Hudgins v. Comm'r

T.C. Memo. 2012-260

UNITED STATES TAX COURT

SHARON K. HUDGINS, Petitioner v.
COMMISSIONER OF INTERNAL REVENUE, Respondent

Docket No. 21782-10. Filed September 10, 2012.

Sherri K. Anderson, for petitioner.

William F. Castor and Dessa J. Baker-Inman, for respondent.

MEMORANDUM FINDINGS OF FACT AND OPINION

MARVEL, Judge: Petitioner seeks review of respondent’s determination to

deny relief from joint and several liability for unpaid Federal income taxes for
 -2-

[*2] 2006 under section 6015(b), (c), and (f) and for 2007 under section 6015(f).1

Petitioner timely petitioned this Court. After concessions,2 the sole issue for

decision is whether petitioner is entitled to relief under section 6015(f) for 2007.

FINDINGS OF FACT

Some of the facts have been stipulated. The stipulation of facts is

incorporated herein by this reference. Petitioner resided in Oklahoma when she

petitioned this Court.

Background

Petitioner and Mr. Rozell married in December 2005. Mr. Rozell died from a

mixture of pills and alcohol on February 14, 2009.

1
Unless otherwise indicated, all section references are to the Internal Revenue
Code for the relevant periods, and all Rule references are to the Tax Court Rules of
Practice and Procedure. Some monetary amounts have been rounded to the nearest
dollar.
2
After an audit in 2008 respondent issued to petitioner and Donald R. Rozell
a notice of deficiency determining a deficiency of $4,280, plus interest, with respect
to their joint income tax return for 2006. The liability was satisfied on April 15,
2009, when respondent collected the amount due by a refund offset of a $5,509
overpayment of petitioner and Mr. Rozell’s joint income tax account for 2008. Of
the overpayment, $4,909 was attributable to Mr. Rozell’s income tax withholding,
and $600 was attributable to a refundable recovery rebate credit. Accordingly, the
parties now agree that petitioner’s request for relief for 2006 is moot.
 -3-

[*3] During 2007 Mr. Rozell and three of his brothers each owned a 25% share of

Hubs Vending Corp. (Hubs), an S corporation. From 2007 through at least 2010

petitioner owned and operated two businesses: (1) Hudgins Realty (real estate

business), a sole proprietorship, and (2) Seahorse Publishing (publishing business),

also a sole proprietorship.

At the time of Mr. Rozell’s death, petitioner and/or Mr. Rozell owned the

following real properties: (1) their marital home at 1321 East Sixth Street, Cushing,

Oklahoma (Sixth Street property); (2) a rental property at 417 North Linwood,

Cushing, Oklahoma (Linwood property); (3) a rental property at 824 East Second

Street, Cushing, Oklahoma (Second Street property); and (4) an undeveloped

investment property in Lincoln County, Oklahoma (Lincoln County property).

Petitioner and Mr. Rozell timely filed a joint Form 1040, U.S. Individual

Income Tax Return, for 2007 reporting the following income items: (1) wages of

$13,004 that Mr. Rozell received from Hubs; (2) Schedule C, Profit or Loss From

Business, income of $22,534 from petitioner’s real estate business; (3) Schedule C

income of $3,221 from petitioner’s publishing business; and (4) net passthrough

income from Hubs of $163,714 on Schedule E, Supplemental Income and Loss.
 -4-

[*4] The joint return reported a total tax liability of $29,982, income tax withheld of

$9,285, and tax due of $20,697.

Petitioner’s Request for Relief

On or about July 8, 2009, petitioner submitted to respondent a Form 8857,

Request for Innocent Spouse Relief (request for relief), seeking relief from joint

and several liability for her and Mr. Rozell’s outstanding 2007 income tax liability.

In a letter dated July 28, 2009, respondent’s Cincinnati Centralized Innocent

Spouse Operation (CCISO) notified Mr. Rozell’s estate of petitioner’s request for

relief and requested that the estate complete a Form 12508, Questionnaire for

Non-Requesting Spouse. Petitioner, through her representative, partially

completed and returned the Form 12508 on behalf of Mr. Rozell’s estate.

In considering petitioner’s request for relief CCISO determined that (1) of

the outstanding 2007 tax liability, $3,639 was attributable to petitioner and

$17,058 was attributable to Mr. Rozell; (2) petitioner did not have a reasonable

belief that Mr. Rozell would pay the tax because she did not review the return in

the first instance and because the tax liabilities shown on Mr. Rozell’s individual
 -5-

[*5] returns from 2001 and 2002 were also not timely paid;3 (3) petitioner was not

making a good-faith effort to comply with the tax laws because she did not file her

2008 return, which had an extended due date of October 15, 2009, until October

20, 2009;4 and (4) petitioner’s minimum monthly payment was $215 because her

monthly income and expenses were $2,485 and $2,270, respectively.

In a letter dated January 25, 2010, CCISO proposed to deny petitioner relief

under section 6015. In a letter dated February 4, 2010, petitioner’s attorney

requested reconsideration of the proposed denial.

Appeals Office Proceedings

Respondent then transferred petitioner’s request for relief to respondent’s

Appeals Office. On June 23, 2010, Appeals Officer William Jarvi held a

conference with petitioner and her attorney. Subsequently, the Appeals Office

determined that (1) petitioner would not suffer economic hardship if denied relief,

(2) petitioner had reason to know the liability would not be paid, (3) Mr. Rozell

3
Petitioner was not married to Mr. Rozell during 2001-02, and it is unclear
why CCISO concluded that she had knowledge of Mr. Rozell’s prior
noncompliance. In deciding this case, we do not rely on CCISO’s conclusion.
4
Respondent concedes that petitioner timely filed her 2008 return.
 -6-

[*6] did not have a legal obligation to pay the liability,5 (4) petitioner appeared not

to be in compliance with the tax laws, and (5) petitioner’s marital status was the

only factor favoring relief. Accordingly, the Appeals Office denied petitioner’s

request for relief.

The Probate Case

On March 27, 2009, Sherre Rozell-Brandenburg, Mr. Rozell’s previous wife,

filed a petition for letters of administration of Mr. Rozell’s estate in the District

Court of Payne County, Oklahoma. On June 2, 2009, petitioner filed a cross-

petition for letters of administration, and on June 10, 2009, the court appointed her

personal representative of the estate.

