T.C. Summary Opinion 2010-108
UNITED STATES TAX COURT
ALLISON LEA MULLINS, Petitioner,
AND BILLY CRAIG MULLINS, Intervenor v.
COMMISSIONER OF INTERNAL REVENUE, Respondent
Docket No. 16987-08S. Filed August 2, 2010.
Allison Lea Mullins, pro se.
Billy Craig Mullins, pro se.
Timothy S. Sinnott, for respondent.
RUWE, Judge: This case was heard pursuant to the provisions
of section 74631 of the Internal Revenue Code in effect when the
petition was filed. Pursuant to section 7463(b), the decision to
1
Unless otherwise indicated, all section references are to
the Internal Revenue Code as amended, and all Rule references are
to the Tax Court Rules of Practice and Procedure.
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be entered is not reviewable by any other court, and this opinion
shall not be treated as precedent for any other case.
Respondent determined a $2,990 deficiency in petitioner’s
2006 Federal income tax. The issues for decision are:
(1) Whether petitioner is entitled to dependency exemption
deductions claimed for intervenor’s children for the 2006 tax
year;
(2) whether petitioner is entitled to child tax credits for
2006 with respect to intervenor’s children; and
(3) whether petitioner is entitled to relief from joint and
several liability under section 6015(b), (c), or (f) for the
deficiency as determined by respondent.
Background
Some of the facts have been stipulated and are so found.
The stipulation of facts and the attached exhibits are
incorporated herein by reference.
At the time the petition was filed, petitioner resided in
Indiana and intervenor resided in Kentucky. Petitioner and
intervenor were married in July 2003 and separated in March 2007.
Before they separated petitioner and intervenor filed a joint
Federal income tax return for the 2006 tax year. Petitioner and
intervenor were divorced as of May 25, 2007. The parties’
settlement agreement and decree of dissolution of marriage does
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not contain any provisions regarding which of the parties is
liable for payment of the proposed deficiency for 2006.
Before May 23, 2003, intervenor had been married to Sandra
M. Mullins, with whom intervenor had two children, hereinafter
referred to as J.C.M. and S.L.M.2 The dissolution of marriage
contract and agreement between intervenor and Sandra M. Mullins
provided that intervenor would have the right to claim J.C.M.,
but not S.L.M., as a dependent for Federal income tax purposes
for all years beginning in 2003, provided that intervenor
remained current in satisfying his child support obligation.
In addition to his children with Sandra M. Mullins,
intervenor also had a child, hereinafter referred to as E.M.E.M.,
with Monica Gail Ely. Pursuant to an Indiana court order (court
order) dated May 17, 2002, intervenor was given the right to
claim E.M.E.M. as a dependent on his Federal income tax return
for 2000, and for all future even-numbered years, provided that
he and Ms. Ely executed all documents necessary in order to
effectuate the income tax provisions provided in the court order.
Petitioner prepared a joint 2006 Federal income tax return
on behalf of herself and intervenor. On the return petitioner
and intervenor claimed dependency exemption deductions for J.C.M.
and E.M.E.M. In addition, petitioner and intervenor claimed
2
The Court refers to minor children by their initials. See
Rule 27(a)(3).
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child tax credits for both children. Petitioner and intervenor
failed to include Form 8332, Release of Claim to Exemption for
Child of Divorced or Separated Parents, with respect to either
J.C.M. or E.M.E.M. when the return was filed.
On the joint return petitioner and intervenor reported an
overpayment of $3,469 in their Federal income tax. Upon
issuance, the refund of the claimed overpayment was reduced by
$1,022.18 in order to satisfy a child support obligation of
intervenor. The balance of the overpayment was directly
deposited into petitioner’s personal savings account on March 16,
2007, just 2 days before petitioner and intervenor separated.
