PURSUANT TO INTERNAL REVENUE CODE SECTION 7463(b),THIS OPINION MAY NOT BE TREATED AS PRECEDENT FOR ANY OTHER CASE. T.C. Summary Opinion 2014-15
UNITED STATES TAX COURT
JULIE G. HOWERTER, f.k.a. JULIE G. GENTRY, Petitioner, AND RAYMOND G. GENTRY, Intervenor v. COMMISSIONER OF INTERNAL REVENUE, Respondent
Docket No. 27079-12S. Filed February 19, 2014.
Julie G. Howerter, pro se.
Raymond G. Gentry, pro se.
John S. Hitt and Mathew M. Johnson, for respondent.
SUMMARY OPINION
KERRIGAN, Judge: This case was heard pursuant to 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 -2-
opinion shall not be treated as precedent for any other case. Unless otherwise
indicated, all section references are to the Internal Revenue Code in effect at all
relevant times, 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 for 2007 with respect to the Federal income tax return she filed
with intervenor, her former spouse. We must consider whether petitioner is
entitled to relief under section 6015(b), (c), or (f).
Background
Petitioner resided in Illinois when she filed the petition.
Petitioner and intervenor married in 1992, separated in January 2008, and
divorced on May 11, 2010. Petitioner and intervenor resided together until their
separation.
In 2006 intervenor worked as a terminal manager in the operations division
of Transport Leasing Contract, Inc., a trucking company in Illinois. Also in 2006
Andy’s Express Co. (Andy’s) hired intervenor to work in both their operations and
sales divisions. Intervenor received wages and commissions based on his sales.
For 2006 intervenor received two Forms W-2, Wage and Tax Statement, one for -3-
wages received from Andy’s and the other for wages received from Transport
Leasing Contract, Inc. In 2007 intervenor worked solely for Andy’s. For 2007
intervenor received both a Form W-2 for wages and a Form 1099-MISC,
Miscellaneous Income, for nonemployee compensation (i.e., commissions)
received from Andy’s.
Throughout her marriage to intervenor petitioner prepared their joint
Federal income tax returns. Intervenor would provide her with his third-party
reporting information and other requested information.
Petitioner and intervenor’s 2007 joint Federal tax return showed a total tax
of $2,806 and Federal income tax withholding of $8,025, resulting in a refund of
$5,219.
On February 17, 2009, respondent issued a Notice CP2000 to petitioner and
intervenor stating that they failed to report the following: (1) $12 in interest
income from Country Life Insurance Co. reported on a Form 1099-INT, Interest
Income; (2) $9,753 in nonemployee compensation from Andy’s reported on a
Form 1099-MISC; and (3) a $371 State income tax refund from the State of -4-
Illinois Department of Revenue reported on a Form 1099-G, Certain Government
Payments.1
On June 22, 2009, respondent issued petitioner and intervenor a notice of
deficiency for tax year 2007 determining a deficiency of $2,901 arising from the
unreported income listed in the Notice CP2000. Neither petitioner nor intervenor
filed a petition with this Court in response to the notice of deficiency.
On January 27, 2010, respondent received a Form 8857, Request for
Innocent Spouse Relief, for tax year 2007 from petitioner. In her Form 8857
petitioner asserted that she was not liable for the unreported commission income
of $9,753 because she was never aware of intervenor’s receipt of the commission
income and intervenor did not provide her with a Form 1099-MISC indicating that
he had received commission income from Andy’s.
On May 18, 2010, respondent proposed preliminarily to grant petitioner
relief from joint and several liability, pursuant to section 6015(c), for the portion
of the understatement attributable to intervenor’s nonemployee compensation.
Intervenor, however, appealed the preliminary determination on June 8, 2010.
Among the materials that intervenor sent to respondent to challenge respondent’s
1 Petitioner does not contest her joint liability for the interest income or the State income tax refund. -5-
proposed decision was a copy of a series of emails which he contended petitioner
had sent to him. The first email, dated August 27, 2007, was entitled
“Commissions” and included a discussion of intervenor’s “commission checks”
(intervenor’s August 2007 email). A second email from petitioner to intervenor
dated December 19, 2007 (intervenor’s December 2007 email), states: “[Y]ou
need to pull together all the information on what commission you have earned for
this calendar year.”
