayment or deficiency relating thereto are presumptively
attributable to the requesting spouse. Rev. Proc. 2003-61, sec.
4.01(7)(b), 2003-2 C.B. at 297. The requesting spouse may rebut
the presumption by introducing evidence to show otherwise. Id.
For example, the requesting spouse may establish that her
ownership of the assets producing the income was only nominal.
Id.
Respondent contends that petitioner fails this threshold
eligibility requirement with regard to the portion of AMC’s
income and the other income that was reported by petitioners on
their joint Federal income tax returns as income of petitioner or
as income of both petitioner and Thomas, as follows:3
3
Respondent concedes that for each year petitioner has
satisfied the threshold eligibility requirements for the portions
of the AMC and the other income reported by petitioners as
Thomas’s income.
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AMC and Other Income
Reported as Income of
Petitioner or of Both
Petitioner and Thomas
Year AMC Other
1992 $2,000 $1,004
1999 42,931 58,501
2000 32,676 57,051
2001 25,243 10,774
Petitioner argues that because Thomas controlled AMC, the
rental real estate and the other business activities, as well as
the preparation of petitioners’ Federal income tax returns for
the years in issue, any ownership interest that petitioner had or
was reported to have had in AMC and in the real estate and other
business activities was only nominal, and therefore that no
portion of the above-reported income should be attributed to her
(i.e., that her ownership thereof should be treated as nominal
for purposes of section 6015(f)).
We disagree. Having reported the above income as hers (or
as both hers and Thomas’s) for Social Security tax and benefit
purposes, petitioner has not established that this purpose and
petitioners’ reporting should be ignored and that the income
should be attributable solely to Thomas. See Golden v.
Commissioner, T.C. Memo. 2007-299, affd. 548 F.3d 487 (6th Cir.
2008). Petitioner does not satisfy the threshold eligibility
requirements with respect to the income reported as petitioner’s
or as petitioner’s and Thomas’s for 1992, 1999, 2000, and 2001.
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In the alternative with respect to the above income reported
as petitioner’s or as petitioner’s and Thomas’s, and with respect
to the AMC and other income reported by petitioners on their
joint Federal income tax returns as earned by Thomas (with
respect to which petitioner satisfies the threshold eligibility
requirements of Rev. Proc. 2003-61, sec. 4.01,4 we consider the
following factors relevant to determine whether petitioner is
entitled to relief under sec. 6015(f). Id. sec. 4.03, 2003-2
C.B. at 298.
Marital Status
As of the trial date, petitioners were married and living
together. This factor is neutral.
Economic Hardship
Where paying the outstanding tax liabilities would cause the
requesting spouse to suffer economic hardship, the economic
hardship factor weighs in favor of granting relief under section
6015(f). Rev. Proc. 2003-61, sec. 4.03(2)(a)(ii), 2003-2 C.B. at
4
The income reported as earned by Thomas was as follows:
Income Reported as Thomas’s
Year AMC Other
1991 $128,336 $130
1992 309,740 6,558
1993 158,167 4,323
1995 97,622 46,353
1999 -0- 35,150
2000 -0- 345
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298. A requesting spouse suffers economic hardship if paying the
tax liabilities would prevent the taxpayer from paying reasonable
basic living expenses. Sec. 301.6343-1(b)(4)(i), Proced. &
Admin. Regs.; Rev. Proc. 2003-61, sec. 4.02(1)(c),
4.03(2)(a)(ii), 2003-2 C.B. at 298.
In determining a reasonable amount for basic living
expenses, the Court considers, among other things: (1) The
taxpayer’s age and earning potential; (2) an amount reasonably
necessary for food, clothing, housing, medical expenses, and
transportation; (3) the amount of assets available to pay the
taxpayer’s expenses; and (4) any other factor bearing on economic
hardship. See sec. 301.6343-1(b)(4)(ii), Proced. & Admin. Regs.
Petitioner argues that because she is nearly 80 years old
and has low earning potential and because her monthly expenses
are reasonable, if required to pay the tax liabilities in issue
she would be unable to pay her basic living expenses.
Petitioner’s argument does not consider the $284,569 in
assets listed on the Form 433-A that petitioners submitted to
respondent. Those assets are to be included in determining
whether petitioner would be able to pay her basic living
expenses. Further, petitioners have not meaningfully challenged
respondent’s Appeals Office’s determination relating to
petitioners’ $521,600 collection potential.
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It appears that the $284,569 in petitioners’ assets would
offset or be sufficient to pay the total $234,752 joint tax
liabilities for the years in issue, and petitioners’ $521,600
collection potential suggests that petitioner would not suffer
economic hardship if she were required to pay the tax liabilities
in issue.
However, recognizing the costs and difficulties in
liquidating assets, as well as petitioner’s age and low earning
potential, we treat the economic hardship factor as neutral.
Knowledge or Reason To Know
In the case of a properly reported but unpaid tax liability
we are less likely to grant relief under section 6015(f) if the
requesting spouse at the time she signed the Federal income tax
return knew or had reason to know that the tax liability reported
thereon would not be paid. Washington v. Commissioner, 120 T.C.
137, 151 (2003).
Petitioner argues that because she relied on Thomas to
properly prepare their joint Federal income tax returns and to
pay any tax liabilities reported thereon, at the time she signed
the tax returns she did not know or have reason to know that
Thomas would not pay the income taxes relating thereto.
From 1991 through 2001, petitioner knew that petitioners
were generally having financial problems relating to family
expenses. Petitioner should have learned that petitioners were
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not paying their joint Federal income tax liabilities when the
settlement was reached in docket No. 3118-97, wherein she was
relieved of and wherein Thomas became fully liable for the
$80,429 joint income tax liabilities for 1988 and 1989. Because
of the family tax and financial problems, petitioner was on
notice and should have verified that Thomas would pay the tax
liabilities reported on petitioners’ Federal income tax returns
for the years in issue. See Stolkin v. Commissioner, T.C. Memo.
2008-211; Gonce v. Commissioner, T.C. Memo. 2007-328. This
factor weighs against relief.
Significant Benefit
The record does not adequately establish whether petitioner
received a significant benefit in excess of normal support from
the unpaid tax liabilities. This factor is neutral.
Compliance With Income Tax Laws
As stated, petitioner and Thomas have a history of not
timely filing Federal income tax returns and of not paying their
tax liabilities. Petitioner filed her individual Federal income
tax return late for 2003, and the $4,733 tax liability reported
thereon remains unpaid. Further, petitioner filed her Federal
income tax return late for 2005. This factor weighs against
granting relief.
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Conclusion
In summary, of the relevant factors considered two weigh
against granting relief, three are neutral, and none weighs in
favor of granting relief.
We conclude that petitioner is not entitled to equitable
relief under section 6015(f) with regard to any of the AMC and
the other income and the Federal income taxes relating thereto
reported on petitioners’ joint Federal income tax returns for the
years in issue.5
To reflect the foregoing,
Decision will be entered for
respondent.
5
Our conclusion herein would be the same regardless of the
Court’s standard of review of respondent’s determination.