PURSUANT TO INTERNAL REVENUE CODE SECTION 7463(b),THIS OPINION MAY NOT BE TREATED AS PRECEDENT FOR ANY OTHER CASE. T.C. Summary Opinion 2014-52
UNITED STATES TAX COURT
KIMBERLY G. ZELASKO, Petitioner, AND MICHAEL E. ZELASKO, Intervenor v. COMMISSIONER OF INTERNAL REVENUE, Respondent
Docket No. 22893-12S. Filed June 11, 2014.
Leonard W. Stauffenger, for petitioner.
David V. Difiore, for intervenor.
Katherine Lee Kosar, for respondent.
SUMMARY OPINION
GUY, Special Trial Judge: This case was heard pursuant to the provisions
of section 7463 in effect when the petition was filed.1 Pursuant to section 7463(b),
1 Unless otherwise indicated, all section references are to the Internal (continued...) -2-
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.
On June 15, 2012, the Internal Revenue Service (IRS) Office of Appeals
(Appeals Office) issued to petitioner a Notice of Determination Concerning
Collection Action(s) Under Section 6330 and Your Request for Relief From Joint
and Several Liability Under Section 6015. The Appeals Office determined that
(1) it was appropriate to proceed with a proposed levy action to collect tax due
from petitioner for the taxable year 2007, and (2) petitioner was not eligible for
relief from joint and several liability under section 6015 for that year. On
September 13, 2012, petitioner filed with the Court a petition challenging so much
of the notice of determination as denied her claim for spousal relief under section
6015. Intervenor, petitioner’s former spouse, filed a timely notice of intervention
pursuant to section 6015(e)(4).
Because the petition was filed within the 90-day period prescribed in section
6015(e)(1), we have jurisdiction to review the Appeals Office determination
1 (...continued) Revenue Code, as amended and in effect at all relevant times, and all Rule references are to the Tax Court Rules of Practice and Procedure. Monetary amounts are rounded to the nearest dollar. -3-
denying petitioner relief under section 6015.2 See Raymond v. Commissioner, 119
T.C. 191, 194 (2002). Petitioner’s eligibility for spousal relief is the sole issue for
decision.
Background
Some of the facts have been stipulated and are so found. The stipulation of
facts and the accompanying exhibits are incorporated herein by this reference.
Petitioner resided in Ohio at the time the petition was filed.
Petitioner and intervenor are the parents of two children. They were
married throughout 2007, began living separate and apart in the first half of 2008,
and were divorced in March 2010.3
I. Petitioner’s Employment
During 2007 petitioner was employed as a registered nurse in the intensive
care unit at Robinson Memorial Hospital (Robinson Memorial). She earned
2 Although petitioner does not dispute so much of the notice of determination as concerns the proposed levy action, we note that we lack jurisdiction to consider that matter because the petition herein was not filed within the 30-day period prescribed in sec. 6330(d)(1). See Gray v. Commissioner, 138 T.C. 295 (2012), aff’d, 723 F.3d 790 (7th Cir. 2013). 3 The record does not reflect the date that petitioner and intervenor were married. -4-
$42,577 in wages that year and was credited with Federal and State income tax
withholding of $4,357 and $1,393, respectively.
II. Intervenor’s Employment
During 2007 intervenor received nonemployee compensation of $59,077 for
work he performed as an insurance consultant for Equity One Exteriors, Inc.
(Equity One).
III. Household Finances
Petitioner maintained a personal checking account at Huntington National
Bank (Huntington). Petitioner deposited her paychecks in the Huntington account,
and she testified that she paid all household expenses, including groceries,
monthly mortgage payments, and utility expenses, from that account.
Petitioner stated that, although she was aware that intervenor was employed
during 2007, she did not know how much he was paid for his work or the amount,
if any, of his employment-related expenses.
Intervenor testified that he did not maintain a bank account during 2007 and
that he either cashed his paychecks or deposited them in petitioner’s Huntington
account. He further testified that he routinely paid a portion of the household
expenses and that petitioner had unrestricted access to a safe in the couple’s home
where he stored cash. -5-
Petitioner denied that intervenor gave her any money to pay household
expenses or that the couple had a safe where intervenor stored cash.
