T.C. Memo. 2009-197
UNITED STATES TAX COURT
VIRGINIA DIANA SYKES, a.k.a. VIRGINIA BRITT, Petitioner, AND
WILLIAM S. BRITT, Intervenor v.
COMMISSIONER OF INTERNAL REVENUE, Respondent
Docket No. 22920-06. Filed September 3, 2009.
John A. Cocklereece, Jr., for petitioner.
Ocie F. Murray, Jr., for intervenor.
Edwina L. Jones, for respondent.
MEMORANDUM FINDINGS OF FACT AND OPINION
PARIS, Judge: Petitioner seeks review of respondent’s final
determination that petitioner is not entitled to relief from
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joint and several liability under section 6015(b),1 (c), or (f)
with respect to a deficiency in income tax of $40,761, an
addition to tax under section 6651(a)(1) of $1,522, and a penalty
under section 6662(a) of $8,152 for tax year 2003; and that
petitioner is not entitled to relief from joint and several
liability under section 6015(f) with respect to the tax liability
reported for tax year 2003, but not paid in the amount of
$10,276. Petitioner initially disputed the notice of deficiency
for tax year 2003, but petitioner abandoned her disputes over the
adjustments giving rise to the deficiency in income tax for 2003
prior to the date of trial.
FINDINGS OF FACT
Some of the facts have been stipulated and are found
accordingly. The stipulation of facts and the attached exhibits
are incorporated herein by this reference. Both petitioner and
intervenor resided in North Carolina at the time the petition and
the notice of intervention were filed.
1
Section references are to the Internal Revenue Code of 1986
as amended and in effect at the time the petition was filed with
this Court, and/or in effect for the year at issue. Rule
references are to the Tax Court’s Rules of Practice and
Procedure.
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Background
Petitioner and intervenor were married on August 3, 2002.
The couple’s marriage ended in divorce on February 9, 2006.2
Prior to, and during the marriage, petitioner worked for
intervenor in intervenor’s law practice. Their business
relationship predated the marriage by several years.
During the taxable year at issue, 2003, petitioner, who
holds a bachelor of science degree in nursing, and a bachelor of
arts degree in pre-law, was intervenor’s office manager, a role
she filled prior to marriage as well. Intervenor was engaged in
the practice of law as a sole proprietor throughout all of the
periods discussed. As office manager, petitioner kept the
financial records for intervenor’s law office, reviewed mail
received, read invoices, and paid bills including advance cost
expenses on clients’ accounts. Petitioner kept all of the
records for the law practice in 2003. She had signature
authority on the business bank account during the tax year at
issue. Prior to and during the marriage, intervenor and
petitioner frequently discussed business and family financial
matters. Through her position as office manager, and through
these frequent conversations about finances, petitioner became
aware of the law practice’s financial difficulties, including the
2
Though the couple did not receive a divorce decree until
February 9, 2006, petitioner and intervenor physically separated
on November 18, 2004.
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fact that checks drawn on the law practice’s bank account in 2003
and 2004 were often returned as dishonored by the bank for
failing to maintain sufficient funds. Law practice checks signed
by petitioner were among those returned for insufficient funds.
Petitioner made loans to the law office and to intervenor
personally during 2003 and 2004 to cover the financial shortages.
In August 2002, shortly after marrying, petitioner and
intervenor purchased a Cadillac Escalade to be used for the law
practice. The automobile, a sport utility vehicle (SUV), was
used primarily by petitioner in the performance of her duties as
office manager, which included delivering outgoing mail to the
post office and driving to and from the bank that held the law
practice’s account. The vehicle was titled in both petitioner’s
and intervenor’s names. The monthly principal and interest
payments for the purchase price of the vehicle were made from the
law office account. Law practice checks for some of the Cadillac
Escalade payments were signed by petitioner.