On October 16, 2009, petitioner filed an application for an order

determining that Mr. Rozell’s estate had an interest in the Betty Rozell Revocable

Trust (Betty Rozell trust), requiring an account of the trust to be provided, and

determining whether the estate should file an action in the District Court of

Lincoln County, Oklahoma, to enforce or construe the terms of the trust. In her

application, petitioner alleged that the estate had a one-seventh interest in the trust

5
The Appeals officer seems to have misunderstood this factor, asking,
according to the case record, whether petitioner agreed to pay Mr. Rozell’s debts.
 -7-

[*7] as a beneficiary and that Mr. Rozell had understood before his death that he

would be receiving a distribution from the trust of approximately $60,000.

On August 25, 2010, petitioner filed an inventory of Mr. Rozell’s estate in the

probate case. In the inventory, petitioner listed as nonprobate assets of the estate

three parcels of real property that she and Mr. Rozell had owned as joint tenants

with the right of survivorship. The three parcels listed in the inventory were: (1) the

Sixth Street property, (2) the Second Street property, and (3) the Lincoln County

property. Petitioner listed as personal property of the estate (1) the estate’s interest

in Hubs, which was valued at approximately $90,000 and listed as having been

transferred by the court to Ms. Rozell-Brandenburg to satisfy Ms. Rozell-

Brandenburg’s lien on the estate; (2) tools worth approximately $1,500, and (3) the

estate’s one-seventh interest in the Betty Rozell trust, the value of which was to be

determined. Finally, petitioner listed $9,989 as money the estate received after Mr.

Rozell’s death.

The Trust Case

On March 31, 2010, petitioner filed a petition on behalf of Mr. Rozell’s estate

in the District Court of Lincoln County, Oklahoma, to enjoin the trustee of the Betty

Rozell trust from distributing the estate’s one-seventh share of the trust to other

persons or entities. On December 16, 2010, the court entered judgment in
 -8-

[*8] favor of the Betty Rozell trust, and on April 6, 2011, petitioner appealed the

district court’s judgment.6

Conveyances of the Rental Properties

By quitclaim deeds dated September 1, 2010, petitioner conveyed the

Linwood property and the Second Street property to her sister, Brenda Sue Hudgins,

and her brother, Jackie Lee Hudgins. The quitclaim deeds regarding the Linwood

and Second Street properties bore no documentary tax stamps and stated that the

conveyances were “family transfer[s]”.

The Foreclosure Case

On March 31, 2011, a foreclosure suit was filed in the District Court of Payne

County, Oklahoma, against petitioner and Mr. Rozell regarding the Sixth Street

property. On August 16, 2011, the court entered judgment for the plaintiff and

ordered that the Sixth Street property be sold at a sheriff’s sale. On October 4,

2011, the Sixth Street property was offered for sale.

6
As of the time of trial, the appeal was still pending in the Court of Civil
Appeals of the State of Oklahoma. See OCIS Case Summary for No. DF-109331,
Oklahoma State Courts Network, http://www.oscn.net/applications/oscn/getcase
information.asp?submitted=true&number=109331&db=Appellate&viewtype=
oscn (last visited July 24, 2012).
 -9-

[*9] Petitioner’s Business Income: 2006-10

Petitioner reported business income for tax years 2006-10 as follows:

Real estate business Publishing business
Gross Net Gross Net
Year receipts Expenses income receipts Expenses income

2006 $76,415 $53,155 $23,260 -0- -0- -0-
2007 47,990 25,456 22,534 $25,115 $21,894 $3,221
2008 26,770 16,797 9,973 51,804 43,202 8,602
2009 14,570 17,970 (3,400) 42,773 35,280 7,493
2010 20,633 17,419 3,214 28,280 29,652 (1,372)

Petitioner’s Rental Income: 2006-10

Petitioner reported rental income for tax years 2006-10 as follows:

Linwood property Second Street property
Gross Net Gross Net
Year receipts Expenses income receipts Expenses income

2006 $1,950 $3,046 ($1,096) -0- -0- -0-
2007 2,050 1,705 345 -0- -0- -0-
2008 2,475 2,376 99 -0- -0- -0-
2009 4,225 305 3,920 $2,900 $3,792 ($892)
2010 9,958 675 9,283 -0- 753 (753)

Petitioner’s Form 433-A

On September 20, 2011, petitioner submitted to respondent a Form 433-A,

Collection Information Statement for Wage Earners and Self-Employed

Individuals. On the Form 433-A petitioner reported that she was a beneficiary of

the Betty Rozell Trust and that she anticipated receiving $50,000. Petitioner did
 - 10 -

[*10] not list the Linwood, Second Street, or Lincoln County properties as real

property she owned, and she did not disclose that she had transferred her interest in

the Linwood or Second Street property for less than full value within the last 10

years.

Petitioner indicated on her Form 433-A that (1) she had ceased operating her

publishing business; (2) she had $29 in total cash; (3) she had an IRA account worth

$4,271; (4) she owned two vehicles: a 2002 Lexus ES-300 with 238,800 miles on it

and estimated equity of $7,500 and a 1991 Chrysler “TCM” with 60,000-80,000

miles on it and estimated equity of $4,500; and (5) from January 1 through

September 14, 2011, she had total income of $14,653 and total expenses of

$14,815. Petitioner calculated her income and expenses as follows:
 - 11 -

[*11] Income and expense report
1/1/11 - 9/14/11

Income

Sales/commission $8,575
Property management/com. 1,830
Property management/res. 1,048
Family transfer/sale ($400/month) 3,200
1
Total 14,653

Expenses

Advertising $1,163
Auto (travel) 40
Auto (service) 141
Auto (other) 33
Business 1,799
Charity 5
Dining 290
Dues (Chamber of Commerce) 150
Filing fee 4
Food 83
Promotional 195
Insurance 457
Legal fees 609
Lions Club dues 100
Materials 91
Medical (out of pocket) 1,020
Postage 43
Supplies 159
Office (other) 1,536
Telephone 3,715
Utilities 3,182
Total 14,815

1
Petitioner erroneously calculated her total income to be $13,753.
 - 12 -

[*12] OPINION

I. Section 6015

Generally, married taxpayers who file a joint Federal income tax return are

jointly and severally liable for the tax reported or reportable on the return. Sec.