IV. Joint Tax Return for 2007
The parties do not dispute that petitioner and intervenor filed a joint Form
1040, U.S. Individual Income Tax Return, for 2007. The return was filed
electronically on April 7, 2008. Remarkably, however, neither petitioner nor
intervenor would admit at trial to having prepared and filed the return.
The wages that petitioner earned from Robinson Memorial during 2007 are
reported on the return, and deductions for State and local taxes, mortgage interest,
gifts to charities, and unreimbursed employee business expenses attributable to
petitioner’s work as a registered nurse are claimed on Schedule A, Itemized
Deductions. Intervenor’s nonemployee compensation of $59,077 from Equity One
is omitted from the return.
The return included a claim for a refund in respect of an overpayment of
$5,384. The IRS processed the return, and the $5,384 refund was electronically
deposited in petitioner’s Huntington account. Petitioner used the refund to pay
household expenses. Intervenor did not receive any of the refund.
Petitioner testified that she provided her tax records for 2007 to intervenor
with the expectation that he would prepare and file a tax return on her behalf and -6-
that her filing status would be married filing separately. She further testified that
intervenor subsequently assured her that a proper return had been filed and that no
tax was due for 2007. Petitioner stated that she was not aware until sometime in
2009 that a joint return for 2007 had been filed or that a tax deficiency had been
determined for that year.
Intervenor testified that he did not file the joint return for 2007. He further
testified that he did not receive a Form 1099-MISC, Miscellaneous Income, from
Equity One.4
V. Notice of Deficiency
On September 28, 2009, respondent mailed to petitioner and intervenor a
joint notice of deficiency for 2007 determining a tax deficiency of $16,653 and an
accuracy-related penalty of $3,331. The explanation of adjustments attached to
the notice of deficiency shows that respondent included intervenor’s nonemployee
compensation from Equity One in gross income, accounted for certain
computational adjustments, and computed the deficiency on increased taxable
4 Although the parties do not dispute that Equity One issued a Form 1099- MISC to intervenor for 2007, a copy of the Form 1099-MISC was not made a part of the record, and there is no objective evidence as to when it was issued to intervenor or the address to which it was sent. -7-
income of $56,001.5 The tax deficiency of $16,653 comprises additional income
tax of $8,306 and self-employment tax of $8,347.6
Neither petitioner nor intervenor filed a petition for redetermination with the
Court challenging the notice of deficiency. Consequently, the IRS entered
assessments against petitioner for the tax deficiency and the accuracy-related
penalty determined in the notice of deficiency, along with statutory interest.
VI. Separation and Divorce
As previously mentioned, petitioner and intervenor separated sometime in
the first half of 2008, and they were divorced on March 18, 2010. The record
includes a copy of the portion of the couple’s divorce decree which addresses their
tax matters. It states in relevant part:
The parties shall file amended tax returns (Federal, State and local) for their 2007 income taxes. It is anticipated that such amended filing, with appropriate income corrections, will reduce the parties’ 2007 federal tax liability, (currently at approximately $21,355), as well as the 2007 State of Ohio tax liability (in the approximate amount of $73.46). Upon filing of the amended returns, and with all
5 Respondent allowed a deduction for self-employment tax of $4,174 but reduced the deduction for miscellaneous items of $5,808 claimed on Schedule A by $1,098. 6 Although the increased taxable income resulted in the elimination of the additional child tax credit of $1,027 claimed on the return under sec. 24(d), respondent increased the child tax credit under sec. 24(a) by a like amount resulting in a wash as to that item. -8-
appropriate corrections made, the parties shall equally divide and equally and promptly pay any outstanding tax liabilities for said tax year 2007. If the amended returns result in any tax refunds, the parties shall equally divide such refunds. Said amended tax returns shall be filed no later than May 1, 2010. If either party refuses to cooperate in such amended tax filing, and the tax filing is appropriately and legally prepared, he or she shall be liable for the full amount of the current outstanding tax obligations for tax year 2007 (indemnifying and holding the other party harmless thereon).
Petitioner testified that she contacted intervenor on several occasions to
attempt to prepare and file an amended tax return for 2007 but he would not
cooperate. Because she lacked information regarding intervenor’s income and
employment-related expenses, a fact that intervenor admitted at trial, petitioner
was unable to prepare the amended return on her own.
