Venables v. Comm'r

T.C. Summary Opinion 2010-62

UNITED STATES TAX COURT

CAROL LYNN HOOD VENABLES, Petitioner v.
COMMISSIONER OF INTERNAL REVENUE, Respondent

Docket No. 22068-08S. Filed May 18, 2010.

Carol Lynn Hood Venables, pro se.

Shannon E. Loechel, for respondent.

GOLDBERG, Special Trial Judge: This case was heard pursuant

to the provisions of section 7463 of the Internal Revenue Code in

effect at the time 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. Unless otherwise indicated, subsequent

section references are to the Internal Revenue Code.
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This case arises from petitioner’s request for relief from

joint and several liability for unpaid Federal income tax for

1997. Respondent determined that petitioner is not entitled to

relief. Thus, the sole issue for decision is whether petitioner

is entitled to equitable relief under section 6015(f) for the

unpaid income tax liability for 1997.

Background

Some of the facts have been stipulated and are so found.

The stipulation of facts, the supplemental stipulation of facts,

and the attached exhibits are incorporated herein by this

reference. Petitioner resided in Georgia when she filed her

petition.

Petitioner married Leamon Hood, Jr. (Mr. Hood), on May 12,

1984. She is a high school graduate who worked as a hotel desk

clerk until she became pregnant in 1986. Once petitioner became

pregnant, Mr. Hood wanted her to stop working and stay at home.

Petitioner submitted to her husband’s request, quitting her job

in 1986. Petitioner gave birth to a daughter in 1986 and a son

in 1988. Shortly after her daughter was born, Mr. Hood became

physically and emotionally abusive towards petitioner.

Petitioner has been unemployed since leaving work in 1986 through

the time of trial.

Petitioner did not participate in the handling of household

finances. Mr. Hood paid the household bills and prepared the
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couple’s income tax returns. Mr. Hood worked initially as a car

salesperson, but in the year in issue he operated his own

business as a factoring broker. Petitioner had no role in Mr.

Hood’s business or business affairs. The couple bought a marital

home after their marriage but titled the home solely in Mr.

Hood’s name. Therefore, petitioner was not listed on the

mortgage. Petitioner had no knowledge of subsequent second and

third mortgages. Petitioner’s sole interaction with income tax

return preparation was signing a return before its completion and

making a cursory inquiry as to whether they would receive a

refund. Petitioner did not know whether the couple had ever

received a tax refund. Petitioner shared a joint bank account

with Mr. Hood but felt constrained from using any money in the

account because of prior threats and abuse by Mr. Hood.

Throughout the marriage Mr. Hood caused petitioner to have

multiple stays in a battered women’s shelter. The Court received

into evidence a copy of a petition for temporary protective order

filed on September 18, 1997, describing a contemporaneous act of

domestic violence by Mr. Hood, and a family violence incident

report dated May 2, 2002, leading to the arrest of Mr. Hood.

Petitioner and Mr. Hood did not live lavishly or own

expensive things. In fact, they filed three chapter 13 voluntary

bankruptcy petitions. They filed their first bankruptcy petition

on April 13, 1998, 2 days before their 1997 Federal income tax
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return was due. Mr. Hood did not file the couple’s joint 1997

Federal income tax return until 2-1/2 years later, on September

13, 1999, while the first bankruptcy was pending. For 1997 Mr.

Hood reported wages of $7,197, a loss from his business of

$9,110, and tax due of $4,961 after only $5 of withholding. The

primary basis of their tax liability was a taxable individual

retirement account distribution of $35,000. Mr. Hood also

reported a nontaxable pension or annuity distribution of $35,623.

He listed petitioner as an unemployed homemaker.

On June 23, 2000, the Bankruptcy Court for the Northern

District of Georgia dismissed the first petition for failure to

comply with the court’s orders. Mr. Hood and petitioner filed a

second bankruptcy petition within a week. When the court

dismissed the second bankruptcy petition on January 30, 2001,

again for failure to comply with the court’s orders, Mr. Hood and

petitioner filed a third petition on the same day.

The Internal Revenue Service (IRS) filed a proof of claim

for the 1997 tax liability in each of the three bankruptcies.

