Withers v. Comm'r

T.C. Summary Opinion 2010-73

UNITED STATES TAX COURT

ANTOINETTE WITHERS, Petitioner v.
COMMISSIONER OF INTERNAL REVENUE, Respondent

Docket No. 21019-08S. Filed June 10, 2010.

Antoinette Withers, pro se.

Timothy J. Driscoll, 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
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section references are to the Internal Revenue Code. All Rule

references are to the Tax Court Rules of Practice and Procedure.

This case arises from petitioner’s request dated July 8,

2007, for “innocent spouse relief” from her former husband’s

portion of their joint and several Federal income tax liabilities

of $1,945 and $753 for 2004 and 2005, respectively. Petitioner

requested relief under section 6015(f), the equitable provision.

Respondent issued a notice of final determination dated June 5,

2008, denying petitioner’s request. The issue for decision is

whether petitioner is entitled to equitable relief under section

6015(f) from her former husband’s portion of their 2004 and 2005

joint Federal income tax liabilities.

Background

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

The stipulation of facts and the attached exhibits are

incorporated herein by this reference. Petitioner resided in

Illinois when she filed her petition.

Petitioner is a high school graduate with less than a year

of college education. Petitioner has worked at Swiss America

Importing Co. (Swiss America) for 14 years. Petitioner started

as a temporary file clerk, and because of her excellent work

performance Swiss America promoted her to assistant director, her

position as of the date of trial. Petitioner’s responsibilities

as an assistant director include negotiating purchase agreements
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and managing junior staff. Petitioner earned $38,404 in 2004 and

$36,904 in 2005. Petitioner has not received a salary increase

since 2007.

While working at Swiss America petitioner met Warren Shields

(Mr. Shields), who was employed there as a production worker.

The couple began dating, and they married in July 2002. Before

and during the marriage petitioner was not privy to Mr. Shields’

finances or any of his financial debts, and they did not share a

joint bank account. Additionally, as discussed below, during

most of the couple’s marriage, including the years at issue,

petitioner paid all the household expenses from her income while

Mr. Shields spent most of his income on gambling and other

nonhousehold matters.

In 2003 petitioner and Mr. Shields timely filed their joint

2002 Federal income tax return. Petitioner, expecting a

significant overpayment to be refunded, was surprised to learn

that the Internal Revenue Service (IRS) had applied the refund to

offset Mr. Shields’ outstanding student loan debt. Further, Mr.

Shields had independently reduced the amount of Federal income

tax withheld from his wages at Swiss America.

During 2004 Mr. Shields’ indifference towards household

matters worsened. Specifically, Mr. Shields did not financially

contribute toward the purchase of the couple’s townhome,

resulting in petitioner’s titling the home solely in her name.
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Mr. Shields also did not make any effort to contribute to the

couple’s household or living expenses. Thus, petitioner became

solely responsible for paying the mortgage and the household

expenses. Petitioner and Mr. Shields filed a joint 2003 Federal

income tax return, which reported an income tax liability that

was not paid at the time of filing.

As Mr. Shields’ financial indifference increased, the

couple’s relationship further deteriorated. Petitioner suspected

that Mr. Shields was gambling, but she was unsure whether he was

gambling with all of his weekly wages or simply hiding his income

from her. Although the couple lived together, their financial

problems created so much tension that they stopped speaking to

one another. Petitioner and Mr. Shields did not file a 2004 or

2005 Federal income tax return, and their 2003 Federal income tax

liability remained unpaid.

By 2006 petitioner was overwhelmed by the couple’s financial

obligations and could not make ends meet. Petitioner felt alone

and trapped in a situation that had grown out of control.

Petitioner could not sleep, and the stress was affecting her

emotionally and physically. Worried about the outstanding 2003

tax liability and the couple’s failure to file 2004 and 2005

returns, petitioner contacted the IRS in July 2006 seeking advice

about resolving these problems. After being advised to file the
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delinquent returns, petitioner urged Mr. Shields to help her file

the returns by providing his Forms W-2, Wage and Tax Statement.