In response to intervenor’s appeal petitioner sent respondent a letter on
October 13, 2010, which explains her concerns about the emails intervenor
submitted. The letter included a copy of what she contended was the actual email
that she sent to intervenor on August 27, 2007 (petitioner’s August 2007 email).
Petitioner’s copy of the August 2007 email is not identical to intervenor’s copy of
the August 2007 email. Petitioner’s August 2007 email was entitled “IRS
Withholdings” and made no reference to any commission income intervenor
earned.
On November 10, 2010, respondent issued petitioner a notice of
determination denying her request for innocent spouse relief under section
6015(b), (c), or (f). -6-
At trial petitioner admitted that she was aware that intervenor had received
commissions from another company but contended that she was unaware of the
commissions intervenor earned from Andy’s in 2007. Petitioner testified that
intervenor provided her with only his Form W-2 from Andy’s. Intervenor testified
that he received the Form W-2 and the Form 1099-MISC at the same time and
provided both to petitioner at the same time. Petitioner contends that intervenor
asked that they file their tax return early so he could use his share of the refund for
a downpayment on an apartment, but she admitted that she also wanted to file
early because she planned to use her share of any refund received for 2007 to pay
off some items. Petitioner receives limited child support and must care for her
three children by herself. Petitioner returned to work recently after being laid off
by her employer.
Before and since 2007, petitioner has filed all required Forms 1040, U.S.
Individual Income Tax Return, timely and reported accurately all income earned.
She does not have an outstanding balance due to respondent. This is her first case
before this Court.
Discussion
Generally, married taxpayers may elect to file a joint Federal income tax
return. Sec. 6013(a). After making this election, each spouse is jointly and -7-
severally liable for the entire tax due for that taxable year. Sec. 6013(d)(3). A
requesting spouse may seek relief from joint and several liability under section
6015(b) or, if eligible, may allocate liability under section 6015(c). Sec. 6015(a).
If a requesting spouse is not eligible for relief under section 6015(b) or (c), a
requesting spouse may be eligible for equitable relief under section 6015(f).
Olson v. Commissioner, T.C. Memo. 2009-294, slip op. at 10-11.
I. Section 6015(b)
Section 6015(b)(1) authorizes the Secretary to grant relief if the taxpayer
satisfies the requirements of subparagraphs (A) through (E):
SEC. 6015(b). Procedures For Relief From Liability Applicable to All Joint Filers.--
(1) In general.--Under procedures prescribed by the Secretary, if–
(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 1 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; -8-
(D) taking into account all the facts and circumstances, it is inequitable to hold the other individual liable for the deficiency in tax for such taxable year attributable to such understatement; and
(E) the other individual elects (in such form as the Secretary may prescribe) 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,
then the other individual shall be relieved of liability for tax (including interest, penalties, and other amounts) for such taxable year to the extent such liability is attributable to such understatement.
The requirements of section 6015(b)(1) are stated in the conjunctive.
Haltom v. Commissioner, T.C. Memo. 2005-209, slip op. at 9. A requesting
spouse will not qualify for relief if he or she fails to meet any one requirement.
Alt v. Commissioner, 119 T.C. 306, 313 (2002), aff’d, 101 Fed. Appx. 34 (6th Cir.
2004); Haltom v. Commissioner, slip op. at 9. Respondent contends that petitioner
is not eligible for relief under section 6015(b) because she had actual knowledge
of intervenor’s nonemployee compensation.
