T.C. Summary Opinion 2011-12
UNITED STATES TAX COURT
SONGIE S. MILHOUSE, Petitioner,
AND ANTHONY D. TODD, Intervenor v.
COMMISSIONER OF INTERNAL REVENUE, Respondent
Docket No. 20468-09S. Filed February 9, 2011.
Songie S. Milhouse, pro se.
Anthony D. Todd, pro se.
Julie A. Jebe, for respondent.
LARO, Judge: This case was heard pursuant to the provisions
of section 7463 of the Internal Revenue Code in effect when the
petition was filed.1 Pursuant to section 7463(b), the decision
1
Subsequent section references are to the applicable
versions of the Internal Revenue Code. Rule references are to
the Tax Court Rules of Practice and Procedure.
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to be entered is not reviewable by any other court, and this
opinion shall not be treated as precedent for any other case.
Petitioner petitioned the Court under section 6015(e)(1) to
review respondent’s determination that she is not entitled to
relief from joint and several liability on her 2006 joint Federal
income tax return. Petitioner’s former husband, Anthony D. Todd
(Mr. Todd), intervened in opposition to petitioner’s request for
relief. See Rule 325(b). We decide whether to sustain
respondent’s determination that petitioner was not entitled to
relief under subsection (b), (c), or (f) of section 6015. We
hold that we will not.
Background
Some facts were stipulated and are so found. The stipulated
facts and the exhibits submitted therewith are incorporated by
this reference. When the petition was filed, petitioner and Mr.
Todd resided at separate addresses in Illinois.
Petitioner and Mr. Todd were married in February 2006 and
divorced in October 2007. Petitioner entered into the marriage
with three children, all of whom lived with petitioner and Mr.
Todd in his residence. Before their divorce was finalized,
petitioner and Mr. Todd filed a joint Federal income tax return
for 2006 (joint return).
Throughout the marriage, petitioner mostly separated herself
financially from Mr. Todd because of a “pattern” of “financial
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mismanagement” which she perceived on the part of Mr. Todd.
Wages and child support payments which petitioner received were
therefore deposited into her individual bank account. Mr. Todd,
however, deposited his wages into a bank account jointly held
with petitioner (joint account). Funds deposited into the joint
account were used to pay household expenses and make improvements
to Mr. Todd’s house. While petitioner had access to the joint
account, she never in fact accessed it. Instead, petitioner
periodically transferred money to the joint account when Mr. Todd
requested that she do so.
During 2006 Mr. Todd received distributions (retirement
distributions) from a retirement account with Ameriprise
Financial Services, Inc., and $25 in interest income from an
account with Charter One Bank.2 Petitioner and Mr. Todd did not
report the retirement distributions or the interest income on the
joint return. Respondent subsequently determined a deficiency in
petitioner and Mr. Todd’s 2006 Federal income tax liability for
failure to report the retirement distributions and the interest
income as taxable. Neither petitioner nor Mr. Todd petitioned
the Court to challenge respondent’s determination, and respondent
assessed the deficiency in due course.
2
We understand the interest income to have been earned on
deposits held in the joint account.
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Petitioner sent to respondent a Form 8857, Request for
Innocent Spouse Relief, which respondent received on August 27,
2008. In her request for relief, petitioner stated that she
reported “all” of her income and that she was “under the
impression” that Mr. Todd had provided her with all yearend tax
statements he received for inclusion on the joint return. Before
petitioner’s entitlement to relief was determined, respondent
provided Mr. Todd with the opportunity to oppose relief by filing
with respondent a Form 12509, Statement of Disagreement.
Mr. Todd sent to respondent his statement of disagreement,
which respondent received on February 26, 2009. In that
statement Mr. Todd asserted that petitioner “knew” about the
retirement income because she had access to the joint account
both online and through statements that were mailed to their
residence. Mr. Todd also stated that he gave petitioner all
year-end tax statements to be reported on the joint return.
Respondent subsequently forwarded petitioner’s request for relief
to respondent’s Office of Appeals for further consideration.
By notice of determination dated May 28, 2009, Appeals
determined that petitioner was not entitled to innocent spouse
relief under section 6015(b), (c), or (f) because petitioner (1)
knew or had reason to know of the items giving rise to the
deficiency, and (2) did not demonstrate that it would be unfair
to hold her liable for the deficiency. On August 26, 2009,
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petitioner petitioned the Court to review respondent’s
determination. Pursuant to Rule 325(a), respondent served notice
of this proceeding on Mr. Todd, who filed his notice of
intervention with the Court on December 2, 2009. A trial was
held on September 20, 2010, during which petitioner and Mr. Todd
testified.
Discussion
In general, spouses who file a joint Federal income tax
return are jointly and severally liable for all taxes due. Sec.
6013(d)(3); see also sec. 1.6013-4(b), Income Tax Regs. In
certain limited circumstances, however, section 6015 permits an
individual who has made a joint return to seek relief from joint
and several liability. Petitioner argues that she is entitled to
relief under subsections (b), (c), and (f) of section 6015.
Respondent argues that petitioner is not entitled to such relief
because she had actual knowledge of the income giving rise to the
deficiency. We focus on petitioner’s entitlement to relief under
section 6015(c).
A requesting spouse who has made a joint return may elect to
proportionally limit her liability where she is no longer married
to the nonrequesting spouse at the time the election is made.