Although petitioner knew the couple’s marriage was failing

and thought they might separate, she naively believed that filing

the returns would help resolve the couple’s financial and

personal issues. In November 2006 petitioner, in hopes of saving

the relationship, engaged a national tax return preparation firm

to complete the returns, and she asked Mr. Shields to sign them.

Petitioner’s request caused the couple to argue about signing the

returns. However, in mid-December the couple filed the

delinquent 2004 and 2005 joint Federal income tax returns, which

reported liabilities that they were unable to pay. Less than 2

weeks later, Mr. Shields moved out of the townhouse permanently

and the couple legally separated.

According to the transcripts of account for 2004 and 2005,

petitioner entered into an installment agreement with the IRS on

January 3, 2007. The IRS processed the 2004 and 2005 Federal

income tax returns on January 8, 2007. Petitioner made one

installment payment of $24 on February 26, 2007. Petitioner

timely filed her 2006 Federal income tax return, electing married

filing separately status and reporting an overpayment. The IRS

applied the overpayment to the couple’s outstanding liabilities,

extinguishing their 2003 joint Federal income tax liability and

applying $257 against their 2004 joint income tax liability.
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During this time petitioner hired an attorney and filed for

a divorce. Mr. Shields did not contest or bear any of the costs

of the divorce. On May 22, 2007, an Illinois court entered a

decree dissolving the marriage. Pursuant to the final judgment

for dissolution of marriage, each party was responsible to pay

one-half of the balance of the 2004 and 2005 Federal income tax

liabilities, which at this time was $2,769 and $1,060,

respectively. Specifically, Mr. Shields was to provide

petitioner with $150 per month and petitioner was responsible for

forwarding the couple’s total $300 monthly installment payment to

the IRS.

In June 2007 Mr. Shields did not make the $150 required

payment, and it became clear to petitioner that Mr. Shields was

not going to comply with the Illinois court’s order. As a

result, petitioner filed Form 8857, Request for Innocent Spouse

Relief, together with Form 12510, Questionnaire for Requesting

Spouse, both dated July 8, 2007. The IRS forwarded petitioner’s

request to its “Innocent Spouse” unit in the Cincinnati Service

Center. Her Form 12510 included a completed current Average

Monthly Household Income and Expenses worksheet. Petitioner

reported total monthly income of $2,386 and expenses of $2,109,

resulting in a monthly surplus of $277. Petitioner also

submitted a statement dated July 24, 2007, requesting the

following types of relief: (1) That the IRS separate the
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couple’s joint 2004 and 2005 liabilities and with respect to her

portion stated: “if a balance is due, I would like to pay

that.”; (2) “Innocent Spouse Relief”; and (3) “Equitable Relief.”

Petitioner filed for similar relief in Missouri related to

the couple’s outstanding joint Missouri income tax liability.

The State granted petitioner relief for the portion of the

liability attributable to Mr. Shields, and petitioner

subsequently satisfied her portion of the Missouri income tax

liability.

The IRS “Innocent Spouse” unit in Cincinnati complied with

the first part of petitioner’s request by preparing an “Innocent

Spouse Allocation Worksheet” dated October 17, 2007, showing the

allocation to Mr. Shields of $902 and $463 of the couple’s total

2004 and 2005 joint Federal income tax liabilities. The unit

also considered granting relief to petitioner from Mr. Shields’

portion of the liabilities. Nevertheless, the Cincinnati

Compliance Center issued a preliminary determination letter dated

October 26, 2007, denying petitioner’s request for equitable

relief under section 6015(f) because petitioner had failed to

prove that she had reason to believe the taxes would be paid at

the time she signed the returns.

On October 30, 2007, petitioner filed Form 12509, Statement

of Disagreement, requesting Appeals Office consideration and

reiterated that she would pay her portion. The IRS assigned the
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case to an Appeals officer, who determined that petitioner met

the threshold requirements to qualify for equitable relief under

section 6015(f) as set forth in Rev. Proc. 2003-61, sec. 4.01,

2003-2 C.B. 296, 297. However, after applying the criteria set

forth in Rev. Proc. 2003-61, secs. 4.02 and 4.03, 2003-2 C.B. at

298, the Appeals officer determined that petitioner had not

established that it would be “inequitable to hold petitioner

liable for the balance due on both tax years.” Accompanying the

final notice of determination denying relief, the Appeals Office

enclosed a detailed explanation of the Appeals officer’s section

6015 analysis.