During the bankruptcies Mr. Hood made at least 18 payments of

around $130 toward the couple’s outstanding 1997 Federal income

tax liability. The IRS listed these payments as undesignated

bankruptcy payments on the 1997 transcript of account for

petitioner and Mr. Hood. As of April 23, 2009, the balance of

unpaid tax, additions to tax, penalties, and interest was $7,237.
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Petitioner had wanted a divorce since at least 2001 but

could not afford a lawyer. With the help of the Justice Center

of Atlanta, Inc., petitioner divorced Mr. Hood in July 2003 while

the third bankruptcy was pending. The divorce decree

incorporated by reference a separation agreement in which the

parties agreed that Mr. Hood would be responsible for the

“Chapter 13” debts, and petitioner would be responsible for “0”

debts.

The 2003 divorce decree provided that Mr. Hood would pay

$1,100 per month in alimony and $500 per month in child support;

however, petitioner did not receive any alimony payments until

2006. The alimony payments petitioner received in 2006 were only

a fraction of the accumulated alimony due her. The alimony did

not give rise to a Federal income tax liability, but petitioner

nonetheless filed a Federal income tax return for 2006, claiming

head of household filing status--her first separate Federal

income tax return since the marriage--perhaps to claim a

refundable credit. After petitioner failed to receive her

expected $40 Federal income tax refund for 2006, she made

inquiries, discovering for the first time that the IRS had

applied her 2006 refund to 1997 because Mr. Hood had failed to

pay in full the outstanding balance of their 1997 Federal income

tax liability. Following the issuance of a contempt order dated
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May 3, 2007, authorities arrested Mr. Hood for willfully failing

to pay $23,741 in alimony to petitioner.

On September 27, 2007, petitioner submitted to respondent a

Form 8857, Request for Innocent Spouse Relief (request for

relief), attaching various documents including the 1997 petition

for a temporary protective order, the 2002 family violence

incident report, the 2003 separation agreement, the 2003 divorce

decree, and the 2007 contempt order. She also attached a Social

Security statement dated June 13, 2007, showing that she had no

earnings from 1987 through 2005, the last year data was

available. At the time of her request for relief, petitioner was

unemployed and was attending the University of Phoenix. She

financed her education entirely through Federal Stafford Loans.

Petitioner claimed economic hardship as a basis for relief.

However, she only partially completed part V of Form 8857, the

section that describes current financial situation. Petitioner

listed two adults with no children in her household and she

detailed some of her current expenses, but she did not complete

the income section.

On June 12, 2008, respondent issued a final Appeals

determination denying petitioner relief from joint and several

liability under section 6015(f). Petitioner timely petitioned

this Court, contesting respondent’s denial of relief. In a

notice dated September 30, 2008, respondent notified Mr. Hood of
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petitioner’s petition to the Court and informed Mr. Hood of his

right to intervene. Mr. Hood chose not to intervene.

Discussion

In general, taxpayers filing a joint Federal income tax

return are each responsible for the accuracy of their return and

are jointly and severally liable for the entire tax liability due

for that year. Sec. 6013(d)(3); Butler v. Commissioner, 114

T.C. 276, 282 (2000). In certain circumstances, however, a

spouse may obtain relief from joint and several liability by

satisfying the requirements of section 6015.

Section 6015 applies to tax liabilities arising after July

22, 1998, and to tax liabilities arising on or before July 22,

1998, that remain unpaid as of such date. Internal Revenue

Service Restructuring and Reform Act of 1998, Pub. L. 105-206,

sec. 3201(g), 112 Stat. 740. The liability at issue here arose

during 1997; however, that liability remained unpaid as of July

22, 1998.1 Therefore, petitioner may apply for relief under

section 6015. See Washington v. Commissioner, 120 T.C. 137, 155

(2003).

Section 6015(a)(1) provides that a spouse who has made a

joint return may elect to seek relief under section 6015(b) from

1
In the wake of Billings v. Commissioner, 127 T.C. 7 (2006),
Congress amended sec. 6015(e)(1) to confirm our jurisdiction over
stand-alone sec. 6015(f) underpayment cases. Tax Relief and
Health Care Act of 2006, Pub. L. 109-432, div. C, sec. 408(a),
120 Stat. 3061.
 - 8 -

joint and several liability attributable to an understatement of

tax on a joint return. Section 6015(a)(2) provides that a spouse

who is eligible to do so may elect to limit that spouse’s

liability for any deficiency with respect to a joint return under

section 6015(c).

The tax liability from which petitioner seeks relief results

not from an understatement or a deficiency but from an

underpayment of the tax liability shown on the 1997 joint Federal

income tax return. Therefore, petitioner does not qualify for

relief under section 6015(b) or (c). When relief is not

available under either subsection (b) or subsection (c), the

requesting spouse may seek equitable relief under section

6015(f), which the Commissioner may grant at his discretion.

