T.C. Summary Opinion 2011-66
UNITED STATES TAX COURT
LEE ANN SUTHER, Petitioner,
AND MARC V. SUTHER, Intervenor v.
COMMISSIONER OF INTERNAL REVENUE, Respondent
Docket No. 11413-09S. Filed June 6, 2011.
Lee Ann Suther, pro se.
Marc V. Suther, pro se.
Laura A. Price, for respondent.
PANUTHOS, Chief Special Trial Judge: This case was heard
pursuant to the provisions of section 7463 of the Internal
Revenue Code in effect when 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,
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subsequent section references are to the Internal Revenue Code,
and all Rule references are to the Tax Court Rules of Practice
and Procedure.
This proceeding was commenced under section 6015 for review
of respondent’s determination that petitioner is not entitled to
relief from joint and several liability with respect to an
underpayment of Federal income tax reported on a joint Federal
income tax return filed for 2001.
Background
Some of the facts have been stipulated1 and are so found.
The stipulation of facts and the attached exhibits are
incorporated herein by this reference. Petitioner resided in
Florida at the time the petition was filed.
Petitioner and intervenor were married in 1984. At the time
of trial petitioner was a business analyst for a computer
programming company. Intervenor has owned several businesses2
and in some years owned more than one business at a time.
Intervenor did not maintain books and records for the
businesses in 2001 but retained some receipts. Petitioner did
1
Petitioner and respondent executed the stipulation of
facts. Intervenor refused to sign the stipulation of facts.
2
The record reflects the following businesses: Midwest
Appliance, Computer Navigations, Spylink, Envoy, MBoy, Telesoft,
Genco, an unnamed business operated through ebay, and PointsPro.
Petitioner and intervenor agreed that at some point intervenor
operated at least four separate businesses which centered around
Computer Navigations.
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not participate in any of intervenor’s business enterprises in
2001. In some years petitioner assisted in bookkeeping, but she
did not regularly participate in any of the activities in 2001.
Intervenor was arrested in early 2002. Petitioner and
intervenor obtained a second mortgage on the marital home and
incurred credit card debt3 to pay some of the costs involved in
intervenor’s defense. Intervenor was ultimately convicted of
sexual battery of a third party in June 2002. While
incarcerated,4 intervenor elected to participate in an accounting
class. Although petitioner and intervenor remained married
throughout intervenor’s incarceration and after his release,
their marriage deteriorated in late 2007. Petitioner and
intervenor separated in September 2007. A final judgment of
dissolution of marriage was entered by the Hillsborough County,
Florida Circuit Court in November 2008.
The court judgment allocated various assets and liabilities
between petitioner and intervenor. Petitioner was allocated bank
accounts in her name, the marital home, her retirement accounts,
and an automobile. Intervenor was allocated his business(es),5
3
The credit card was in petitioner’s name. The record
reflects that petitioner is solely responsible for the first and
second mortgages and the credit card debt.
4
The record does not reveal the dates of intervenor’s
incarceration.
5
The final judgment of dissolution of marriage lists
(continued...)
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some personal property, two automobiles, and a motorcycle.
Petitioner was also allocated approximately $306,000 of debt,
including the first and second mortgages on the marital home, all
of the credit card debt (including credit card debt in the name
of intervenor’s business Computer Navigations), and all of the
tax debt. Intervenor was allocated about $23,000 of debt,
comprising loans from his family to help pay for his criminal
defense. The court’s final judgment of dissolution of marriage
stated: “Husband was routinely less than forthcoming in this
case and not always completely credible. Accordingly, there
shall be no equalizing payment owed by the Wife and it will be
presumed that the Husband is actually a bit better off in assets
than * * * [the allocation] might suggest.”
The 2001 Return
Petitioner and intervenor did not timely file their 2001
Federal income tax return. Some time after the 2001 tax year,
intervenor estimated that $4,000, together with petitioner’s
withholding, would be sufficient to pay the 2001 tax liability.
As a result of intervenor’s estimate, petitioner made a $4,000
payment on the due date of the 2001 return, with the intention of
preparing and filing the return after intervenor’s criminal
5
(...continued)
Computer Navigations as his only business, but the record
reflects that he owned multiple businesses at the time of the
divorce.
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proceeding had concluded. Petitioner and intervenor did not file
their 2001 return until 2007.
Petitioner and intervenor also failed to timely file Federal
income tax returns for 2002, 2003, 2004, and 2005. In 2007
petitioner and intervenor met with the Internal Revenue Service
(IRS) with regard to their delinquent returns. Petitioner and
intervenor agreed with the IRS that they would file their
delinquent returns over a period of time.
Petitioner and intervenor had the returns for 2001 through
2005 prepared by a certified public accountant (C.P.A.).
