The opinion
T.C. Memo. 2007-136
UNITED STATES TAX COURT
TERESA G. BUTNER, Petitioner v.
COMMISSIONER OF INTERNAL REVENUE, Respondent
Docket No. 21334-03. Filed May 31, 2007.
Teresa G. Butner, pro se.
Edwina L. Jones, for respondent.
MEMORANDUM FINDINGS OF FACT AND OPINION
CHIECHI, Judge: Pursuant to section 7443A1 and Rules 180
and 183, this case was assigned to and heard by Special Trial
Judge Stanley J. Goldberg. His recommended findings of fact and
1
Unless otherwise indicated, all section references are to
the Internal Revenue Code (Code) in effect for the years at
issue. All Rule references are to the Tax Court Rules of Prac-
tice and Procedure.
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conclusions of law were filed and served upon the parties.
Petitioner filed objections (petitioner’s objections) to the
Special Trial Judge’s recommended findings of fact and conclu-
sions of law. Respondent did not.
In petitioner’s objections, petitioner advances many of the
same contentions and arguments that she advanced at trial and/or
in her posttrial briefs. We conclude that the Special Trial
Judge gave appropriate consideration to those contentions and
arguments in making his recommended findings of fact and conclu-
sions of law.
In petitioner’s objections, petitioner also advances the
following three contentions:
[1] There is a legal means by which the Petitioner’s
husband [William E. Butner] would not have to pay
F.I.C.A. [Federal Insurance Contributions Act] taxes.[2]
It was to his advantage to do so, however he was
prohibited from doing so by the confiscations and
exorbitant expenses arising out of the actions of the
Bankruptcy Trustee over a period of many years.
[2] * * * the Petitioner has never acquired assets
jointly with her husband.
[3] * * * There is a distinct difference in income
taxes and F.I.C.A. taxes. The only reason F.I.C.A.
taxes are reported on the income tax return is because
2
Income earned by a self-employed individual, as William E.
Butner (Mr. Butner) was during the years at issue, is not subject
to tax under sec. 3101, i.e., tax under the Federal Insurance
Contributions Act (FICA tax). Rather, such income is subject to
tax under sec. 1401, i.e., tax under the Self-Employment Contri-
butions Act of 1954 (self-employment tax). Self-employment tax
is imposed by the Code in subtitle A relating to “Income Taxes”.
See sec. 1401.
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such taxes are calculated and based on the earnings of
the person responsible for such income. [Reproduced
literally.]
With respect to the first contention quoted above, we
conclude that that contention is not pertinent to resolving the
issue in this case and does not require any change to the Special
Trial Judge’s recommended findings of fact and conclusions of
law.
With respect to the second contention quoted above, we note
initially that the record does not establish that petitioner
“never acquired assets jointly with her husband.” Assuming
arguendo that the record had established the second contention
quoted above, we conclude that that contention would not require
any change to the Special Trial Judge’s recommended findings of
fact and conclusions of law.
With respect to the third contention quoted above, we note
initially that, as discussed supra note 2, income earned by a
self-employed individual is subject to self-employment tax, and
not FICA tax. Moreover, an individual having net earnings from
self-employment of $400 or more for a taxable year is required to
make a return with respect to the self-employment tax imposed on
such earnings. Sec. 6017. A husband and wife may make a single
return jointly, sec. 6013(a), and are jointly and severally
liable for the entire liability shown due in such a return, sec.
6013(d)(3), including the liability with respect to net earnings
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from self-employment, sec. 1.6017-1(b)(2), Income Tax Regs.3
We conclude that the third contention quoted above does not
require any change to the Special Trial Judge’s recommended
findings of fact and conclusions of law.
In petitioner’s objections, petitioner also contends that
“Nothing in the record substantiates the findings of the” Special
Trial Judge. We disagree. Based upon our examination of the
entire record in this case, we conclude that that record amply
supports the Special Trial Judge’s recommended findings of fact
and conclusions of law. In so concluding, we have given appro-
priate deference to the Special Trial Judge’s recommended find-
ings of fact, as required by Rule 183(d).4
We have made changes to the grounds upon which the Special
Trial Judge held that the Court has jurisdiction over the instant
case, where no deficiency has been asserted, to review the denial
of equitable relief under section 6015(f). That is because,
after the Special Trial Judge’s recommended findings of fact and
conclusions of law were filed and served, there were judicial and
3
As discussed below, in certain circumstances, a spouse may
obtain relief from joint and several liability for self-employ-
ment tax on net earnings from self-employment reported in a joint
return if the requirements of sec. 6015 are satisfied.
4
Rule 183(d) requires (1) that due regard be given to the
circumstance that the Special Trial Judge had the opportunity to
evaluate the credibility of witnesses and (2) that the findings
of fact recommended by the Special Trial Judge be presumed to be
correct.
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legislative developments relating to our jurisdiction under
section 6015(e)(1) to review such a denial.
We have also made editorial, stylistic, clarifying, and
organizational changes to the Special Trial Judge’s recommended
findings of fact and conclusions of law.
We conclude that the recommended findings of fact and
conclusions of law of Special Trial Judge Stanley J. Goldberg, as
modified and set forth below, should be adopted as a report of
the Court.
This case arose from petitioner’s request for relief under
section 6015 for each of the taxable years 1994, 1995, 1998, and
1999. We hold that we have jurisdiction to review respondent’s
denial of relief under section 6015(f) for each of those years.
We further hold that respondent did not abuse respondent’s
discretion in denying petitioner relief under that section for
each of the taxable years 1994, 1995, 1998, and 1999.
FINDINGS OF FACT
Some of the facts have been stipulated and are so found
except as stated herein.
Petitioner resided in Hickory, North Carolina, on the date
she filed the petition in this case.
Petitioner and her spouse, Mr. Butner, were married in 1984
and were still married at the time of the trial.
During 1994, 1995, 1998, and 1999, petitioner lived on a
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10-acre estate and drove a sports utility vehicle. Real property
acquired by petitioner and Mr. Butner, including their residence
and two vacant lots, is titled in petitioner's name only.
Vehicles acquired by petitioner and Mr. Butner are titled in
petitioner's name only.