6013(d)(3); Butler v. Commissioner, 114 T.C. 276, 282 (2000). Section 6015

allows a spouse to obtain relief from joint and several liability in certain

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

return may elect to seek relief from joint and several liability under section

6015(b) (dealing with relief from liability for an understatement of tax with

respect to a joint return). Section 6015(a)(2) provides that an eligible spouse may

elect to limit that spouse’s liability for any deficiency with respect to a joint return

under section 6015(c) (dealing with relief from joint and several liability for

taxpayers who are no longer married or who are legally separated or no longer

living together). If a taxpayer does not qualify for relief under either section

6015(b) or (c), the taxpayer may seek equitable relief under section 6015(f).

Under section 6015(f), the Secretary7 has discretion to grant equitable relief to

7
The term “Secretary” means the Secretary of the Treasury or his delegate.
Sec. 7701(a)(11)(B).
 - 13 -

[*13] a spouse who filed a joint return with an understatement or underpayment of

tax. See also sec. 1.6015-4(a), Income Tax Regs.

The parties agree that petitioner is not entitled to relief under section 6015(b)

or (c) because she is seeking relief from an underpayment of tax, not an

understatement of tax or a deficiency in tax. See Hopkins v. Commissioner, 121

T.C. 73, 88 (2003). Petitioner contends, however, that she is entitled to relief from

joint and several liability under section 6015(f). Respondent disagrees.

We have jurisdiction to determine whether petitioner qualifies for section

6015(f) relief. See sec. 6015(e); see also Kollar v. Commissioner, 131 T.C. 191,

196 (2008).

II. The Standard and Scope of Review

In Porter v. Commissioner, 132 T.C. 203, 210 (2009), we held that, in

determining whether a taxpayer is entitled to equitable relief under section 6015(f),

we apply a de novo standard and scope of review.8 Petitioner bears the burden of

proving that she is entitled to relief under section 6015(f). See id.; see also Rule

142(a)(1).

8
Respondent disagrees with our holding in Porter v. Commissioner, 132 T.C.
203 (2009). Respondent argues that the appropriate standard of review in sec.
6015(f) cases is abuse of discretion and the scope of review should be limited to the
administrative record. We decline to revisit our holding in Porter.
 - 14 -

[*14] Pursuant to section 6015(f), the Commissioner has prescribed guidelines in

Rev. Proc. 2003-61, 2003-2 C.B. 296,9 for determining whether a requesting spouse

qualifies for relief under that section. This Court considers those guidelines, but is

not bound by them, in evaluating the facts and circumstances of a case. See Pullins

v. Commissioner, 136 T.C. 432, 438-439 (2011); Porter v. Commissioner, 132 T.C.

at 210.

On January 5, 2012, the Internal Revenue Service (IRS) released Notice

2012-8, 2012-4 I.R.B. 309, which proposed a revenue procedure that, if finalized,

would revise the factors the IRS will use to evaluate a requesting spouse’s claim

for equitable relief under section 6015(f) and would supersede Rev. Proc. 2003-

61, supra. Notice 2012-8, supra, states that, “until the revenue procedure is

finalized, the Service will apply the provisions in the proposed revenue procedure

instead of Rev. Proc. 2003-61 in evaluating claims for equitable relief under

section 6015(f).” However, in Sriram v. Commissioner, T.C. Memo. 2012-91, slip

op. at 9 n.7, we took the position that we would “continue to apply the factors in

Rev. Proc. 2003-61, 2003-2 C.B. 296, in view of the fact that the proposed

revenue procedure is not final and because the comment period under the notice

9
Rev. Proc. 2003-61, 2003-2 C.B. 296, supersedes Rev. Proc. 2000-15,
2000-1 C.B. 447, and is effective for requests for sec. 6015(f) relief filed on or after
November 1, 2003. Rev. Proc. 2003-61, secs. 6 and 7, 2003-2 C.B. at 299.
 - 15 -

[*15] only recently closed.” See also Yosinski v. Commissioner, T.C. Memo.

2012-195, slip op. at 13 n.9; Deihl v. Commissioner, T.C. Memo. 2012-176, slip

op. at 29.

The parties contend that this Court should apply the provisions of the

proposed revenue procedure set forth in Notice 2012-8, supra, in determining

whether petitioner is entitled to equitable relief under section 6015(f). We decline

to do so. We adopt here an approach similar to the approach used in Sriram. We

shall decide whether petitioner is entitled to relief under section 6015(f) by

considering all of the relevant facts and circumstances, evaluating them through the

prism of Rev. Proc. 2003-61, supra, and noting where appropriate how the analysis

used in Rev. Proc. 2003-61, supra, would change if the proposed revenue procedure

in Notice 2012-8, supra, had actually been finalized.

III. Rev. Proc. 2003-61

A. Section 4.01: Threshold Conditions

Rev. Proc. 2003-61, sec. 4.01, 2003-2 C.B. at 297-298, sets forth seven

threshold conditions that a requesting spouse must satisfy to be eligible to submit a

request for relief under section 6015(f): (1) the requesting spouse filed a joint

Federal income tax return for the tax year or years for which relief is sought; (2) the

requesting spouse does not qualify for relief under section 6015(b) or (c); (3)
 - 16 -

[*16] the requesting spouse applies for relief no later than two years after the date of

the Commissioner’s first collection activity after July 22, 1998, with respect to the

requesting spouse;10 (4) no assets were transferred between the spouses as part of a

fraudulent scheme by such spouses; (5) the nonrequesting spouse did not transfer

disqualified assets to the requesting spouse; (6) the requesting spouse did not file the

returns with fraudulent intent; and (7) the liability from which relief is sought is

attributable to an item of the nonrequesting spouse, unless an exception applies.

An exception to the seventh threshold condition applies where the requesting

spouse shows that he or she was subject to abuse before the time that the return was

filed and that, as a result of that abuse, the requesting spouse did not challenge the

treatment of any item on the return. See Rev. Proc. 2003-61, sec. 4.01(7)(d), 2003-

2 C.B. at 298.

The parties agree that petitioner satisfies the first six threshold conditions.