Intervenor also hired a tax attorney. In gathering documentation
for the return preparation, petitioner recorded the receipts onto
a spreadsheet, and she and intervenor turned over all of the
records and receipts to the C.P.A.
The 2001 return reflected petitioner’s salary and
withholding, intervenor’s profits from two businesses,6 and tax
due of $12,489. Although the 2001 return showed tax due,
intervenor, petitioner, the C.P.A., and the tax attorney believed
that overpayments for other years would be sufficient to offset
the tax due for 2001.
6
Both businesses are S corporations listed on the Schedule E
as Computer Navigations, Inc., but are listed as having different
amounts of nonpassive income. The record does not reflect
intervenor’s relationship to the businesses, whether intervenor
operated two businesses with the same name, or whether the
entries are errors. On the 2001 Federal income tax return,
intervenor is listed as a consultant.
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When the 2001 return was presented to petitioner for
signature in 2007, intervenor assured petitioner that if there
was tax due after application of the expected overpayments from
other tax years, intervenor would be able to pay the balance with
income from his current businesses.7 In order to support his
statement to petitioner that he would pay any balance due,
intervenor showed petitioner a bank statement from one of his
businesses reflecting approximately $10,000 in gross receipts
during a 1-month period. Petitioner was also aware that
intervenor kept cash in his safe. When the 2001 return was
signed in 2007, not all of the delinquent returns had been
prepared and filed.
The record does not reveal the dates of filing of the
subsequent years’ returns. However, it appears that to the
extent the returns reflected overpayments, some credits or
refunds may have been limited or barred pursuant to section 6511.
Shortly after the delinquent returns were filed, intervenor moved
out of the marital home.
7
In 2007 intervenor operated at least two businesses: Points
Pro and Computer Navigations. Intervenor’s main source of income
in 2007 was Points Pro, a poker business.
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The Request for 6015 Relief
Petitioner requested relief from joint and several liability
for 2001 in October 2007.8 On February 5, 2009, the IRS Appeals
Office issued a final determination denying petitioner relief.
Respondent determined that: (1) Petitioner had not established
that she would suffer economic hardship, (2) petitioner has a
legal obligation to pay the tax, and (3) petitioner has not been
in compliance with Federal income tax laws with respect to her
taxes for years after the claim year (2001). Petitioner timely
filed a petition for review of the notice of determination. On
August 31, 2009, intervenor filed a notice of intervention.
At trial respondent conceded that petitioner is entitled to
partial relief under section 6015(f) and should be relieved of
the liability attributable to intervenor’s income for 2001.
Intervenor opposes any such relief.9
Discussion
Generally, married taxpayers may elect to file a joint
Federal income tax return. Sec. 6013(a). After making the
8
Respondent has agreed that petitioner’s request was timely.
9
The record in this case is unclear as to the amount of
relief respondent conceded and the balance respondent claims
petitioner still owes. It would appear that any tax liability
attributable to petitioner would have been fully paid by her
withholding and the $4,000 payment in 2002. It appears that a
portion of the remaining balance is due to a failure to file
addition to tax. Because of our conclusion infra that she is
entitled to relief, we need not make further findings on this
question.
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election, each spouse is jointly and severally liable for the
entire tax due for that year. Sec. 6013(d)(3); Butler v.
Commissioner, 114 T.C. 276, 282 (2000). In certain
circumstances, however, a spouse who has filed a joint return may
seek relief from joint and several liability under procedures set
forth in section 6015. Sec. 6015(a).
Except as otherwise provided in section 6015, the requesting
spouse bears the burden of proving that he or she is entitled to
section 6015 (innocent spouse) relief. Rule 142(a); Alt v.
Commissioner, 119 T.C. 306, 311 (2002), affd. 101 Fed. Appx. 34
(6th Cir. 2004). However, in an instance such as here where the
Commissioner has proposed to give partial relief but the
intervenor opposes the relief, the Court may decide the matter
according to the preponderance of the evidence. See Stergios v.
Commissioner, T.C. Memo. 2009-15. Both the scope and standard of
our review in cases requesting equitable relief from joint and
several income tax liability are de novo. Porter v.
Commissioner, 132 T.C. 203 (2009).
Under section 6015(a) a spouse may seek relief from joint
and several liability under section 6015(b) or, if eligible, may
allocate liability according to provisions set forth in section
6015(c). Petitioner is not eligible for relief under section
6015(b) or (c) because she had an underpayment of tax on a joint
return, not a deficiency or an understatement of tax. See Rev.
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Proc. 2003-61, sec. 2.04, 2003-2 C.B. 296, 297. Therefore, her
only avenue for relief is under section 6015(f).