A requesting spouse has knowledge or reason to know of an
understatement if he or she actually knew of the understatement, or if a reasonable
person in similar circumstances could be expected to know at the time he or she
signed the return that the return contained an understatement. Sec. 1.6015-2(c), -9-
Income Tax Regs. A requesting spouse has knowledge or reason to know of an
understatement if “a reasonably prudent taxpayer under the circumstances of the
[requesting] spouse at the time of signing the return could be expected to know
that the tax liability stated was erroneous or that further investigation was
warranted.” Stevens v. Commissioner, 872 F.2d 1499, 1505 (11th Cir. 1989),
aff’g T.C. Memo. 1988-63.
All of the facts and circumstances are considered in determining whether
the requesting spouse had reason to know of an understatement. Sec. 1.6015-2(c),
Income Tax Regs. Among the facts and circumstances considered are (1)
“whether the requesting spouse failed to inquire, at or before the time the return
was signed, about items on the return or omitted from the return that a reasonable
person would question”, and (2) “whether the erroneous item represented a
departure from a recurring pattern reflected in prior years’ returns (e.g., omitted
income from an investment regularly reported on prior years’ returns).” Id.
The rules pertaining to a requesting spouse’s actual knowledge are set forth
in section 1.6015-3(c)(2), Income Tax Regs. These rules also apply to requests for
relief under section 6015(c). The Secretary has both the burden of production and
the burden of persuasion regarding actual knowledge and must establish, by a
preponderance of evidence, that the requesting spouse had actual knowledge of the - 10 -
erroneous item. Sec. 1.6015-3(c)(2), Income Tax Regs. In the case of omitted
income, knowledge of the item includes knowledge of receipt of the income. Sec.
1.6015-3(c)(2)(i)(A), Income Tax Regs.
Throughout her marriage to intervenor petitioner prepared their joint
Federal income tax returns. Intervenor would provide her with his third-party
reporting information and other requested information. Intervenor began to work
for Andy’s in 2006 and earned income from Andy’s in 2006. Petitioner and
intervenor’s 2006 joint Federal income tax return included income that intervenor
earned from Andy’s in 2006. Petitioner testified that she was aware of
commissions that intervenor had received from other companies. Petitioner
further testified that she was aware that intervenor worked for Andy’s in 2007.
Petitioner did not show that she inquired as to whether intervenor had
earned any commissions or received any Forms 1099 for tax year 2007. We find
that a reasonably prudent taxpayer in petitioner’s position would have inquired as
to whether intervenor had earned commissions in 2007 as he had in prior years.
Thus, we find that petitioner had reason to know that the tax liability stated was
erroneous or that further investigation was warranted.
In addition, intervenor testified that he “gave her [petitioner] the W-2 and a
1099 [from Andy’s]”. He further testified that petitioner was aware of the Form - 11 -
1099-MISC and that they spoke about it and exchanged emails concerning the
Form 1099-MISC and his commissions.
Respondent provided copies of both intervenor’s August 2007 email and
intervenor’s December 2007 email. Respondent contends that both emails are
authentic. The emails addressed commissions paid to intervenor in 2007.
Petitioner contests the authenticity of the emails that respondent provided and
provided only a copy of what she contends is the actual email she sent to
intervenor on August 27, 2007. Petitioner’s copy of the August 2007 email does
not indicate that she was aware of the commissions. However, petitioner did not
provide any explanation for the difference in the emails. Additionally, intervenor
testified that petitioner’s August 2007 email is not a true and accurate copy of the
email that he received from her.
We find it more likely than not that petitioner was aware that intervenor
had earned commissions from Andy’s in 2007. Respondent showed by a
preponderance of evidence that petitioner had actual knowledge of intervenor’s
commission income for tax year 2007. Petitioner is not eligible for relief under
section 6015(b). - 12 -
II. 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 he or she filed the joint return, he or
she may elect to limit liability for a deficiency as provided in section 6015(d).
Sec. 6015(c)(1), (3)(A)(i)(I); DeMattos v. Commissioner, T.C. Memo. 2010-110.
Under section 6015(d)(3)(A) any item giving rise to a deficiency on a joint tax
return generally shall be allocated to the individual filing the return in the same
manner as it would have been allocated if the individual had filed a separate return
for the taxable year. However, the election is not available where the Secretary
has demonstrated that the individual making the election had actual knowledge, at
the time he or she signed the return, of any item giving rise to the deficiency. Sec.