During the 2006 tax year petitioner and intervenor earned
wages of $24,914.67 and $8,948.75, respectively; i.e., $33,863.42
in combined wages. In addition to these wages intervenor
received unemployment benefits totaling $13,579. On the 2006
return petitioner and intervenor reported the wages and
unemployment benefits and claimed dependency exemptions for
themselves, J.C.M., and E.M.E.M.
Petitioner attached to the return a Form 8379, Injured
Spouse Allocation, listing herself as the injured spouse. On the
Form 8379 petitioner allocated all the wages and unemployment
compensation received by petitioner and intervenor to herself.
Petitioner attached Form 8379 because she was aware that
intervenor was in arrears on his child support obligations.
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During the 2006 tax year petitioner maintained a checking
account and a savings account in her name alone. Expenses were
paid out of those accounts, as the intervenor maintained no
accounts of his own. Petitioner has remarried and her current
surname is Brassfield.
Discussion
Generally, the Commissioner’s determination in the notice of
deficiency is presumed correct, and the taxpayer bears the burden
of proving error in the Commissioner’s determinations. Rule
142(a); Welch v. Helvering, 290 U.S. 111, 115 (1933). Under
section 7491(a), the burden of proof with respect to any factual
issue shifts to the Commissioner if the taxpayer introduces
credible evidence with respect to that issue. Rule 142(a)(2).
Petitioner has neither claimed nor shown eligibility for a shift
in the burden of proof.
I. Dependency Exemption Deductions
Generally, a taxpayer may claim dependency exemption
deductions for all individuals who are dependents of the taxpayer
for the tax year. Sec. 151(a), (c). “Dependent” is defined by
section 152(a) as including “a qualifying child”. Sec.
152(a)(1). In order to be a qualifying child, the child must
share the same principal place of abode as the taxpayer for more
than one-half of the taxable year at issue. Sec. 152(c)(1).
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Petitioner and intervenor did not have custody of J.C.M. and
E.M.E.M., nor did they share an abode with them for more than
one-half of the 2006 tax year. The record shows that Sandra
Mullins and Ms. Ely had custody of their respective children. As
a result, intervenor was the noncustodial parent of both J.C.M.
and E.M.E.M.
Where there are divorced or separated parents, special rules
may determine which parent may claim a dependency exemption
deduction for a dependent child. Section 152(e) specifies how to
determine the dependent status of children of divorced parents.
Section 152(e)(1) applies if a child receives more than one-half
of his support from his parents; the parents are divorced,
separated, or live apart; and the parents have custody of the
child for more than one-half of the tax year.
If the requirements of section 152(e)(1) are met, the
custodial parent may claim the exemption, unless all of the
criteria for one of the exceptions in section 152(e) are met.
The only exception relevant here is section 152(e)(2), which
provides that the noncustodial parent may claim the dependency
exemption deduction for a calendar year if the custodial parent
signs a written declaration (in such manner and form as the
Secretary may by regulations prescribe) that such custodial
parent will not claim the child as a dependent for the taxable
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year, and the noncustodial parent attaches the declaration to his
return for the taxable year.
The regulations in effect for the 2006 tax year specify that
the declaration required under section 152(e)(2) must be made
either on a completed Form 8332 or on a statement conforming to
the substance of Form 8332. Sec. 1.152-4T(a), Q&A-3, Temporary
Income Tax Regs., 49 Fed. Reg. 34459 (Aug. 31, 1984). Form 8332
requires a taxpayer to furnish: (1) The names of the children
for whom exemption claims were released; (2) the years for which
the claims were released; (3) the signature of the custodial
parent; (4) the date of the custodial parent’s signature; (5) the
name of the noncustodial parent claiming the exemption; and (6)
the Social Security numbers for the custodial and noncustodial
parents. Himes v. Commissioner, T.C. Memo. 2010-97.
Because intervenor was the noncustodial parent for both
J.C.M. and E.M.E.M., petitioner and intervenor were required to
attach for each child either an executed Form 8332 or a statement
conforming to its substance to their 2006 return in order to
claim the dependency exemption deductions. See sec. 152(e).
Petitioner and intervenor failed to attach Forms 8332.