The parties also agree that, to the extent that petitioner’s joint liability for 2007 is

10
In Lantz v. Commissioner, 132 T.C. 131 (2009), rev’d, 607 F.3d 479 (7th
Cir. 2010), we held that the two-year deadline imposed by Rev. Proc. 2003-61, sec.
4.01, 2003-2 C.B. at 297, pursuant to sec. 1.6015-5(b)(1), Income Tax Regs., is
invalid. Notice 2012-8, 2012-4 I.R.B. 309, 312, proposes to eliminate the two-year
deadline and replace it with a requirement that the request for relief be filed within
the applicable period of limitations provided by sec. 6502 (relating to collections) or
sec. 6511 (relating to claims for credit or refund).
 - 17 -

[*17] attributable to Mr. Rozell, she has satisfied the seventh condition. Petitioner

contends, however, that she also qualifies for relief, under the abuse exception to

the seventh condition, from the part of the liability attributable to her because Mr.

Rozell’s alcohol addiction constituted abuse.

Petitioner has failed to introduce evidence showing that Mr. Rozell’s

alcohol addiction, if any, prevented her from challenging any item on their

return.11 Accordingly, petitioner cannot qualify for the abuse exception to the

seventh threshold condition even if Mr. Rozell’s alcohol addiction constituted

abuse.12 We must decide, however, whether petitioner qualifies for relief with

respect to the amount of the tax liability attributable to Mr. Rozell.

B. Section 4.02: The Safe Harbor Requirements

If a requesting spouse fulfills the threshold requirements of Rev. Proc.

2003-61, sec. 4.01, the Commissioner ordinarily will grant relief from joint and

several liability with respect to underpayments on a joint Federal income tax

11
Petitioner did not introduce any evidence, other than her own testimony, that
Mr. Rozell suffered from an alcohol addiction. We shall assume that Mr. Rozell
suffered from an alcohol addiction that ultimately led to his death; but we note that
the record contains no objective evidence, such as a death certificate or medical
records, to confirm petitioner’s testimony.
12
As discussed infra pp. 38-39, petitioner’s argument that Mr. Rozell’s
alcohol addiction constituted abuse also lacks merit.
 - 18 -

[*18] return, provided that all of the following additional safe harbor requirements

are satisfied: (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 did not

know, and had no reason to know, that the nonrequesting spouse would not pay the

tax liability; and (3) the requesting spouse will suffer economic hardship if the

Commissioner does not grant relief. Id. sec. 4.02, 2003-2 C.B. at 298.

The parties agree that petitioner was the widow of Mr. Rozell when she

requested relief under section 6015(f). However, the parties disagree (1) whether

petitioner has shown that she did not know, or have reason to know, that the liability

reported on the 2007 return would not be paid and (2) whether petitioner has shown

that she would face economic hardship if her request for relief were denied.

Accordingly, we address these two issues.

1. Knowledge or Reason To Know

Petitioner contends that she reasonably believed that the tax liability would be

paid. Respondent contends that petitioner failed to satisfy her duty of inquiry when

signing the 2007 return.

In determining whether a taxpayer knew or should have known that a tax

liability would not be paid, we impute to a taxpayer knowledge of what she could
 - 19 -

[*19] have gleaned from tax returns she signed, had she taken the time to review

them. See Porter v. Commissioner, 132 T.C. at 211-212 (citing Hayman v.

Commissioner, 992 F.2d 1256, 1262 (2d Cir. 1993), aff’g T.C. Memo. 1992-228).

Petitioner testified that (1) she did not know that the 2007 return showed that

there was tax due when she signed the return, (2) she and Mr. Rozell did not receive

any distributions of money or property corresponding to the pass-through income

from Hubs, (3) there were no large purchases consistent with the receipt of such a

distribution, and (4) she had assumed that Hubs would advance funds to satisfy the

tax liability generated by the pass-through income Mr. Rozell received from Hubs.

We find credible petitioner’s testimony that when she learned of the

outstanding tax liability, she believed that Hubs would advance funds to satisfy that

liability. We are also prepared to find that belief reasonable under the

circumstances. But the question is not whether petitioner reasonably believed that

the tax would be paid when she learned of the outstanding liability. Rather, the

question is whether petitioner reasonably believed when she signed the return that

the amount shown on the return as tax due would be paid. See Rev. Proc. 2003-61,

sec. 4.02(1)(b). Petitioner could not have had a reasonable belief that the tax

liability would be paid when she signed the return because she did not examine the
 - 20 -

[*20] return before signing it and she has conceded that she was unaware there was

tax due when she signed the return.13

Petitioner also cannot claim that her failure to review the return before signing

it constitutes reasonable belief that the liability would be paid. As we said in Pullins

v. Commissioner, 136 T.C. at 444: “[A] taxpayer may not obtain the benefits of

joint filing status but then obtain relief from joint and several liability by ignoring or

avoiding facts fully disclosed on a return she signed.” Accordingly, petitioner is

charged with knowledge of the liability that was reported on the return she signed.

2. Economic Hardship

Petitioner contends that she will suffer economic hardship if she is not

granted relief from joint and several liability because (1) she lost her husband’s

income with his death and the passing of his interest in Hubs to Ms. Rozell-

Brandenburg, (2) she lost her home to foreclosure, (3) she had to close her

13
We have previously indicated that a requesting spouse who failed to review
the return could satisfy this requirement where reviewing the return would not have
caused the requesting spouse to know or have reason to know that the liability
shown on the return would not be paid. See Kosola v. Commissioner, T.C. Memo.
2010-34, 99 T.C.M. (CCH) 1141, 1144 (2010). Here, by contrast, had petitioner
reviewed the return, she would have had reason to know that the liability shown on
the return would go unpaid unless and until she was reassured that Hubs would
advance funds to satisfy the liability.
 - 21 -

[*21] publishing business, and (4) her real estate business has suffered because of

the downturn in the real estate markets. Respondent contends that (1) petitioner has

not proved that her monthly expenses exceed her monthly income; (2) petitioner was

entitled to a portion of the proceeds from Mr. Rozell’s estate; (3) through Mr.

Rozell’s estate, petitioner may be entitled to a part of the distribution from the Betty

Rozell trust; (4) petitioner currently owns the Lincoln County property; and (5)

petitioner’s siblings hold the Linwood and Second Street properties as mere

nominees for her because she transferred the Linwood and Second Street properties

to her siblings for inadequate consideration and maintains full control over the

properties.

In determining whether a requesting spouse will suffer economic hardship if

the Commissioner denies his or her request for relief under section 6015(f), Rev.