6015(c)(3)(C); Hopkins v. Commissioner, 121 T.C. 73, 86 (2003). The rules
pertaining to a requesting spouse’s actual knowledge under section 6015(c) are the
same rules that apply to section 6015(b). Sec. 1.6015-3(c)(2), Income Tax Regs.
Because we have already found that petitioner had actual knowledge of the item
giving rise to the deficiency, she is not eligible for relief under section 6015(c).
III. Section 6015(f)
Section 6015(f) provides an alternative means of relief for a requesting
spouse who does not otherwise qualify under section 6015(b) or (c). Sec. - 13 -
6015(f)(2). Section 6015(f)(1) permits relief from joint and several liability if it
would be inequitable to hold the requesting spouse liable for any unpaid tax or any
deficiency. Under section 6015(f) the Secretary may grant equitable relief to a
requesting spouse on the basis of the facts and circumstances. Petitioner bears the
burden of proving that she is entitled to equitable relief under section 6015(f). See
Rule 142(a); Porter v. Commissioner, 132 T.C. 203, 210 (2009).
This Court has jurisdiction to review respondent’s denial of petitioner’s
request for equitable relief under section 6015(f). See sec. 6015(e)(1). We apply a
de novo standard of review as well as a de novo scope of review. See Porter v.
Commissioner, 132 T.C. at 210.
The Commissioner issued Rev. Proc. 2013-34, 2013-43 I.R.B. 397,
superseding Rev. Proc. 2003-61, 2003-2 C.B. 296, to provide guidance for
determining whether a taxpayer is entitled to relief from joint and several liability.
Rev. Proc. 2013-34, supra, is effective for all requests for equitable relief
pending on September 16, 2013, before a Federal court. Id. sec. 7, 2013-43 I.R.B.
at 403. While the Court may consider the guidance sent forth in Rev. Proc. 2013-
34, supra, we are not bound by it. See, e.g., Reilly-Casey v. Commissioner, T.C.
Memo. 2013-292, at *10 n.6; see also Sriram v. Commissioner, T.C. Memo.
2012-91, slip op. at 9-10 (noting that the Court considered the previous - 14 -
guidelines published under section 6015(f) in Rev. Proc. 2003-61, supra, but was
not bound by them).
Rev. Proc. 2013-34, supra, provides a three-step analysis to follow in
evaluating a request for relief. The first step consists of seven threshold
conditions that must be met: (1) the requesting spouse filed a joint return for the
taxable year for which he or she seeks relief; (2) relief is not available to the
requesting spouse under section 6015(b) or (c); (3) the claim for relief is timely
filed; (4) no assets were transferred between the spouses as part of a fraudulent
scheme by the spouses; (5) the nonrequesting spouse did not transfer disqualified
assets to the requesting spouse; (6) the requesting spouse did not knowingly
participate in the filing of a fraudulent joint return; and (7) absent certain
enumerated exceptions, the tax liability from which the requesting spouse seeks
relief is attributable to an item of the nonrequesting spouse. Id. sec. 4.01, 2013-
43 I.R.B. at 399-400. Respondent concedes that petitioner meets these seven
threshold conditions.
The second step of the analysis provides the following three conditions
that, if met, will qualify a requesting spouse for a streamlined determination of
relief under section 6015(f) with respect to an underpayment of a properly
reported liability: (1) he or she is no longer married to, is legally separated from, - 15 -
or has not been a member of the same household as the other person at any time
during the 12-month period ending on the date of the request for relief; (2) he or
she would suffer economic hardship if relief is not granted; and (3) in a
deficiency case such as this, he or she had no knowledge or reason to know when
the return was filed that there was an understatement or deficiency. A request for
economic hardship relief should include information on assets and liabilities and
amounts reasonably necessary for basic living expenses in the taxpayer’s
geographic area. See Wiener v. Commissioner, T.C. Memo. 2008-230, slip op. at
35-36; sec. 301.6343-1(b)(4)(ii), Proced. & Admin. Regs. The requesting spouse
must satisfy all three conditions in order to qualify for a streamlined
determination. Rev. Proc. 2013-34, sec. 4.02, 2013-43 I.R.B. at 400. Because we
find that petitioner had actual knowledge of the commissions, we find that she
does not qualify for a streamlined determination of relief.
