Nihiser v. Comm'r

T.C. Memo. 2008-135

UNITED STATES TAX COURT

CHRYSTINA NIHISER, Petitioner v.

COMMISSIONER OF INTERNAL REVENUE, Respondent

Docket No. 19315-04. Filed May 20, 2008.

Steven L. Stern, for petitioner.

Kim Nguyen, for respondent.

MEMORANDUM FINDINGS OF FACT AND OPINION

HOLMES, Judge: Chrystina Nihiser was a stay-at-home mom.

With only a small income from her own part-time work, she relied

on her husband’s law practice to support their family. But his

practice was only intermittently successful and, when financial

troubles arrived, he stopped paying the taxes they owed.

She applied for innocent-spouse relief at a time when her

life was becoming increasingly worse. Her husband, it turned

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out, was using drugs and stealing from his clients--eventually

leading to his arrest and imprisonment. She now seeks relief

from joint liability for a 1996-2001 tax debt of nearly a

quarter-million dollars. Her case raises tricky questions of

what evidence we can consider and how we should weigh it.

FINDINGS OF FACT

Nihiser married Kevin Connolly in 1980. Connolly was a

plaintiff’s lawyer with a small practice, and Nihiser was a

schoolteacher until 1988, when she gave birth to their daughter.

During their marriage, Connolly controlled the family finances.

He kept most of his income hidden from Nihiser by using a

checking account in his law practice’s name, and paid most of the

family’s expenses from this account. When Nihiser needed money,

Connolly would give her a check from his account and she would

deposit it in their joint checking account. Connolly himself

never deposited money directly into the joint account.

He also kept Nihiser away from their tax returns, letting

her see them only when he presented them to her for her

signature. This was Nihiser’s one chance each year to learn

about Connolly’s income. But Connolly lowered the odds of her

noticing anything by showing them to her only on their due date.

(The one return not signed on its due date was signed on April

14.) Connolly’s accountants likewise signed the returns on or

just days before their due date.

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In 1993, Connolly began filing returns without paying the

amounts due. Nihiser would see that they owed taxes, and she did

ask Connolly how he planned on paying them. But Connolly would

complain that his law practice’s expenses were just too great,

and promised her that one of his cases would settle, or a new

business venture would pay off, and provide the needed funds.

Nihiser believed him, but was naturally left uneasy by his

answers. When she followed up, Connolly would berate her. And

he never did pay the taxes due.

In 1997, Connolly tried to solve their financial

difficulties by filing for bankruptcy. It was the couple’s

second trip to the bankruptcy courthouse. Their first--in 1993--

had already cost them their house. The 1997 bankruptcy

discharged their 1993-95 tax liabilities, but the strains on

their marriage only grew worse.

The problem was drugs. Nihiser had suspected that Connolly

was using from about the time she gave birth to their daughter,

and claimed--credibly, but without corroborating evidence--that

the family doctor finally confirmed her suspicions when he told

her that Connolly’s blood tested positive for cocaine. Connolly

finally admitted to drug use, during counseling as their marriage

careened to its end. But he refused help and became enraged when

she brought it up.

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In 1998 Connolly and Nihiser filed their 1997 tax return,

but Connolly again failed to pay the taxes shown as due. Nihiser

intensified her efforts to get Connolly to satisfy their tax

liability, but Connolly kept making the same empty promises. He

also told her that she should continue to sign the returns

because California’s being a community-property state meant there

was no way she could get out of being liable for half of the

taxes anyway. Nothing changed with their 1998 tax return, and

their unpaid tax liability continued to grow.

In July 1999, part of the routine did change: Connolly

filled out divorce papers and gave them to her. Although he

never filed the papers with a court, Nihiser thought (and we

specifically find her testimony credible on this point) that they

were legally separated. Only they did not literally separate.

