The opinion
T.C. Memo. 2007-167
UNITED STATES TAX COURT
CYNTHIA K. BEATTY, Petitioner v.
COMMISSIONER OF INTERNAL REVENUE, Respondent
Docket No. 22047-04. Filed June 27, 2007.
Caroline D. Ciraolo, for petitioner.
James H. Harris, Jr., for respondent.
MEMORANDUM FINDINGS OF FACT AND OPINION
CHIECHI, Judge: This case arises from a request for equita-
ble relief (relief) under section 6015(f).1 We must decide
whether respondent abused respondent’s discretion in denying
1
All section references are to the Internal Revenue Code in
effect at all relevant times. All Rule references are to the Tax
Court Rules of Practice and Procedure.
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petitioner relief under section 6015(f) for each of the taxable
years 1988 though 1997 and 2000. We hold that respondent abused
respondent’s discretion in denying petitioner such relief.
FINDINGS OF FACT
All of the facts in this case, which the parties submitted
under Rule 122, have been stipulated by the parties and are so
found.
Petitioner resided in Ocean City, Maryland (Ocean City), at
the time she filed the petition.
In 1978, petitioner married Michael Beatty (Mr. Beatty).
She was still married to him when the parties submitted this case
under Rule 122.
In 1975, petitioner received an associate degree from Villa
Julie College. Mr. Beatty stopped attending school when he was
in the ninth grade.
From 1975 until 1980, petitioner worked as a medical secre-
tary for Washington Hospital Center in Washington, D.C.
Around 1977, Mr. Beatty obtained a Small Business Adminis-
tration loan in order to purchase a delicatessen and bakery
business that he incorporated under the name “MKB Donut and Deli,
Inc.” (MKB). Mr. Beatty failed to pay his withholding tax
liabilities with respect to MKB, and respondent filed Federal tax
liens with respect to such liabilities. In 1980, MKB filed for
bankruptcy, and he eventually lost MKB and all of his savings.
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Around 1981, a bank foreclosed on a house which Mr. Beatty had
purchased in 1976 and in which petitioner and he had been resid-
ing since shortly after that purchase.
In 1981, Mr. Beatty began working as a self-employed disc
jockey. From 1981 until the summer of 1998, petitioner was a
full-time homemaker, although she did help Mr. Beatty in his work
as a disc jockey. During that period, Mr. Beatty’s earnings as a
self-employed disc jockey were the only source of income of
petitioner and Mr. Beatty.
Around 1996, petitioner and Mr. Beatty purchased a townhouse
in Ocean City. Except for signing certain documents, petitioner
was not involved in that purchase.
From May through August 1998, petitioner worked as a bar-
tender, for which she received $4,187. During the summers of
1999, 2000, and 2001, petitioner worked as a hostess at a restau-
rant, for which she received $4,387, $6,819, and $4,581, respec-
tively. Except for basic cashier duties that petitioner had
while working as a bartender and a restaurant hostess, petitioner
had no other financial responsibilities in those (or any other)
jobs that she has had.
At all relevant times, Mr. Beatty managed the finances of
petitioner and himself and made all of their financial decisions,
including managing all bank accounts and reviewing all bank
statements in his and/or petitioner’s name. In addition, at all
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relevant times, if petitioner needed to purchase groceries or
other personal items, Mr. Beatty provided her with the cash or a
check to do so.
At certain relevant times, Mr. Beatty was unable to open
bank accounts or obtain credit in his name because of his poor
credit rating. Instead, Mr. Beatty used petitioner’s name to
open bank accounts, which he used for both personal and business
purposes. Mr. Beatty also obtained credit cards in petitioner’s
name, which he used for business purposes. In addition, Mr.
Beatty used petitioner’s name to finance the purchase of at least
one vehicle that he used for business purposes.
Petitioner and Mr. Beatty did not timely file Federal income
tax returns and State income tax returns for any of their taxable
years 1988 through 1999. On a date not disclosed by the record
in 1999, Mr. Beatty was indicted by the State of Maryland for
willful failure to file a State income tax return (State return)
for each of the taxable years 1995, 1996, and 1997. On May 8,
2000, Mr. Beatty pleaded guilty to failing willfully to file a
State return with the State of Maryland for each of those taxable
years.
On September 8, 2000, as a result of pleading guilty to
failing willfully to file a State return with the State of
Maryland for each of the taxable years 1995, 1996, and 1997, Mr.
Beatty was sentenced to 15 years in prison. That sentence was
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suspended, and Mr. Beatty was placed on supervised probation for
five years. As a condition of his probation, Mr. Beatty was
required to file a Federal income tax return (Federal return) and
a State return for each of his taxable years 1995 through 1999.
Around September 7, 2000, petitioner and Mr. Beatty filed
jointly Form 1040, U.S. Individual Income Tax Return (Form 1040),
for each of their taxable years 1998 (1998 joint return) and 1999
(1999 joint return). In their 1998 joint return and their 1999
joint return, petitioner and Mr. Beatty reported tax owed of
$46,710 and $31,533, respectively, which they did not pay at the
time they filed those returns. The liabilities reported in those
returns (unpaid liabilities for 1998 and 1999) are solely attrib-
utable to Mr. Beatty.
On September 14, 2000, petitioner filed a petition for
bankruptcy (bankruptcy petition) under Chapter 7 of Title 11 of
the United States Code (Chapter 7) with the United States Bank-
ruptcy Court for the District of Maryland (Bankruptcy Court).
Petitioner filed the bankruptcy petition because of excessive
credit card debt that she was unable to pay and that had been
generated by Mr. Beatty, who used credit cards in petitioner’s
name to charge business expenses. On January 23, 2001, the
Bankruptcy Court adjudicated petitioner bankrupt under Chapter 7.
In 2001, on a date not disclosed by the record, the Comp-
troller of Maryland directed Mr. Beatty to file a Federal return
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and a State return for any taxable year after 1987 for which Mr.
Beatty had failed to file such returns.
In November 2001, Mr. Beatty’s accountant, Eric Vinson,
prepared a Federal return for petitioner and Mr. Beatty with
respect to each of their taxable years 1988 through 1997 and
2000, each of which petitioner and Mr. Beatty signed. Those
returns, which respondent received on the dates indicated, showed
the following tax owed:
Date Received
Taxable Year by Respondent Tax Owed
1988 11/7/01 $12,849
1989 11/7/01 13,644
1990 11/7/01 14,255
1991 11/7/01 14,823
1992 11/7/01 15,088
1993 11/7/01 15,533
1994 11/7/01 15,902
1995 11/7/01 20,726
1996 11/7/01 30,440
1997 11/26/01 41,174
2000 10/18/01 14,399
(For convenience, we shall refer collectively to the Federal
returns that petitioner and Mr. Beatty filed jointly for the
taxable years 1988 through 1997 and 2000 as the joint returns for
the years at issue.)
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The liabilities reported in the joint returns for the years
at issue (unpaid liabilities for the years at issue) are solely
attributable to Mr. Beatty. Petitioner did not review those
joint returns before she signed them. At the time petitioner
signed the joint returns for the years at issue, she believed
that Mr. Beatty would be incarcerated if she did not sign such
returns.