Although intervenor testified that he filed an amended return for 2007, the
IRS had no record of receiving an amended return. Intervenor further testified that
he submitted an offer-in-compromise to the IRS in respect of his tax liability for
2007 but his offer was denied.
VII. Collection Activity and Petitioner’s Request for Spousal Relief
On December 20, 2010, respondent mailed to petitioner and intervenor a
Final Notice of Intent to Levy and Notice of Your Right to a Hearing in respect of
their unpaid tax liability for 2007. On January 14, 2011, petitioner submitted to
the IRS a Form 8857, Request for Innocent Spouse Relief, seeking relief from -9-
joint and several liability for the taxable years 2007 and 2008.7 On January 19,
2011, petitioner submitted to the IRS a Form 12153, Request for a Collection Due
Process or Equivalent Hearing, indicating that she was seeking spousal relief.
Petitioner’s statements in the Form 8857 are largely consistent with her
testimony at trial, and she asserted therein that intervenor should be solely
responsible for any income tax attributable to his nonemployee compensation.
Petitioner reported that she has a college degree in nursing, she was not a victim of
spousal abuse or domestic violence during 2007, she did not incur any large
expenses during the period in question, and she did not have a medical or physical
health problem at the time the return for 2007 was filed or at the time she
submitted the Form 8857. Petitioner included with the Form 8857 a schedule
showing that her monthly expenses exceeded her monthly income by $188.
Petitioner testified that she will suffer economic hardship if she is denied
spousal relief for 2007. At the time of trial she was earning approximately
$42,000 to $45,000 per year, and she provided support for her 12-year-old
daughter who was living with her and attending public school. Although
intervenor was obliged to make child support payments of $200 per month to
7 Although petitioner’s Form 8857 includes a request for spousal relief for the taxable year 2008, that matter is not before the Court in this proceeding. - 10 -
petitioner, she testified that he often failed to do so. Petitioner did not present any
objective evidence at trial in respect of her monthly expenses.
Petitioner testified that she has been in compliance with her Federal income
tax obligations for all years after 2007. Petitioner’s account transcript for 2007
indicates that she had an overpayment of $6,590 for the taxable year 2009, and on
April 15, 2010, respondent applied that amount to her account for 2007.
VIII. Administrative Proceedings
Petitioner’s claim for spousal relief and her request for review of the
proposed levy action initially were assigned to different IRS units. The unit
considering her claim for spousal relief made a preliminary determination in
March 2011 to grant partial relief. However, that decision was never finalized,
and the matter was referred to the Appeals Office for consideration in conjunction
with petitioner’s request for review of the proposed levy action.
On September 28, 2011, intervenor submitted to the IRS a Form 12509,
Statement of Disagreement, alleging that he shared all of his earnings with
petitioner and that he and petitioner should share equal responsibility for any
unpaid income tax for 2007.
The administrative proceeding concluded when the Appeals Office issued to
petitioner the notice of determination upon which the petition in this case is based. - 11 -
Discussion
Generally, married taxpayers may elect to file a joint Federal income tax
return. Sec. 6013(a). After making the election, each spouse is jointly and
severally liable for the entire tax due. Sec. 6013(d)(3); Butler v. Commissioner,
114 T.C. 276, 282 (2000). If certain requirements are met, however, an individual
may be relieved of joint and several liability under section 6015.
The Court applies a de novo scope and standard of review in deciding
whether a taxpayer is entitled to relief under section 6015. See Wilson v.
Commissioner, 705 F.3d 980, 993-994 (9th Cir. 2013), aff’g T.C. Memo. 2010-
134; Porter v. Commissioner, 132 T.C. 203, 210 (2009). Except as otherwise
provided in section 6015, the taxpayer (requesting spouse) bears the burden of
proving entitlement to relief. Rule 142(a); Porter v. Commissioner, 132 T.C. at
210; Alt v. Commissioner, 119 T.C. 306, 311 (2002), aff’d, 101 Fed. Appx. 34
(6th Cir. 2004).
Three forms of relief are available under section 6015. In general, section
6015(b) provides full or apportioned relief from joint and several liability for
understatements of tax on a return, section 6015(c) provides apportioned relief in
respect of a deficiency to taxpayers who are divorced or separated, and in certain - 12 -
circumstances section 6015(f) provides equitable relief from joint and several
liability if relief is not available under subsection (b) or (c).