Proc. 2003-61, sec. 4.02, directs the Commissioner to base his decision on rules

similar to those found in section 301.6343-1(b)(4), Proced. & Admin. Regs.

Section 301.6343-1(b)(4), Proced. & Admin. Regs., provides that an individual

suffers economic hardship when the individual is unable to pay reasonable basic

living expenses. In determining a reasonable amount for basic living expenses, the

Commissioner must consider information provided by the taxpayer, including:
 - 22 -

[*22] (A) The taxpayer’s age, employment status and history, ability to
earn, number of dependents, and status as a dependent of someone
else;

(B) The amount reasonably necessary for food, clothing, housing
* * *, medical expenses * * *, transportation, current tax payments
* * *, alimony, child support, or other court-ordered payments, and
expenses necessary to the taxpayer’s production of income * * *;

(C) The cost of living in the geographic area in which the
taxpayer resides;

(D) The amount of property exempt from levy which is available
to pay the taxpayer’s expenses;

(E) Any extraordinary circumstances such as special education
expenses, a medical catastrophe, or natural disaster; and

(F) Any other factor that the taxpayer claims bears on economic
hardship and brings to the attention of the * * * [Commissioner].

Id.

In evaluating a requesting spouse’s claim of economic hardship, we are under

no obligation to accept self-serving, uncorroborated testimony. See Tokarski v.

Commissioner, 87 T.C. 74, 77 (1986); Kosola v. Commissioner, T.C. Memo.

2010-34, 99 T.C.M. (CCH) 1141, 1145 (2010). However, we may accept a

requesting spouse’s testimony if we find it credible. See, e.g., Washington v.

Commissioner, 120 T.C. 137, 150 (2003); Kosola v. Commissioner, 99 T.C.M.

(CCH) at 1145.
 - 23 -

[*23] The parties have two principal disputes with respect to whether petitioner will

suffer economic hardship if denied relief from joint and several liability under

section 6015(f): (1) whether petitioner’s siblings hold the Linwood and Second

Street properties as mere nominees for her, and (2) whether petitioner has

adequately proved the amounts of her income and expenses and the value of her

equity in her assets. We address each of these disputes in turn.

a. The Linwood and Second Street Properties

We have previously considered the issue of whether a third party holds

property as a nominee of a taxpayer by examining whether the Commissioner can

collect against such property. See Dalton v. Commissioner, 135 T.C. 393, 404

(2010), rev’d on other grounds, 682 F.3d 149 (1st Cir. 2012). Under sections 6321

and 6331, a lien is imposed, and the Secretary can levy, upon any “property” or

“rights to property” belonging to a taxpayer. See Drye v. United States, 528 U.S.

49, 55 (1999); Holman v. United States, 505 F.3d 1060, 1065 (10th Cir. 2007).

This includes “‘property held by a third party if it is determined that the third party

is holding the property as a nominee * * * of the delinquent taxpayer.’” Holman,

505 F.3d at 1065 (quoting Spotts v. United States, 429 F.3d 248, 251 (6th Cir.

2005)) (alteration in original); see also Dalton v. Commissioner, 135 T.C. at 404.

Application of nominee principles to support a lien or levy turns on a two-part
 - 24 -

[*24] inquiry. The first part of the inquiry looks “to state law to determine what

rights the taxpayer has in the property the Government seeks to reach.” Drye, 528

U.S. at 58; see also Holman, 505 F.3d at 1067-1068; Dalton v. Commissioner, 135

T.C. at 405. The second part of the inquiry looks “to [F]ederal law to determine

whether the taxpayer’s state-delineated rights qualify as ‘property’ or ‘rights to

property’ within the compass of * * * [sections 6321 and 6331].” Drye, 528 U.S. at

58; see also Holman, 505 F.3d at 1067-1068; Dalton v. Commissioner, 135 T.C. at

405.

In deciding whether a third party holds property as a nominee for a taxpayer

in Oklahoma, courts have turned to Oklahoma fraudulent conveyance principles.

See Dalton v. Commissioner, 135 T.C. at 408 (citing United States v. Stinson, 386

F. Supp. 2d 1207, 1218 (W.D. Okla. 2005)). Under Oklahoma’s Uniform

Fraudulent Transfer Act,

A. A transfer made or obligation incurred by a debtor is fraudulent as
to a creditor, whether the creditor’s claim arose before or after the
transfer was made or the obligation was incurred, if the debtor made
the transfer or incurred the obligation:

1. with actual intent to hinder, delay, or defraud any creditor of the
debtor; or * * *.
 - 25 -

[*25] Okla. Stat. Ann. tit. 24, sec. 116(A) (West 2008). In determining a debtor’s

intent,

consideration may be given, among other factors, to whether:

1. the transfer or obligation was to an insider;

2. the debtor retained possession or control of the property transferred
after the transfer;

3. the transfer or obligation was disclosed or concealed;

4. before the transfer was made or obligation was incurred, the debtor
had been sued or threatened with suit;

5. the transfer was of substantially all the debtor’s assets;

6. the debtor absconded;

7. the debtor removed or concealed assets;

8. the value of the consideration received by the debtor was
reasonably equivalent to the value of the asset transferred or the
amount of the obligation incurred;

9. the debtor was insolvent or became insolvent shortly after the
transfer was made or the obligation was incurred;

10. the transfer occurred shortly before or shortly after a substantial
debt was incurred; and

11. the debtor transferred the essential assets of the business to a
lienor who transferred the assets to an insider of the debtor.

Okla. Stat. Ann. tit. 24, sec. 116(B); see also Stinson, 386 F. Supp. 2d at 1218

(“Under Oklahoma law, the indicia of a fraudulent conveyance include inadequate
 - 26 -

[*26] consideration, insolvency of the transferor, a familial relationship between the

transferor and transferee, the pendency or threat of litigation, and the transfer of the

debtor’s entire estate.” (citing Ebey-McCauley Co. v. Smith, 353 P.2d 23, 28 (Okla.

1960))).

Petitioner testified that she sold the Linwood and Second Street properties to

her sister, Ms. Hudgins, and her brother, Mr. Hudgins, in installment sales.

Petitioner further testified that, under these installment sales, she continued to

collect the rents and pay all expenses on the properties and that she never turned

over any of the rents to her siblings. When asked to explain why she set up such an

arrangement, petitioner testified that she entered into this arrangement because she

could no longer afford to maintain the properties in the event that they required

significant repairs.