Around February 28, 2002, petitioner filed with respondent
Form 8857, Request for Innocent Spouse Relief (And Separation of
Liability and Equitable Relief), with respect to, inter alia,
taxable years 1988 through 1997 and 2000. Petitioner attached a
statement to that form, which stated in pertinent part:
Mrs. Beatty is not responsible, and should not be held
liable, for the underpayment of tax reflected on the
joint returns filed. First, she signed the returns
solely because she was instructed to do so by her
husband’s accountant. She was not advised nor was she
aware that she had the option of filing separately.
She was not told that by signing the returns, she was
jointly and severally liable for any tax reported
thereon. She would not have understood the information
reported as all items, with the sole exception of her
wages, were attributable to her husband and his busi-
ness, of which she had no knowledge. And, most impor-
tantly, she was told that failure to promptly file all
prior federal and state tax returns would result in her
husband going to jail.
On or about April 25, 2002, at the request of respondent,
petitioner submitted to respondent Form 886-A, Innocent Spouse
Questionnaire (petitioner’s Form 886-A). In petitioner’s Form
886-A, petitioner provided the responses indicated to the follow-
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ing questions:
2. If you are requesting relief from tax reported on
the original return:
a. Did you review the tax return before signing
it? No.
b. At the time you signed the return, were you
aware there was a balance due IRS? Please
explain in detail. She did not review the
returns and, therefore, was not aware that a
balance was due. Had she been advised that a
balance was due, she would have assumed that
she was not liable * * * [because] income tax
had been properly withheld from her * * *
wages and she believed that this meant that
she, individually, would not owe any tax.
c. Describe how, at the time you signed the
return, you and your spouse planned to pay
the tax due? Mrs. Beatty did not review the
returns. She signed the returns solely be-
cause she believed that her failure to do so
would result in her husband going to prison.
She also believed * * * [that] because income
tax had been withheld from * * * [her] pay-
checks, that she * * * would not * * * per-
sonally owe any taxes.
* * * * * * *
8. During the years involved, did you and your spouse
have a joint bank account?
Mr. and Mrs. Beatty never opened or main-
tained joint bank accounts. In fact, the only
accounts in Mrs. Beatty’s name (prior to 2001)
were those opened by and used solely by Mr.
Beatty.
a. What was the extent of accessibility to these
accounts? Mr. Beatty maintained access to all
accounts. Mrs. Beatty did not use the accounts.
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b. Did you review the bank statements when you
received them? No.
c. Did you balance the checkbook or bank state-
ments? No.
d. Did you receive and open the mail? Mrs.
Beatty did not receive or open any financial or
business mail, including bills, bank statements,
etc.
e. What bills did you pay? None.
f. What bills did your spouse pay? Mr. Beatty
paid all of the household expenses.
g. Were any bills paid out of a joint account?
If so, which ones? Not applicable.
* * * * * * *
9. For the year you are requesting relief:
a. What was your involvement in the preparation
of the income tax return? Mrs. Beatty was
not involved in any way in the preparation of
the returns.
b. What was your spouse’s involvement in the
preparation of the income tax return? Mr.
Beatty provided all supporting documents to
his accountant.
c. Who prepared the return? Eric Vinson, CPA,
Ocean City, Maryland.
d. Did you assist, sort or provide any informa-
tion to the return preparer? No.
e. Did you or your spouse consult anyone regard-
ing this return, at the time of signing (IRS,
Attorney, CPA, Tax Preparer, etc.)? Please
explain.
Mrs. Beatty never consulted with any profes-
sional regarding tax matters. Mrs. Beatty’s
husband consulted with an accountant, Eric
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Vinson, of Ocean City, Maryland, who advised
that he should file joint returns to minimize
the tax liability. Mr. Vinson prepared
joint returns, and Mr. Beatty presented those
returns to his wife and told her where to
sign. Mrs. Beatty signed the returns because
she believed that failure to do so would
result in her husband going to jail. She was
not aware that she had the option of filing
separately, or that she could have chosen not
to file at all.
10. If you were required to pay the tax liability,
would it cause an economic hardship? Yes.
Please Explain.
Mrs. Beatty works during the summer months in
Ocean City, Maryland. During the “off season,” it
is nearly impossible for Mrs. Beatty to obtain
full-time employment.
a. If a hardship would exist, please provide a
list of your current monthly income and ex-
penses.
Monthly Income: $0.
Monthly expenses: Mr. Beatty pays the monthly
household expenses. When Mrs. Beatty is employed
during the summer months, her wages (minimal at
best) are used for basic expenditures such as gas,
groceries, etc.
* * * * * * *
14. At the time the return was filed, what assets did
you and your spouse own (cars, boats, homes, prop-
erty, stocks, bonds, etc.)?
In or around April 1993, the Beattys moved
into a townhouse in Ocean City, Maryland. Mr.
Beatty told Mrs. Beatty that they owned the prop-
erty, and Mrs. Beatty went about fixing up the
property as needed. In fact, Mr. Beatty had nego-
tiated with someone for whom he worked on a regu-
lar basis to rent the property with an option to
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buy. Approximately 3 years later, the Beatty
purchased the property, with Mr. Beatty explaining
to Mrs. Beatty that she just needed to sign the
papers to make their ownership “official.”
The Beattys never opened or maintained joint
bank accounts. In fact, the only accounts in Mrs.
Beatty’s name (prior to 2001) were those opened by
and used solely by Mr. Beatty. Due to Mr.
Beatty’s bankruptcy in 1981 and ongoing tax prob-
lems, all vehicles purchased by Mr. Beatty have
been titled in the name of Mrs. Beatty. All vehi-
cles have been purchased from a friend/associate
who owns a car dealership. The vehicles are al-
ways financed. Presently, the Mr. Beatty owns 2
vehicles: a 1996 Chevrolet van, bought and fi-
nanced used in 1998 (balance owed is approximately
$10,000, estimated resale value: $8,000); and a
1999 Dodge Ram work van, financed in 1999 (balance
owed is approximately $16,000, estimate resale
value $7,000). Mr. and Mrs. Beatty do not have
any investments, do not have life insurance poli-
cies, and do not maintain any saving or retirement
accounts. They do not own expensive artwork or
collectibles, or live an extravagant lifestyle.
a. How did you pay for these assets?
Mr. Beatty financed the purchases of the
residence and the vehicles.
15. What assets do you currently own?
See Answer to Question 14.
a. Were any of the assets transferred to you
from your spouse? No. [Reproduced liter-
ally.]
On September 19, 2002, a representative of respondent
requested certain documents, including (1) documentation of
petitioner’s income and living expenses at that time, (2) docu-
mentation of any bankruptcies that petitioner was involved with
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at that time, and (3) all bank statements and canceled checks
that petitioner had with respect to any bank accounts that
petitioner maintained individually, that Mr. Beatty maintained
individually, or that they maintained jointly. On November 5,
2002, petitioner provided such documents to respondent’s repre-
sentative.
On November 4, 2003, petitioner and Mr. Beatty filed Form
656, Offer in Compromise. In response, an Internal Revenue
Service (IRS) offer manager returned that form by letter dated
November 21, 2003. That letter stated in pertinent part:
We are returning your Form 656, Offer in Compro-
mise for the following reason(s):
An offer will not be considered while a bankruptcy
proceeding is open.
All required tax returns have not been filed.