Petitioner filed her petition challenging the determination

and requesting that the Court grant equitable relief to her from

Mr. Shields’ portion of their 2004 and 2005 joint Federal income

tax liabilities. Petitioner also stated that she would pay her

portion. Respondent notified Mr. Shields of petitioner’s filing

of the petition and his right to intervene, but Mr. Shields chose

not to intervene. Respondent did not call Mr. Shields as a

witness, and petitioner had had no contact with Mr. Shields as of

the date of trial.

Petitioner timely filed her individual Federal income tax

returns for 2006, 2007, and 2008. She increased the amount of

Federal income tax withheld from her salary and has paid all

other Federal and State income tax liabilities. Additionally,
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petitioner continues to live in the townhouse she purchased in

2004. She does not live a lavish lifestyle and does not take

vacations.

Discussion

I. Overarching Considerations

A. Joint and Several Liability

When two individuals file a joint Federal income tax return,

they are each responsible for the accuracy of the return and are

liable jointly and severally for the entire tax liability. Sec.

6013(d)(3); Butler v. Commissioner, 114 T.C. 276, 282 (2000);

sec. 1.6013-4(b), Income Tax Regs.

B. Section 6015(f) Equitable Relief

Section 6015 provides relief from joint and several

liability in certain circumstances. As relevant here, if the

taxpayer does not qualify for relief under section 6015(b) or

(c), then the taxpayer may seek an equitable remedy under section

6015(f), which provides relief if, after taking into account all

the facts and circumstances, it would be inequitable to hold the

taxpayer liable for the unpaid tax or any portion thereof.

Butler v. Commissioner, supra at 292. Petitioner does not

qualify for relief under section 6015(b) or (c) because the 2004

and 2005 joint Federal income tax returns reported tax due that

was not paid. Therefore, the 2004 and 2005 liabilities are due

to underpayments of tax and not understatements of tax or
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deficiencies. Accordingly, petitioner’s sole avenue for relief

is through section 6015(f).

C. Jurisdiction

As pertinent here, section 6015(e) authorizes a taxpayer who

has been denied equitable relief under subsection (f) to petition

this Court for relief from a final Appeals determination. In

2006 Congress amended section 6015(e)(1) confirming the Court’s

jurisdiction to determine the appropriate relief available under

section 6015(f). Porter v. Commissioner, 132 T.C. 203 (2009).

Petitioner’s liabilities remain unpaid, and accordingly, we have

jurisdiction.

D. Standard and Scope of Review

When determining whether a taxpayer is entitled to equitable

relief under section 6015(f), the Court reviews the matter de

novo, not for abuse of discretion, and may consider evidence

introduced at trial that was not included in the administrative

record. Olson v. Commissioner, T.C. Memo. 2009-294 (citing

Porter v. Commissioner, supra and Porter v. Commissioner, 130

T.C. 115, 117 (2008)).

E. Burden of Proof

Except as otherwise provided, under section 6015(f) the

taxpayer bears the burden of proof and must demonstrate

entitlement to equitable relief from the tax liability as an
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“innocent spouse”. Rule 142(a); Alt v. Commissioner, 119 T.C.

306, 311 (2002), affd. 101 Fed. Appx. 34 (6th Cir. 2004).

II. Analysis of Equitable Relief Under Section 6015(f)

Section 6015(f) provides, in relevant part, that the

Secretary may relieve an individual from joint and several

liability if, after taking into account all the facts and

circumstances, it is inequitable to hold the taxpayer liable for

the unpaid tax. The Commissioner has prescribed guidelines in

Rev. Proc. 2003-61, supra, for determining whether equitable

relief is warranted with respect to the requesting spouse’s

liabilities for all or part of any unpaid tax.