We do not find petitioner’s testimony regarding the transfer of the Linwood

and Second Street properties to be credible, for two reasons. First, the quitclaim

deeds regarding the Linwood and Second Street properties bore no documentary tax

stamps and stated that the conveyances were “family transfer[s]”. Oklahoma

imposes a documentary stamp tax on each deed conveying land when the

consideration or value of the property conveyed, exclusive of the value of any

encumbrance on the property, exceeds $100. Okla. Stat. Ann. tit. 68, sec. 3201(A)
 - 27 -

[*27] (West 2001). The documentary stamp tax is prorated at the rate of 75 cents

per $500 of consideration, including future consideration. Id. sec. 3201(A), (C)(3).

Deeds between persons related within the second degree of consanguinity without

consideration are exempt from the tax. Id. sec. 3202(4) (West 2001 & Supp. 2012).

Accordingly, by recording the quitclaim deeds as family transfers, petitioner

represented to the State of Oklahoma that she did not, and will not, receive

consideration for the properties.

Second, petitioner failed to introduce (1) copies of the installment sale

agreements, (2) any corroboration that she obtained, or will require, any assistance

from her siblings in maintaining the Linwood and Second Street properties, or (3)

any evidence, other than her own unsupported testimony, regarding her remaining

equity in the properties. Lacking such corroboration, we decline to accept

petitioner’s self-serving testimony. See Broz v. Commissioner, 137 T.C. 46, 59

(2011) (“We need not accept the taxpayer’s self-serving testimony when the

taxpayer fails to present corroborative evidence.”); Tokarski v. Commissioner, 87

T.C. at 77.

We observe that (1) petitioner transferred the properties to her relatives, see

Okla. Stat. Ann. tit. 24, sec. 113(7)(a)(1) (defining “[i]nsider” to include “a

relative of the debtor”); (2) petitioner continued to exercise full control over the
 - 28 -

[*28] properties, such as by collecting rent on and paying expenses for the

properties, after the transfers; (3) petitioner did not disclose the transfer of the

properties for less than full consideration on her Form 433-A; (4) the transfers were

made during the pendency of petitioner’s efforts to secure relief under section

6015(f); and (5) petitioner received inadequate consideration for the properties.

Accordingly, on the evidence before us, we conclude that petitioner fraudulently

conveyed the Linwood and Second Street properties under Oklahoma’s Uniform

Fraudulent Transfer Act.

We now turn to the second part of the inquiry to decide, under Federal law,

whether petitioner’s interests in the Linwood and Second Street properties

constitute “property” or a “right[] to property” under sections 6321 and 6331.

Under Oklahoma’s Uniform Fraudulent Transfer Act, “a creditor * * * may obtain

* * * an attachment or other provisional remedy against the asset transferred”.

Okla. Stat. Ann. tit. 24, sec. 119(A) (West 2008). Because creditors can attach

transferred properties under Oklahoma law, we find that petitioner’s interests in

the transferred properties are “property” or a “right[] to property” under sections

6321 and 6331. See Drye, 528 U.S. at 58 (holding that a disclaimed inheritance is

“property” or a “right[] to property” under sections 6321 and 6331, even though

creditors could not reach the disclaimed inheritance under state law); see also
 - 29 -

[*29] United States v. Krause (In re Krause), 637 F.3d 1160, 1166 (10th Cir. 2011)

(“[T]he terms ‘property’ and ‘rights to property’ * * * embrace not only rights or

interest[s] with exchangeable value that the taxpayer holds formal legal title to, but

also those that the taxpayer * * * is found under state law to have fraudulently

conveyed to a nominee.”); Dalton v. Commissioner, 135 T.C. at 407.

Accordingly, for the purposes of deciding whether petitioner will suffer

economic hardship if denied relief from joint and several liability under section

6015(f), we conclude that her siblings hold the Linwood and Second Street

properties as mere nominees for her.

b. Petitioner’s Income, Expenses, and Assets

The administrative record shows that in January 2010 petitioner was 57

years old and had no dependents. Petitioner’s 2006-10 tax returns show that she

reported items of income, for at least some of those years, from her real estate

business, her publishing business, and from renting out the Linwood property. At

trial petitioner conceded that the Second Street rental was currently profitable.

Petitioner also concedes that she currently owns the Lincoln County property.

Petitioner testified that she closed her publishing business in November

2010 because it was starting to lose money and because her mother could no

longer write for her on account of her mother’s deteriorating health. However,
 - 30 -

[*30] petitioner failed to introduce any books, records, or other evidence showing

that the publishing business was no longer viable or that the publishing business was

too burdensome to continue on account of her mother’s deteriorating health.

Lacking corroboration, we decline to accept petitioner’s self-serving testimony. See

Tokarski v. Commissioner, 87 T.C. at 77.

Petitioner testified that she now pays her father rent of $550 per month and

that she is paying for her own utilities. Petitioner, however, also testified that her

father would not accept any rent payments from her and that she is now living with

her mother. Petitioner introduced no evidence to corroborate her testimony.

Lacking corroboration, we decline to accept petitioner’s self-serving testimony. See

id. Accordingly, on the evidence before us, we cannot determine whether petitioner

is currently incurring housing and utility expenses.

Other than her 2006-10 tax returns, an unsupported and incomplete Form

433-A, and some limited testimony, petitioner has failed to produce any books,

records, or other credible evidence to support her claimed income and expenses.

Without such evidence, we are unable to determine petitioner’s income or

expenses.

Petitioner also failed to introduce any evidence that would enable us

to determine her equity in the Linwood, Second Street, and Lincoln County
 - 31 -

[*31] properties or her monthly rental income from the Linwood and Second Street

properties. Petitioner testified that she thought that she had equity in the Linwood

and Second Street properties of $6,000 and $1,000, respectively and that she listed

the Lincoln County property for sale for $30,000. Petitioner also testified that the

Linwood and Second Street properties produced a combined $750 in gross income

and $400 in net income per month. Petitioner introduced no evidence to corroborate

her testimony. Lacking corroboration, we decline to accept petitioner’s self-serving

testimony. See id.

Accordingly, we find that petitioner has failed to show that she will suffer

economic hardship if denied relief under section 6015(f).14 See Rule 142(a)(1).

