The opinion
T.C. Memo. 2007-74
UNITED STATES TAX COURT
LINDA D. FARMER, Petitioner v.
COMMISSIONER OF INTERNAL REVENUE, Respondent
Docket No. 19966-05. Filed March 29, 2007.
Linda D. Farmer, pro se.
Steven M. Webster, for respondent.
MEMORANDUM FINDINGS OF FACT AND OPINION
GOEKE, Judge: Petitioner timely filed a petition seeking
review of respondent’s determination denying her relief from
joint and several liability for the years 1994, 1995, and 1999
under section 6015(f).1
1
All section references are to the Internal Revenue Code.
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We review respondent’s determination for abuse of
discretion, and for the reasons explained herein we find
respondent’s determination was in error.
FINDINGS OF FACT
Petitioner resided in Albermarle, North Carolina, when her
petition in this case was filed.
Petitioner was married to Daniel Brown during the years in
question. They separated in July 2000 and were divorced sometime
in 2002.
During the years in question, petitioner assisted Mr. Brown
in his heating and air-conditioning business. They did not pay
the income tax liabilities of $2,597 and $416 reflected on their
1994 and 1999 returns, respectively. Respondent made an
assessment of $2,425.85 to correct a mathematical error on the
1995 joint return. This amount was also unpaid. The amounts of
tax remaining unpaid are $1,785.30, $2,425.85, and $416,
respectively.
Petitioner mailed a Form 8857, Request for Innocent Spouse
Relief, in December 2002. In August 2003, respondent made an
initial determination to deny relief on the basis that petitioner
had knowledge of the taxes due at the time she signed the joint
returns, that there was no spousal abuse, and that petitioner had
failed to establish economic hardship. Petitioner appealed this
denial to no avail, and respondent issued a notice of
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determination denying petitioner relief under section 6015(f) on
September 16, 2005.
Petitioner acknowledges that she participated as a helper in
her former husband’s heating and air-conditioning business, and
she admits that she signed the joint income tax returns realizing
the taxes were not being paid. She maintains that her former
husband controlled the receipts from the heating and air-
conditioning business and kept the records of that business.
She testified that she had no access to the money her
husband’s business generated and little or no influence over his
use of those funds. She also explained that after she separated
from her husband, she lost contact with him and does not know his
current whereabouts. She obtained a divorce from him in
absentia.
In August 2005, petitioner provided respondent’s Appeals
officer a Form 433-A, Collection Information Statement for Wage
Earners and Self-Employed Individuals. This Form 433-A reflected
that petitioner’s debts far exceeded the value of her assets and
her current income is below her expenses. Petitioner’s Form 433-
A indicated that she was remarried and that she did not receive
any support from her new husband. In fact, petitioner’s Form
433-A indicated that she was expending her resources to support
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herself and her spouse. The Appeals officer did not address in
the Appeals memo the information petitioner provided about the
lack of support from her new husband.
If petitioner had filed separate returns for the years in
issue, then on the basis of the income reported on her Forms W-2,
Wage and Tax Statement, she would have had no tax due and would
have been entitled to refunds.
OPINION
A. Background
If husband and wife file a joint Federal income tax return,
they are jointly and severally liable for the tax due. Sec.
6013(d)(3); Butler v. Commissioner, 114 T.C. 276, 282 (2000).
However, a spouse may qualify for relief from joint liability
under section 6015(b) or (c) if various requirements are met.
The parties agree that petitioner does not qualify for relief
under section 6015(b) or (c).
If relief is not available under section 6015(b) or (c), the
Commissioner may relieve an individual of liability for any
unpaid tax if, taking into account all the facts and
circumstances, it would be inequitable to hold the individual
liable. Sec. 6015(f). This Court has jurisdiction to review a
denial of equitable relief under section 6015(f). Sec. 6015(e).
We review the Commissioner’s denial of relief for abuse of
discretion. Jonson v. Commissioner, 118 T.C. 106, 125 (2002),
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affd. 353 F.3d 1181 (10th Cir. 2003). The taxpayer seeking
relief has the burden of proof. Alt v. Commissioner, 119 T.C.
306, 311 (2002), affd. 101 Fed. Appx. 34 (6th Cir. 2004). To
prevail, the taxpayer must show that the Commissioner’s
determination was arbitrary, capricious, or without sound basis
in law or fact. Butler v. Commissioner, supra at 291-292; Van
Arsdalen v. Commissioner, T.C. Memo. 2007-48.
B. Rev. Proc. 2000-15
The Commissioner promulgated a list of factors in Rev. Proc.
2000-15, sec. 4, 2000-1 C.B. 447, 448-449, that the Commissioner
considers in determining whether to grant equitable relief under
section 6015(f).2 First, the Commissioner will not grant relief
unless seven threshold conditions have been met: (1) The
taxpayer must have filed joint returns for the taxable years for
which relief is sought; (2) the taxpayer does not qualify for
relief under section 6015(b) or (c); (3) the taxpayer must apply
for relief no later than 2 years after the date of the
Commissioner’s first collection activity after July 22, 1998,
with respect to the taxpayer; (4) the liability must remain
unpaid; (5) no assets were transferred between the spouses filing
2
Respondent’s determination was subject to Rev. Proc. 2000-
15, 2000-1 C.B. 447. Rev. Proc. 2000-15, supra, was superseded
by Rev. Proc. 2003-61, 2003-2 C.B. 296, for requests for relief
under sec. 6015(f) that either were filed on or after Nov. 1,
2003, or were pending on Nov. 1, 2003, and for which no
preliminary determination letter had been issued as of Nov. 1,
2003.