For the next five years, Connolly and Nihiser lived in separate

rooms of the same apartment. During this time, Connolly

continued to control their finances and pay the rent. The new

living arrangement did not change their tax habits. In 1999 and

2000, Connolly and Nihiser again filed joint tax returns showing

taxes owed.

In July 2001, Connolly felt that filing for bankruptcy a

third time was the answer and convinced Nihiser to sign the

petition. Then, in October 2002, Nihiser signed their 2001 tax

return. It was to be their last return filed jointly. Nihiser

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learned that Connolly had let their health insurance lapse, and

for her this was the last straw. The next month she began

looking for her own answer to their tax problems and learned

about innocent-spouse relief. She filed a Form 8857, Request for

Innocent Spouse Relief, and Form 12510, Questionnaire for

Requesting Spouse, with the Commissioner to be relieved of

liability for the unpaid taxes from 1996-2001.1 She included

with the two forms a letter describing her situation.

Unbeknownst to Nihiser, Connolly had about this same time

attracted the attention of the California State Bar, which began

disciplinary proceedings against him for stealing money from his

clients.

While the bar probe got under way, the Commissioner’s

Centralized Cincinnati Innocent Spouse Operations (CCISO) was

reviewing Nihiser’s claim for relief. In a March 2003 letter,

CCISO denied her relief because she did not have reason to

believe that Connolly would ever pay their taxes, given the years

of unpaid balances--balances that kept on growing--and the

couple’s return trips to bankruptcy court. The letter also

explained that the verbal abuse she suffered was not enough “of a

factor to overcome continuing to file joint returns with balances

due without taking corrective action.” The CCISO workpapers,

1

Her application included taxes for 1993 through 1995, but

she evidently didn’t realize that these had already been

discharged in bankruptcy.

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which were introduced at trial, gave more insight into the

Commissioner’s reasoning. They listed the various factors

considered, but not always consistently. Few of the factors

listed in those workpapers were even mentioned in the form letter

that Nihiser received.

Nihiser then sent a “statement of disagreement” to the IRS’s

Appeals Office. She explained that Connolly had assured her that

he would pay the taxes and that she had taken him on his word

since he denied her access to their financial records. She also

explained that, though she had returned to full-time teaching in

January 2003, raising a child on her salary would be a hardship

if she also had to pay the now very substantial back taxes. Near

the end of her statement, Nihiser informed the Commissioner that

when the IRS contacted Connolly about her request he got

“extremely angry” and threatened to tell them that she had spent

all their money.

Connolly may well have been upset for another reason--in

November 2003, the ongoing state investigation triggered his

resignation from the bar. He again kept Nihiser in the dark. In

any event, she pressed forward by meeting that same month with

the Appeals officer who was assigned to her case. He told her

that IRS policy required him to contact Connolly about her

request. He also asked her to supply more complete information

about the couple’s income and expenses. Nihiser credibly

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testified at trial that she did not provide the Appeals officer

with more information because she was afraid to ask Connolly

about his finances.

In July 2004, the Appeals officer sent Nihiser a notice of

determination denying her request for relief. The denial was

based largely on his conclusion that she should have known when

she signed returns the taxes were not going to be paid when she

signed the returns. He found her stated belief that Connolly

would pay the taxes unreasonable because of the couple’s history

of not paying taxes, the size of the underpayment, and their

serial bankruptcies. (He also seemed to find that Nihiser failed

to fulfill her duty to inquire about the amount of the couple’s

tax liability. This is odd, given that she always claimed that

she knew the amount of the liabilities when she signed the

returns and reported the exact amounts for each liability in her

request for relief.)