The third step is available if the requesting spouse satisfies the threshold
conditions but fails to satisfy the conditions in Rev. Proc. 2013-34, sec. 4.02. A
requesting spouse may still be eligible for equitable relief under section 6015(f) if,
taking into account all the facts and circumstances, it would be inequitable to hold
the requesting spouse liable for the underpayment. Id. sec. 4.03, 2013-43 I.R.B. at
400. Rev. Proc. 2013-34, sec. 4.03 lists the following nonexclusive factors that - 16 -
the Commissioner takes into account when determining whether to grant equitable
relief: (1) marital status; (2) economic hardship; (3) in the case of a deficiency,
knowledge or reason to know of the item giving rise to the deficiency; (4) legal
obligation; (5) significant benefit; (6) compliance with tax laws; and (7) mental or
physical health. Id. No single factor is determinative; the Internal Revenue
Service (IRS) considers all factors and weighs them appropriately. Id. Any
indication of abuse or the exercise of financial control by the nonrequesting
spouse is a factor that may impact the other factors. Id.
A. Marital Status
If the requesting spouse is no longer married to the nonrequesting spouse,
this factor will weigh in favor of relief. For purposes of Rev. Proc. 2013-34, sec.
4.03(a), a requesting spouse will be treated as being no longer married to the
nonrequesting spouse if the requesting spouse is divorced from the nonrequesting
spouse. Petitioner and intervenor divorced on May 11, 2010. Respondent made
the determination to deny petitioner innocent spouse relief on November 10, 2010.
This factor weighs in favor of granting relief to petitioner.
B. Economic Hardship
Generally, economic hardship exists when collection of the tax liability
will render the taxpayer unable to meet basic living expenses. Id. sec. 4.03(b), - 17 -
2013-43 I.R.B. at 401. Whether a spouse will suffer an economic hardship is
based on rules similar to section 301.6343-1(b)(4), Proced. & Admin. Regs. Rev.
Proc. 2013-43, sec. 4.03(b). The IRS considers the requesting spouse’s income
(including how the requesting spouse’s income compares to Federal poverty
guidelines) and assets and will compare them with his or her share of living
expenses. Id. If denying relief from the joint and several liability will not cause
the requesting spouse to suffer economic hardship, this factor will be neutral. Id.
Petitioner did not provide any evidence concerning economic hardship.
She receives limited child support and had recently returned to work after being
laid off by her employer. Her Form 8857 indicates that her monthly income is
approximately $4,315 and her monthly expenses are approximately $3,518. This
factor is neutral.
C. Knowledge or Reason To Know
This factor is identical in all material respects to the knowledge requirement
of section 6015(b) and (c). If the requesting spouse did not know and had no
reason to know of the item giving rise to the understatement, this factor will weigh
in favor of relief. If the requesting spouse knew or had reason to know of the item
giving rise to the understatement, this factor will weigh against relief. Rev. Proc.
2013-34, sec. 4.03(c). Actual knowledge of the item giving rise to the - 18 -
understatement or deficiency will not weigh more heavily than any other factor. Id.
Because we find that petitioner had knowledge of the commissions, this factor
weighs against granting relief.
D. Legal Obligation
This factor is concerned with whether the requesting spouse or the
nonrequesting spouse has a legal obligation to pay the outstanding tax liability
pursuant to a divorce decree or agreement. This factor will be neutral if both
spouses have a legal obligation, based on an agreement or consent order, to pay the
outstanding income tax liability, the spouses are not separated or divorced, or the
divorce decree or agreement is silent as to any obligation to pay the outstanding
income tax liability. Id. sec. 4.03(d), 2013-43 I.R.B. at 402. The divorce
agreement between petitioner and intervenor provided for an even split of any IRS
indebtedness. This factor is neutral.