I. Section 6015(b)
To be eligible for relief under section 6015(b), the requesting spouse must
establish, inter alia, that the understatement of tax is attributable to erroneous
items of the nonrequesting spouse and, in signing the return, the requesting spouse
“did not know, and had no reason to know” of the understatement of tax. Sec.
6015(b)(1)(B) and (C). In cases involving omitted income, the requesting spouse
normally will have reason to know of an understatement if she had knowledge of
the transaction giving rise to the income. See Greer v. Commissioner, 595 F.3d
338, 346 (6th Cir. 2010), aff’g T.C. Memo. 2009-20; Cheshire v. Commissioner,
115 T.C. 183, 192-193 (2000), aff’d, 282 F.3d 326, 332-334 (5th Cir. 2002).
The understatement of tax on the joint return for 2007 is attributable to the
omission of nonemployee compensation that intervenor received from Equity One.
Petitioner admittedly was aware that intervenor was compensated for work he
performed for Equity One during 2007, and she knew that “Some of his jobs were
cash jobs.” Therefore, even if petitioner was unaware of the exact amount that
intervenor earned during 2007, she had reason to know of the omitted income and
is not eligible for relief under section 6015(b). - 13 -
II. Section 6015(c)
Under section 6015(c), a divorced or separated spouse may elect to limit
liability for a deficiency on a joint return to the portion allocable to him or her. A
taxpayer can make a valid election only if: (1) the taxpayer is divorced or is
legally separated from his or her spouse; (2) the taxpayer makes a timely election;
and (3) the Secretary does not demonstrate that the taxpayer had actual knowledge
at the time the taxpayer signed the return of an item giving rise to a deficiency or a
specific portion thereof. Sec. 6015(c)(3)(A), (B), and (C); see Cheshire v.
Commissioner, 115 T.C. at 195; Stergios v. Commissioner, T.C. Memo. 2009-15.
Petitioner and intervenor were divorced at the time she submitted her claim
for spousal relief, and respondent does not dispute that her election for relief was
timely. Respondent asserts, however, that petitioner’s request for relief under
section 6015(c) is invalid because, at the time the joint return was filed, she had
actual knowledge of intervenor’s nonemployee compensation.
The rules pertaining to a requesting spouse’s actual knowledge are set forth
in section 1.6015-3(c)(2), Income Tax Regs. See Cheshire v. Commissioner, 115
T.C. at 195 (the knowledge standard for purpose of section 6015(c)(3)(C) is an
actual and clear awareness of the existence of the item giving rise to the
deficiency). In the case of omitted income, knowledge of the item includes - 14 -
knowledge of the receipt of the income. Sec. 1.6015-3(c)(2)(i)(A), Income Tax
Regs. If a requesting spouse had actual knowledge of only a portion of an
erroneous item (including omitted income), then relief is not available for that
portion of the erroneous item. Sec. 1.6015-3(c)(2)(ii), Income Tax Regs. We do
not infer actual knowledge from a mere reason to know of the omitted income.
Sec. 1.6015-3(c)(2)(iii), Income Tax Regs.; see McDaniel v. Commissioner, T.C.
Memo. 2009-137.
Although we conclude that petitioner had reason to know that intervenor
earned nonemployee compensation during 2007, we are not persuaded on this
record that she had an actual and clear awareness that Equity One paid him a total
of $59,077. The evidentiary record comes up well short of providing the Court
with a complete and accurate picture of the Zelaskos’ finances during 2007.
Neither petitioner’s testimony that intervenor shared none of his earnings with her,
nor intervenor’s testimony that he shared all with petitioner, impressed the Court
as completely candid and forthright, and there are no bank records that would
corroborate either story. The truth undoubtedly lies somewhere between the two
extremes. Considering all of the circumstances, we conclude that petitioner had
actual knowledge that intervenor earned at least $20,000 of nonemployee
compensation during 2007. It follows that petitioner’s section 6015(c) election is - 15 -
invalid in respect of so much of the deficiency as is attributable to $20,000 of
intervenor’s nonemployee compensation that was omitted from the joint return.