During 1994, 1995, 1998, 1999, and 2000, Mr. Butner, an
attorney who practiced law as a sole practitioner,5 employed
petitioner as a secretary, even though she had no secretarial
training. During 1994,6 1995, 1998, 1999, and 2000, petitioner
received from Mr. Butner secretarial wages of $2,600, $11,060,
$16,952, $17,278, and $16,952, respectively, from which no income
tax was withheld.
On April 24, 1995, a trust fund recovery penalty of
$276,226.86 was assessed against Mr. Butner in connection with
unpaid payroll taxes of Amtruc, Inc., for the last two quarters
of 1992 and the first two quarters of 1993. On October 25, 1999,
a notice of Federal tax lien was filed against Mr. Butner with
respect to that liability.
In 1996, the U.S. Bankruptcy Court for the Western District
5
During 1994, 1995, 1998, and 1999, Mr. Butner, who employed
four or five people who were not lawyers in his law practice, did
not make any estimated tax payments with respect to those respec-
tive years, even though he was self-employed.
6
During 1994, petitioner also received from Keyport Life
Insurance Co. a gross distribution of $4,250.12, from which
income tax of $91.67 was withheld.
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of North Carolina (Bankruptcy Court) entered judgments (bank-
ruptcy judgments) in excess of $3 million against petitioner and
Mr. Butner. As of the time of the trial in this case, those
judgments had not been satisfied.
In December 2002, Mr. Butner was incarcerated in connection
with bankruptcy fraud charges, and on November 22, 2004, he was
released from prison.
As described in detail below, petitioner and Mr. Butner
filed jointly a Federal income tax (income tax) return for each
of the taxable years 1994, 1995, 1998, and 1999. In each of
those returns, they showed petitioner’s occupation as “home-
maker”.
On January 20, 1998, petitioner and Mr. Butner signed Form
1040, U.S. Individual Income Tax Return, for the taxable year
1994 (1994 Form 1040). At the time petitioner signed that form,
she was aware that the bankruptcy judgments had been entered
against Mr. Butner and herself and had not been satisfied. On
January 20, 1999, petitioner and Mr. Butner filed late their 1994
Form 1040. In that form, petitioner and Mr. Butner reported
self-employment tax owed of $10,054, income tax withheld of $92,
and a total amount owed of $10,474, which included an estimated
tax penalty owed of $512.
On May 24, 1999, an assessment of self-employment tax of
$10,054 was made for the taxable year 1994, against which was
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applied income tax withholding of $92. On the same date, inter-
est of $5,057.39 and penalties of $4,731.95 were also assessed
for that year. As of May 24, 1999, the total unpaid assessed
liability for the taxable year 1994 was $19,751.34. At the time
in June 2003 respondent’s Appeals officer (Appeals officer)
considered petitioner’s request for relief under section 6015,
the total unpaid assessed liability for that year was the same
amount, excluding any addition to tax and interest accrued after
May 24, 1999.7
On August 25, 2000, petitioner and Mr. Butner filed Form
1040X, Amended U.S. Individual Income Tax Return, for the taxable
year 1994 (1994 Form 1040X). In that form, petitioner and Mr.
Butner reported no self-employment tax due, no tax liability, and
they claimed an overpayment and a refund of $92. Respondent did
not accept as correct the 1994 Form 1040X of petitioner and Mr.
Butner and did not allow that claim for refund.
On January 20, 1998, petitioner and Mr. Butner signed Form
7
The parties stipulated that, at the time in June 2003 the
Appeals officer considered petitioner’s request for relief under
sec. 6015, the total unpaid assessed liability for the taxable
year 1994 was $19,759.34, excluding any addition to tax and
interest accrued after May 24, 1999. We presume that that
stipulation was based upon a mathematical error. That is because
the record establishes that, at the time in question, the total
unpaid assessed liability for the taxable year 1994 was
$19,751.34, excluding any addition to tax and interest accrued
after May 24, 1999. The parties’ stipulation is clearly contrary
to the facts that we have found are established by the record,
and we shall disregard it. See Cal-Maine Foods, Inc. v. Commis-
sioner, 93 T.C. 181, 195 (1989).
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1040 for the taxable year 1995 (1995 Form 1040). At the time
petitioner signed that form, she was aware that the bankruptcy
judgments had been entered against Mr. Butner and herself and had
not been satisfied. On March 10, 1999, petitioner and Mr. Butner
filed late their 1995 Form 1040. In that form, petitioner and
Mr. Butner reported self-employment tax owed of $10,198 and a
total amount owed of $10,198.
On May 24, 1999, an assessment of self-employment tax of
$10,198 was made for the taxable year 1995. On the same date,
interest of $3,682.21 and penalties of $4,788.90 were also
assessed for that year. As of May 24, 1999, the total unpaid
assessed liability for the taxable year 1995 was $18,669.11. At
the time in June 2003 the Appeals officer considered petitioner’s
request for relief under section 6015, the total unpaid assessed
liability for that year was the same amount, excluding any
addition to tax and interest accrued after May 24, 1999.
On August 25, 2000, petitioner and Mr. Butner filed Form
1040X for the taxable year 1995 (1995 Form 1040X). In that form,
petitioner and Mr. Butner reported no self-employment tax due and
no tax liability. Respondent did not accept as correct the 1995
Form 1040X of petitioner and Mr. Butner.
On October 25, 1999, notices of Federal tax lien were filed
against petitioner and Mr. Butner with respect to their respec-
tive liabilities for the taxable years 1994 and 1995.
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On October 14, 2000, petitioner and Mr. Butner signed Form
1040 for the taxable year 1998 (1998 Form 1040). At the time
petitioner signed that form, she was aware (1) that the bank-
ruptcy judgments had been entered against Mr. Butner and herself
and had not been satisfied and (2) that respondent had issued
notices of Federal tax lien with respect to the respective
liabilities of petitioner and Mr. Butner for the taxable years
1994 and 1995. On October 18, 2000, petitioner and Mr. Butner
filed late their 1998 Form 1040. In that form, petitioner and
Mr. Butner reported self-employment tax owed of $8,935 and a
total amount owed of $8,935.