In 2003, petitioner and intervenor sold their interests in
real property known as “Lots 6 and 7 of the Northwoods
Subdivision, Section Three,” (Lots 6 and 7) Robeson County,
Lumberton, North Carolina. Their interests in the property were
sold for gross proceeds of $90,000, with a cost basis of $59,500,
resulting in a net capital gain of $30,500. Though the parcels
of land were legally owned by intervenor and his brother, doing
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business in the name of a partnership entity, Britt & Britt PLLC,
petitioner was required to sign the deed of conveyance under
North Carolina property law.3 The deed and closing statements
are dated May 9, 2003. Prior to sale, petitioner and intervenor
discussed the original purchase price of the real estate, sale
negotiations, and proposed prices for sale.
Petitioner knew that the proceeds from the sale of their
interests in the property were deposited into the law practice
bank account. Payments from that account were made on a mortgage
for a residence where both petitioner and intervenor lived,
although the house was titled solely in petitioner’s name, and
purchased prior to marriage.4 Additionally, the proceeds,
deposited in the law practice bank account which petitioner often
reviewed, were used to make the monthly principal and interest
payments on the Cadillac Escalade during 2003.
In 2003, petitioner filed a number of domestic violence
complaints with the local police department. Petitioner sought a
restraining order against intervenor on the grounds of the
3
Because the parcels of land were owned one-half by each
brother, the above figures represent a half share of the sale
proceeds.
4
Intervenor testified that the house was purchased while
intervenor was married to his first wife, and before petitioner
and intervenor were married. Intervenor further testified that
the house was titled solely in petitioner’s name because at the
time of its purchase intervenor had not yet divorced his first
wife.
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domestic-violence-related incidents. In August of 2003, a North
Carolina State district court issued a mutual domestic violence
protective order for both husband and wife. However, petitioner
and intervenor appeared to reconcile in October 2003, and
petitioner’s domestic violence complaint was voluntarily
dismissed.
Petitioner and intervenor timely requested in April 2004 an
extension of time to file their 2003 return. Prior to requesting
their extension, in April 2004, a Form 1099-S, Proceeds from Real
Estate Transactions, was issued to intervenor and petitioner in
the amount of $90,000 for tax year 2003. The Form 1099-S
reflected the couple’s home address during a period of time when
petitioner and intervenor were still living together. Prior to
the expiration of their extension to file, and in light of
Tropical Storm Francis, the IRS extended the October 15, 2004,
filing deadline to November 9, 2004. Petitioner and intervenor
made arrangements to meet with the tax return preparer the week
following the November 9, 2004 deadline.
Petitioner was the sole party responsible for reviewing the
documents to be presented to the tax return preparer for tax year
2003. Petitioner even assisted the return preparer, Debra
Jernigan, with the preparation of the joint income tax return for
2003. In doing so, petitioner reviewed the expenses of the law
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practice. During the preparation of the return, petitioner
matched each bank check against each expense to be claimed.
In gathering business and personal records to take to the
return preparer for tax year 2003, petitioner went through client
ledger cards that listed expenses paid for each client.
Petitioner classified business checks from intervenor’s law
practice into categories of expenses for use in preparation of
petitioner’s and intervenor’s 2003 income tax return. Petitioner
went over these classifications with the return preparer when the
2003 income tax return was being prepared. Additionally, after
reading about the new tax law benefit for SUVs in the news,
petitioner provided the return preparer the cost of the Cadillac
Escalade as a 2003 deduction under section 179 even though
petitioner and intervenor had purchased the SUV in August 2002
and placed it in service in that year. Although the real estate,
Lots 6 and 7, was sold in 2003, a Schedule D, Capital Gains and
Losses, reflecting the transaction was not included in the
couple’s 2003 return.
Petitioner and intervenor’s 2003 joint Federal income tax
return was untimely filed on November 15, 2004. The return
reported the amount owed as $10,276. Petitioner knew at the time
she signed the 2003 tax return that her husband owed a separate
income tax liability for tax year 2001 in excess of $50,000.
This liability was not satisfied until after the 2003 return was
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filed, and the money used to satisfy the debt was provided by
intervenor’s family. Additionally, during the period in
question, petitioner knew that intervenor was legally obligated
to make periodic payments for child support and alimony from a
prior marriage, and further knew that intervenor would make these
payments before he would attempt to pay his tax debts.