Sec. 6015(c)(3)(A)(i)(I). At the time petitioner filed her
request for relief on August 27, 2008, she and Mr. Todd were not
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married. Thus, petitioner was eligible to elect relief under
section 6015(c).
Respondent argues that petitioner is not entitled to relief
under section 6015(c) because she had actual knowledge of the
items giving rise to the deficiency at the time she signed the
return. See sec. 6015(c)(3)(C). We disagree. To determine the
existence of actual knowledge on the part of petitioner, we look
to the surrounding facts and circumstances for “an actual and
clear awareness (as opposed to reason to know)” of the items
giving rise to the deficiency. See Cheshire v. Commissioner, 115
T.C. 183, 195 (2000), affd. 282 F.3d 326 (5th Cir. 2002); see
also sec. 1.6015-3(c)(2)(i)(A), Income Tax Regs. The burden of
proving actual knowledge by a preponderance of the evidence rests
with the Commissioner. See Culver v. Commissioner, 116 T.C. 189,
196 (2001). Under this standard, respondent has failed to
satisfy his burden of proof.
Petitioner and Mr. Todd were married less than 2 years,
during which time petitioner separated herself financially from
Mr. Todd because of a “pattern” of “financial mismanagement” on
the part of Mr. Todd. Petitioner testified credibly that she
transferred money to the joint account but did not access the
account or have any knowledge regarding the funds being deposited
into that account. This testimony supports petitioner’s claim
that she did not have actual knowledge of the items giving rise
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to the deficiency at the time she signed the return. We
generally reject Mr. Todd’s contradictory testimony as self-
serving and incredible. See Tokarski v. Commissioner, 87 T.C.
74, 77 (1986). Such is especially appropriate given that Mr.
Todd did not offer any corroborating evidence to support his
allegations of actual knowledge on the part of petitioner.
Respondent effectively asks that we infer petitioner’s
actual knowledge on the basis of (1) her ability to access the
joint account, and (2) the use of the retirement distributions
and interest income to pay household expenses, which petitioner
benefited from. In doing so, respondent implicitly asks that we
replace the “reason to know standard” of section 6015(b) and (f)
with the actual knowledge requirement of section 6015(c). We
decline to do so.
The actual knowledge requirement of section 6015(c) is
narrower than the “reason to know” standard of section 6015(b) or
(f). See McDaniel v. Commissioner, T.C. Memo. 2009-137. As
enunciated by the Senate report accompanying the enactment of
section 6015, “actual knowledge must be established by the
evidence and shall not be inferred based on indications that the
electing spouse had a reason to know.” S. Rept. 105-174, at 59
(1998), 1998-3 C.B. 537, 595. Respondent did not offer any
corroborating evidence at trial to support a finding that
petitioner had actual knowledge of the items giving rise to the
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deficiency, nor did respondent substantively cross-examine
petitioner or Mr. Todd on the scope of petitioner’s knowledge.
Petitioner, on the other hand, credibly disavowed any actual
knowledge of the items giving rise to the deficiency and provided
a vigorous cross-examination after Mr. Todd’s direct testimony.
Accordingly, we hold that petitioner did not have actual
knowledge of the items giving rise to the deficiency that would
preclude the granting of relief under section 6015(c). See Levy
v. Commissioner, T.C. Memo. 2005-92; Sowards v. Commissioner,
T.C. Memo. 2003-180. We now determine the extent of relief
available to petitioner as provided by section 6015(d).
Section 6015(d)(3)(A) provides that items giving rise to a
deficiency on a joint return are to be allocated between spouses
as if separate returns had been filed. The requesting spouse is
liable only for her proportionate share of the deficiency that
results from the allocation. Sec. 6015(d)(1). Where, as here,
the joint return omits items of income, those items are allocated
to the spouse who was the source of the income. Sec. 1.6015-
3(d)(2)(iii), Income Tax Regs. However, to the extent that an
item giving rise to a deficiency provided a tax benefit on the
joint return to the requesting spouse, that item shall be
allocated to the requesting spouse in computing her share of the
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deficiency. Sec. 6015(d)(3)(B).3 Petitioner, as the requesting
spouse, bears the burden of proving the portion of the deficiency
that is properly allocable to her. See sec. 6015(c)(2).
The record does not contain a copy of the joint return and
does not otherwise enable us to determine the amount (if any) of
the tax benefit petitioner received on the joint return. In the
absence of any contradictory evidence or significant cross-
examination on the part of respondent, we are left only with
petitioner’s testimony that she did not receive any benefit from
the retirement distributions or the interest income. After
observing petitioner’s demeanor at trial, we are satisfied that
her testimony was truthful and that she received no tax benefit
from the items giving rise to the deficiency. See, e.g., Mora v.
Commissioner, 117 T.C. 279, 290-291 (2001). We will allocate the
items giving rise to the deficiency entirely to Mr. Todd as the
person who earned them.
3
Respondent does not assert that the fraud exception of sec.
6015(d)(3)(C) is applicable here, nor is it.
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We conclude that petitioner is entitled to full relief under
section 6015(c).4 We have considered all arguments made by the
parties, and to the extent that we have not specifically
addressed them, we conclude that they are without merit.
Decision will be entered
for petitioner.
4
Given that holding, we need not discuss petitioner’s
entitlement to relief under sec. 6015(b) and (f).