On November 20, 2000, an assessment of self-employment tax
of $8,935 was made for the taxable year 1998. On the same date,
interest of $1,484.13 and penalties of $2,903.87 were also
assessed for that year. As of November 20, 2000, the total
unpaid assessed liability for the taxable year 1998 was $13,323.
At the time in June 2003 the Appeals officer considered peti-
tioner’s request for relief under section 6015, the total unpaid
assessed liability for that year was the same amount, excluding
any addition to tax and interest accrued after November 20,
2000.8
8
The parties stipulated that, at the time in June 2003 the
Appeals officer considered petitioner’s request for relief under
sec. 6015, the total unpaid assessed liability for the taxable
year 1998 was $13,327, excluding any addition to tax and interest
(continued...)
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On October 14, 2000, petitioner and Mr. Butner signed Form
1040 for the taxable year 1999 (1999 Form 1040). At the time
petitioner signed that form, she was aware (1) that the bank-
ruptcy judgments had been entered against Mr. Butner and herself
and had not been satisfied and (2) that respondent had issued
notices of Federal tax lien with respect to the respective
liabilities of petitioner and Mr. Butner for the taxable years
1994 and 1995. On October 18, 2000, having obtained extensions
of time within which to file, petitioner and Mr. Butner timely
filed their 1999 Form 1040. In that form, petitioner and Mr.
Butner reported self-employment tax owed of $11,582 and a total
amount owed of $12,059, which included an estimated tax penalty
of $477.
On November 27, 2000, an assessment of self-employment tax
of $11,582 was made for the taxable year 1999. On the same date,
interest of $661.79 and penalties of $940.28 were also assessed
for that year. As of November 27, 2000, the total unpaid as-
sessed liability for that year was $13,184.07. At the time in
June 2003 the Appeals officer considered petitioner’s request for
8
(...continued)
accrued after Nov. 20, 2000. We presume that that stipulation
was based upon a mathematical error. That is because the record
establishes that, at the time in question, the total unpaid
assessed liability for the taxable year 1998 was $13,323, exclud-
ing any addition to tax and interest accrued after Nov. 20, 2000.
The parties’ stipulation is clearly contrary to the facts that we
have found are established by the record, and we shall disregard
it. See Cal-Maine Foods, Inc. v. Commissioner, 93 T.C. at 195.
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relief under section 6015, the total unpaid assessed liability
for that year was the same amount, excluding any addition to tax
and interest accrued after November 27, 2000.
As a result of net operating loss carryovers from prior
taxable years, there is no income tax liability due for any of
the taxable years 1994, 1995, 1998, and 1999. However, there are
self-employment tax liabilities for those years of $10,054,
$10,198, $8,935, and $11,582, respectively, all of which are
attributable to Mr. Butner.
On December 31, 2001, petitioner and Mr. Butner filed late
Form 1040 for the taxable year 2000 that showed a tax liability
of $7,807 that was unpaid.
On January 6, 2003, petitioner filed late Form 1040 for the
taxable year 2001 that showed a tax liability of $141, which she
paid at that time.
On January 22, 2001, petitioner timely filed Form 8857,
Request for Innocent Spouse Relief (Form 8857), with respect to
each of the taxable years 1994, 1995, 1998, and 1999. Petitioner
and Mr. Butner resided together during the 12 months preceding
petitioner’s filing her respective Forms 8857 with respect to
those years.
In Form 8857 that petitioner filed for each of the years at
issue, she requested relief under section 6015 from joint and
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several liability for each of those years.9 In each of those
forms, the only reason given by petitioner for seeking relief was
that the liabilities in question "arose out of payroll taxes for
my husband in his business."
By letter dated December 20, 2001, respondent's tax auditor
requested that petitioner complete a questionnaire and explain
why petitioner believed that she is entitled to relief under
section 6015. Around March 5, 2002, petitioner returned that
questionnaire, in which she stated that relief should be granted
because the "Taxes due on the returns were payroll taxes arising
out of my husbands [sic] law practice." In responding to the
questionnaire, petitioner failed to answer the question relating
to whether she was aware of the liability reported in Form 1040
that she and Mr. Butner filed for each of the taxable years 1994,
1995, 1998, and 1999 and whether she thought that such liability
would be paid at the time of each such filing. Petitioner
admitted in the questionnaire that there was no plan for paying
the liability reported in Form 1040 that she and Mr. Butner filed
9
On Jan. 22, 2001, petitioner also filed Form 8857 with
respect to each of the taxable years 1996 and 1997, in which she
requested relief under sec. 6015 from joint and several liability
for each of those years. There were no unpaid liabilities
reflected in the respective income tax returns that petitioner
and Mr. Butner filed for the taxable years 1996 and 1997, and
respondent determined no deficiency in tax for either of those
years. Petitioner did not place the taxable years 1996 and 1997
at issue in the instant case. Our discussion hereinafter is
limited to the taxable years 1994, 1995, 1998, and 1999.
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for each of the years at issue, which was not paid at the time of
each such filing.
On May 23, 2002, respondent issued a preliminary determina-
tion in which respondent denied petitioner's request for relief
under section 6015 for each of the taxable years at issue. In so
doing, that preliminary determination stated in pertinent part:
You did not qualify for relief under Tier I [section
4.02 of Revenue Procedure 2000-15, 2000-1 C.B. 447]
because you and your spouse did not live apart the 12
months prior to claim, you did not show that you had a
reasonable belief that the tax was paid or would be
paid when you signed the returns, and you failed to
show that you would suffer an economic hardship if
relief was denied.
You did not qualify for relief under Tier II [section
4.03 of Revenue Procedure 2000-15] because the majority
of factors used to make the determination were against
granting relief. You did not review the returns prior
to signing them. You knew when you signed them that
you were not in a financial position to pay the liabil-
ities timely. Although you and your spouse were ad-
vised to pay estimated taxes in subsequent years by a
Federal Agent, you have not done so. Therefore, you
are not in compliance with tax laws. You will not
suffer a hardship if relief is denied. You can afford
a monthly payment agreement based on the information
available. [Reproduced literally.]