There is no evidence that petitioner signed the return under
duress, nor is there any evidence of marital strife or violence
contemporaneous with the preparation or signing of the 2003 tax
return. The parties separated later in 2004, and obtained a
divorce decree in February 2006.
On August 7, 2006, respondent mailed to petitioner and
intervenor duplicate originals of a notice of deficiency for tax
year 2003. In the notice of deficiency, respondent denied the
claimed section 179 deduction for the Cadillac Escalade on the
grounds that it should have been expensed in 2002, the year
placed in service; denied deductions for law-practice-related
business expenses that had been duplicated and claimed twice;
adjusted the couple’s income to reflect the receipt of a capital
gain from the sale of Lots 6 and 7; and disallowed
unsubstantiated advance costs claimed to have been paid on behalf
of clients. The notice, in tallying the total amount of tax due
for 2003, stated that the self-assessed amount of tax liability
reported by petitioner and intervenor, but not paid in the amount
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of $10,276, was currently due. The notice of deficiency imposed
a penalty for failing to timely file an income tax return under
section 6651(a)(1), and an accuracy-related penalty under section
6662(a).
The income tax liability and deficiency from which
petitioner seeks relief for 2003 are attributable to items of
intervenor, including his self-employment tax liability for
2003. Petitioner no longer disputes the adjustments giving rise
to the deficiency in income tax for 2003. Petitioner instead
seeks relief under section 6015 from joint and several liability
for the amounts determined by respondent in the notice of
deficiency as well as the self-assessed amount reported by
petitioner on her 2003 income tax return. On July 10, 2006,
petitioner timely submitted to respondent a request for relief
from joint and several liability under section 6015 for tax year
2003. On November 8, 2006, the petition was filed with this
Court. On November 15, 2006, respondent sent to petitioner a
notice of final determination denying petitioner’s request.
According to the notice of determination, respondent denied
petitioner relief from joint and several tax liability with
respect to the understatement because respondent determined that
petitioner had actual knowledge of the items giving rise to the
deficiency in tax for 2003. Petitioner was denied relief from
joint and several liability with respect to the underpayment in
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tax for 2003 because respondent determined that petitioner knew
at the time that she signed the return that intervenor had
financial difficulties and would not be able to pay the tax
liability shown on the return. Petitioner was
denied equitable relief for both the understatement and the
underpayment under section 6015(f) because respondent determined
that petitioner actually knew of the items giving rise
to the deficiency, knew that the unpaid tax liability shown
on the return would not be paid, and failed to establish that she
would suffer economic hardship if relief was not granted.
OPINION
The Court must decide whether petitioner is entitled to
relief under section 6015(b), (c), or (f).
I. Jurisdiction
This case presents the Court with a unique jurisdictional
question that, although never raised by either party, must be
resolved. The Court must decide whether it has jurisdiction to
hear petitioner’s claim for relief from the tax reported on the
joint return.
Section 6015(e) grants the Tax Court jurisdiction to
determine the relief available to a spouse with respect to a
joint return. Pursuant to section 6015(e), the Tax Court has
jurisdiction to review a denial of section 6015 relief by the
IRS. The Court also has jurisdiction, as part of its traditional
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authority in deficiency cases, to review claims under section
6015 which are raised as an affirmative defense against income
tax deficiencies and penalties determined in a notice of
deficiency. See Butler v. Commissioner, 114 T.C. 276, 287
(2000). Under section 6015(e), the Tax Court shall have
jurisdiction to determine the appropriate relief available to the
requesting individual if any petition for innocent spouse relief
is filed after the earlier of (1) the date the IRS mails to the
taxpayer’s last known address a final notice of determination
denying relief, or (2) a date 6 months after the date the request
for relief was filed with the IRS. Sec. 6015(e)(1)(A)(i)(I) and
(II).