In summary, we conclude that petitioner has not satisfied the safe harbor

requirements of Rev. Proc. 2003-61, sec. 4.02, because she has failed to satisfy her

burden of showing that she reasonably believed that the tax due on the 2007 return

would be paid and that she will suffer economic hardship if denied relief.

14
Because we conclude on other grounds that petitioner has not shown that
she would suffer economic hardship if denied relief, we need not decide whether
petitioner’s interest in Mr. Rozell’s estate and potential interest in the Betty Rozell
trust also preclude her from showing that she will suffer economic hardship if denied
relief.
 - 32 -

[*32] C. Section 4.03: Factors for Determining Whether To Grant
Equitable Relief

If a requesting spouse satisfies the threshold conditions of Rev. Proc. 2003-

61, sec. 4.01, but fails to satisfy one or more of the safe harbor requirements of Rev.

Proc. 2003-61, sec. 4.02, the Commissioner may still grant relief under section

6015(f) on the basis of several additional factors. See Rev. Proc. 2003-61, sec.

4.03, 2003-2 C.B. at 298-299. The following list is not exclusive, and no single

factor is determinative:

(a) Factors that may be relevant to whether the Service will grant
equitable relief include, but are not limited to, the following:

(i) Marital status. Whether the requesting spouse is separated
(whether legally separated or living apart) or divorced from the
nonrequesting spouse. * * *

(ii) Economic hardship. Whether the requesting spouse would
suffer economic hardship (within the meaning of section 4.02(1)(c) of
this revenue procedure) if the Service does not grant relief from the
income tax liability.

(iii) Knowledge or reason to know.

(A) Underpayment cases. In the case of an income tax liability
that was properly reported but not paid, whether the requesting
spouse did not know and had no reason to know that the
nonrequesting spouse would not pay the income tax liability.
 - 33 -

[*33] * * * * * * *

(C) Reason to know. For purposes of (A) and (B) above, in
determining whether the requesting spouse had reason to know, the
Service will consider the requesting spouse’s level of education, 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, the requesting spouse’s business or
financial expertise, and any lavish or unusual expenditures compared
with past spending levels.

(iv) Nonrequesting spouse’s legal obligation. Whether the
nonrequesting spouse has a legal obligation to pay the outstanding
income tax liability pursuant to a divorce decree or agreement. * * *

(v) Significant benefit. Whether the requesting spouse received
significant benefit (beyond normal support) from the unpaid income tax
liability or item giving rise to the deficiency. * * *

(vi) Compliance with income tax laws. Whether the requesting
spouse has made a good faith effort to comply with income tax laws in
the taxable years following the taxable year or years to which the
request for relief relates.

(b) Factors that, if present in a case, will weigh in favor of
equitable relief, but will not weigh against equitable relief if not present
in a case, include, but are not limited to, the following:

(i) Abuse. Whether the nonrequesting spouse abused the
requesting spouse. The presence of abuse is a factor favoring relief.
A history of abuse by the nonrequesting spouse may mitigate a
requesting spouse’s knowledge or reason to know.

(ii) Mental or physical health. Whether the requesting spouse
was in poor mental or physical health on the date the requesting
spouse signed the return or at the time the requesting spouse
 - 34 -

[*34] requested relief. The Service will consider the nature, extent,
and duration of illness when weighing this factor.

Id. sec. 4.03(2). We now consider each of these factors.

1. Marital Status

Petitioner was widowed from Mr. Rozell when she requested relief.

Accordingly, this factor favors relief.

2. Economic Hardship

For the reasons discussed supra pp. 20-31, we find that petitioner would not

suffer economic hardship if her request for relief under section 6015(f) were

denied. Accordingly, this factor weighs against relief.15 See Sriram v.

Commissioner, slip op. at 18.

3. Knowledge or Reason To Know

For the reasons discussed supra pp. 18-20, petitioner should have known

that there was tax due on the return when she signed it and she could not have

15
The Commissioner proposes in Notice 2012-8, sec. 4.03(2)(b), 2012-4
I.R.B. at 313, that the economic hardship factor should be considered neutral where
denying relief from joint and several liability will not result in economic hardship to
the requesting spouse.
 - 35 -

[*35] reasonably believed that the tax due on the return would be paid when she

signed the return.16 Accordingly, this factor weighs against relief.

4. Nonrequesting Spouse’s Legal Obligation

Petitioner and Mr. Rozell were not divorced. Accordingly, this factor is

neutral. See Bland v. Commissioner, T.C. Memo. 2011-8, 101 T.C.M. (CCH) 1023,

1025 (2011).

5. Significant Benefit

Petitioner contends that she received no significant benefit from the

underpayment of tax due to income items attributable to Mr. Rozell because she and

Mr. Rozell neither received nor spent distributions corresponding to the pass-through

income from Hubs. Respondent concedes that there is no evidence that petitioner

received significant benefit from the underpayment of tax but contends that this

factor should be considered neutral because Mr. Rozell also did not receive

significant benefit from the underpayment of tax.

Respondent cites no cases holding that the nonrequesting spouse must

receive significant benefit from an understatement or underpayment of tax for this

16
Petitioner failed to introduce any evidence suggesting that Mr. Rozell was
deceitful or evasive with respect to the 2007 return. Additionally, as discussed infra
pp. 38-39, petitioner’s contention that Mr. Rozell’s alcohol addiction constituted
abuse is meritless.
 - 36 -

[*36] factor to favor relief. The plain language of Rev. Proc. 2003-61, sec.

4.03(2)(a)(v), does not so require. However, the revenue procedure proposed by

Notice 2012-8, supra, provides as follows:

If only the nonrequesting spouse significantly benefitted from the unpaid
tax or item giving rise to an understatement or deficiency, and the
requesting spouse had little or no benefit, or the nonrequesting spouse
enjoyed the benefit to the requesting spouse’s detriment, this factor will
weigh in favor of relief. If the amount of unpaid tax or understated tax
was small such that neither spouse received a significant benefit, then
this factor is neutral.

Notice 2012-8, 2012-4 I.R.B. at 314.

As discussed supra pp. 14-15, we have not yet adopted the mode of analysis

proposed by Notice 2012-8, supra. We are also not convinced that the analysis

proposed by Notice 2012-8, supra, would require the nonrequesting spouse to

significantly benefit from the underpayment or understatement of tax for this factor to

favor relief where the underpayment or understatement of tax is large.