On August 19, 2004, respondent’s Appeals Office (Appeals
Office) sent petitioner a “Notice of Determination Concerning
Your Request for Relief under the Equitable Relief Provision of
Section 6015(f)” (notice of determination). In the notice of
determination, the Appeals Office denied petitioner relief under
section 6015(f) with respect to, inter alia, taxable years 1988
through 1997 and 2000. The notice of determination stated in
pertinent part:
We’re writing to tell you that we’ve made a decision
about your February 28, 2002 request for innocent
spouse relief under Section 6015(f) of the Internal
Revenue Code. * * *
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We’ve determined that, for the above tax years we
cannot allow your request. It has been determined that
you do not meet the statutory criteria for granting of
the innocent spouse relief. * * *
An attachment to the notice of determination stated in pertinent
part:
SUMMARY/RECOMMENDATION
Is the taxpayer entitled to innocent spouse relief
under the provisions of IRC Section 6015(f)?
No. It has been determined that the taxpayer is not
entitled to equitable relief under the provisions of
Section 6015(f). Since the representative has ex-
pressed a desire to litigate this case it is recom-
mended that a statutory notice of claim disallowance be
issued.
ADMINISTRATIVE
A related CDP case has been closed separately. The
outcome of that case has no bearing on this innocent
spouse claim.
BACKGROUND
Cynthia Beatty was born on June 6, 1955. She attended
Dulaney Valley high school, and obtained an associate
degree from Villa Julie College in 1975. Mrs. Beatty
worked as a medical secretary for Washington Hospital
Center in Washington, D.C. from 1975 to 1980. From
1981 to approximately 1990, Mrs. Beatty was a full-time
homemaker and assisted her husband with his deejay
business (carrying equipment, pulling records, attend-
ing shows, etc.) From 1990 until the summer of 1998,
Mrs. Beatty was a full-time homemaker. In the summer
of 1998, she obtained seasonal employment (May through
August) as a bartender with “BJ’s South” in Ocean City,
Maryland. The following summer (1999), Mrs. Beatty
obtained seasonal employment as a hostess for The
Twinings, a restaurant in Ocean City, Maryland. She
returned to this position during the summers of 2000
and 2001. None of Mrs. Beatty’s employment positions
involved financial responsibilities beyond basic cash-
ier duties.
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Mrs. Beatty met her husband, Michael Beatty, in 1974 in
Cockeysville, Maryland, at a restaurant where Mr.
Beatty was working as a manager. In 1976, Mr. Beatty
was transferred to Prince George’s County, Maryland,
and purchased a house. Shortly thereafter, Mrs. Beatty
moved in. They married in 1978. From the beginning of
their marriage, Mrs. Beatty had no involvement in the
family finances. She did not have or maintain checking
accounts in her name. She did not discuss the family
expenses with her husband; and was not involved in any
financial decisions. In 1977, prior to their marriage,
Mr. Beatty purchased a deli and bakery business, which
he incorporated as “MKB Donut and Deli, Inc.” He
financed the business with an SBA loan. As a result of
rapid growth and poor management, Mr. Beatty fell
behind on his withholding tax obligations, and soon
found himself facing federal tax liens and foreclo-
sures. Mr. Beatty’s business filed for bankruptcy
protection in 1980. He eventually lost everything.
Having lost his business and all of his savings, Mr.
Beatty was left looking for a way to support himself
and his wife. A friend that was opening a bar in Ocean
City, Maryland, offered to pay Mr. Beatty to help get
the place in order in time for Memorial Day weekend
(1981). Mr. Beatty agreed and he and his wife rented a
room in Ocean City for $35 a night. When Mr. Beatty
arrived at the bar, he learned that the bar was not
permitted to have live entertainment. Mr. Beatty
offered to provide deejay services during the busy
holiday weekend. His friend accepted, and what was
intended to be a one-time “gig” turned into a new job
that lasted the summer of 1981. Mrs. Beatty helped in
any way she could, from carrying equipment and pulling
records, to doing her husband’s laundry and getting him
ready for each night. This continued until September
1981. As a result of his summer engagement, Mr. Beatty
obtained jobs with various colleges in Maryland and
Pennsylvania, as well as some bars and nightclubs in
the Baltimore metropolitan area. At this point, the
bank had foreclosed on the house purchased by Mr.
Beatty in 1976. The Beatty’s packed up their belong-
ings and moved into a smaller apartment in
Cockeysville, Maryland. Again, Mr. Beatty handled all
the financial aspects of the relationship, including
the apartment application process, paying the rent,
paying household.
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During this time, Mrs. Beatty was not aware that her
husband was not filing federal or state income tax
returns. She had no reason to inquire about the fi-
nances, and always assumed that her husband was han-
dling everything. If she inquired about any particular
financial issue, Mr. Beatty always told her not to
worry about anything, that he had everything under
control. Mr. Beatty would give her money when she
needed it to buy groceries or other miscellaneous
items. She never reviewed any correspondence or spoke
with, any government agents or tax professionals about
her husband’s financial problems. She never negotiated
her husbands’s business contracts, accepted payment
from people he worked for, or discussed the business
finances.
In April 1993, the Beattys moved into a townhouse in
Ocean City, Maryland. Mr. Beatty told Mrs. Beatty that
they owned the property, and Mrs. Beatty went about
fixing it up as necessary. In fact, Mr. Beatty had
negotiated with someone for whom he worked on a regular
basis to rent the property with an option to buy.
Approximately 3 years later, the Beatty purchased the
property. Mr. Beatty explained to Mrs. Beatty that she
just needed to sign the papers to make their ownership
“official.”
The Beattys did not maintain joint bank accounts. The
Beattys’ vacations have been limited to short trips to
nearby locations, which they can drive to and stay a
few days in an inexpensive hotel. Their only vehicle
is a 1996 Chevy conversion van, which is owned by Mr.
Beatty. They do not drive luxury vehicles, do not have
any investments, do not have life insurance policies,
and do not maintain any saving or retirement accounts.
They do not own expensive artwork or collectibles, or
live an extravagant lifestyle. Mrs. Beatty has no
idea, even today, how much her husband is earning, or
the amount of his business expenses. She does not know
the cost of monthly household expenses.
In 1999, Mr. Beatty was charged with willful failure to
file state income tax returns for 1995, 1996 and 1997.
He pled guilty on May 8, 2000. On September 8, 2000,
he was sentenced to 5 years on each count, with the
entire sentence suspended, and 5 years supervised
probation. As a condition of his probation Mr. Beatty
was required to file all federal and state tax returns
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for the years 1995 through 1999, and all future tax
returns. Shortly thereafter, the State of Maryland
contacted Mr. Beatty’s counsel and insisted that re-
turns be filed for years beginning in 1988. Mr. Beatty
and his accountant, Eric Vinson, immediately began
working on the returns, using whatever records they
could gather as well as estimated net income figures
provided by the Office of the Comptroller. When the
returns were prepared, Mr. Vinson told Mrs. Beatty to
sign where indicated. He did not explain that, by
signing the returns, she would be responsible for half
of the taxes due. Having been present at her husband’s
sentencing, and having heard the stern warning from the
court that, if these returns were not filed, her hus-
band would be going to jail, Mrs. Beatty signed what-
ever was put in front of her.
The tax due for the years at issue are * * * solely the
result of Mr. Beatty’s income. In 1998, Mrs. Beatty
earned $4,187, and had federal income tax of $164
withheld by her employer. In 1999, Mrs. Beatty earned
$4,387, and had federal income tax of $366 withheld by
her employer. Had she been advised to elect “married
filing separately” filing status, she would have had no
taxable income. Prior to 1998, Mrs. Beatty did not
work outside the home.