The dissolution of marriage contract and agreement and the
court order, pertaining respectively to J.C.M. and E.M.E.M., had
they been attached to the return would not have constituted
statements that sufficiently conformed to the substance of Form
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8332. We have held that a divorce decree that unambiguously
releases the dependency exemption to the noncustodial parent and
is signed by the custodial parent can conform in substance to
Form 8332. Boltinghouse v. Commissioner, T.C. Memo. 2003-134.
In contrast, an ambiguous or contingent release of the dependency
exemption cannot conform in substance to Form 8332. Thomas v.
Commissioner, T.C. Memo. 2010-11. As a result, the dissolution
of marriage contract and agreement does not conform to the
substance of Form 8332, as its release of the dependency
exemption deduction for J.C.M. is conditioned upon intervenor’s
remaining current on his child support obligations for the year.3
See Thomas v. Commissioner, supra.
The court order pertaining to E.M.E.M. also fails to
substantially conform to the substance of Form 8332. Any
document must satisfy the signature requirement of section
152(e)(2) in order for that document to qualify as a statement
conforming to the substance of Form 8332. Miller v.
Commissioner, 114 T.C. 184 (2000). Because the court order is
not signed by the custodial parent, it fails to conform to the
substance of Form 8332.
3
Intervenor’s testimony at trial indicated that he believed
he was behind on child support payments for both J.C.M. and
E.M.E.M. for the 2006 tax year. Additionally, $1,022.18 of
petitioner and intervenor’s claimed income tax overpayment refund
for 2006 was offset against child support obligations of
intervenor.
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Because Forms 8332 were not attached to the 2006 Federal
income tax return petitioner filed, this Court sustains
respondent’s determination with respect to the dependency
exemption deductions.
II. Child Tax Credits
Section 24(a) authorizes a child tax credit with respect to
each qualifying child of the taxpayer. “Qualifying child”, for
purposes of the child tax credit, means a qualifying child as
defined in section 152(c) who has not yet attained age 17. Sec.
24(c). In addition, a child for whom the requirements of section
152(e)(2) are met is treated as a qualifying child of the
taxpayer. Sec. 152(e)(1)(B).
Because J.C.M. and E.M.E.M. were not qualifying children
under section 152(c), and the requirements for the exception in
section 152(e)(2) were not satisfied, the children do not satisfy
the “qualifying child” requirement of the child tax credit under
section 24. Thomas v. Commissioner, supra; Walker v.
Commissioner, T.C. Memo. 2008-194.
III. Innocent Spouse Relief
Section 6013(d)(3) generally provides that married couples
who file a joint income tax return are jointly and severally
liable for any resulting income tax liability. A spouse may seek
relief from joint and several liability under section 6015 in
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appropriate circumstances. Sec. 6015(b), (c), and (f); Olson v.
Commissioner, T.C. Memo. 2009-294.
A. Section 6015(b)
Section 6015(b)(1) authorizes the Commissioner to grant
relief from joint and several liability for tax if the taxpayer
requesting relief satisfies each of the following five
requirements: (A) A joint return has been made for a taxable
year; (B) on such return there is an understatement of tax
attributable to erroneous items of one individual filing the
joint return; (C) the other individual filing the joint return
establishes that in signing the return he or she did not know,
and had no reason to know, that there was such understatement;
(D) taking into account all the facts and circumstances, it is
inequitable to hold the other individual liable for the
deficiency attributable to such understatement; and (E) the other
individual elects the benefits of this subsection not later than
the date which is 2 years after the date the Secretary has begun
collection activities with respect to the individual making the
election.
The spouse requesting relief bears the burden of proving
that she satisfies each of these five requirements. See Rule
142(a); Haltom v. Commissioner, T.C. Memo. 2005-209. “The
requirements of section 6015(b)(1) are stated in the conjunctive.
Accordingly, a failure to meet any one of them prevents a
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requesting spouse from qualifying for relief offered therein.”