A. Threshold Criteria for Granting Relief

The review process begins with seven threshold requirements

set forth in Rev. Proc. 2003-61, sec. 4.01, that a taxpayer must

satisfy before the Commissioner will consider equitable relief.

We need not address the threshold criteria since respondent

concedes that petitioner fulfills those conditions.

B. Circumstances in Which Relief Is Ordinarily Granted

Where a requesting spouse has satisfied the threshold

criteria in Rev. Proc. 2003-61, sec. 4.01, the Commissioner will

ordinarily grant equitable relief if the requesting spouse meets

the elements set forth under Rev. Proc. 2003-61, sec. 4.02. To

qualify for relief under Rev. Proc. 2003-61, sec. 4.02, the

requesting spouse must: (1) No longer be married to the
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nonrequesting spouse on the date relief was requested; (2) have

no knowledge or reason to know at the time the return was signed

that the nonrequesting spouse would not pay the tax liability;

and (3) suffer an economic hardship if relief is not granted.

Respondent and the Court agree petitioner meets the first

requirement, having divorced Mr. Shields on May 22, 2007, before

filing her application for relief in July 2007. However, we also

agree with respondent that petitioner does not meet the second

element.

In regard to the second element, where a couple accurately

reported but did not pay the balance due, the relevant standard

for determining the knowledge or reason to know element is

whether: (1) When the requesting spouse signed the return, the

requesting spouse had knowledge or reason to know that the tax

reported on the return would not be paid; and (2) it was

reasonable for the requesting spouse to believe that the

nonrequesting spouse would pay the tax due. Bruen v.

Commissioner, T.C. Memo. 2009-249; Rev. Proc. 2003-61, sec.

4.02(1)(b). Further, in making this determination the reviewer

should consider the requesting spouse’s level of education, any

deceit or evasiveness of the nonrequesting spouse, the requesting

spouse’s involvement in household financial matters, and any

lavish or unusual expenditures compared with past spending
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levels. Rev. Proc. 2003-61, sec. 4.03(2)(a)(iii)(C), 2003-2 C.B.

at 298.

Respondent determined that petitioner had requisite

knowledge because: (1) Petitioner knew her former spouse was

having financial problems; (2) petitioner was the primary

financial contributor to the household; (3) petitioner was aware

that her former spouse had reduced the withholding of tax from

his wages; and (4) petitioner knew or had reason to know that Mr.

Shields would not pay the taxes due at the time their joint

Federal income tax returns were signed.

Because we find that petitioner is a smart and responsible

person, we find that her lacking knowledge is improbable. The

main reason behind the couple’s financial problems was Mr.

Shields’ irresponsibility and indifference with respect to

financial matters. Petitioner also knew that since 2003 Mr.

Shields had delinquent student loans and had reduced the amount

of Federal income tax withheld from his wages. We speculate that

Mr. Shields reduced his withholding to avoid having any refunds

because he knew that any refund would be applied to his student

loan obligations.

Even if this speculation is incorrect, we find that it

strains credibility to conclude that at the time petitioner

signed the 2004 and 2005 returns in December 2006, she believed

that she or Mr. Shields would pay the unpaid balances. The
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couple was on the verge of separating, petitioner knew of her own

financial restraints, and she knew of Mr. Shields’ financial

irresponsibility. Thus, petitioner fails to meet the second

element and does not qualify for relief under Rev. Proc. 2003-61,

sec. 4.02.

C. Factors for Determining Whether To Grant Equitable
Relief

Where, as here, the requesting spouse has satisfied the

threshold criteria of Rev. Proc. 2003-61, sec. 4.01, but has

failed to meet the conditions set forth in Rev. Proc. 2003-61,

sec. 4.02, she may nevertheless obtain relief under the facts and

circumstances test of Rev. Proc. 2003-61, sec. 4.03. Sec. 4.03,

which provides a nonexclusive list of factors for determining

whether full or partial equitable relief is warranted under

section 6015(f) including: (1) Whether the requesting spouse is

separated or divorced from the nonrequesting spouse; (2) whether

the requesting spouse would suffer economic hardship if relief

were not granted; (3) whether the requesting spouse knew or had

reason to know of the item giving rise to the deficiency; (4)

whether the nonrequesting spouse has a legal obligation to pay

the outstanding tax liability pursuant to a divorce decree or

agreement; (5) whether the requesting spouse received a

significant benefit from the item giving rise to the deficiency;

and (6) whether the requesting spouse has made a good faith
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effort to comply with tax laws for the taxable years following

the taxable year to which the request for such relief relates.