Petitioner’s tax liability before this Court is for a single
tax year, 2003. Part of the tax liability was determined by
respondent, and part was reported by petitioner on her 2003
income tax return.5 On July 10, 2006, in response to the IRS
examination of petitioner’s 2003 tax year, petitioner timely
submitted to respondent a request for relief under section 6015
for tax year 2003. On August 7, 2006, respondent mailed to
petitioner a notice of deficiency for 2003 which determined a
deficiency of $40,761, an addition to tax of $1,522.80 under
5
Though the reported amount was included in the notice of
deficiency as currently due, this amount was not an item
determined as understated and deficient by respondent. This
merely served as a reminder to petitioner and intervenor that the
amount reported on the 2003 tax return was still unpaid.
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section 6651(a)(1), and a penalty of $8,152 under section
6662(a). The tax liability of $10,276 reported on her 2003
income tax return is in large part unpaid.
Petitioner timely filed a petition for redetermination of
the deficiency on November 8, 2006. The petition also sought
section 6015 relief with respect to the tax reported on the 2003
return. Petitioner raises an affirmative defense to the notice
of deficiency under section 6015(b), (c), and (f). Additionally,
petitioner seeks relief from her reported and unpaid tax
liability under section 6015(f). Under section 6213(a), this
Court has jurisdiction to review petitioner’s section 6015 claim
as an affirmative defense to the notice of deficiency. The
question remains, however, whether this Court has jurisdiction
over the reported and unpaid tax liability since the petition was
filed prematurely under section 6015(e).
On July 10, 2006, petitioner timely submitted to respondent
a request for relief under section 6015 for tax year 2003.
Petitioner filed a petition with this Court on November 8, 2006,
seeking redetermination of the deficiency. Respondent did not
mail to petitioner a notice of final determination denying her
July 10, 2006, request until November 15, 2006. As discussed
earlier, for the Court to have section 6015(e) jurisdiction over
her claims, petitioner should have filed a petition for review of
the notice of determination within 90 days of November 15, 2006.
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See sec. 6015(e)(1)(A)(i)(I) and (ii). However, petitioner filed
her petition with this Court on November 8, 2006, 7 days before
respondent mailed the notice of determination. Under section
6015(e), the petition was filed prematurely. Moreover, the
proper time for filing has now long passed. A trial on this
matter was held, the issues were fully briefed by the parties’
counsels, and respondent has not raised any defense regarding the
Court’s lack of jurisdiction over the matter.
Like sections 6511 and 6330, the requirements under section
6015(e) for petitioning the Tax Court are jurisdictional. See
Pollock v. Commissioner, 132 T.C. , (2009) (slip op. at
14-15). The Tax Court is a court of limited jurisdiction, and
thus can only hear cases for which jurisdiction has specifically
been granted by Congress. See sec. 7442; Kluger v. Commissioner,
83 T.C. 309, 314 (1984). Because the petition in this matter was
filed prematurely, the Court lacks jurisdiction. See Adkison v.
Commissioner, 129 T.C. 97 (2007) (holding that the Court lacked
jurisdiction over a section 6015 claim that was prematurely
filed). Even though the petition was prematurely filed,
petitioner could have rectified the error by petitioning this
Court for relief from the reported and unpaid 2003 tax liability
within 90 days of the mailing of the notice of final
determination, and the Court would have then had jurisdiction to
hear that matter. This did not happen. As a result, this Court
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does not have jurisdiction to hear petitioner’s claims for relief
regarding her reported and unpaid tax liability for tax year
2003. See Pollock v. Commissioner, supra at (slip op. at 23-
24) (holding that the Court’s jurisdictional time limit may not
be equitably tolled under section 6015).
As a result, the Court will consider only petitioner’s
section 6015 defenses against the notice of deficiency, and not
petitioner’s equitable claims regarding the reported and unpaid
amount as reported on her 2003 return.
II. Section 6015 and Relief From Joint and Several Tax Liability
Under section 6013(d)(3), a husband and wife filing a joint
return are jointly and severally liable for all tax for the
taxable year (not merely the amount shown on the return),
including interest and penalties. Petitioner claims she is
entitled to relief from this liability under section 6015.