Alt v. Commissioner, 119 T.C. 306, 313 (2002), affd. 101 Fed.
Appx. 34 (6th Cir. 2004); Haltom v. Commissioner, supra.
Respondent does not dispute that petitioner satisfies the
elements of section 6015(b)(1) regarding the filing of a joint
return, the attribution of an understatement of tax to an
erroneous item of the nonrequesting spouse, and timely election,
under section 6015(b)(1)(A), (B), and (E), respectively.4
However, respondent contends that petitioner does not satisfy the
remaining two requirements of section 6015(b)(1)(C) and (D).
A requesting spouse has knowledge or reason to know of an
understatement if she actually knew of the understatement or if a
reasonable person in similar circumstances, at the time she
signed the return, could be expected to know that the return
contained an understatement. Sec. 1.6015-2(c), Income Tax Regs.
All of the facts and circumstances are considered in determining
whether a requesting spouse had reason to know of an
understatement. Id.
In the case before us, the deficiency is based upon
improperly claimed dependency exemption deductions and child tax
credits on petitioner and intervenor’s 2006 Federal income tax
return. Petitioner personally prepared that return and failed to
4
Respondent, through his pretrial memorandum, concedes that
petitioner has satisfied the elements of sec. 6015(b)(1)(A), (B),
and (E).
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attach to it either a Form 8332 or a document of a substanitally
similar character, as is required to be eligible for the
dependency exemption deduction. She was aware that the Form 8332
was not attached, and she knew or should have known that because
of this omission, she and intervenor were not eligible to claim
the dependency exemption deductions. Additionally, the fact that
petitioner knew intervenor was behind on his child support
obligations further indicates that she knew that he was not
eligible to claim the children as dependents, as his right to the
deduction was expressly conditioned on his fulfilling his child
support obligation.
We find that petitioner has failed to satisfy the
requirements of section 6015(b)(1)(C) because she knew or had
reason to know that she was not justified in claiming the
deductions and credits related to intervenor’s children on their
return.
Under section 6015(b)(1)(D), petitioner also has to
establish that taking into account all the facts and
circumstances, it would be inequitable to hold her liable for the
deficiency in tax for 2006. See Doyle v. Commissioner, T.C.
Memo. 2003-96, affd. 94 Fed. Appx. 949 (3d Cir. 2004). All of
the facts and circumstances are considered in determining whether
it is inequitable to hold a requesting spouse jointly and
severally liable for an understatement. Sec. 1.6015-2(d), Income
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Tax Regs. Relevant factors include whether there was any
participation in wrongdoing on the part of the requesting spouse.
Doyle v. Commissioner, supra; sec. 1.6015-2(d), Income Tax Regs.
Petitioner prepared the return on which she claimed the
disallowed deductions and credits and thereby actually
participated in the action that led to the deficiency. The fact
that petitioner was responsible for the events leading to the
deficiency further indicates that she has not satisfied the
requirements of section 6015(b) and is not eligible for relief
thereunder.
B. Section 6015(c)
Under section 6015(c) if the requesting spouse is no longer
married to or is legally separated from the spouse with whom she
filed the joint return, she may elect to limit her liability for
a deficiency as provided in section 6015(d). DeMattos v.
Commissioner, T.C. Memo. 2010-110. However, the election is not
available where the Secretary has demonstrated that the
individual making the election had actual knowledge, at the time
the individual signed the return, of the item giving rise to the
deficiency. Sec. 6015(c)(3)(C). In accordance with our findings
above we find that the fact that petitioner prepared and filed
the return herself while failing to attach a Form 8332 or a
document of substantially similar character shows that petitioner
had actual knowledge of the items giving rise to the deficiency
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and thereby prevents her from obtaining relief under section
6015(c).