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the joint returns as part of a fraudulent scheme by such spouses;
(6) there were no disqualified assets transferred to the taxpayer
by the nonrequesting spouse; and (7) the taxpayer did not file
the returns with fraudulent intent. Rev. Proc. 2000-15, sec.
4.01, 2000-1 C.B. at 448. Respondent concedes that petitioner
meets these conditions.
Rev. Proc. 2000-15, sec. 4.03, lists two factors which, if
true, the Commissioner treats only as favoring relief: (1) The
taxpayer is separated or divorced from the nonrequesting spouse;
and (2) the taxpayer was abused by the nonrequesting spouse.
Rev. Proc. 2000-15, sec. 4.03, also lists two factors which, if
true, the Commissioner treats only as not favoring relief: (3)
The taxpayer received significant benefit from the unpaid
liability or the item giving rise to the deficiency; and (4) the
taxpayer has not made a good faith effort to comply with Federal
income tax laws in the tax years following the tax year to which
the request for relief relates. See Ferrarese v. Commissioner,
T.C. Memo. 2002-249.
The Commissioner generally does not consider the absence of
factor (1), (2), (3), or (4) in determining whether to grant
relief under section 6015(f). Rev. Proc. 2000-15, sec. 4.03.
However, on the basis of caselaw deciding whether it was
equitable to relieve a taxpayer from joint liability under former
section 6013(e)(1)(D), we consider the fact that a taxpayer did
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not significantly benefit from the unpaid liability as favoring
equitable relief for that taxpayer. See Belk v. Commissioner, 93
T.C. 434, 440-441 (1989); Ferrarese v. Commissioner, supra; Foley
v. Commissioner, T.C. Memo. 1995-16; Robinson v. Commissioner,
T.C. Memo. 1994-557; Klimenko v. Commissioner, T.C. Memo. 1993-
340; Hillman v. Commissioner, T.C. Memo. 1993-151.
Rev. Proc. 2000-15, sec. 4.03, lists the following four
factors which, if true, the Commissioner treats as favoring
relief, and if not true, as weighing against relief: (5) The
taxpayer would suffer economic hardship if relief were denied;
(6) in the case of a liability that was properly reported but not
paid, the taxpayer did not know and had no reason to know that
the liability would not be paid; (7) the liability for which
relief is sought is attributable to the nonrequesting spouse; and
(8) the nonrequesting spouse has a legal obligation pursuant to a
divorce decree or agreement to pay the outstanding liability
(weighs against relief only if the requesting spouse has the
obligation). Rev. Proc. 2000-15, sec. 4.03, also states that no
single factor is controlling, all factors will be considered and
weighed appropriately, and the list of factors in Rev. Proc.
2000-15, sec. 4, is not exhaustive.
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C. Application of the Factors Listed in Rev. Proc. 2000-15
1. Petitioner’s Marital Status
Petitioner was divorced from her former husband when she
sought relief. This factor favors petitioner.
2. Spousal Abuse
Petitioner did not allege that there was abuse in her former
marriage. Respondent determined that this factor is neutral.
We agree with respondent’s determination on this point.
3. Significant Benefit
Respondent found this factor favors petitioner, and we
agree.
4. Compliance With Tax Laws
This factor was considered neutral since petitioner was in
compliance.
5. Economic Hardship
Respondent determined that because petitioner had remarried,
this factor was not present. We disagree. There is no question
that apart from any support from her current husband the
liability would cause petitioner significant hardship, and
petitioner provided sufficient information to the Appeals officer
to show her liabilities significantly exceeded her assets. We
find that economic hardship is a significant favorable factor for
petitioner because payment of the underlying liabilities would
prevent petitioner from paying reasonable basic living expenses
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from her own assets. See sec. 301.6343-1(b)(4)(i), Proced. &
Admin. Regs. We find respondent’s assertion without any evidence
to be nonpersuasive in overcoming the prima facie case made by
petitioner in Appeals.
6. Knowledge or Reason To Know
Petitioner admits she knew the tax liabilities would not be
paid. She was in a disadvantageous position to cause the payment
of the liabilities, however. Her husband completely controlled
the income from his business, and we find petitioner’s testimony
that she had no direct access to the business receipts to be
credible. Accordingly, while this factor is disadvantageous to
petitioner, under the limited circumstances of this case we do
not find this determination to be fatal to petitioner’s claim for
relief.
7. Whether the Underpayment of Tax Is Attributable to
the Ex-Spouse
Respondent finds this factor favorable to petitioner, and we
agree.
8. Legal Obligation To Pay
Because there is no such obligation, this factor is neutral.
D. Conclusion
Because we find economic hardship and a lack of significant
benefit from the income subject to tax, we are compelled to
conclude respondent has abused his discretion in denying relief
on the facts of this case.
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To reflect the foregoing,
Decision will be entered
for petitioner.