The Appeals officer also found that paying the tax would not

cause her economic hardship because she was still living with

Connolly, commingling income and sharing expenses. He supported

his conclusion by writing that when he asked Nihiser to provide

more financial information, she decided to drop the issue. He

recognized that the income on which the taxes were due was

overwhelmingly Connolly’s, but did not make any findings on any

of the other factors the IRS routinely weighs in innocent-spouse

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cases. Nihiser, then as now a resident of California, responded

by filing a petition with our Court. By the time of trial, state

police had arrested Connolly. He was later convicted of grand

theft, and remains imprisoned. We held a trial, though the

Commissioner objected to the introduction of all evidence not

contained in the administrative record.2

OPINION

Section 6013(a)3 lets married couples file their federal tax

return jointly but, if they do, both spouses are then responsible

for the return’s accuracy and both are generally liable for the

entire tax due. Sec. 6013(d)(3); Butler v. Commissioner, 114

T.C. 276, 282 (2000). In some cases, however, section 6015 can

relieve a spouse from this joint liability. Relief comes in

three varieties: Relief under section 6015(b) or (c) requires

either an “understatement” or a “deficiency;” whereas relief

under section 6015(f) requires only that the requesting spouse be

“liable for any unpaid tax or any deficiency.” Therefore, if the

liability is neither an “understatement” nor a “deficiency”, the

2

The Commissioner continued his objection to the admission

of nonrecord evidence in his post-trial brief. The findings of

fact in this background section reflect our consideration of

evidence presented at trial, and are not limited to the

stipulation and administrative record. In the later sections of

this opinion, which analyze the individual factors considered in

deciding whether to grant relief, we will make separate findings

based on the administrative record and the record at trial.

3

Unless otherwise indicated, all section references are to

the Internal Revenue Code in effect for the years in issue.

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only possible relief is under subsection (f). See Hopkins v.

Commissioner, 121 T.C. 73, 87-88 (2003).

The Commissioner never asserted a deficiency against

Nihiser, so hers is a case where relief is possible only under

section 6015(f). This turns out to be important in considering

three preliminary questions:

! jurisdiction;

! standard of review; and

! scope of review.

I. Jurisdiction to Hear Cases Under Section 6015(f)

Our jurisdiction in this case is affected by its being not

only a nondeficiency case, but a stand-alone nondeficiency case.

A “stand-alone” case is one where the requesting spouse’s claim

for innocent-spouse relief was made under section 6015 on her own

initiative, and not as part of a deficiency action or in response

to the Commissioner instituting a lien or levy to try and collect

the tax debt. This distinction made Nihiser’s one of a large

number of cases affected first by the Ninth Circuit’s opinion in

Commissioner v. Ewing, 439 F.3d 1009 (9th Cir. 2006), revg. 118

T.C. 494 (2002), and vacating 122 T.C. 32 (2004), and then by

this Court’s opinion in Billings v. Commissioner, 127 T.C. 7

(2006). Both these cases held that the Tax Court has no

jurisdiction to review the Commissioner’s determinations in

stand-alone nondeficiency cases. It seemed reasonably likely

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that Congress would treat Ewing and Billings as having identified

a glitch in the Code and would respond by amending section 6015,

so we did not dismiss this case after deciding Billings, but

waited to see what would happen. Congress did respond by

amending section 6015(e), giving us jurisdiction to review

innocent-spouse determinations in either “the case of an

individual against whom a deficiency has been asserted * * *, or

in the case of an individual who requests equitable relief under

subsection (f).” Tax Relief and Health Care Act of 2006, Pub. L.

109-432, div. C, sec. 408(a), 120 Stat. 3061. This amendment was

effective for liabilities remaining unpaid on December 20, 2006.

Id. sec. 408(c), 120 Stat. 3062. After it became law, the

parties stipulated that Nihiser’s tax liability for the years in

question remained unpaid on December 20, 2006. We therefore have

jurisdiction to review the Commissioner’s determination.

II. Standard of Review

That Nihiser’s is a stand-alone nondeficiency case is also

important in deciding what standard of review to use. We review

section 6015(b) and (c) stand-alone cases under a de novo

standard, since in those cases we are determining the existence

or amount of a tax liability. See Haltom v. Commissioner, T.C.

Memo. 2005-209; McClelland v. Commissioner, T.C. Memo. 2005-121.