C. Section 6015(f)
Section 6015(f) allows for an alternative means of relief
for a requesting spouse who does not otherwise qualify for relief
under section 6015(b) or (c). Sec. 6015(f)(2). Section 6015(f)
permits relief from joint and several liability where it would be
inequitable to hold the individual liable for any unpaid tax or
any deficiency. Sec. 6015(f)(1). Under section 6015(f), the
Secretary may grant equitable relief to a requesting spouse on
the basis of the facts and circumstances of their case. Sec.
6015(f)(1).
The Commissioner has prescribed revenue procedure guidelines
to be used by Internal Revenue Service (IRS) employees in
determining whether a requesting spouse is entitled to relief
from joint and several liability under section 6015(f). Rev.
Proc. 2003-61, 2003-2 C.B. 296. Rev. Proc. 2003-61, supra, lists
the factors that IRS employees are to consider, and the Court
consults those same factors when reviewing a denial of relief by
the IRS. DeMattos v. Commissioner, supra.
Respondent concedes that petitioner satisfies the threshold
requirements of Rev. Proc. 2003-61, sec. 4.01, 2003-2 C.B. at
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297,5 which must be satisfied in order for petitioner to be
eligible to submit a request for equitable relief under section
6015(f).
Rev. Proc. 2003-61, sec. 4.03, 2003-2 C.B. at 298-299,
provides factors to be considered in determining whether relief
should be granted to a taxpayer who has satisfied the threshold
requirements of Rev. Proc. 2003-61, sec. 4.01 but does not
qualify for relief under Rev. Proc. 2003-61, sec. 4.02, 2003-2
C.B. at 298. These factors include: (1) Marital status; (2)
economic hardship; (3) knowledge or reason to know; (4)
nonrequesting spouse’s legal obligation; (5) significant benefit;
and (6) compliance with income tax laws. Id. sec. 4.03(2)(a),
2003-2 C.B. at 298-299.
Respondent concedes that petitioner is divorced (factor 1),
that she did not receive a significant benefit from the claimed
dependency exemption deductions (factor 5), and that she has been
in compliance with Federal income tax laws for subsequent years
(factor 6).6 Therefore, we find that these factors weigh in
favor of relief. We will now examine the remaining factors.
5
Respondent, through his pretrial memorandum, concedes that
petitioner satisfies the requirements of Rev. Proc. 2003-61, sec.
4.01, 2003-2 C.B. 296, 297.
6
Respondent’s concessions regarding Rev. Proc. 2003-61, sec.
4.03, 2003-2 C.B. at 298, are also taken from respondent’s
pretrial memorandum.
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Factor 2: Economic Hardship
The record regarding the level of hardship petitioner would
face is limited. Because she is employed and has failed to show
the Court what her expenses are, we find that petitioner has not
proven economic hardship. This factor weighs against relief.
Factor 3: Knowledge or Reason To Know
Because we have already found that petitioner had knowledge
of the deductions and credits giving rise to the deficiency, we
find that this factor weighs against relief.
Factor 4: Nonrequesting Spouse’s Legal Obligation
Because under the divorce decree neither party has an
obligation to pay the deficiency, we find that this factor is
neutral.
Conclusion
Of the factors discussed, three of them support relief
(marital status, lack of significant benefit, and compliance with
income tax laws), two factors weigh against relief (knowledge or
reason to know, and economic hardship), and one factor is neutral
(nonrequesting spouse’s legal obligation).
Rev. Proc. 2003-61, sec. 4.03(2)(a)(iii)(B), 2003-2 C.B. at
298, provides that in a deficiency case, reason to know of the
item giving rise to the deficiency will not be given more weight
than other factors; however, actual knowledge of the item will
weigh heavily against relief being granted.
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We find that the factors supporting relief are outweighed by
petitioner’s actual knowledge of items giving rise to the
deficiency, including her preparation of the tax return and her
failure to include appropriate supporting documentation for the
deductions and credits claimed.
On the basis of the foregoing, we hold that petitioner has
failed to carry her burden of showing that she is entitled to
relief from joint and several liability under section 6015(f) for
2006.
To reflect the foregoing,
Decision will be entered
for respondent.