Mrs. Beatty was adjudicated bankrupt under Chapter 7 on
January 23, 2001. The returns were signed after that
on November 6, 2001. Mr. Beatty was in bankruptcy
previously. At the time the returns were signed,
neither had sufficient credit to allow them to borrow
the funds needed to pay the taxes.
* * * * * * *
Revenue Procedure 2000-15 as amplified by the provi-
sions of Revenue Procedure 2003-61 provides a list of
elements to be developed to determine the extent, if
any of relief to be granted under these innocent spouse
provisions. * * * The merits and circumstances of each
case will dictate the weight assigned to each factor in
reaching a decision to grant or reject innocent spouse
relief.
Divorced, separated or living apart for at least 12
months when claim is filed
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This condition is not met. Mr. & Mrs. Beatty are not
divorced or separated. They lived together during the
years under consideration and are still living to-
gether. Mrs. Beatty filed delinquent returns with her
husband in November of 2001.
Payment of the tax liabilities would cause hardship
Economic hardship is defined as: the payment of the
tax would make it impossible to meet your basic living
expenses for housing, clothing, food, transportation
medical etc. Reasonable belief that tax would be paid.
Mr. Beatty is self-employed, yearly household income
fluctuates to some extent. Current expense information
was gathered from an interview as well as from a check
spread performed using 2000 bank records. Income
information was derived from tax returns filed for
2001. (The most recent return filed) Comparison of
monthly household income to monthly basic living ex-
penses indicates that the Beattys are having financial
difficulties. This is also evident from the bankrupt-
cies that have been filed. The question is not whether
hardship exists, but whether a hardship will be created
if innocent spouse relief is not granted. In this
case, hardship already exists and will continue to
exist whether or not relief is granted to Mrs. Beatty.
The two still live in the same household so even if
[she] is relieved, Mr. Beatty’s liability will impact
on the family’s ability to pay personal living ex-
penses. This condition is not met.
Attribution
Mrs. Beatty’s attorney states that having heard the
stern warning from the court that if returns were not
filed her husband would go to jail, Mrs. Beatty signed
whatever was placed in front of her. She contends that
this caused Mrs. Beatty to do something she wouldn’t
ordinarily have done. The liability is solely attrib-
utable to Mr. Beatty’s income and Mrs. Beatty did not
receive a significant benefit from the unpaid taxes
beyond that of minimal living expenses. The underpay-
ments of tax are attributed to Mr. Beatty. The tax-
payer alone did not have sufficient income to require
her to file a return. The tax liabilities rest solely
with Mr. Beatty for failure to file timely returns and
to pay his income tax annually.
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Marital Abuse
If abuse does not rise to the level duress, then the
electing spouse’s level of influence with respect to
the unpaid tax must be evaluated.
There have not been any claims of marital abuse.
The representative explained that duress is the most
compelling reason for requesting equitable relief.
Mrs. Beatty would not have signed joint tax returns
with her husband if she had not heard the judge order
returns to be filed. She feared that her husband would
go to jail if she did not sign the returns presented to
her. Mrs. Beatty did not have a filing obligation of
her own because she had withholdings from her paycheck
to more than cover any taxes due on her own income.
She certainly would not have filed jointly if she had
understood the ramifications.
Mrs. Beatty signed the tax returns under duress. The
returns may be invalid joint return.
Joint Returns: Joint and Several Liability: Duress,
fraud or misrepresentation
A wife was liable for tax on a joint return where the
evidence failed to show that she was unwilling to sign
the return or that her husband made her sign the return
under threat of force. Fear alone is insufficient to
prove duress.
Although it is unfortunate that Mrs. Beatty was not
aware of and was not informed of her options, ignorance
of the law is no excuse. Mrs. Beatty cannot be re-
lieved of her joint liability simply because she didn’t
know the tax laws. In order for duress to be a factor,
Mrs. Beatty would have to show that she had no choice
and that she was reluctant to sign a joint return. In
this case, Mrs. Beatty did have a choice. She could
have filed separately whether or not she realized it at
the time. Further, she was not reluctant to sign the
joint returns. In fact, she was eager to do whatever
was asked of her at the time. No one forced Mrs.
Beatty to sign joint tax returns against her will.
Duress did not occur and is not a factor to consider in
this case.
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Reasonable belief that the tax would be paid:
Mrs. Beatty states that she did not review the returns
and had no idea of the amount of taxes due, if any.
Since Mrs. Beatty signed the returns without looking at
any of the figures, she had no information to make the
determination as to whether the taxes could be paid or
not. Mrs. Beatty and her attorney mentioned on numer-
ous occasions that she just signed without questioning
because she believed her husband would go to jail if
she didn’t sign. There was no thought given at that
point in time as to whether or not the taxes would be
paid. Therefore, there was no belief that the taxes
would be paid.
Non-requesting spouse’s legal obligation to pay
A stipulation in the property settlement or a decree of
divorce must be evidenced that requires the non elect-
ing spouse to assume responsibility for the unpaid
income taxes for the periods at issue. Since the
parties are still married and living together a marital
agreement such as this does not exist.
Knowledge
She signed the joint tax returns because her husband
was under court order to file returns with both the
State of Maryland and the federal government. He was
charged with willful failure to file tax returns by the
State. In order to receive a reduced sentence, he was
required to file all returns or face a substantial jail
sentence. Mrs. Beatty was not involved in the tax
preparation process. Returns were prepared using
extrapolations and estimates computed by the State of
Maryland. Mr. Beatty had some documentation for busi-
ness expenses but was not very good at keeping the
documentation. When the returns were completed, Mr.
and Mrs. Beatty went to the CPA’s office. She did not
review or question the returns and signed them.
Significant Benefit
Other than usual and customary living expenses there is
no evidence to indicate that you derived a significant
benefit from the failure to report these sources of
income. The Beatty’s did not live extravagantly or
take trips, they didn’t have any investments, life
insurance, savings, or anything else of value to show
- 20 -
for the money earned. When Mrs. Beatty became aware of
the amount of money her husband earned, she couldn’t
understand where the funds went. She then found out
that her husband had a problem with Keno gambling. He
lost their money and then became involved with loan
sharks to fund his addiction. Other than customary
basic living expenses the taxpayer did not derive a
significant benefit from the unpaid federal income
taxes.
DETERMINATION
We look to the court case of Alice Berger, et al. v.
Commissioner T.C. Memo. 1996-76, 71 TCM 2160. Alice
Berger asserts that the Chancery Court ordered her to
sign the 1988 return and that she signed it because she
believed she had no choice and was afraid of the “con-
sequences” of defying a court order. Although she
signed the return at the courthouse, she does not
appear to have been signed it before a judge who was
threatening improper or oppressive “consequences
against her. Alice Berger did not testify that the
Chancery Court had threatened “consequences” directly
to her. This court case demonstrates that signing a
return at the order of a Court because one is afraid of
the “consequences” of defying a court order does not
equal a showing of abuse of discretion or theat of
improper sanction sufficient to invalidate the return.
In Mrs. Beatty’s case, the court didn’t even ask her to
sign returns. The court didn’t abuse its authority and
did not force Mrs. Beatty to sign joint tax returns.
Another court case of interest is Hazel Stanley v.