We have jurisdiction to review petitioner’s request for

relief under section 6015(e), which allows a requesting spouse to

contest the Commissioner’s denial of relief by filing a timely

petition in this Court. Petitioner contends that she is entitled

to full relief from liability under section 6015(f) because, in

main part, she suffered physical violence throughout her

marriage, she was uninvolved in and unaware of the family

finances, and Mr. Hood agreed to sole responsibility for the 1997

Federal income tax liability as part of their divorce decree.

Respondent argues that because of the bankruptcies and

ongoing financial difficulties, petitioner had reason to know
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that Mr. Hood would not pay their 1997 Federal income tax

liability and it was not reasonable for her to believe he would

pay the tax. Respondent argues, moreover, that petitioner has

not provided sufficient information to conclude that she would

suffer financial hardship if she did not receive relief.

We assess these contentions below as we address the

requirements for relief under subsection 6015(f).

I. Section 6015(f) Equitable Relief

Section 6015(f) provides in relevant part that a taxpayer

may be relieved from joint and several liability if, taking into

account all the facts and circumstances, it is inequitable to

hold the taxpayer liable for the unpaid tax and relief is not

available under section 6015(b) or (c). We review, de novo,

petitioner’s entitlement to relief under 6015(f). See Porter v.

Commissioner, 132 T.C. 203 (2009).

As section 6015(f) directs, the Commissioner has prescribed

guidelines in Rev. Proc. 2003-61, 2003-2 C.B. 296, modifying and

superseding Rev. Proc. 2000-15, 2000-1 C.B. 447, for use in

determining whether it is inequitable to hold a requesting spouse

liable for all or part of the liability for any unpaid tax or

deficiency.2

2
Rev. Proc. 2000-15, 2000-1 C.B. 447, was superseded by Rev.
Proc. 2003-61, 2003-2 C.B. 296, which is effective as to requests
for relief filed on or after Nov. 1, 2003, and for requests for
relief pending on Nov. 1, 2003, as to which no preliminary
(continued...)
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Rev. Proc. 2003-61, sec. 4.01, 2003-2 C.B. at 297, sets

forth seven threshold conditions that must be satisfied before

the Commissioner will consider a request for relief under section

6015(f), as follows: (i) The requesting spouse filed a joint

return for the taxable year for which he or she seeks relief;

(ii) relief is not available to the requesting spouse under

section 6015(b) or (c); (iii) the requesting spouse applies for

relief no later than 2 years after the date of the Commissioner’s

first collection activity after July 22, 1998, with respect to

the requesting spouse;3 (iv) no assets were transferred between

the spouses as part of a fraudulent scheme by the spouses; (v)

the nonrequesting spouse did not transfer disqualified assets to

the requesting spouse; (vi) the requesting spouse did not file or

fail to file the return with fraudulent intent; and (vii) absent

enumerated exceptions, the Federal 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 that petitioner satisfies the

above threshold conditions.

2
(...continued)
determination letter had been issued as of that date.
Petitioner’s application for relief was filed on Oct. 10, 2007.
3
The Court has held the 2-year limitation is invalid. Lantz
v. Commissioner, 132 T.C. 131 (2009).
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Where the requesting spouse satisfies the threshold

requirements of Rev. Proc. 2003-61, sec. 4.01, Rev. Proc. 2003-

61, sec. 4.02, 2003-2 C.B. at 298, sets forth circumstances in

which the Commissioner will ordinarily grant relief under section

6015(f) with respect to an underpayment of a properly reported

liability. To qualify for relief under Rev. Proc. 2003-61, sec.

4.02, the requesting spouse must: (1) No longer be married to,

be legally separated from, or not have been a member of the same

household as the nonrequesting spouse at any time during the 12-

month period ending on the date of the request for relief; (2)

have had no knowledge or reason to know when she signed the

return that the nonrequesting spouse would not pay the tax

liability; and (3) suffer economic hardship if relief is not

granted.

Respondent and the Court agree petitioner meets the first

requirement, because she divorced Mr. Hood in 2003. However, we

agree with respondent that petitioner has provided insufficient

financial information to show that she will suffer economic

hardship. Thus, having failed to substantiate the third

requirement, petitioner does not qualify for relief under Rev.

Proc. 2003-61, sec. 4.02.

Where a requesting spouse fails to qualify for relief under

Rev. Proc. 2003-61, sec. 4.02, the Commissioner may nevertheless

grant relief under Rev. Proc. 2003-61, sec. 4.03, 2003-2 C.B. at
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298. The Court discusses below the nonexhaustive list of factors

that Rev. Proc. 2003-61, sec. 4.03, provides.