Rev. Proc. 2003-61, sec. 4.01, 2003-2 C.B. at 297, sets
forth threshold requirements before the Commissioner will
consider a request for relief under section 6015(f). All
requesting spouses must meet seven threshold requirements: (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 IRS’ first collection activity after July 22,
1998, with respect to the requesting spouse; (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 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. This Court employs
those factors when reviewing the Commissioner’s denial of relief.
Washington v. Commissioner, 120 T.C. 137, 147-152 (2003); see
also Schultz v. Commissioner, T.C. Memo. 2010-233.
Respondent agrees that petitioner met the threshold
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conditions10 with respect to the tax attributable to intervenor’s
2001 income to be eligible for section 6015(f) relief found in
Rev. Proc. 2003-61, sec. 4.01.
If the threshold conditions are met, the IRS will ordinarily
grant equitable relief with respect to underpayments on joint
returns if the following elements are satisfied generally:
(1) On the date of the request for relief, the requesting spouse
is no longer married to or is legally separated from the
nonrequesting spouse; (2) on the date the requesting spouse
signed the joint return, the requesting spouse had no knowledge
or reason to know that the nonrequesting spouse would not pay the
income tax liability; and (3) the requesting spouse will suffer
economic hardship if the IRS does not grant relief. Id. sec.
4.02, 2003-2 C.B. at 298. The IRS denied relief on the basis of
petitioner’s failure to meet element (3).
I. Factors
Where the requesting spouse fails to qualify for relief
under Rev. Proc. 2003-61, sec. 4.02, the IRS may nevertheless
grant relief under Rev. Proc. 2003-61, sec. 4.03, 2003-2 C.B. at
10
Intervenor argued that the petitioner fails requirement
(iii) and that petitioner’s request was not timely, but
intervenor has presented no evidence to support his assertion.
In agreeing that petitioner is entitled to partial relief,
respondent concedes that the request was made timely.
Additionally, there is nothing in the record to indicate that the
IRS had begun collection efforts against petitioner.
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298. The Court’s analysis with respect to the nonexhaustive list
of factors in Rev. Proc. 2003-61, sec. 4.03 is discussed below.
A. Marital Status
The IRS will take into consideration whether the requesting
spouse is divorced or separated (whether legally separated or
living apart) from the nonrequesting spouse. Id. sec.
4.03(2)(a)(i). We look to petitioner’s marital status at the
time of trial in applying de novo review. See Wilson v.
Commissioner, T.C. Memo. 2010-134. At the time of trial
petitioner was divorced. This factor weighs in favor of relief.
See id.; see also McKnight v. Commissioner, T.C. Memo. 2006-155
(divorce weighs in favor of relief under Rev. Proc. 2003-61).
B. Economic Hardship
The IRS will take into consideration whether the requesting
spouse will suffer economic hardship if relief is not granted.
Rev. Proc. 2003-61, sec. 4.03(2)(a)(ii). 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.
When petitioner requested innocent spouse relief in October
2007, she claimed that her monthly gross wages were $5,665.92 and
that her expenses were $6,805.93.11 Respondent concluded that
11
Petitioner’s net wages were $4,622.89 and her expenses
(excluding taxes deducted from her paycheck) were $5,762.90.
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petitioner would not suffer economic hardship on account of the
disallowance of the $1,831 monthly credit card payments as a
basic living expense.
In July 2008 petitioner provided a bank statement and a list
of expenses to the IRS. At that time, petitioner’s monthly net
wages were $4,285.66 and expenses were $4,629.03 (including
$1,708.90 for credit card payments).
At the time of trial, petitioner’s annual salary was
approximately $74,000. Petitioner has not claimed to be
supporting any children or dependents. Petitioner claims to have
suffered economic hardship largely because of her assumption of
the first mortgage, the second mortgage, and all of the credit
card debt as provided for in the final judgment of dissolution of
marriage.
At the time of the divorce the credit card debt totaled
approximately $50,000. Petitioner also had $30,289.52 of equity
in the marital home, $10,066.08 in her section 401(k) plan
account, and $32,200 in her pension. The division of assets as
outlined in the divorce shows an ability to fully satisfy all of
petitioner’s debts (including the tax liabilities) at the time of
the divorce. Petitioner has not alleged any diminution of her
assets since the divorce.
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We cannot conclude with certainty that petitioner would be
unable to pay reasonable living expenses if the tax were
collected. We conclude the economic hardship factor weighs
against petitioner. See Butner v. Commissioner, supra.
C. Knowledge or Reason To Know
The IRS will also consider whether the requesting spouse did
not know or had no reason to know that the nonrequesting spouse
would not pay the income tax liability. Rev. Proc. 2003-61, sec.