See sec. 1.6015-3(c)(4), Example (4)(iii), Income Tax Regs. (where the requesting
spouse knew that the nonrequesting spouse had income from his business but did
not know the exact amount, her section 6015(c) election was valid except insofar
as she knew the minimum amount of his earnings from the business).
Consequently, petitioner remains jointly and severally liable for so much of the
deficiency (self-employment tax and income tax) and the accuracy-related penalty
as is attributable to $20,000 of omitted nonemployee compensation.8
Petitioner’s section 6015(c) election is valid, however, in respect of the
$39,077 balance of intervenor’s nonemployee compensation. We turn to the
question of the proper allocation of the portion of the deficiency and the accuracy-
related penalty under section 6662(a) attributable to the omission of $39,077 of
intervenor’s income from the joint return.
8 We expect the parties to compute the exact amount of petitioner’s joint and several liability under Rule 155. Respondent must also account for the application of petitioner’s tax refund of $6,590 for 2009 to her account for 2007. - 16 -
III. Allocation of the Deficiency
Generally, a spouse who is eligible for relief under section 6015(c) is
allocated a portion of the joint return deficiency in proportion to the net amount of
items taken into account in computing the deficiency that is allocable to the
electing spouse. Sec. 6015(d)(1); see Hopkins v. Commissioner, 121 T.C. 73, 81
(2003). As an exception to this general rule, disallowed credits and taxes other
than income and alternative minimum tax (e.g., self-employment tax) are treated
separately in making this allocation, rather than being aggregated with all other
items to which the deficiency is attributable. Sec. 6015(d)(2). Aside from these
exceptions, any item giving rise to a deficiency on a joint return generally shall be
allocated to the individuals filing the joint return in the manner in which it would
have been allocated if the individuals had filed separate returns. Sec.
6015(d)(3)(A); see Hopkins v. Commissioner, 121 T.C. at 82-83.
Erroneously omitted items of income normally are allocated to the spouse
who was the source of the income. Sec. 1.6015-3(d)(2)(iii), Income Tax Regs. An
exception arises, however, in respect of an item (in this context a disallowed
deduction or credit) that otherwise would be allocated to the nonrequesting spouse
to the extent that the requesting spouse received a tax benefit as a result of the
item on the joint return. Sec. 6015(d)(3)(B); sec. 1.6015-3(d)(2)(i), Income Tax - 17 -
Regs.; see Mora v. Commissioner, 117 T.C. 279, 293-294 (2001). Accuracy-
related or fraud penalties are allocable to the spouse whose item generated the
penalty. Sec. 1.6015-3(d)(4)(i)(B)(5), (iv)(B), Income Tax Regs.
A. Tax Benefit
As mentioned above, a tax benefit arises within the meaning of section
6015(d)(3)(B) if the requesting spouse reduces the amount of his or her tax by
claiming an erroneous deduction or credit. See sec. 1.6015-3(d)(5), Example
(5)(ii), Income Tax Regs. The omission of intervenor’s nonemployee
compensation from gross income on the joint return did not provide a tax benefit
of this sort to petitioner. Although the omission of intervenor’s nonemployee
compensation artificially inflated the amount of the additional child tax credit
reported on the joint return, see sec. 24(d), the disallowance of the additional child
tax credit in the notice of deficiency was wholly offset by an increase in the child
tax credit under section 24(a), resulting in a wash as to those items.
B. Self-Employment Tax and Income Tax
Although section 6015(d)(2) requires a separate allocation in respect of the
portion of a deficiency attributable to self-employment tax, so much of the
deficiency as is attributable to $39,077 of intervenor’s omitted nonemployee
compensation is allocated solely to intervenor whether the self-employment tax - 18 -
and the income tax portions of the deficiency are considered separately or
together. In short, in accordance with section 6015(d)(3)(A), intervenor’s omitted
income is allocated to intervenor as it would have been allocated if he had filed a
separate return for 2007. In the absence of an exception to the general rule, the
portion of the deficiency attributable to that item likewise is allocated to
intervenor. Sec. 6015(d)(1).
C. Accuracy-Related Penalty
Consistent with the preceding discussion, the portion of the accuracy-related
penalty attributable to $39,077 of intervenor’s omitted nonemployee compensation
also is allocated to intervenor. Sec. 1.6015-3(d)(4)(iv)(B), Income Tax Regs.