A. Marital Status

One factor is whether the requesting spouse has separated

from or divorced the nonrequesting spouse. Id. sec.

4.03(2)(a)(i), 2003-2 C.B. at 298. Petitioner divorced Mr. Hood

in 2003. This factor weighs in favor of relief. See McKnight v.

Commissioner, T.C. Memo. 2006-155 (divorce weighs in favor of

relief under Rev. Proc. 2003-61, supra).

B. Economic Hardship

Another consideration is whether the requesting spouse will

suffer economic hardship if relief is not granted. Rev. Proc.

2003-61, sec. 4.03(2)(a)(ii), 2003-2 C.B. at 298. Generally,

economic hardship exists if collection of the tax liability will

cause the taxpayer to be unable to pay reasonable basic living

expenses. Butner v. Commissioner, T.C. Memo. 2007-136.

As stated earlier, petitioner provided insufficient

financial information to establish that she would suffer economic

hardship if relief were not granted. Consequently, this factor

weighs against granting relief. See Banderas v. Commissioner,

T.C. Memo. 2007-129 (lack of economic hardship weighs against

relief under Rev. Proc. 2003-61, supra).
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C. Knowledge or Reason To Know

This element weighs whether the requesting spouse did not

know or had no reason to know that the nonrequesting spouse would

not pay the liability. Rev. Proc. 2003-61, sec.

4.03(2)(a)(iii)(A), 2003-2 C.B. at 298. As relevant here, in

determining whether the requesting spouse had reason to know of

the underpayment, subfactors include any deceit or evasiveness of

the nonrequesting spouse, the requesting spouse’s involvement in

the household’s finances, and any lavish or unusual expenditures

compared with past spending levels (the factors specified in

Price v. Commissioner, 887 F.2d 959, 965 (9th Cir. 1989)). Rev.

Proc. 2003-61, sec. 4.03(2)(a)(iii)(C), 2003-2 C.B. at 298. As

stated earlier, there were no lavish expenditures and petitioner

had no role in the household finances.

Typically, in the case of a reported but unpaid liability

the relevant knowledge is whether the taxpayer knew or had reason

to know when the return was signed that the tax would not be

paid. See Washington v. Commissioner, 120 T.C. at 151; see also

Feldman v. Commissioner, T.C. Memo. 2003-201, affd. 152 Fed.

Appx. 622 (9th Cir. 2005). The general rule for unpaid

liabilities is that the requesting spouse must establish that:

(1) When she signed the return, she had no knowledge or reason to

know that the tax reported on the return would not be paid; and

(2) it was reasonable for her to believe that the nonrequesting
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spouse would pay the tax shown due. See Morello v. Commissioner,

T.C. Memo. 2004-181; Ogonoski v. Commissioner, T.C. Memo. 2004-

52; Collier v. Commissioner, T.C. Memo. 2002-144.

Respondent contends that because petitioner and Mr. Hood

were in bankruptcy at the time the tax return was filed,

petitioner could not have reasonably believed that Mr. Hood would

pay the tax. Petitioner in contrast emphasizes that Mr. Hood was

the sole breadwinner and was responsible for preparing the income

tax returns and paying the family bills throughout the marriage.

Petitioner had no income and little knowledge of the couple’s

finances. Thus, petitioner contends that she believed that Mr.

Hood would pay the tax.

Petitioner knew that she and her husband were in bankruptcy

at the time Mr. Hood filed the 1997 income tax return, and she

knew they were having financial difficulties. In Banderas v.

Commissioner, supra, the Court held that “a reasonable belief

that taxes would be paid must at minimum incorporate a belief

that funds would be on hand within a reasonably prompt period of

time.” Likewise, in Vuxta v. Commissioner, T.C. Memo. 2004-84,

the Court found that a taxpayer who filed the tax return during

the pendency of a bankruptcy had reason to know that the tax

would not be paid. Similarly, in Morello v. Commissioner, supra,

the Court found that it was not reasonable for a taxpayer who
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returned to work because of their financial difficulties after

her husband lost his job to believe the tax would be paid.

Accordingly, in the light of the above cases, and because

petitioner concedes that she knew of the financial difficulties

and the bankruptcies, the Court finds that it was not reasonable

for petitioner to believe that the tax would be paid at the time

she signed the joint 1997 Federal income tax return. Thus, this

factor weighs against relief.