Moreover, we disagree with respondent’s assertion that Mr. Rozell received

no significant benefit from the pass-through income from Hubs. Mr. Rozell owned a

25% share of Hubs. When a shareholder of an S corporation is required to report

income of the S corporation, the shareholder’s basis in the S corporation stock is

increased accordingly. Sec. 1367(a)(1)(A). Because Hubs never made a

corresponding distribution of any money or property to Mr. Rozell, see sec.
 - 37 -

[*37] 1368(b)(1) and (c)(1), Mr. Rozell’s basis in Hubs was thus greater than it

would have been without the pass-through income. This was a significant benefit

to Mr. Rozell but not to petitioner. Accordingly, even under respondent’s view,

this factor favors relief.

6. Compliance With Income Tax Laws

Petitioner contends that she has complied with the income tax laws for the

years following 2007. Respondent contends that petitioner filed her 2009 Federal

income tax return, which was due on April 15, 2010, on October 4, 2010, and that

respondent has no record of receiving a request for an extension of time to file her

return for that year.

Petitioner’s 2009 return showed no tax due. Petitioner’s 2009 return that

was submitted into evidence includes a Form 4868, Application for Automatic

Extension of Time To File U.S. Individual Income Tax Return. The Form 4868 is

stamped as received by respondent on October 4, 2010, the same date that

respondent received petitioner’s 2009 return. Petitioner has submitted no evidence

suggesting that she timely requested an extension of time to file her 2009 return.

Critically, petitioner never testified as to whether she requested an extension of

time to file her 2009 return. Lacking evidence that petitioner timely requested an

extension of time to file her 2009 return, we must assume that she did not. See
 - 38 -

[*38] Rule 142(a)(1). However, because (1) the 2009 return showed no tax due, (2)

petitioner has timely filed in all other years since 2007, and (3) petitioner contends

that she timely requested an extension of time to file for 2009, we conclude that this

factor is neutral.

7. Abuse

Abuse can be both physical and psychological. See Nihiser v. Commissioner,

T.C. Memo. 2008-135, 95 T.C.M. (CCH) 1531, 1536-1537 (2008). Generally,

“nonphysical abuse will weigh in favor of relief only where it is severe enough to

incapacitate a requesting spouse in the same manner he or she would be

incapacitated by physical abuse.” Pugsley v. Commissioner, T.C. Memo. 2010-255,

100 T.C.M. (CCH) 454, 458 (2010).

Petitioner failed to introduce evidence showing that Mr. Rozell physically or

psychologically abused her. Instead, petitioner contends that Mr. Rozell’s alcohol

addiction constituted a form of abuse. Petitioner has not cited any cases holding

that a nonrequesting spouse’s alcohol addiction, by itself, constitutes a form of

abuse favoring equitable relief under section 6015(f).17 Moreover, petitioner failed

17
Petitioner cites Notice 2012-8, supra, which proposes to supersede Rev.
Proc. 2003-61, supra, with a provision that “[t]he impact of a nonrequesting
spouse’s alcohol or drug abuse is also considered in determining whether a
requesting spouse was abused.” See Notice 2012-8, 2012-4 I.R.B. at 314. We
(continued...)
 - 39 -

[*39] to introduce expert testimony supporting her contention that Mr. Rozell’s

alcohol addiction constituted psychological abuse. Our cases require more than

alcohol addiction by the nonrequesting spouse for a finding of abuse under section

6015(f). See Nihiser v. Commissioner, 95 T.C.M. (CCH) at 1536-1537.

Accordingly, this factor is neutral. See Rev. Proc. 2003-61, sec. 4.03(2)(b)(i).

8. Mental or Physical Health

Petitioner has introduced no evidence showing that her mental or physical

health was impaired either when she signed the return or when she requested relief.

Lacking such evidence, we find that petitioner did not have a physical or mental

impairment at the relevant times. See Rule 142(a)(1). Accordingly, this factor is

neutral. See Rev. Proc. 2003-61, sec. 4.03(2)(b)(ii).

In summary, two of the eight factors set out in Rev. Proc. 2003-61, sec. 4.03,

favor granting relief, four factors are neutral, and two factors weigh against

granting relief. Petitioner had the burden of proof as to persuasion, and if this were

a matter of simply counting factors for and against relief, she would lose. In

17
(...continued)
agree that alcohol and drug addiction can be a factor in determining that a requesting
spouse was abused, see Nihiser v. Commissioner, T.C. Memo. 2008-135, 95
T.C.M. (CCH) 1531, 1537 (2008), but we do not agree, and we do not read Notice
2012-8, supra, as proposing, that a nonrequesting spouse’s alcohol or drug
addiction, by itself, constitutes abuse under sec. 6015(f).
 - 40 -

[*40] section 6015(f) cases, however, we do not simply count factors. We evaluate

all of the relevant facts and circumstances to reach a conclusion. See Pullins v.

Commissioner, 136 T.C. at 448; Rev. Proc. 2003-61, sec. 4.03(2). Some of the most

compelling facts in our analysis are the findings that petitioner fraudulently conveyed

the Linwood and Second Street properties and failed to disclose her interest in the

Lincoln County property. These weigh heavily against relief in our view because a

spouse requesting equitable relief under section 6015(f) should come to the table

with clean hands. Petitioner took affirmative steps to minimize her asset ownership

in order to distort the economic analysis conducted with respect to her section

6015(f) request for relief. Accordingly, we conclude that petitioner is not entitled to

relief from joint and several liability under Rev. Proc. 2003-61, sec. 4.03.18

IV. Conclusion

On the basis of the foregoing, we conclude that petitioner has failed to

satisfy the safe harbor requirements of Rev. Proc. 2003-61, sec. 4.02, and the

equitable factors set forth in Rev. Proc. 2003-61, sec. 4.03. Accordingly, we hold

18
For the reason discussed above, we would reach the same conclusion even
if we were to evaluate petitioner’s request for relief under the procedure proposed
by Notice 2012-8, supra.
 - 41 -

[*41] that petitioner is not entitled to relief from joint and several liability under

section 6015(f).

We have considered all other arguments made by the parties, and to the extent

not discussed above, find those arguments to be irrelevant, moot, or without merit.

To reflect the foregoing,

Decision will be entered for

respondent.