Around June 5, 2002, petitioner filed Form 12509, Statement
of Disagreement, in which she protested respondent’s preliminary
determination. In that form, petitioner stated:
I, Teresa B. Butner, disagree with the Internal Revenue
Service determination because I have elected under Code
Section 6015(b) to request spousal relief from the
IRS's proposed assessment of self-employment taxes for
the tax years 1994, 1995, 1998 and 1999. I believe I
should be relieved from this tax liability because this
liability is attributed to income which I had no owner-
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ship in or control over. These unpaid tax liabilities
are attributable to my non-requesting spouse. I wish
to present the following factors which I ask that you
consider:
(a) Had I filed a separate return, the tax liabil-
ity would not have been included in my return.
(b) The tax liability reported. I did not know
and had no reason to know that the liability would not
be paid.
(c) The tax liability is solely attributable to my
spouse’s income
I respectfully request that you consider the above and
grant me equitable relief from the tax liabilities.
[Reproduced literally.]
Around June 11, 2002, petitioner's respective Forms 8857
with respect to the taxable years 1994, 1995, 1998, and 1999 were
transmitted to the Appeals Office for further consideration.
By letter dated August 14, 2002, the Appeals Office acknowl-
edged receipt of petitioner's respective Forms 8857 for the
taxable years at issue. By letter dated March 19, 2003, an
Appeals officer scheduled a telephonic conference for April 2,
2003.
At the time in June 2003 the Appeals officer considered
petitioner’s Forms 8857, petitioner owned a 2002 Chevrolet pickup
truck and a 2002 Chevrolet Tahoe sports utility vehicle.
By letter dated June 16, 2003 (June 16, 2003 letter), the
Appeals officer advised petitioner's representative, William J.
Lawing, C.P.A., that although the Appeals officer had originally
indicated that petitioner might be entitled to full relief under
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section 6015(f), "the facts of this case do not merit such a
determination." The Appeals officer noted in that letter that
most of the factors set forth in Revenue Procedure 2000-15, 2000-
1 C.B. 447 (Revenue Procedure 2000-15), weigh against relief. In
the June 16, 2003 letter, the Appeals officer informed petitioner
that, in order to change that conclusion, petitioner must provide
certain additional information. A response deadline of June 30,
2003, was given. On or after September 15, 2003, petitioner's
representative provided additional information to the Appeals
officer.
On or about August 28, 2003, the Appeals officer prepared an
Appeals Case Memorandum that set forth (1) all the facts and law
that she considered in determining to uphold respondent’s prelim-
inary determination to deny relief under section 6015 and (2) her
application of that law to those facts.
By letter dated September 11, 2003, and entitled "Subject:
Notice of Determination Concerning Your Request for Relief from
Joint and Several Liability under Section 6015", the Appeals
Office informed petitioner that she was not eligible for relief
under section 6015(b), (c), or (f).
At no time was petitioner abused by Mr. Butner. Nor has
petitioner verified at any time that she would suffer an economic
hardship if relief under section 6015 for the taxable years 1994,
1995, 1998, and 1999 were not granted.
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On December 15, 2003, petitioner filed a petition with the
Court for review of respondent's determination denying her
request for relief under section 6015 with respect to each of the
taxable years 1994, 1995, 1998, and 1999.
OPINION
In general, each of the spouses who file jointly an income
tax return is responsible for the accuracy of, and is jointly and
severally liable for the entire liability shown due in, such
return. Sec. 6013(d)(3); Butler v. Commissioner, 114 T.C. 276,
282 (2000). In certain circumstances, a spouse may obtain relief
from such joint and several liability if the requirements of
section 6015 are satisfied.
Section 6015 applies to any liability for tax arising after
July 22, 1998, and to tax liabilities arising on or before July
22, 1998, that remain unpaid as of such date. Internal Revenue
Service Restructuring and Reform Act of 1998, Pub. L. 105-206,
sec. 3201(g), 112 Stat. 740. In the present case, the respective
liabilities of petitioner and Mr. Butner arose with respect to
the taxable years 1994, 1995, 1998, and 1999. The respective
liabilities of petitioner and Mr. Butner for the taxable years
1994 and 1995 arose before July 22, 1998, but remained unpaid as
of that date. The respective liabilities of petitioner and Mr.
Butner for the taxable years 1998 and 1999 arose after July 22,
1998. Section 6015 is applicable to the respective liabilities
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of petitioner and Mr. Butner for the taxable years 1994, 1995,
1998, and 1999.
Section 6015(a)(1) provides that a spouse who 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 a spouse who is
eligible to do so may elect to limit that spouse's liability for
any deficiency with respect to a joint return under section
6015(c). Relief from joint and several liability under section
6015(b) or (c) is available only with respect to a deficiency for
the year for which relief is sought. Sec. 6015(b)(1)(D) and
(c)(1); see H. Conf. Rept. 105-599, at 252-254 (1998), 1998-3
C.B. 747, 1006-1008. If relief is not available under either
section 6015(b) or (c), an individual may seek equitable relief
under section 6015(f), which may be granted by the Commissioner
of Internal Revenue (Commissioner) in the Commissioner’s discre-
tion.
Section 6015(b)
Section 6015(b) provides a spouse relief for an "understate-
ment" (as defined in section 6662(d)(2)(A))10 of tax in a joint
income tax return that is attributable to erroneous items of the
10
Sec. 6662(d)(2)(A) defines the term “understatement” as
the excess of the amount of tax required to be shown in the tax
return over the amount of tax shown in such return.
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other spouse.
In the present case, petitioner does not seek relief from an
understatement in any of the income tax returns that she and Mr.
Butner jointly filed for the taxable years 1994, 1995, 1998, and
1999, respectively. Rather, she seeks relief from the respective
self-employment taxes that were shown due in such returns and
that were not paid when she and Mr. Butner filed those returns.
Because there is no understatement of tax for any of the taxable
years 1994, 1995, 1998, and 1999, relief is not available to
petitioner under section 6015(b). See Washington v. Commis-
sioner, 120 T.C. 137, 146 (2003); see also Hopkins v. Commis-
sioner, 121 T.C. 73, 88 (2003).