4.03(2)(a)(iii)(A). In the case of a properly 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. As is relevant here, the IRS will consider any deceit or
evasiveness of the nonrequesting spouse, the requesting spouse’s
degree of involvement in the activity generating the income tax
liability, the requesting spouse’s involvement in business and
household financial matters, and the requesting spouse’s business
or financial expertise in determining whether the requesting
spouse had reason to know the nonrequesting spouse would not pay
the income tax liability. Rev. Proc. 2003-61, sec.
4.03(2)(a)(iii)(C).
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Petitioner was not involved in intervenor’s businesses, nor
was she routinely involved in any of the businesses’ finances.12
Petitioner paid household bills out of her separate accounts.
The record does not reflect that petitioner had any business or
financial expertise. Intervenor ran his own businesses for many
years and participated in an accounting class while incarcerated.
When the 2001 return was signed and showed tax due, intervenor
showed petitioner a bank statement which reflected gross receipts
of $10,000 in one month. Although petitioner and intervenor
believed overpayments in other years would offset some or all of
their tax liability for 2001, intervenor assured petitioner that
the amount ultimately due would be paid from his businesses’
income.
We conclude that petitioner had no knowledge or reason to
know that intervenor would not pay the tax. This factor weighs
in favor of relief. Id. sec. 4.03(2)(a)(iii)(A).
12
Petitioner was involved in one of intervenor’s businesses
in 1981 before her marriage in 1984, including its bookkeeping.
There is no evidence that petitioner was involved in intervenor’s
businesses in 2001. When the 2001 return was prepared in 2007,
petitioner entered some receipts onto a spreadsheet which she
then provided to the C.P.A., but there is no evidence that
petitioner routinely participated in the bookkeeping of any of
intervenor’s businesses in 2007.
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D. Nonrequesting Spouse’s Legal Obligation
The IRS will also consider 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).
Petitioner was allocated the tax liabilities in the final
judgment of dissolution of marriage. Additionally, the judgment
states that petitioner requested that all other debts be
allocated to her in exchange for exclusive use and occupancy of
the marital home and to obviate the need for any equalizing
payment to intervenor. This factor weighs against relief. Id.
E. Significant Benefit
The IRS will consider whether the requesting spouse received
significant benefit beyond normal support as a result of the
unpaid tax liability. Id. sec. 4.03(2)(a)(v), 2003-2 C.B. at
299.
Neither respondent nor intervenor has argued and there is no
evidence indicating that petitioner received a significant
benefit as a result of the unpaid liability. Therefore, the
Court concludes 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 under Rev. Proc. 2003-61).
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F. Compliance With Federal Tax Laws
The IRS will take into consideration 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).
Petitioner and intervenor did not timely file returns for
2001, 2002, 2003, 2004, and 2005. Petitioner filed a 2006 return
in October 2007 as married filing separate after intervenor moved
out of the marital home. Since the separation from intervenor,
petitioner has timely filed returns for 2007, 2008, and 2009.13
We conclude petitioner has made a good-faith attempt to
comply with Federal tax laws. This factor weighs in favor of
granting relief. See Stephenson v. Commissioner, T.C. Memo.
2011-16.
G. Abuse
The IRS will also consider whether the nonrequesting spouse
abused the requesting spouse. See Rev. Proc. 2003-61, sec.
4.03(2)(b)(i). 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. If abuse is not
present, then this factor is deemed neutral. See id. sec.
4.03(2)(b).
13
Petitioner claimed married filing separately filing status
on her 2007 return.
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Petitioner claimed in her request for relief (filed after
her separation from intervenor) that she was not a victim of
spousal abuse. This is a neutral factor. See Magee v.
Commissioner, supra; see also Rev. Proc. 2003-61, sec.
4.03(2)(b)(i).
H. Mental or Physical Health
The IRS will take into consideration 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). If the requesting spouse is
not in poor mental or physical health, this
factor is deemed neutral. See id. sec. 4.03(2)(b).
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 Magee v. Commissioner, supra; see also Rev. Proc. 2003-61,
sec. 4.03(2)(b)(ii).
II. Conclusion
Of the factors listed in Rev. Proc. 2003-61, sec. 4.03, four
favor relief (marital status, lack of knowledge or reason to
know, good-faith effort to comply with tax laws, and lack of
significant benefit), two weigh against relief (economic hardship
and nonrequesting spouse’s legal obligation), and two are neutral
(lack of spousal abuse and mental or physical health). After
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considering and weighing all the factors, we find it would be
inequitable to hold petitioner liable for the 2001 tax liability
which is attributable to income earned by intervenor.
Accordingly, we hold that petitioner is entitled to relief from
joint and several liability under section 6015(f) for the portion
of the underpayment attributable to intervenor’s income for 2001.
To reflect the foregoing,
Decision will be entered
for petitioner.