Section 6015 relieves a spouse of joint and several liability in
three situations: (1) if the spouse did not know or have reason
to know of the deficiency when the return was signed, and
satisfies other conditions; (2) if a divorced or separated spouse
seeks to limit individual liability to the portion of the
deficiency attributable to him or her; and (3) in the case of a
deficiency or of a tax shown on a return but not paid, if it is
inequitable to hold the spouse liable for the tax. See sec.
6015(b), (c), and (f), respectively. This last provision, found
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in section 6015(f), only applies if relief is not available to
the taxpayer under the other two provisions.
A. Section 6015(b)
Under section 6015(b), generally the spouse seeking relief
from liability for an understatement of tax will be entitled to
relief if he or she did not know or have reason to know of the
understatement when the return was signed, and satisfies other
conditions.6 Section 6015(b) states that if there is an
understatement of tax on a jointly filed return attributable to
erroneous items of one individual filing the joint return, and
the other individual filing the joint return, in addition to
meeting other conditions, establishes that in signing the return
he or she either did not know, or have reason to know, that there
was an understatement, then the other individual shall be
relieved of liability for the payment of tax and penalties to the
extent the liability is attributable to the understatement.
Moreover, relief from joint and several liability under this
subsection is not an all-or-nothing proposition. An individual
may be granted relief from all or any portion of the tax
deficiency of which the individual had no actual or constructive
knowledge. See sec. 6015(b)(2).
6
This is a conjunctive test, and therefore, all requirements
of section 6015(b) must be satisfied to qualify a spouse for
relief thereunder.
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Except as otherwise provided in section 6015, the taxpayer
bears the burden of proof. See Rule 142(a); Alt v. Commissioner,
119 T.C. 306, 311 (2002), affd. 101 Fed. Appx. 34 (6th Cir.
2004). Therefore, for petitioner to qualify for section 6015(b)
relief, she must prove to the Court that, inter alia, she did not
know, or have reason to know, that there was an understatement of
tax.
The items at issue giving rise to the understatement in this
case are as follows: (1) disallowance of a deduction claimed
under section 179 for a Cadillac Escalade which petitioner knew
was purchased and placed in service in 2002; (2) disallowance of
business expenses which were deducted twice; (3) disallowance of
unsubstantiated advance costs claimed to have been paid on behalf
of clients; and (4) an unreported capital gain from the sale of
real property titled in the names of intervenor and his brother,
which sale was facilitated by petitioner’s signing the conveyance
to release any marital interest she may have had in the property.
A spouse has reason to know of the understatement if a
“reasonably prudent taxpayer in her position at the time she
signed the return could be expected to know that the return
contained the * * * understatement.” Price v. Commissioner, 887
F.2d 959, 965 (9th Cir. 1989); see also sec. 1.6015-2(c), Income
Tax Regs. Factors to consider in analyzing whether a spouse had
reason to know of the understatement include: (1) the spouse’s
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level of education; (2) the spouse’s involvement in the family’s
business and financial affairs; (3) the presence of expenditures
that appear lavish or unusual when compared to the family’s past
levels of income, standard of living, and spending patterns; and
(4) the culpable spouse’s evasiveness and deceit concerning the
couple’s finances. Price v. Commissioner, supra at 965.
Petitioner is educated, holding a bachelor of science degree
in nursing and a bachelor of arts degree in pre-law. Prior to
and during the tax year at issue, petitioner was the manager of
intervenor’s law practice. As part of her duties as manager, she
reviewed mail received, read invoices, and paid bills including
advance cost expenses on clients’ accounts. Petitioner kept all
of the records for the law practice in 2003. Petitioner was the
sole party responsible for reviewing the documents to be
presented to the tax return preparer for tax year 2003. In doing
so, petitioner reviewed the expenses of the law practice.
Petitioner even assisted the return preparer with the preparation
of the joint income tax return for 2003. During the preparation
of the return, petitioner matched each bank check against each
expense to be claimed. Finally, intervenor was not deceptive
about financial matters, and in fact frequently discussed with
petitioner, then his wife, business and family financial matters.