Section 6015(c)
A taxpayer may elect to seek relief under section 6015(c) if
(1) at the time of making the election, the taxpayer was no
longer married to, or was legally separated from, the person with
whom the joint return was filed, or (2) for the 12-month period
preceding the time of making the election the taxpayer did not
live with such person. If a taxpayer elects relief under section
6015(c), such taxpayer’s “liability for any deficiency which is
assessed with respect to the return shall not exceed the portion
of such deficiency properly allocable to the individual” under
section 6015(d). Relief is not available under section 6015(c)
with respect to an unpaid liability reported in a return.
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In the present case, petitioner is seeking relief from the
respective self-employment taxes that were shown due in the
income tax returns that she and Mr. Butner jointly filed for the
taxable years 1994, 1995, 1998, and 1999, respectively, and that
were not paid when they filed those returns. Because there is no
"deficiency" for any of the taxable years 1994, 1995, 1998, and
1999, relief is not available to petitioner under section 6015(c)
for any of those years. See Washington v. Commissioner, supra at
146-147; see also Hopkins v. Commissioner, supra.
Section 6015(f)
The only remaining opportunity for relief to petitioner is
section 6015(f). We consider first whether we have jurisdiction
to review respondent’s denial of relief under section 6015(f) to
petitioner where no deficiency has been asserted.
Before we issued our Opinion in Billings v. Commissioner,
127 T.C. 7 (2006), we held that we have jurisdiction under
section 6015(e)(1) to review a denial of relief under section
6015, including section 6015(f). Fernandez v. Commissioner, 114
T.C. 324, 330-331 (2000). After Congress amended section
6015(e),11 we held that "the amendment of section 6015(e) does
not preclude our jurisdiction to review the denial of equitable
11
Congress amended sec. 6015(e), effective Dec. 21, 2000, by
adding the language "against whom a deficiency has been as-
serted". Consolidated Appropriations Act, 2001, Pub. L. 106-554,
app. G, sec. 313, 114 Stat. 2763, 2763A-641.
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relief under section 6015(f) where a deficiency has not been
asserted." Ewing v. Commissioner, 118 T.C. 494, 505 (2002).
The United States Court of Appeals for the Ninth Circuit
reversed the Court’s holding in Ewing v. Commissioner, supra.
Commissioner v. Ewing, 439 F.3d 1009 (9th Cir. 2006), revg. 118
T.C. 494 (2002), vacating 122 T.C. 32 (2004). The United States
Court of Appeals for the Eighth Circuit vacated and remanded
Sjodin v. Commissioner, T.C. Memo. 2004-205, in which we held
that we have jurisdiction under section 6015(e) to review the
denial of relief under section 6015(f) where a deficiency has not
been asserted. Sjodin v. Commissioner, 174 Fed. Appx. 359 (8th
Cir. 2006), vacating and remanding per curiam T.C. Memo. 2004-
205.
Thereafter, in Billings v. Commissioner, supra, we reconsid-
ered our holding in Ewing v. Commissioner, 118 T.C. 494 (2002).
We held in Billings that we do not have jurisdiction under
section 6015(e)(1) to review the denial of relief under section
6015(f) where no deficiency has been asserted.
After we issued our Opinion in Billings, Congress passed the
Tax Relief and Health Care Act of 2006 (Act), Pub. L. 109-432,
120 Stat. 2922. The Act amended section 6015(e)(1) to provide
that this Court may review the Commissioner’s denial of relief
under section 6015 in any case where an individual requested
relief under section 6015(f). Id. div. C, sec. 408(a), 120 Stat.
- 22 -
3061. The amendment applies “with respect to liability for taxes
arising or remaining unpaid on or after the date of the enactment
of this Act.” Id. sec. 408(c), 120 Stat. 3062. The date of
enactment of the Act was December 20, 2006.
After the Act amended section 6015(e)(1), we issued an Order
in the instant case, in which we directed each party to file a
response to that Order addressing the jurisdiction of the Court
over this case in light of the amendment that the Act made to
section 6015(e)(1). Petitioner filed no such response. Respon-
dent filed a response in which respondent stated that the Court
has jurisdiction to review respondent’s denial of relief under
section 6015(f) with respect to each of the taxable years 1994,
1995, 1998, and 1999. That is because, according to respondent,
the liability due for each of those years remained unpaid as of
December 20, 2006, the date of enactment of the Act.
We hold that we have jurisdiction over the instant case to
review respondent’s denial of relief under section 6015(f) with
respect to each of the taxable years 1994, 1995, 1998, and 1999.
We consider now respondent’s denial of relief under section
6015(f) to petitioner. Section 6015(f) provides:
SEC. 6015. RELIEF FROM JOINT AND SEVERAL LIABILITY ON
JOINT RETURN.
* * * * * * *
(f). Equitable Relief.--Under procedures pre-
scribed by the Secretary, if--
- 23 -
(1) taking into account all the facts and
circumstances, it is inequitable to hold the indi-
vidual liable for any unpaid tax or any deficiency
(or any portion of either); and
(2) relief is not available to such indi-
vidual under subsection (b) or (c),
the Secretary may relieve such individual of such
liability.
To prevail under section 6015(f), petitioner must show that
respondent's denial of equitable relief under that section was an
abuse of discretion. See Washington v. Commissioner, 120 T.C. at
146; Jonson v. Commissioner, 118 T.C. 106, 125 (2002) (citing
Butler v. Commissioner, 114 T.C. at 292), affd. 353 F.3d 1181
(10th Cir. 2003). Respondent’s denial of such relief will
constitute an abuse of discretion where it was arbitrary, capri-
cious, or without sound basis in fact or law. Woodral v. Commis-
sioner, 112 T.C. 19, 23 (1999). The question whether respon-
dent's denial of relief under section 6015(f) was arbitrary,
capricious, or without sound basis in fact is a question of fact.
Cheshire v. Commissioner, 115 T.C. 183, 197-198 (2000), affd. 282
F.3d 326 (5th Cir. 2002). In deciding whether respondent's
denial of relief under section 6015(f) was an abuse of discre-
tion, we consider evidence relating to all the facts and circum-
stances.
As directed by section 6015(f), the Commissioner has pre-
scribed guidelines in Revenue Procedure 2000-15 to be considered
in determining whether an individual qualifies for relief under
- 24 -
section 6015(f).12 Section 4.01 of that revenue procedure lists
seven conditions (threshold conditions) which must be satisfied
before respondent will consider a request for relief under
section 6015(f). Rev. Proc. 2000-15, sec. 4.01, 2000-1 C.B. at
448. Respondent concedes that petitioner meets the threshold
conditions.