D. Nonrequesting Spouse’s Legal Obligation

A further test is whether the nonrequesting spouse has a

legal obligation to pay the outstanding income tax liability

pursuant to a divorce decree or agreement. See Rev. Proc. 2003-

61, sec. 4.03(2)(a)(iv), 2003-2 C.B. at 298. However, if the

requesting spouse knew or had reason to know when the agreement

was entered into that the nonrequesting spouse would not pay the

liability, then this factor will not weigh in favor of relief.

Id.

The 2003 divorce decree provides that Mr. Hood agreed to pay

the chapter 13 debts, which included the unpaid 1997 Federal

income tax liability. Nothing in the record indicates that

petitioner knew or should have known when she entered into the

divorce decree that Mr. Hood would not fulfill the Family Court

order. He had been making payments to the IRS before the divorce
 - 16 -

decree. Therefore, this factor weighs in favor of granting

relief. See Magee v. Commissioner, T.C. Memo. 2005-263.

E. Significant Benefit

Another consideration is whether the requesting spouse

received significant benefit beyond normal support as a result of

the unpaid tax liability. Rev. Proc. 2003-61, sec.

4.03(2)(a)(v), 2003-2 C.B. at 299. Respondent has conceded that

there is no evidence indicating that petitioner received

significant benefit as a result of the unpaid tax liability.

Therefore, the Court concludes that this factor weighs in favor

of relief. See Magee v. Commissioner, supra (lack of significant

benefit weighs in favor of relief under Rev. Proc. 2003-61,

supra).

F. Compliance With Federal Tax Laws

Another factor is whether the requesting spouse has made a

good faith effort to comply with the Federal tax laws in the

succeeding years. See Rev. Proc. 2003-61, sec. 4.03(2)(a)(vi),

2003-2 C.B. at 299.

Respondent concedes petitioner has complied with Federal tax

laws and filing requirements. Therefore, this factor weighs in

favor of relief. See Harris v. Commissioner, T.C. Memo. 2009-26.

G. Abuse

An additional element is whether the nonrequesting spouse

abused the requesting spouse. See Rev. Proc. 2003-61, sec.
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4.03(2)(b)(i), 2003-2 C.B. at 299. The presence of abuse is a

factor favoring relief, and a history of abuse may mitigate the

requesting spouse’s knowledge or reason to know. Id.

Despite respondent’s disputing that petitioner was abused,

the record clearly corroborates petitioner’s credible testimony

regarding the abuse. Therefore, this factor weighs in favor of

relief and mitigates her knowledge or reason to know. See Fox v.

Commissioner, T.C. Memo. 2006-22 (weighing abuse as a positive

factor where a police report corroborated the requesting spouse's

claim of assault).

H. Mental or Physical Health

A further consideration is whether the requesting spouse was

in poor mental or physical health on the date she signed the

return or at the time relief was requested. See Rev. Proc. 2003-

61, sec. 4.03(2)(b)(ii), 2003-2 C.B. at 299.

Petitioner did not claim that she was in poor mental or

physical health on the date she signed the return or at the time

the relief was requested. Therefore, this factor is neutral.

See id.; see also Magee v. Commissioner, supra.

II. Conclusion: Weight of the Factors

Petitioner’s knowledge at the time she signed the 1997 joint

income tax return that the tax due would not be paid weighs

against her entitlement to section 6015(f) relief. However, in

considering her entitlement to relief under section 6015(f), her
 - 18 -

knowledge is only one factor among many to be taken into account.

As we have noted, no factor, in and of itself, is determinative.

See Stolkin v. Commissioner, T.C. Memo. 2008-211; Beatty v.

Commissioner, T.C. Memo. 2007-167; Banderas v. Commissioner, T.C.

Memo. 2007-129. Likewise, while the economic hardship factor

weighs against her, it does not outweigh the other factors.

Separate from petitioner’s knowledge at the time she signed

the 1997 joint Federal income tax return, the fact remains that

petitioner had no income for 1997. Thus, the liability from

which petitioner seeks relief is attributable entirely to Mr.

Hood. Additionally, the abuse she suffered and feared mitigates

her knowledge or reason to know that Mr. Hood would not pay the

tax.

Considering the foregoing, and weighing the factors

collectively, we find that it would be inequitable to hold

petitioner liable for any unpaid tax liability resulting from

the filing of the joint Federal income tax return for 1997.

In conclusion, the Court holds that petitioner is entitled

to relief from joint and several liability under section 6015(f)

with respect to any unpaid income tax liability for 1997.

To reflect the foregoing,

Decision will be entered for

petitioner.