Other factors that may be considered under Rev. Proc. 2003-

61, supra, include: (1) Whether the nonrequesting spouse abused

the requesting spouse; and (2) whether the requesting spouse was

in poor mental or physical health at the time he or she signed

the tax return or at the time he or she requested relief. Id.

sec. 4.03(2)(b), 2003-2 C.B. at 299. However, where the

nonrequesting spouse did not abuse the requesting spouse and the

requesting spouse was not in poor mental or physical health at

the time the return was signed or at the time relief was

requested, the abuse factor and the mental or physical health

factor will not be taken into account.

Rev. Proc. 2003-61, sec. 4.03, provides that no single

factor is determinative and that all relevant factors will be

considered regardless of whether enumerated in that section. We

now apply the factors to the facts in this case.

1. Marital Status

As discussed above, the first factor, marital status, is

satisfied because petitioner and Mr. Shields were divorced before

July 2007 when petitioner filed the application for relief. Id.

sec. 4.03(2)(a)(i); see also McKnight v. Commissioner, T.C. Memo.

2006-155 (divorce weighs in favor of relief). Thus, this factor

favors relief.
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2. Economic Hardship

Another factor is whether the requesting spouse will suffer

economic hardship if relief is not granted. Rev. Proc. 2003-61,

sec. 4.03(2)(a)(ii). The Commissioner determines economic

hardship relying on rules that the Secretary set forth in section

301.6343-1(b)(4), Proced. & Admin. Regs. Rev. Proc. 2003-61,

sec. 4.03(2)(a)(ii). The regulation defines economic hardship as

the condition where a taxpayer is “unable to pay his or her

reasonable basic living expenses.” Sec. 301.6343-1(b)(4)(i),

Proced. & Admin. Regs. In determining a reasonable amount of

basic living expense, the Commissioner considers information such

as: (1) The taxpayer’s age, employment status, history, and

ability to earn; (2) the amount reasonably necessary for living

expenses such as food, clothing, housing, medical expenses,

insurances, current tax payments, and child support; (3) the cost

of living in the geographic area in which the taxpayer resides;

and (4) any extraordinary circumstances such as a medical

catastrophe. Sec. 301.6343-1(b)(4)(ii), Proced. & Admin. Regs.

In determining whether petitioner would suffer economic

hardship, the Appeals officer relied on the compliance center’s

calculation that petitioner had a monthly surplus of $577, which

did not include petitioner’s $300 monthly credit card expense.

The record is silent as to why the Appeals officer excluded the

$300 monthly credit card expense.
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At trial almost 2 years after the Appeals officer’s

determination, petitioner stated that her monthly disposable

income had decreased as a result of withholding more Federal

income tax from her earnings and from paying higher monthly

mortgage and utility bills. Petitioner did not provide

documentation substantiating these claims, and respondent

challenged petitioner’s statements.

We find that even without precise numbers detailing

petitioner’s current economic condition, petitioner is in a tight

financial situation. However, because petitioner failed to

substantiate her monthly income and expenses or that she would

suffer an economic hardship, we conclude that this factor is

neutral.

3. Knowledge or Reason To Know

As discussed above and below, petitioner failed to establish

that she did not know or have reason to know, when she signed the

returns, that the taxes would not be paid. We comment further

only in regard to respondent’s contention that this factor weighs

heavily against granting petitioner relief. We note that no

factor, in and of itself, is determinative. Rev. Proc. 2003-61,

sec. 4.03. Rev. Proc. 2003-61, supra, superseded Rev. Proc.