Comm. 45 TC 555. Mrs. Stanley’s husband was very
domineering and sometimes violent. She would go along
with her husband in many situations simply to avoid
conflict. Mrs. Stanley signed joint returns as di-
rected by her husband. However, she failed to demon-
strate that she did so unwillingly and was found to be
jointly liable. Mrs. Beatty does not claim any undue
influence from her husband; however the important point
to note in this case is the “willingness” to file
jointly. Like Mrs. Stanley, Mrs. Beatty has not demon-
strated that she filed unwillingly.
Although it is unfortunate that Mrs. Beatty was not
aware of and was not informed of her options, ignorance
of the law is no excuse. Mrs. Beatty cannot be re-
- 21 -
lieved of her joint liability simply because she didn’t
know the tax laws and their impact on her.
The taxpayer had complete awareness of the balances due
when the returns were filed. She was well aware that
the family did not have the funds to pay the tax. She
did not have a reasonable belief that the taxes would
be paid. It has been established that the taxpayer’s
do not qualify for economic hardship. The representa-
tive had made reference to a substantial gambling debt
that she insists causes economic hardship. However she
has failed to submit documentation of such an expense.
The taxpayers still reside together as a married cou-
ple. Abuse is not a factor. The taxpayer claims that
the level of duress caused by this situation merits
innocent spouse relief. This is a misnomer as ex-
plained. The cumulative effect of the development of
these equitable relief elements clearly demonstrates
that the taxpayer does not qualify for innocent spouse
relief under the provisions of IRC Section 6015(f).
CONCLUSION
Since the taxpayer will not execute a form 870-IS and
has expressed her intention to litigate this matter
there remains no alternative but to recommend that a
statutory notice of claim disallowance be issued.
[Reproduced literally.]
On December 29, 2004, petitioner and Mr. Beatty refinanced
the mortgage loan on the house in which they resided. Around
January 4, 2005, petitioner and Mr. Beatty used funds that they
received from that refinancing to make a $151,423.56 payment to
the IRS with respect to the unpaid liabilities for the taxable
years 1998 and 1999. After the refinancing of the mortgage loan
on their house, petitioner and Mr. Beatty had no equity in that
house and were required to make a monthly mortgage loan payment
of $3,400.
- 22 -
During 2004, petitioner received $12,906 as an employee of
RIG, Inc., as well as $1,274 in unemployment compensation. On
January 6, 2006, petitioner filed late a Federal return for her
taxable year 2004 (2004 return) that showed a $2 refund due.
On January 6, 2006, petitioner submitted to respondent Form
433-A, Collection Information Statement for Wage Earners and
Self-Employed Individuals (Form 433-A). That form contained
several sections identified as section 1 through 9. In section 2
of Form 433-A that petitioner submitted to respondent (peti-
tioner’s Form 433-A), petitioner did not respond to a question
relating to whether she or Mr. Beatty was self-employed or
operated a business, although she indicated in section 3 of that
form that she was unemployed. In section 3 of petitioner’s Form
433-A, petitioner did not indicate whether Mr. Beatty was em-
ployed.
In section 5 of petitioner’s Form 433-A, petitioner indi-
cated that she (1) maintained a checking account with a $200
account balance, (2) had $50 cash on hand, (3) had a credit card
balance of $400, (4) owed $4,700 with respect to an equity line
of credit, and (5) had $400 of credit available to her.
In sections 5 and 6 of petitioner’s Form 433-A, petitioner
provided the responses indicated to the following questions:
16. LIFE INSURANCE. Do you have life insurance with a
cash value? : No 9 Yes
* * * * * * *
- 23 -
17a. Are there any garnishments against your wages?
: No 9 Yes
* * * * * * *
17b. Are there any judgments against you? : No 9 Yes
* * * * * * *
17d. Did you ever file bankruptcy? 9 No : Yes
If yes, date filed 9/14/2000 Date discharged
12/27/2000
17e. In the past 10 years did you transfer any assets
out of your name for less than their actual value?
: No 9 Yes
* * * * * * *
17f. Do you anticipate any increase in household income
in the next two years? 9 No : Yes
If yes, why will the income increase? I hope to
find seasonal employment * * *
How much will it increase? $ ??? In 2004, I
earned $12,906
17g. Are you a beneficiary of a trust or estate?
: No 9 Yes
* * * * * * *
17h. Are you a participant in a profit sharing plan?
: No 9 Yes
In section 7 of petitioner’s Form 433-A, petitioner indi-
cated that she owned (1) a 2005 Jeep Liberty valued at $18,785
with respect to which there was a $23,000 outstanding loan
balance and (2) two vehicles, neither of which had any value. In
section 7 of petitioner’s Form 433-A, petitioner also indicated
- 24 -
that in 1991 she purchased real estate in Ocean City for
$130,000, that the current value of that real estate was
$500,000, and that there was a $450,000 outstanding mortgage loan
with respect to that real estate, which was required to be paid
in full in 2035.
In section 7 of petitioner’s Form 433-A, petitioner indi-
cated that she had personal assets valued at $6,000.
Section 9 of Form 433-A listed various income items and
various living expense items. With respect to the income items
listed in that section, petitioner stated that she was unem-
ployed. With respect to the expense items listed in section 9 of
Form 433-A, petitioner indicated that she had total monthly
living expenses of $4,003, consisting of $3,600 of monthly
expenses for housing and utilities and $403 of monthly expenses
for food, clothing, housekeeping supplies, and personal care
products.
OPINION
We review respondent’s denial of relief under section
6015(f) for abuse of discretion. Butler v. Commissioner, 114
T.C. 276, 292 (2000). Respondent’s denial of such relief consti-
tutes an abuse of discretion if such denial was arbitrary,
capricious, or without sound basis in fact or law. Woodral v.
Commissioner, 112 T.C. 19, 23 (1999). The question whether
respondent’s denial of relief under section 6015(f) was arbi-
- 25 -
trary, 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).
Petitioner bears the burden of proving that respondent
abused respondent’s discretion in denying her relief under
section 6015(f). See Jonson v. Commissioner, 118 T.C. 106, 125
(2002), affd. 353 F.3d 1181 (10th Cir. 2003). That this case was
submitted under Rule 122 does not change that burden or the
effect of a failure of proof. See Rule 122(b); Borchers v.
Commissioner, 95 T.C. 82, 91 (1990), affd. 943 F.2d 22 (8th Cir.
1991).
Section 6015(f) grants respondent discretion to relieve an
individual who files a joint return from joint and several
liability with respect to that return. That section provides:
SEC. 6015. RELIEF FROM JOINT AND SEVERAL LIABILITY ON
JOINT RETURN.
* * * * * * *
(f) Equitable Relief.--Under procedures prescribed
by the Secretary, if--
(1) taking into account all the facts
and circumstances, it is inequitable to hold
the individual liable for any unpaid tax or
any deficiency (or any portion of either);
and
(2) relief is not available to such individ-
ual under subsection (b) or (c),
the Secretary may relieve such individual of such
liability.
- 26 -
In the instant case, the parties agree that relief is not
available to petitioner under section 6015(b) or (c), thereby
satisfying section 6015(f)(2). They disagree over whether
petitioner is entitled to relief under section 6015(f).