E. Significant Benefit
This factor considers whether the requesting spouse received a significant
benefit (beyond normal support) from the unpaid income tax liability. Normal
support is measured by the circumstances of the particular parties. Porter v.
Commissioner, 132 T.C. at 212. A significant benefit might be found where, for
example, the requesting spouse enjoyed the benefits of a lavish lifestyle, such as - 19 -
owning luxury assets and taking expensive vacations. Rev. Proc. 2013-34, sec.
4.03(e), 2013-43 I.R.B. at 402. If the amount of unpaid tax or the understatement
was small such that neither spouse received a significant benefit, then this factor is
neutral. Id. Whether the amount of unpaid tax or the understatement is small such
that neither spouse received a significant benefit will vary depending on the facts
and circumstances of each case. Id. Respondent determined a deficiency of $2,901
arising from the unreported income listed in the Notice CP2000. Split evenly,
petitioner’s share of this burden would be $1,450. The amount of the unpaid tax
was too small to allow either spouse to enjoy a significant benefit. Although Rev.
Proc. 2013-34, sec. 4.03(e), suggests that we treat this factor as neutral because the
amount of the unpaid tax was too small to allow either spouse to enjoy a significant
benefit, we decline to do so. In previous cases in which we reviewed requests for
section 6015(f) relief under Rev. Proc. 2003-61, supra, the predecessor to Rev.
Proc. 2013-34, supra, we held that the lack of a significant benefit should weigh in
favor of granting relief. See, e.g., DeMattos v. Commissioner, T.C. Memo. 2010-
110; Butner v. Commissioner, T.C. Memo. 2007-136. We hold similarly that under
Rev. Proc. 2013-34, supra, the lack of a significant benefit should weigh in favor of
granting relief to petitioner. - 20 -
F. Compliance With Income Tax Laws
This factor considers whether the requesting spouse has made a good-faith
effort to comply with the income tax laws in tax years after the year for which relief
is requested. See id. sec. 4.03(f), 2013-43 I.R.B. at 402. If the requesting spouse is
in compliance for taxable years after being divorced from the nonrequesting
spouse, then this factor will weigh in favor of relief. Id. Petitioner has been in
compliance with the income tax laws since tax year 2007. This factor weighs in
favor of granting relief to petitioner.
G. Mental or Physical Health
This factor considers whether the requesting spouse was in poor physical or
mental health. This factor will weigh in favor of relief if the requesting spouse was
in poor mental or physical health at the time the return or returns for which the
request for relief relates were filed (or at the time the requesting spouse reasonably
believed the return or returns were filed) or at the time the requesting spouse
requested relief. Id. sec. 4.03(g), 2013-43 I.R.B. at 403. The IRS considers the
nature, extent, and duration of the condition, including the ongoing economic
impact of the illness. Id. If the requesting spouse was not in poor physical or
mental health, this factor is neutral. Id. Petitioner admitted that she was not in
poor physical or mental health; this factor is neutral. - 21 -
H. Conclusion
Three of the factors are neutral, three weigh in favor of granting relief to
petitioner, and one weighs against granting relief. The only factor weighing
against relief is the knowledge factor. Rev. Proc. 2013-34, supra, makes clear that,
in the Commissioner’s determination under section 6015(f), knowledge of the item
giving rise to an understatement or deficiency will no longer weigh more heavily
than other factors, as it did under Rev. Proc. 2003-61, supra. Rev. Proc. 2013-34,
sec. 3.07, 2013-43 I.R.B. at 398. Balancing all of the facts and circumstances we
find that the equities favor granting petitioner relief under section 6015(f). We
hold that petitioner is entitled to relief from joint and several liability under section
6015(f).
Any contention we have not addressed is irrelevant, moot, or meritless.
To reflect the foregoing,
Decision will be entered for
petitioner.