2000-15, 2000-1 C.B. 447, and specifically downgraded the

knowledge or reason to know factor from a heavily weighted factor

to simply one of many equally weighted factors. Rev. Proc. 2003-
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61, sec. 3.02, 2003-2 C.B. at 297; cf. Rev. Proc. 2000-15, sec.

4.03(2)(b), 2000-1 C.B. at 449. Thus, this factor weighing

against relief is equally weighted among all other factors.

4. Nonrequesting Spouse’s Legal Obligation

The next enumerated factor is whether the nonrequesting

spouse has a legal obligation to pay the outstanding income tax

liability pursuant to a divorce decree or agreement. Rev. Proc.

2003-61, sec. 4.03(2)(a)(iv). 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.

Nevertheless, this Court has held that regardless of the

requesting spouse’s opinion of the nonrequesting spouse’s

rectitude or sense of responsibility, the requesting spouse is

not required to assume that the nonrequesting spouse would defy a

court order when he or she stated no intention to do so and had

the means to comply. Bruen v. Commissioner, T.C. Memo. 2009-249.

The 2007 divorce decree provides that petitioner and Mr.

Shields agreed to pay their own debts and that each would be

responsible for one-half of the liabilities owed to the IRS for

2004 and 2005. The record does not indicate that petitioner knew

or should have known when she entered into the agreement

incorporated in the divorce decree that Mr. Shields would not

fulfill the court’s order. While the State court does not have
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the power to adjust the parties’ Federal income tax liabilities,

we find it equitable for our determination to assign weight to

the judgment of the court since it had plenary responsibility for

allocating the couple’s debts. See id. Therefore, this factor

weighs in favor of granting relief.

5. Significant Benefit

Another factor 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 concedes that petitioner did not

receive a significant benefit as a result of the unpaid tax

liabilities and the record does not suggest otherwise.

Therefore, we conclude that this factor weighs in favor of

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

significant benefit weighs in favor of relief).

6. Compliance With Federal Tax Laws

An additional pertinent factor is whether the requesting

spouse made a good-faith effort to comply with the Federal income

tax laws in the succeeding years. Rev. Proc. 2003-61, sec.

4.03(2)(a)(vi), 2003-2 C.B. at 299. Respondent concedes

petitioner has complied with Federal income tax laws and filing

requirements for 2006, 2007, and 2008. Additionally, petitioner

made efforts to comply by initiating telephone calls with the IRS
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either seeking advice or providing information. Therefore, this

factor weighs in favor of relief.

7. Other Factors

With respect to the other factors that Rev. Proc. 2003-61,

sec. 4.03, provides, abuse and poor mental or physical health of

the requesting spouse, Mr. Shields was an indifferent spouse and

petitioner was stressed by their financial difficulties.

However, the record does not indicate that these factors rose to

the level that Rev. Proc. 2003-61, sec. 4.03, requires to weigh

in favor of relief. Therefore, these factors are neutral.

III. Conclusion: Weight of the Factors

To aid the reader we summarize below the results of the

above analysis:

1. Marital status--favors relief.
2. Economic hardship--neutral.
3. Knowledge or reason to know--disfavors relief.
4. Legal obligation–-favors relief.
5. Significant benefit--favors relief.
6. Compliance with Federal tax laws--favors relief.
7. Abuse and poor mental or physical health - neutral.

Accordingly, one factor disfavors relief, two or three are

neutral, and four favor relief. The knowledge factor weighs

against petitioner’s entitlement to section 6015(f) relief;

however, in considering her entitlement to relief under section

6015(f), the knowledge factor is only one factor among many to be

taken into account, and as discussed supra, the Commissioner has
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explicitly downgraded the factor’s significance. Rev. Proc.

2003-61, sec. 3.02.

Considering the foregoing, and after weighing the factors

collectively, we hold that relief is warranted for the portion of

the unpaid 2004 and 2005 tax liabilities attributable to Mr.

Shields. Therefore, petitioner is entitled to equitable relief

from joint and several liability under section 6015(f) for Mr.

Shields’ allocated portion of the couple’s unpaid 2004 and 2005

Federal income tax liabilities.

To reflect the foregoing,

Decision will be entered

under Rule 155.