Where, as here, the requesting spouse satisfies the thresh-
old conditions, section 4.01 of Revenue Procedure 2000-15 pro-
vides that a requesting spouse may be relieved under section
6015(f) of all or part of the liability in question if, taking
into account all the facts and circumstances, respondent deter-
mines that it would be inequitable to hold the requesting spouse
liable for such liability.
Where, as here, the requesting spouse satisfies the thresh-
old conditions, section 4.02 of Revenue Procedure 2000-15 sets
forth the circumstances under which respondent ordinarily will
grant relief to that spouse under section 6015(f) in a case, like
the instant case, where a liability is reported in a joint return
12
Revenue Procedure 2000-15 was superseded by Revenue Proce-
dure 2003-61, 2003-2 C.B. 296 (Revenue Procedure 2003-61).
Revenue Procedure 2003-61 is effective for requests for relief
filed on or after Nov. 1, 2003, and for requests for relief with
respect to which no preliminary determination was issued as of
Nov. 1, 2003. In the present case, petitioner filed her respec-
tive Forms 8857 for the taxable years 1994, 1995, 1998, and 1999
on Jan. 22, 2001, and respondent’s preliminary determination
letter was issued on May 23, 2002. Therefore, Revenue Procedure
2000-15 is applicable in the present case.
- 25 -
but not paid. As pertinent here, those circumstances, which
section 4.02 of Revenue Procedure 2000-15 and we refer to as
elements, are:
(a) At the time relief is requested, the request-
ing spouse is no longer married to * * * the
nonrequesting spouse * * *;
(b) At the time the return was signed, the re-
questing spouse had no knowledge or reason to know that
the tax would not be paid. The requesting spouse must
establish that it was reasonable for the requesting
spouse to believe that the nonrequesting spouse would
pay the reported liability. * * *; and
(c) The requesting spouse will suffer economic
hardship if relief is not granted. For purposes of
this section, the determination of whether a requesting
spouse will suffer economic hardship will be made by
the Commissioner or the Commissioner’s delegate, and
will be based on rules similar to those provided in §
301.6343-1(b)(4) of the Regulations on Procedure and
Administration. [Rev. Proc. 2000-15, sec. 4.02(1),
2000-1 C.B. at 448.]
(We shall hereinafter refer to the elements set forth in section
4.02(1)(a), (b), and (c) of Revenue Procedure 2000-15 as the
marital status element, the knowledge or reason to know element,
and the economic hardship element, respectively.)
Section 4.02(2) of Revenue Procedure 2000-15 provides that
relief granted under section 4.02(1) of that revenue procedure is
subject to the following limitations:
(a) If the return is or has been adjusted to
reflect an understatement of tax, relief will be avail-
able only to the extent of the liability shown on the
return prior to any such adjustment; and
(b) Relief will only be available to the extent
that the unpaid liability is allocable to the
- 26 -
nonrequesting spouse.
Turning to the three elements set forth in section 4.02(1)
of Revenue Procedure 2000-15, the presence of which will ordi-
narily result in a grant of relief under section 6015(f), in the
instant case, (1) petitioner concedes that the marital status
element is not present, (2) the parties dispute whether the
knowledge or reason to know element is present, and (3) the
parties dispute whether the economic hardship element is present.
In light of petitioner’s concession that the marital status
element is not present, petitioner does not qualify for relief
under section 4.02(1) of Revenue Procedure 2000-15.
Respondent may nonetheless grant relief to petitioner under
section 4.03 of Revenue Procedure 2000-15. That section provides
a partial list of positive and negative factors which respondent
is to take into account in considering whether to grant an
individual relief under section 6015(f). No single factor is to
be determinative in any particular case; all factors are to be
considered and weighed appropriately; and the list of factors is
not intended to be exhaustive. Rev. Proc. 2000-15, sec. 4.03,
2000-1 C.B. at 448.
As pertinent here, section 4.03(1) of Revenue Procedure
2000-15 sets forth the following positive factors which weigh in
favor of granting relief under section 6015(f):
(a) Marital status. The requesting spouse is
separated (whether legally separated or living apart)
- 27 -
or divorced from the nonrequesting spouse.
(b) Economic hardship. The requesting spouse
would suffer economic hardship (within the meaning of
section 4.02(1)(c) of this revenue procedure) if relief
from the liability is not granted.
(c) Abuse. The requesting spouse was abused by
the nonrequesting spouse, but such abuse did not amount
to duress.
(d) No knowledge or reason to know. In the case of
a liability that was properly reported but not paid,
the requesting spouse did not know and had no reason to
know that the liability would not be paid. * * *
(e) Nonrequesting spouse’s legal obligation. The
nonrequesting spouse has a legal obligation pursuant to
a divorce decree or agreement to pay the outstanding
liability. This will not be a factor weighing in favor
of relief if the requesting spouse knew or had reason
to know, at the time the divorce decree or agreement
was entered into, that the nonrequesting spouse would
not pay the liability.
(f) Attributable to nonrequesting spouse. The
liability for which relief is sought is solely attrib-
utable to the nonrequesting spouse.
As pertinent here, section 4.03(2) of Revenue Procedure
2000-15 sets forth the following negative factors which weigh
against granting relief under section 6015(f):
(a) Attributable to the requesting spouse. The
unpaid liability * * * is attributable to the request-
ing spouse.
(b) Knowledge or reason to know. A requesting
spouse knew or had reason to know * * * that the re-
ported liability would be unpaid at the time the return
was signed. This is an extremely strong factor weigh-
ing against relief. Nonetheless, when the factors in
favor of equitable relief are unusually strong, it may
be appropriate to grant relief under § 6015(f) in
limited situations where a requesting spouse knew or
had reason to know that the liability would not be paid
- 28 -
* * *.
(c) Significant benefit. The requesting spouse
has significantly benefitted (beyond normal support)
from the unpaid liability * * *.
(d) Lack of economic hardship. The requesting
spouse will not experience economic hardship (within
the meaning of section 4.02(1)(c) of this revenue
procedure) if relief from the liability is not granted.