As directed by section 6015(f), respondent has prescribed
procedures in Rev. Proc. 2003-61, 2003-2 C.B. 296 (Revenue
Procedure 2003-61)2 that are to be used in determining whether it
would be inequitable to find the requesting spouse liable for
part or all of the liability in question. Section 4.01 of
Revenue Procedure 2003-61 lists seven conditions (threshold
conditions) which must be satisfied before the IRS will consider
a request for relief under section 6015(f). In the instant case,
respondent concedes that those conditions are satisfied. Where,
as here, the requesting spouse satisfies the threshold condi-
tions, section 4.01 of Revenue Procedure 2003-61 provides 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 determines that it would be
2
We note that Revenue Procedure 2003-61 superseded Rev.
Proc. 2000-15, 2000-1 C.B. 447. Revenue Procedure 2003-61 is
effective for requests for relief under sec. 6015(f) which were
filed on or after Nov. 1, 2003, and for requests for such relief
which were pending on, and for which no preliminary determination
letter had been issued as of, that date. Rev. Proc. 2003-61,
sec. 7, 2003-2 C.B. at 299. Revenue Procedure 2003-61 is appli-
cable in the instant case. That is because as of Nov. 1, 2003,
no preliminary determination letter had been issued to petitioner
with respect to petitioner’s request for relief under sec.
6015(f), and that request was still pending.
- 27 -
inequitable to hold the requesting spouse liable for such liabil-
ity.
Where, as here, the requesting spouse satisfies the thresh-
old conditions, section 4.02(1) of Revenue Procedure 2003-61 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
but not paid. Petitioner concedes that she does not qualify for
relief under section 4.02(1) of Revenue Procedure 2003-61.
Instead, she relies on section 4.03 of that revenue procedure in
support of her claim for relief under section 6015(f).
Section 4.03 of Revenue Procedure 2003-61 provides a list of
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.
2003-61, sec. 4.03, 2003-2 C.B. at 298.
As pertinent here, section 4.03(2)(a) of Revenue Procedure
2003-61 sets forth the following factors which are to be consid-
ered and weighed appropriately:
(i) Marital status. Whether the requesting spouse
is separated (whether legally separated or living
apart) or divorced from the nonrequesting spouse. * * *
(ii) Economic hardship. Whether the requesting
spouse would suffer economic hardship (within the
- 28 -
meaning of section 4.02(1)(c) of this revenue proce-
dure) if the Service does not grant relief from the
income tax liability.
(iii) Knowledge or reason to know.
(A) Underpayment cases. In the case of an income
tax liability that was properly reported but not paid,
whether the requesting spouse did not know and had no
reason to know that the nonrequesting spouse would not
pay the income tax liability.
* * * * * * *
(C) Reason to know. For purposes of (A) * * *
above, in determining whether the requesting spouse had
reason to know, the Service will consider the request-
ing spouse’s level of education, any deceit or evasive-
ness of the nonrequesting spouse, the requesting
spouse’s degree of involvement in the activity generat-
ing the income tax liability, the requesting spouse’s
involvement in business and household financial mat-
ters, the requesting spouse’s business or financial
expertise, and any lavish or unusual expenditures
compared with past spending levels.
(iv) Nonrequesting spouse’s legal obligation.
Whether the nonrequesting spouse has a legal obligation
to pay the outstanding income tax liability pursuant to
a divorce decree or agreement. * * *
(v) Significant Benefit. Whether the requesting
spouse received significant benefit (beyond normal
support) from the unpaid income tax liability or item
giving rise to the deficiency. See Treas. Reg.
§1.6015-2(d).
(vi) Compliance with income tax laws. Whether the
requesting spouse has made a good faith effort to
comply with income tax laws in the taxable years fol-
lowing the taxable year or years to which the request
for relief relates.
(We shall hereinafter refer to the factors set forth in section
4.03(2)(a)(i), (ii), (iii), (iv), (v), and (vi) of Revenue
Procedure 2003-61 as the marital status factor, the economic
- 29 -
hardship factor, the knowledge or reason to know factor, the
legal obligation factor, the significant benefit factor, and the
tax law compliance factor, respectively.)
Section 4.03(2)(b) of Revenue Procedure 2003-61 sets forth
the following factors which, if present in a case, will weigh in
favor of granting an individual relief under section 6015(f), but
will not weigh against granting such relief if not present:
(i) Abuse. Whether the nonrequesting spouse
abused the requesting spouse. * * *
(ii) Mental or physical health. Whether the
requesting spouse was in poor mental or physical health
on the date the requesting spouse signed the return or
at the time the requesting spouse requested relief.
The Service will consider the nature, extent, and
duration of illness when weighing this factor.
(We shall hereinafter refer to the factors set forth in section
4.03(2)(b)(i) and (ii) as the abuse factor and the mental or
physical health factor, respectively.)
Before turning to the factors set forth in section
4.03(2)(a) and (b) of Revenue Procedure 2003-61, we address
respondent’s position that, in determining whether petitioner is
entitled to relief under section 6015(f), we should consider only
respondent’s administrative record with respect to petitioner’s
taxable years at issue. We stated our position on that issue in
Ewing v. Commissioner, 122 T.C. 32 (2004). In Ewing, we held
that our determination of whether a taxpayer is entitled to
relief under section 6015(f) “is made in a trial de novo and is
- 30 -
not limited to matter contained in respondent’s administrative
record”. Id. at 44. Respondent urges us to reconsider that
position since the United States Court of Appeals for the Ninth
Circuit vacated our decision in Ewing on jurisdictional grounds.3
See Commissioner v. Ewing, 439 F.3d 1009 (9th Cir. 2006), revg.
118 T.C. 494 (2002), vacating 122 T.C. 32 (2004).
Assuming arguendo that we were to accept respondent’s
position that, in determining whether petitioner is entitled to
relief under section 6015(f), we should consider only respon-
dent’s administrative record with respect to petitioner’s taxable
years at issue, on the record before us, we find that petitioner
has carried her burden of showing that respondent abused respon-
dent’s discretion in denying her such relief with respect to the
unpaid liabilities for the years at issue.4 We turn now to the
factors set forth in section 4.03(2)(a) of Revenue Procedure
3
In further support of respondent’s position that, in deter-
mining whether petitioner is entitled to relief under sec.
6015(f), we should consider only respondent’s administrative
record with respect to petitioner’s taxable years at issue,
respondent relies on Robinette v. Commissioner, 439 F.3d 455 (8th
Cir. 2006), revg. 123 T.C. 85 (2004), a case under sec. 6330.
The Court to which an appeal in this case would ordinarily lie is
the United States Court of Appeals for the Fourth Circuit. We
are not bound by Robinette. See Golsen v. Commissioner, 54 T.C.
742, 757 (1970), affd. 445 F.2d 985 (10th Cir. 1971).
4
If, as we held in Ewing v. Commissioner, 122 T.C. 32
(2004), we were to consider in this case respondent’s administra-
tive record with respect to petitioner’s taxable years at issue
as well as matters that the parties stipulated that are not part
of that administrative record, our holding under sec. 6015(f)
would remain the same.
- 31 -
2003-61 that support our finding.
With respect to the marital status factor set forth in
section 4.03(2)(a)(i) of that revenue procedure, the parties
agree on brief that that factor is neutral.
However, the notice of determination stated in pertinent
part:
Divorced, separated or living apart for at least 12
months when claim is filed
This condition is not met. Mr. & Mrs. Beatty are not
divorced or separated. They lived together during the
years under consideration and are still living to-
gether. * * *
As we understand it, the Appeals Office concluded in the
notice of determination that the marital status factor weighed
against granting petitioner relief under section 6015(f). We
reject that conclusion as unfounded. We agree with the parties’
position on brief, and we find, that the marital status factor is
neutral.