IV. Section 6015(f)
Section 6015(f) grants the Commissioner discretion to relieve an individual
from joint liability, where relief is not available under section 6015(b) or (c), if,
taking into account all the facts and circumstances, it is inequitable to hold the
individual liable for any unpaid tax or deficiency. The Commissioner recently
prescribed revised guidelines in Rev. Proc. 2013-34, 2013-43 I.R.B. 397,
modifying and superseding Rev. Proc. 2003-61, 2003-2 C.B. 296, that are
considered in determining whether it is inequitable to hold a requesting spouse - 19 -
liable for all or part of the liability for any unpaid tax or deficiency.9 Although the
Court consults these guidelines when reviewing the Commissioner’s denial of
relief, see Washington v. Commissioner, 120 T.C. 137, 147-152 (2003), we are not
bound by them inasmuch as our analysis and determination ultimately turn on an
evaluation of all the facts and circumstances, see Pullins v. Commissioner, 136
T.C. 432, 438-439 (2011); Porter v. Commissioner, 132 T.C. at 210; Hudgins v.
Commissioner, T.C. Memo. 2012-260, at *39-*40.
A. Threshold Conditions
Rev. Proc. 2013-34, sec. 4.01, 2013-43 I.R.B. at 399, sets forth seven
threshold conditions that must be satisfied before the Commissioner will consider
a request for equitable relief under section 6015(f). There is no dispute that
petitioner satisfies each of the seven threshold conditions.
B. Streamlined Determinations Granting Relief
Rev. Proc. 2013-34, sec. 4.02, 2013-43 I.R.B. at 400, sets forth elements
that a requesting spouse must satisfy to qualify for a streamlined determination
9 Rev. Proc. 2013-34, sec. 7, 2013-43 I.R.B. 397, 403, makes the guidelines effective for requests for relief filed on or after September 16, 2013, and requests for equitable relief pending on September 16, 2013, whether before the IRS, the Office of Appeals, or a Federal court. - 20 -
under section 6015(f).10 As is relevant here, petitioner does not qualify for
streamlined relief because (as discussed above) she had reason to know of the
omitted nonemployee compensation that gave rise to the deficiency.
C. Facts and Circumstances Analysis
Where a requesting spouse meets the threshold conditions but fails to
qualify for streamlined relief, the Commissioner may nevertheless grant relief after
considering the following nonexclusive list of factors set forth in Rev. Proc. 2013-
34, sec. 4.03, 2013-43 I.R.B. at 400: (1) whether the requesting spouse is
separated or divorced from the nonrequesting spouse; (2) whether the requesting
spouse will suffer economic hardship if relief is not granted; (3) whether on the
date the joint return was filed the requesting spouse did not know and had no
reason to know of the item giving rise to the understatement or deficiency; (4)
whether the requesting or nonrequesting spouse has a legal obligation to pay the
10 Rev. Proc. 2013-34, sec. 4.02, 2013-43 I.R.B. at 400, permits relief if all the following elements are satisfied: (1) on the date the IRS makes its determination, the requesting spouse is no longer married to, or is legally separated from, the nonrequesting spouse, is a widow or widower and is not an heir to the nonrequesting spouse’s estate that would have sufficient assets to pay the tax liability, or has not been a member of the same household as the nonrequesting spouse at any time during the 12-month period ending on the date the IRS makes its determination; (2) the requesting spouse will suffer economic hardship if relief is not granted; and (3) on the date the joint return was filed, the requesting spouse did not know or have reason to know of the item giving rise to the understatement or deficiency. - 21 -
tax liability pursuant to a decree of divorce or other agreement; (5) whether the
requesting spouse received a significant benefit from the unpaid income tax
liability or understatement; and (6) whether the requesting spouse has made a
good-faith effort to comply with the Federal income tax laws for the taxable years
following the taxable year(s) to which the request for relief relates. Two
additional factors that the Commissioner may consider in favor of granting relief
are whether: (1) the nonrequesting spouse abused the requesting spouse, and (2)
the requesting spouse was in poor mental or physical health at the time the joint
return was filed or when the requesting spouse requested relief. See id. sec.
4.03(2)(c)(iv), (g), 2013-43 I.R.B. at 402, 403.
1. Marital Status
Petitioner and intervenor were divorced at the time the IRS issued its
determination. The marital status factor weighs in favor of relief.