(e) Noncompliance with federal income tax laws.
The requesting spouse has not made a good faith effort
to comply with federal income tax laws in the tax years
following the tax year or years to which the request
for relief relates.
(f) Requesting spouse’s legal obligation. The
requesting spouse has a legal obligation pursuant to a
divorce decree or agreement to pay the liability.
Respondent contends: (1) Petitioner signed the respective
joint income tax returns that she and Mr. Butner filed for the
taxable years 1994, 1995, 1998, and 1999 and that reported total
amounts due of $10,474, $10,198, $8,935, and $12,059, respec-
tively;13 (2) petitioner received a significant benefit by filing
such joint returns with Mr. Butner in that she would have had
separate respective income tax liabilities on her income for the
13
In their 1994 Form 1040, petitioner and Mr. Butner re-
ported self-employment tax owed of $10,054, income tax withheld
of $92, and a total amount owed of $10,474, which included an
estimated tax penalty owed of $512. In their 1995 Form 1040,
petitioner and Mr. Butner reported self-employment tax owed of
$10,198 and a total amount owed of $10,198. In their 1998 Form
1040, petitioner and Mr. Butner reported self-employment tax owed
of $8,935 and a total amount owed of $8,935. In their 1999 Form
1040, petitioner and Mr. Butner reported self-employment tax owed
of $11,582 and a total amount owed of $12,059, which included an
estimated tax penalty of $477.
- 29 -
taxable years 1994, 1995, 1998, and 1999 of $330, $238, $1,466,
and $1,189, if she had not filed such joint returns and availed
herself of the net operating loss carryovers associated with Mr.
Butner's business enterprises; (3) petitioner also received a
significant benefit "beyond normal support, from the tax liabili-
ties that went unpaid in that money which her husband could have
used to pay estimated taxes to reduce or satisfy his
self-employment tax liability was paid to petitioner as secre-
tarial wages”; (4) petitioner would not suffer economic hardship
if the Court were not to grant relief from the liability for each
of the taxable years at issue; (5) petitioner knew or had reason
to know when she signed and filed each of the joint income tax
returns in question that the liability reported in each such
return would not be paid due to her knowledge of previous judg-
ments and assessments against Mr. Butner and herself; and (6)
petitioner failed to comply with the income tax laws for the
taxable years following the taxable years for which relief is
sought. According to respondent, the foregoing factors weigh
against granting relief under section 6015(f) to petitioner.
We now address the application of each of the factors set
forth in Revenue Procedure 2000-15 that weigh in favor of or
against granting petitioner relief under section 6015(f).
Marital Status
Respondent contends that this factor is neutral. We agree.
- 30 -
Petitioner and Mr. Butner were married in 1984 and remained
married as of the time of trial. In addition, petitioner and Mr.
Butner resided together during the 12 months preceding peti-
tioner's filing Forms 8857 with respect to the respective taxable
years at issue, in which she requested relief under section 6015
for those years.
Economic Hardship
Respondent contends that petitioner will not suffer economic
hardship if relief were denied. In determining whether a re-
questing spouse will suffer economic hardship, section 4.02(1)(c)
of Revenue Procedure 2000-15 requires reliance on rules similar
to those provided in section 301.6343-1(b)(4), Proced. & Admin.
Regs. Under section 301.6343-1(b)(4)(ii), Proced. & Admin.
Regs.,14 economic hardship exists if collection of the tax lia-
14
Sec. 301.6343-1(b)(4)(ii), Proced. & Admin. Regs.,
provides in pertinent part:
(ii) Information from taxpayer.--In determining a
reasonable amount for basic living expenses the
director will consider any information provided by the
taxpayer including--
(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 (including utilities, home-owner
insurance, home-owner dues, and the like), medical
expenses (including health insurance), transportation,
current tax payments (including federal, state, and
local), alimony, child support, or other court-ordered
(continued...)
- 31 -
bility will cause a taxpayer to be unable to pay such taxpayer’s
reasonable basic living expenses.
The parties stipulated that petitioner has not verified that
she would suffer an economic hardship if relief from joint and
several liability for each of the taxable years 1994, 1995, 1998,
and 1999 were not granted. Furthermore, it appears from the
record that petitioner has assets such that she would not experi-
ence economic hardship if required to pay some or all of the
liabilities at issue. Petitioner has not entered into evidence
any documentary or testimonial evidence to contradict respon-
dent’s contention that she will not suffer economic hardship if
relief were denied. We find that petitioner will not suffer
economic hardship if relief under section 6015(f) were not
granted. This factor weighs against granting relief.
14
(...continued)
payments, and expenses necessary to the taxpayer's
production of income (such as dues for a trade union or
professional organization, or child care payments which
allow the taxpayer to be gainfully employed);
(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 director.
- 32 -
Abuse
Respondent contends that this factor is neutral. We agree.
At no time was petitioner abused by Mr. Butner.
Knowledge or Reason To Know
Petitioner contends that she did not know and had no reason
to know when she signed the respective joint income tax returns
for the taxable years 1994, 1995, 1998, and 1999 that the respec-
tive liabilities reported in those returns would not be paid.
The record does not establish, and petitioner does not contend,
that she signed those returns under duress, and not voluntarily.
Petitioner testified on cross-examination that she believed that
the joint income tax return that she and Mr. Butner filed for
each of the taxable years at issue was correct when she signed
each such return.15
Moreover, petitioner did not answer the questionnaire that
respondent’s representative asked her to complete as it pertained
to whether she was aware of the liability reported in the joint
income tax return that she and Mr. Butner filed for each of the
years at issue and whether she thought that the liability shown
15
Even if petitioner signed each of the returns in question
without reviewing it, petitioner is charged with constructive
knowledge of the tax shown due in each such return. Park v.
Commissioner, 25 F.3d 1289, 1299 (5th Cir. 1994), affg. T.C.
Memo. 1993-252; see also Castle v. Commissioner, T.C. Memo.
2002-142; Cohen v. Commissioner, T.C. Memo. 1987-537 (the provi-
sions providing relief from joint and several liability are
"designed to protect the innocent, not the intentionally igno-
rant").