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Petitioner was responsible for the personal and law practice
finances. She either knew or should have known, as the manager
of the law practice who helped prepare the tax return for 2003,
that business expenses were being twice deducted and that
excessive deductions for advance client costs were being claimed.
As part of preparing the return, petitioner should have informed
the preparer that the Cadillac Escalade had been purchased and
placed in service in 2002, and not in 2003. She had actual
knowledge of those facts because she drove the vehicle during
2002 in the course of her duties as manager of the law practice,
and because the vehicle was titled in her name; two matters which
do not require any knowledge of tax law. Finally, petitioner
knew or had reason to know of the unreported capital gain from
the sale of Lots 6 and 7. The sale of this property was
contingent upon petitioner’s signing the deed of conveyance,
which she did. Moreover, both petitioner and intervenor
testified that they frequently discussed personal and business
finances during the marriage. In fact, intervenor testified that
petitioner and intervenor discussed the sale price negotiations
for Lots 6 and 7 prior to the sale of the property. Intervenor
discussed with petitioner that the lots were purchased for
approximately $120,000, and that negotiations were then occurring
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to sell the lots for approximately $180,000.7 Additionally,
petitioner testified that she knew, prior to signing the 2003
income tax return, that the profit from the sale had been used to
pay off debts of intervenor’s law firm. The sales proceeds
received by intervenor from the sale were deposited into the law
practice checking account, from which payments were made on the
Cadillac Escalade during 2003, and on the mortgage on the
couple’s house, which was titled solely in petitioner’s name.
Further, a Form 1099-S was issued to intervenor and petitioner in
the amount of $90,000 for 2003 in April 2004, while petitioner
and intervenor were still living together. The form was sent to
the couple’s home address, well before petitioner and intervenor
filed their 2003 return. While petitioner testified that she
never received this document, in light of the fact that
petitioner testified that she routinely reviewed personal and
business documents sent to the couple, in conjunction with the
fact that petitioner managed all business and personal finances,
the Court finds petitioner’s testimony to be self-serving and not
credible. Petitioner was familiar with the purchase price and
proposed sale price of the properties. Petitioner therefore
should have known that there was some gain from the sale of the
7
The parcels were owned equally by intervenor and his
brother. The property was sold for gross sales proceeds in the
amount of $180,000, with intervenor’s share as half owner
equating to $90,000 in gross sales, with a cost basis of $59,500,
resulting in a net capital gain of $30,500.
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real estate. Even if petitioner were otherwise unaware of this
fact, she would have known of the sales proceeds through her role
as the law practice manager.
Thus, because petitioner knew or should have known of the
understatement of tax, she does not qualify for relief under
section 6015(b). The Court has considered all relevant evidence
in making its determination.
B. Section 6015(c)
Under section 6015(c), a divorced or separated spouse may
seek to limit liability for a deficiency on a joint return to the
portion allocable to him or her. In this case, respondent
concedes that certain prerequisites for relief have been met.
However, respondent argues that petitioner is precluded from
obtaining relief because under section 6015(c)(3)(C),
apportionment of liability does not apply if the Commissioner
“demonstrates that an individual making an election under this
subsection had actual knowledge, at the time such individual
signed the return, of any item giving rise to a deficiency (or
portion thereof) which is not allocable to such individual * *
*”. This Court has defined actual knowledge as “an actual and
clear awareness (as opposed to reason to know) of the existence
of an item which gives rise to the deficiency (or portion
thereof)”. Cheshire v. Commissioner, 115 T.C. 183, 195 (2000),
affd. 282 F.3d 326 (5th Cir. 2002), cert. denied 537 U.S. 881
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(2002). This actual knowledge requirement does not require the
requesting spouse to possess knowledge of the tax consequences of
the item giving rise to the deficiency. Id. at 194. When one
spouse requests relief under section 6015(c), the burden of
proving the spouse’s actual knowledge of an item is on the
Commissioner. In the case of a disallowed deduction, the burden
requires the Commissioner to prove that the spouse had “actual
knowledge of the factual circumstances which made the item
unallowable as a deduction.” King v. Commissioner, 116 T.C. 198,
204 (2001). And, consistent with Cheshire, such actual knowledge
does not include knowledge of the tax laws or knowledge of the
legal consequences of the operative facts.