With respect to the economic hardship factor set forth in
section 4.03(2)(a)(ii) of Revenue Procedure 2003-61,5 petitioner
5
In determining whether a requesting spouse will suffer
economic hardship, sec. 4.02(1)(c) of Revenue Procedure 2003-61,
to which sec. 4.03(2)(a)(ii) of that revenue procedure refers,
requires reliance on rules similar to those provided in sec.
301.6343-1(b)(4), Proced. & Admin. Regs. Sec. 301.6343-1(b)(4),
Proced. & Admin. Regs., generally provides that an individual
suffers an economic hardship if the individual is unable to pay
his or her reasonable basic living expenses. Sec. 301.6343-
1(b)(4), Proced. & Admin. Regs., provides, in pertinent part:
(continued...)
- 32 -
argues that that factor weighs in favor of granting her relief
under section 6015(f). On brief, respondent contends that not
granting such relief will have no effect on petitioner’s economic
situation.6
5
(...continued)
(ii) Information from taxpayer.--In determining a
reasonable amount for basic living expenses the direc-
tor 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
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 spe-
cial 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.
6
On brief, respondent contends in pertinent part with
respect to the economic hardship factor that petitioner
(continued...)
- 33 -
However, the notice of determination stated in pertinent
part:
Mr. Beatty is self-employed, yearly household income
fluctuates to some extent. Current expense information
was gathered from an interview as well as from a check
spread performed using 2000 bank records. Income in-
formation was derived from tax returns filed for 2001.
(The most recent return filed) Comparison of monthly
household income to monthly basic living expenses indi-
cates that the Beattys are having financial difficul-
ties. This is also evident from the bankruptcies that
have been filed. The question is not whether hardship
exists, but whether a hardship will be created if inno-
cent spouse relief is not granted. In this case, hard-
ship already exists and will continue to exist whether
or not relief is granted to Mrs. Beatty. The two still
live in the same household so even if [she] is
relieved, Mr. Beatty’s liability will impact on the
family’s ability to pay personal living expenses. This
condition is not met. [Reproduced literally.]
As we understand it, the Appeals Office concluded in the
notice of determination that the economic hardship factor weighed
against granting petitioner relief under section 6015(f) because
6
(...continued)
provided respondent with no evidence of this economic
hardship. * * * Whether she is jointly liable for the
income tax or not does not affect her economic
situation: she does not have any economic
responsibilities.
* * * * * * *
* * * Accordingly, petitioner will not experience
economic hardship if relief is not granted. * * *
Respondent’s administrative record with respect to
petitioner’s taxable years at issue belies respondent’s position
on brief about the economic hardship factor. As quoted below,
the notice of determination, which was based upon that record,
also belies that position.
- 34 -
the Appeals Office’s failure to grant such relief would not
“create” economic hardship, since economic “hardship already
exists and will continue to exist whether or not relief is
granted to Mrs. Beatty.” We reject as unfounded the rationale
stated by the Appeals Office for its conclusion that the economic
hardship factor weighed against granting petitioner relief under
section 6015(f). The Appeals Office implicitly acknowledged in
the notice of determination that payment of the unpaid liabili-
ties for the years at issue would cause even greater economic
hardship than already existed.7 We find that the economic hard-
ship factor weighs in favor of granting petitioner relief under
section 6015(f).
With respect to the knowledge or reason to know factor set
forth in section 4.03(2)(a)(iii) of Revenue Procedure 2003-61,
petitioner argues that she did not know and had no reason to know
that Mr. Beatty would not pay the tax shown due in each of the
respective joint returns for the years at issue and that there-
fore that factor weighs in favor of granting her relief under
7
Additional facts not presented to the Appeals Office but
presented to the Court further support what the Appeals Office
implicitly acknowledged. For example, on Dec. 29, 2004,
petitioner and Mr. Beatty refinanced the mortgage loan on the
house in which they resided. On or about Jan. 4, 2005,
petitioner and Mr. Beatty used $151,423.56 of the funds that they
received from that refinancing to pay their unpaid liabilities
for 1998 and 1999. After the refinancing of the mortgage loan on
their house, petitioner and Mr. Beatty had no equity in that
house and were required to make a monthly mortgage payment of
$3,400 on that refinanced loan.
- 35 -
section 6015(f). Respondent disagrees.
The notice of determination stated in pertinent part:
Mrs. Beatty states that she did not review the returns
and had no idea of the amount of taxes due, if any.
Since Mrs. Beatty signed the returns without looking at
any of the figures, she had no information to make the
determination as to whether the taxes could be paid or
not. Mrs. Beatty and her attorney mentioned on numer-
ous occasions that she just signed without questioning
because she believed her husband would go to jail if
she didn’t sign. There was no thought given at that
point in time as to whether or not the taxes would be
paid. Therefore, there was no belief that the taxes
would be paid.
In support of her argument that the knowledge or reason to
know factor set forth in section 4.03(2)(a)(iii) of Revenue
Procedure 2003-61 weighs in favor of granting her relief under
section 6015(f), petitioner asserts:
Petitioner acknowledged in her responses set forth
on the Innocent Spouse Questionnaire * * * that she did
not review the returns prior to signing and therefore,
had no actual knowledge of the tax reported on the
returns, or actual knowledge that the tax reported
would not be paid. Petitioner further believed that,
based on the Beattys standard of living, they had very
little income and thus, had no reason to know that Mr.
Beatty would not pay, or be able to pay, the tax due.
* * * Petitioner did not know that Mr. Beatty had a
long-time Keno gambling problem or that he was spending
significant sums betting on Keno and repaying high
interest rate advances to loansharks. * * * Since Mr.
Beatty had been ordered by the court in his criminal
proceedings to file his missing returns, it was cer-
tainly reasonable for Petitioner to believe that Mr.
Beatty would ultimately pay the tax due.
In addition, Petitioner did not understand that
she was not required to file a return for most of the
years at issue, or that she had the option of filing
separately for those years she was required to file
(1998, 1999 and 2000). Petitioner also did not under-
- 36 -
stand that she would be liable for any tax owed on Mr.
Beatty’s self-employment income. * * * Mr. Beatty’s
accountant, Mr. Vinson, told Agent Renshaw that “he
didn’t think about any impact on Mrs. Beatty when re-
turns were prepared and filed. He didn’t explain the
implications of filing jointly or notify them [the
Beattys] that they had a choice. He figured they did-
n’t have any assets anyway so he didn’t give it any
thought.” In this regard, Petitioner is similar to the
taxpayer in Washington v. Commissioner, 120 T.C. 137
(2003).[8] [Reproduced literally.]
We turn first to petitioner’s reliance on Washington v.
Commissioner, 120 T.C. 137 (2003).9 In Washington, the taxpayer
took the position that she relied on her spouse to pay the tax
shown due in the return in question and that she believed that
her spouse would pay such tax. In contrast, in the instant case,
petitioner took the position before the IRS, and takes the posi-
8
Despite the above-quoted assertions of petitioner, she
acknowledges on brief that
ignorance of the law does not excuse a spouse from
joint and several liability for tax due on a joint
return under § 6013(d)(3). Petitioner further
acknowledges prior decisions of this court that charge
a taxpayer with constructive knowledge of the
underpayment where the taxpayer signed the returns
without reviewing them, and a duty to inquire “whether
such a tax shown due would be paid.” Simon v.