- 33 -
due in each such return would be paid at the time of such filing.
Nonetheless, in response to the very next question in that
questionnaire, which sought a description of any plan that she
and Mr. Butner had for paying any liability that was shown due in
the joint income tax return for each of the years at issue and
that was not paid at the time of filing each such return,
petitioner admitted that there was no plan for paying any such
liability.
Furthermore, in 1996, before petitioner and Mr. Butner filed
a joint income tax return for any of the taxable years 1994,
1995, 1998, and 1999, the Bankruptcy Court entered judgments in
excess of $3 million against them. At the time of the trial in
this case, those judgments had not been satisfied. Petitioner
was aware that those judgments had been entered against Mr.
Butner and herself and had not been satisfied when she signed
(1) on January 20, 1998, the respective joint income tax returns
for the taxable years 1994 and 1995 and (2) on October 14, 2000,
the respective joint income tax returns for the taxable years
1998 and 1999.
In addition, although petitioner testified that she had no
reason to believe at the time she signed the joint income tax
return for each of the years at issue that the tax shown due in
each such return would not be paid and that she thought her
husband "was going to take care of that", on April 24, 1995, a
- 34 -
trust fund recovery penalty of $276,226.86 was assessed against
Mr. Butner. Moreover, on October 25, 1999, a notice of Federal
tax lien was filed against Mr. Butner with respect to that
liability. On the same date, notices of Federal tax lien were
filed against petitioner and Mr. Butner for their respective
liabilities for the taxable years 1994 and 1995. Petitioner was
aware of those notices on October 14, 2000, when she signed the
respective joint income tax returns for the taxable years 1998
and 1999. Based on that knowledge, petitioner had reason to know
that the tax liability shown in each of those returns would not
be paid.16
We find that petitioner had reason to know (1) on January
20, 1998, when she signed the respective joint income tax returns
for the taxable years 1994 and 1995 and (2) on October 14, 2000,
when she signed the respective joint income tax returns for the
taxable years 1998 and 1999 that the respective liabilities shown
in those returns would not be paid. This factor weighs against
granting relief.
Nonrequesting Spouse's Legal Obligation
Respondent contends that this factor is neutral. We agree.
Petitioner and Mr. Butner were still married at the time of
trial. The record contains no evidence of any relevant agreement
with respect to the liabilities at issue.
16
See Collier v. Commissioner, T.C. Memo. 2002-144.
- 35 -
Attributable to Nonrequesting Spouse
The respective liabilities for the taxable years 1994, 1995,
1998, and 1999 are self-employment tax liabilities that are
solely attributable to Mr. Butner. This factor favors granting
relief.
Significant Benefit
Respondent contends that petitioner received a significant
benefit,
beyond normal support, from the tax liabilities that
went unpaid in that money which her husband could have
used to pay estimated taxes to reduce or satisfy his
self-employment tax liability was paid to petitioner as
secretarial wages. However, petitioner had no secre-
tarial training and reported her occupation as “HOME-
MAKER” on the joint returns which she and her husband
filed for these years. * * *
Respondent further contends that petitioner received a
significant benefit by filing joint income tax returns with Mr.
Butner for the respective taxable years at issue because she
availed herself of the net operating loss carryovers arising from
his business enterprises and thereby eliminated the income tax
liabilities that would have been due from her had she filed
separately.
During the years at issue, Mr. Butner paid wages to peti-
tioner for performing secretarial services. He paid her $2,600
in 1994, $11,060 in 1995, $16,952 in 1998, and $17,278 in 1999.
During cross-examination, petitioner admitted that she had no
secretarial training. During the years 1994, 1995, 1998, and
- 36 -
1999, Mr. Butner, who was a sole practitioner, employed four or
five people who were not lawyers in his law practice. Further-
more, Mr. Butner did not withhold any income tax from the wages
that he paid to petitioner during the taxable years at issue.
Respondent contends that those circumstances establish the
inference that
petitioner’s “wages” were nothing more than her spend-
ing allowance, rather than compensation for secretarial
services. The income tax returns for 1994, 1995, 1998
and 1999 show petitioner’s occupation as “HOMEMAKER.”
* * * No income taxes were withheld from petitioner’s
wages. * * * This gave petitioner money to spend.
Petitioner's spending allowance in the form of tax-free
secretarial “wages” constitutes a significant benefit
beyond normal support. This money could have been used
by Mr. Butner to make estimated tax payments, which
would have decreased the amount of self-employment
taxes owed * * *.
While the factual circumstances surrounding Mr. Butner’s
payment of wages to petitioner during the years at issue are
suspicious, we are not persuaded that petitioner received a
significant benefit from filing joint income tax returns with Mr.
Butner for the taxable years 1994, 1995, 1998, and 1999, respec-
tively. Under Revenue Procedure 2000-15, this factor is neutral.
However, based on cases decided under former section 6013(e), we
consider the lack of significant benefit by the taxpayer seeking
relief from joint and several liability as a factor that favors
granting relief under section 6015(f).17
17
Ferrarese v. Commissioner, T.C. Memo. 2002-249.
- 37 -
Compliance With Federal Tax Laws
On December 31, 2001, petitioner and Mr. Butner filed late a
joint income tax return for the taxable year 2000 that showed a
tax liability of $7,807 that was unpaid. In addition, during
2000, petitioner received wages of $16,952 from Mr. Butner for
secretarial work, from which no income tax was withheld. Fur-
thermore, on January 6, 2003, petitioner filed late an income tax
return for the taxable year 2001 that showed a tax liability of
$141, which she paid at that time.
Petitioner failed to comply with the income tax laws for
certain taxable years following the taxable years to which her
request for relief relates. This factor weighs against granting
relief.
In addition, petitioner has not established any other
factors not set forth in Revenue Procedure 2000-15 that favor
granting relief to her.
In conclusion, under the facts and circumstances in the
instant case, we hold that respondent did not abuse respondent’s
discretion in denying equitable relief under section 6015(f) to
petitioner.
We have considered all of the contentions and arguments of
the parties that are not discussed herein, and we find them to be
without merit, irrelevant, and/or moot.
- 38 -
To reflect the foregoing,
Decision will be entered
for respondent.