Generally, under section 6015(c), a taxpayer who, at the
time of electing relief under that subsection, is no longer
married, is legally separated, or has not resided with his or her
spouse for a 12-month period, may obtain relief from joint and
several liability for the portion of the income tax deficiency
allocable to the other spouse, unless the Commissioner
demonstrates that the electing spouse, as of the time the joint
income tax return was signed, had actual knowledge of the item or
items that gave rise to the deficiency. It is clear to the Court
that petitioner had actual knowledge of all items giving rise to
the deficiency in joint tax; i.e., actual knowledge of the
omitted income and of factual circumstances which made the
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deductions unallowable. Petitioner was solely responsible for
keeping the finances of the law practice; had actual knowledge of
the year the Cadillac Escalade was purchased and placed in
service; helped prepare the 2003 income tax return by reviewing
items with the preparer and reviewing and gathering all financial
documents from the law practice, including checks, expense
reports, and business ledgers; frequently discussed business and
personal financial matters with her then husband; discussed the
sale negotiations for the real estate property; knew the amount
of the proceeds of the sale and of intervenor’s basis in the
property; and accounted for the receipt of proceeds from said
sale to make payments on intervenor’s debts, on the house solely
titled in her name, and on the Cadillac Escalade. Petitioner
controlled the client billing process and was solely responsible
for overseeing the day-to-day activities of intervenor’s law
practice. Consequently, relief in the form of apportionment
under section 6015(c) is not available to petitioner. The Court
has considered all relevant evidence in making its determination.
C. Section 6015(f)
Under section 6015(f), the Commissioner may grant equitable
relief from joint and several liability if he finds that, taking
into account all of the facts and circumstances, it is
inequitable to hold the individual liable for any unpaid tax or
deficiency, and if relief is not available under section 6015(b)
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or (c). In cases brought under section 6015(f), the Court
applies a de novo standard of review as well as a de novo scope
of review. See Porter v. Commissioner, 132 T.C. ___, ___ (2009)
(slip op. at 11-12). Petitioner bears the burden of proving that
she is entitled to equitable relief under section 6015(f). See
Rule 142(a). The Court has jurisdiction to determine whether a
taxpayer is entitled to equitable relief under section 6015(f).8
See sec. 6015(e)(1)(A). The Court’s determination is made in a
trial de novo. See Porter v. Commissioner, supra at (slip
op. at 11-12). Therefore, the Court may consider evidence
introduced at trial which was not included in the administrative
record. Both parties submitted evidence at trial which was not
available to respondent’s Appeals officer. The Court has
considered all relevant evidence in making its determination.
Under section 6015(f), relief shall be granted under
procedures prescribed by the Secretary. These procedures have
been described in Rev. Proc. 2003-61, 2003-2 C.B. 296. Under
section 6015(e) and (f)(1), the Court will consider all relevant
facts and circumstances in determining whether petitioner is
entitled to relief. As explained by Rev. Proc. 2003-61, sec.
4.01, 2003-2 C.B. at 297-298, the requesting spouse must satisfy
8
As previously discussed, the Court has jurisdiction to
review petitioner’s claim under section 6015(f) as an affirmative
defense to the deficiency, but not to the reported and unpaid tax
liability.
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all of the following threshold conditions to be eligible for
relief under section 6015(f): the requesting spouse must have
filed a joint return for the taxable years for which relief is
sought; the requested relief must not have been available to the
requesting spouse under section 6015(b) or (c); no assets can
have been transferred between the spouses as part of a fraudulent
scheme by the spouses to hide income or avoid tax; the
nonrequesting spouse must not have transferred disqualified
assets to the requesting spouse; the requesting spouse did not
file or fail to file the return with fraudulent intent; and the
income tax liability from which the requesting spouse seeks
relief is attributable to an item of the individual with whom the
requesting spouse filed the joint return. Respondent concedes,
and the Court agrees, that petitioner satisfies these threshold
requirements for equitable relief. However, respondent argues
that as described under the revenue procedure, petitioner is not
entitled to relief under section 6015(f) because petitioner had
knowledge of the items giving rise to the deficiency; had
knowledge or reason to know that intervenor would not or could
not pay the tax liability shown on the return; and if held liable
for the payment of tax she would not suffer an economic hardship.