Commissioner, T.C. Memo. 2005-220 (and cases cited
therein); see also Weist [sic] v. Commissioner, T.C.
Memo. 2003-91.
9
In support of her argument that she did not know and had no
reason to know that Mr. Beatty would not pay the tax shown due in
each of the respective joint returns for the years at issue,
petitioner also cites Keitz v. Commissioner, T.C. Memo. 2004-74,
and Levy v. Commissioner, T.C. Memo. 2005-92. We find those
cases to be materially distinguishable from the instant case and
petitioner’s reliance on them to be misplaced.
- 37 -
tion before the Court, that at the time she signed each of the
respective joint returns for the years at issue (1) she did not
know that each such return showed tax due, and (2) therefore she
did not know at that time that Mr. Beatty would not pay such tax.
On the record before us, we find Washington v. Commissioner,
supra, to be materially distinguishable from the instant case and
petitioner’s reliance on that case to be misplaced.
We address now whether petitioner has carried her burden of
establishing that the knowledge or reason to know factor weighs
in favor of granting relief. In support of her position for
relief under section 6015(f), petitioner chose to present her
case to the IRS and to the Court by claiming that she did not
know that there was a tax shown due in each of the respective
joint returns for the years at issue. Petitioner must bear the
consequences of that choice. Assuming arguendo that we were to
accept petitioner’s contention that she did not know that each of
the joint returns for the years at issue showed tax due, on the
record before us, we find that, by signing each such return,
petitioner is charged with constructive knowledge of, inter alia,
the tax shown due therein. See Park v. Commissioner, 25 F.3d
1289, 1299 (5th Cir. 1994), affg. T.C. Memo. 1993-252; see also
Hayman v. Commissioner, 992 F.2d 1256, 1262 (2d Cir. 1993), affg.
T.C. Memo. 1992-228. We further find that petitioner should have
inquired about whether the tax shown due in each of the joint
- 38 -
returns for the years at issue, as to which she had constructive
knowledge, would be paid. It would be inequitable to allow
petitioner to turn a blind eye to the tax shown due in each such
return. The amount of such tax was large enough as to put peti-
tioner on notice that further inquiry should be made as to
whether it would be paid. She failed to do so. Petitioner thus
failed to present any evidence to the IRS and to the Court with
respect to whether the tax shown due in each of the respective
joint returns for the years at issue would be paid. We find that
the knowledge or reason to know factor weighs against granting
petitioner relief under section 6015(f).
With respect to the legal obligation factor set forth in
section 4.03(2)(a)(iv) of Revenue Procedure 2003-61, the parties
agree on brief that that factor is neutral.
However, the notice of determination stated in pertinent
part:
Non-requesting spouse’s legal obligation to pay
A stipulation in the property settlement or a decree of
divorce must be evidenced that requires the non elect-
ing spouse to assume responsibility for the unpaid
income taxes for the periods at issue. Since the par-
ties are still married and living together a marital
agreement such as this does not exist.
As we understand it, the Appeals Office concluded in the
notice of determination that the legal obligation factor weighed
against granting petitioner relief under section 6015(f). We
reject that conclusion as unfounded. We agree with the parties’
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position on brief, and we find, that the legal obligation factor
is neutral.
With respect to the significant benefit factor set forth in
section 4.03(2)(a)(v) of Revenue Procedure 2003-61, petitioner
argues that that factor weighs in favor of granting her relief
under section 6015(f). On brief, respondent argues that the
significant benefit factor is neutral.
The notice of determination stated in pertinent part:
Other than usual and customary living expenses there is
no evidence to indicate that you derived a significant
benefit from the failure to report these sources of
income. The Beatty’s did not live extravagantly or
take trips, they didn’t have any investments, life
insurance, savings, or anything else of value to show
for the money earned. When Mrs. Beatty became aware of
the amount of money her husband earned, she couldn’t
understand where the funds went. She then found out
that her husband had a problem with Keno gambling. He
lost their money and then became involved with loan
sharks to fund his addiction. Other than customary
basic living expenses the taxpayer did not derive a
significant benefit from the unpaid federal income
taxes. [Reproduced literally.]
As we understand it, although the Appeals Office found in
the notice of determination that petitioner did not receive a
significant benefit from the failure to pay the unpaid liabili-
ties for the years at issue,10 that office did not conclude that
therefore the significant benefit factor weighed in favor of
granting petitioner relief under section 6015(f). We reject as
10
On brief, respondent agrees that petitioner did not
receive a significant benefit from the failure to pay the unpaid
liabilities for the taxable years at issue.
- 40 -
unfounded the Appeals Office’s failure to conclude in the notice
of determination that the significant benefit factor favored
granting petitioner such relief. Under cases where Revenue
Procedure 2003-61 is applicable, we consider the lack of signifi-
cant benefit by the taxpayer seeking relief from joint and sev-
eral liability to be a factor that favors granting relief under
section 6015(f).11 We find that the significant benefit factor
weighs in favor of granting petitioner relief under section
6015(f).
With respect to the tax law compliance factor set forth in
section 4.03(2)(a)(vi) of Revenue Procedure 2003-61, petitioner
argues that that factor weighs in favor of granting her relief
under section 6015(f). On brief, respondent asserts:
If the Court restricts itself to the administrative
record then this factor favors petitioner. If the
Court considers information outside of the administra-
tive record then this factor weighs against relief.
[Reproduced literally.]
The notice of determination failed to address whether peti-
tioner made a good faith effort to comply with the tax laws for
any of the taxable years following the taxable years at issue.
However, respondent acknowledges on brief that petitioner “ap-
11
See Magee v. Commissioner, T.C. Memo. 2005-263. We also
note that, based on cases decided under former sec. 6013(e), we
consider the lack of significant benefit by the taxpayer seeking
relief from joint and several liability to be a factor that
favors granting relief under sec. 6015(f). Ferrarese v.
Commissioner, T.C. Memo. 2002-249.
- 41 -
pears to have been compliant at the time the Notice of Determina-
tion was issued.” We reject as unfounded the Appeals Office’s
failure to conclude in the notice of determination that the tax
law compliance factor favored granting petitioner relief under
section 6015(f).
After the Appeals Office issued the notice of determination,
petitioner failed to file timely her 2004 return that showed a $2
refund due. We find that petitioner’s failure to file timely her
2004 return weighs against granting petitioner relief under
section 6015(f). However, given (1) that petitioner’s noncompli-
ance is limited to only one delinquently filed return for 2004
that showed a refund due and (2) the other facts and circum-
stances in the instant case, we further find that the tax law
compliance factor is not a significant factor weighing against
relief in this case.
We turn now to the factors set forth in section 4.03(2)(b)
of Revenue Procedure 2003-61. The parties agree, and we find,
that the abuse factor and the mental or physical health factor
set forth in section 4.03(2)(b)(i) and (ii), respectively, of
Revenue Procedure 2003-61 are neutral.
Based upon our examination of the entire record before us,
we find that petitioner has carried her burden of showing that
respondent abused respondent’s discretion when the Appeals Office
determined in the notice of determination to deny her relief
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under section 6015(f) with respect to the unpaid liabilities for
the years at issue.12
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.
To reflect the foregoing,
Decision will be entered
for petitioner.
12
Our finding is the same regardless whether we limit our
consideration to respondent’s administrative record with respect
to petitioner’s taxable years at issue.