2. Economic Hardship
Economic hardship exists if satisfying the tax liability in whole or part
would cause the requesting spouse to be unable to pay reasonable basic living
expenses.11 Sec. 301.6343-1(b)(4)(i), Proced. & Admin. Regs.; Rev. Proc. 2013-
11 A taxpayer’s ability to pay basic living expenses is determined by considering, among other factors: the individual’s age, employment status and (continued...) - 22 -
34, sec. 4.03(2)(b), 2013-43 I.R.B. at 401. In analyzing the economic hardship
factor, we look to the taxpayer’s economic circumstances at the time of trial.
Porter v. Commissioner, 132 T.C. at 211 n.7.
Petitioner testified that she will suffer economic hardship if relief is not
granted. She did not, however, offer any financial records at the time of trial to
corroborate her testimony. Considering the limited information in the record that
is relevant to this factor, including petitioner’s salary at the time of trial, we are
unable to conclude that petitioner will suffer economic hardship if relief is not
granted. See Sriram v. Commissioner, T.C. Memo. 2012-91. Consequently, the
economic hardship factor is neutral.
3. Knowledge
As previously discussed, we conclude that petitioner had reason to know of
intervenor’s nonemployee compensation and had actual knowledge that he
11 (...continued) history, ability to earn, and number of dependents; the amount reasonably necessary for food, clothing, housing, medical expenses, transportation, and current tax payments; the cost of living in the geographic area in which the taxpayer resides; and any extraordinary circumstances. See sec. 301.6343- 1(b)(4)(ii), Proced. & Admin. Regs. While an inquiry into the reasonableness of basic living expenses considers the individual taxpayer’s unique circumstances, it does not require an allowance to maintain affluent or luxurious standards of living. See sec. 301.6343-1(b)(4)(i), Proced. & Admin. Regs. - 23 -
received compensation of $20,000 from Equity One during 2007. This factor
weighs against relief.
4. Legal Obligation
The divorce decree governing the termination of petitioner and intervenor’s
marriage provided that they would cooperate in filing an amended return for 2007
and share the liability equally. Intervenor admitted at trial that petitioner was not
in a position to prepare an amended tax return reporting his nonemployee
compensation and any deductions related thereto. We are not convinced that
intervenor made a good-faith effort to prepare and file an amended return. On this
record, we conclude that the legal obligation factor is neutral.
5. Significant Benefit
This factor calls for an evaluation of whether petitioner benefited, directly
or indirectly, from the understatement of tax. Sec. 1.6015-2(d), Income Tax Regs.
“A significant benefit is any benefit in excess of normal support.” Id. On this
record, we cannot say that petitioner received any benefit beyond normal support
in respect of intervenor’s nonemployee compensation and the understatement of
tax related thereto. We therefore conclude that this factor weighs in favor of
relief. - 24 -
6. Compliance With Income Tax Laws
Petitioner testified at trial that she has fully complied with her tax
obligations since 2007. Respondent asserted in his posttrial brief that petitioner
was late in filing her tax return for 2009. Although there is a passing reference to
this matter in the administrative record, there is no objective evidence to support
the assertion that petitioner has failed to comply with her tax obligations. This
factor weighs in favor of relief.
7. Mental/Physical Health
Petitioner was not in poor mental or physical health at the time the joint
return was filed or when she submitted her request for spousal relief. This factor
is neutral.
8. Abuse
Petitioner was not abused by intervenor in any way, and there is no evidence
that he attempted to rigidly control household finances or deny her access to
financial records. This factor is neutral.
D. Conclusion
Considering all the facts and circumstances, we are not persuaded that it
would be inequitable to deny petitioner spousal relief under section 6015(f). As
the preceding discussion shows, there are factors that weigh in favor of and - 25 -
against relief and several factors that are neutral. Our decision whether relief is
appropriate, however, is not based on a simple tally of those factors. See, e.g.,
Hudgins v. Commissioner, at *39-*40. Petitioner has obtained a significant
measure of relief under section 6015(c). Considering that she was aware of a
portion of the omitted income, and in the absence of economic hardship, we
conclude that it would not be inequitable to deny petitioner further relief under
section 6015(f).
To reflect the foregoing,
Decision will be entered
under Rule 155.