See Rev. Proc. 2003-61, sec. 4.02(1) and 4.03, 2003-2 C.B. at
298.
- 25 -
Petitioner completed and submitted Form 12510, Questionnaire
for the Requesting Spouse, and reported that she knew
petitioner’s and intervenor’s joint monthly expenses were in
excess of their monthly income for the 2003 tax year. Petitioner
was aware that checks drawn on the law practice account were
often returned for insufficient funds in 2003 and 2004.
Petitioner made loans to the law office and to intervenor
personally during 2003 and 2004. Moreover, petitioner knew at
the time she signed the 2003 tax return that intervenor owed a
separate income tax liability for tax year 2001 in excess of
$50,000. This liability was not satisfied until after the 2003
return was filed, and the money used to satisfy the debt was
provided by intervenor’s family. This information supports the
conclusion that petitioner knew that she and intervenor were
having financial difficulties during tax year 2003 and therefore
intervenor would not or could not pay the tax liabilities shown
on the return. Additionally, during the period in question,
petitioner knew that intervenor was legally obligated to make
periodic payments for child support and alimony from a prior
marriage, and further knew that intervenor would make these
payments before he would attempt to pay his tax debts.
As evidenced by Form 12510, petitioner revealed that at the
time of completing the form, her monthly income was $3,000 and
her monthly expenses were $2,180, leaving petitioner with a
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monthly surplus of $820. Ex. 27-J, p. 26. Under Rev. Proc.
2003-61, sec. 4.02(1) and 4.03(2)(a)(ii), the Court must consider
whether holding petitioner liable for the tax would create an
economic hardship for her. Economic hardship is defined as the
inability to meet “reasonable basic living expenses.” See sec.
301.6343-1(b)(4), Proced. & Admin. Regs. Because petitioner
reported that she has a surplus of $820 after payment of her
expenses each month, the Court finds that petitioner has the
ability to meet “reasonable basic living expenses,” and that
denying petitioner relief under section 6015(f) does not create
an economic hardship for her.
Under Rev. Proc. 2003-61, sec. 4.03(2)(a)(v), 2003-2 C.B. at
299, in weighing eligibility for relief under section 6015(f), it
is considered a negative factor if the requesting spouse received
a significant benefit (beyond normal support) from the unpaid
income tax liability or item giving rise to the deficiency.
Petitioner used profits from the sale of Lots 6 and 7 to make
monthly mortgage payments on the house that intervenor purchased
for petitioner prior to their marriage, which was titled solely
in petitioner’s name. The Court finds this to have been a
significant benefit to petitioner.
In sum, the Court determines that petitioner is not entitled
to relief under section 6015(f).
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Conclusion
Because petitioner had actual knowledge of the items that
created the deficiency, she is not entitled to relief from joint
and several liability for the deficiency under section 6015(b) or
(c). Further, because petitioner possessed this knowledge,
because she knew or had reason to know at the time of filing the
return that intervenor would not pay the tax, because petitioner
has not shown that she would suffer economic hardship if required
to pay in full the liability from which she seeks relief, and
because she received a significant benefit from the unreported
income giving rise to the deficiency, petitioner is not entitled
to equitable relief from joint and several liability under
section 6015(f). Petitioner’s claims regarding the unpaid tax
liability reported on her 2003 joint income tax return are
dismissed for lack of jurisdiction.
The Court has considered the remaining arguments of all
parties for results contrary to those expressed herein and, to
the extent not discussed above, finds those arguments to be
irrelevant, moot, or without merit.
To reflect the foregoing,
Decision will be entered
for respondent.