In contrast, our standard of review in section 6015(f)

stand-alone cases is for abuse of discretion, e.g., Cheshire v.

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Commissioner, 115 T.C. 183, 198 (2000), affd. 282 F.3d 326 (5th

Cir. 2002), and it’s Nihiser’s burden to prove that the

Commissioner committed one, see Alt v. Commissioner, 119 T.C.

306, 311 (2002), affd. 101 Fed. Appx. 34 (6th Cir. 2004).4

Courts generally hold that a decisionmaker abuses his discretion

when it “‘makes an error of law * * * or rests its determination

on a clearly erroneous finding of fact * * * [or] applies the

correct law to facts which are not clearly erroneous but rules in

an irrational manner.’” Indus. Investors v. Commissioner, T.C.

Memo. 2007-93 (quoting United States v. Sherburne, 249 F.3d 1121,

1125-26 (9th Cir. 2001)); see also Cooter & Gell v. Hartmarx

Corp., 496 U.S. 384, 402-03 (1990) (same).

III. Scope of Review

Our scope of review--i.e., what evidence we look at to

decide whether the Commissioner abused his discretion--is

likewise affected by this being a 6015(f) case. The Commissioner

argues that we should look only at the administrative record

compiled when Nihiser applied for relief from the IRS, met with

IRS employees, and filled out (or didn’t fill out) the relevant

4

At least when, as here, the IRS has considered a request

and rejected it. We leave to another day the question of whether

the amendment to section 6015(e) will cause a different standard

of review to apply to stand-alone nondeficiency petitions filed

with us after six months of IRS inaction. See sec.

6015(e)(1)(A)(i)(II).

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IRS forms. For reasons discussed below, we need not further

address the Commissioner’s point.5

The scope of review is an even bigger problem in innocent-

spouse cases when we find that the Commissioner abused his

discretion. Although rarely employed by district courts in

reviewing administrative agency action, a trial de novo typically

consists of independent factfinding and legal analysis unmarked

by deference to the original factfinder. See, e.g., Morris v.

Rumsfeld, 420 F.3d 287, 292, 294 (3d Cir. 2005) (defining “trial

de novo” as involving judicial review “without deferring to any

prior administrative adjudication” and “entirely independent of

the administrative proceedings”); Timmons v. White, 314 F.3d

1229, 1233-34 (10th Cir. 2003) (same); see also Wright & Koch, 33

Federal Practice and Procedure: Judicial Review of Administrative

5

In the somewhat similar context of reviewing of notices of

determination that the Commissioner issues in collection due

process (CDP) cases under sections 6320 and 6330, we also engage

in de novo review for abuse of discretion. Robinette v.

Commissioner, 123 T.C. 85 (2004), revd. 439 F.3d 455 (8th Cir.

2006). As a reviewed opinion, it remains good law for our Court

unless a case is to be appealed to the Eighth Circuit. We have,

however, since deciding Murphy v. Commissioner, 125 T.C. 301

(2005), affd. 469 F.3d 27 (1st Cir. 2006), declined to consider

evidence that a taxpayer might have presented (but chose not to)

at a CDP hearing because “an appeals officer does not abuse her

discretion when she fails to take into account information that

she requested and that was not provided in a reasonable time.”

Id. at 315. Similarly, in Giamelli v. Commissioner, 129 T.C.

107, 113 (2007), we found that “if an issue is never raised at

[a hearing with the Appeals officer], it cannot be part of the

Appeals officer’s determination.”

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Action, sec. 8332, at 161-62 (2006). In section 6015(f)

innocent-spouse cases, however, precedent constrains us to

combine the independent factfinding of a trial de novo with an

abuse-of-discretion standard of review.

Another difference between our practice and district court

review of administrative-agency action for abuse of discretion

is that district courts generally are able to remand a case to

the agency for reconsideration if the court holds that the

agency’s factfinding or legal analysis went awry. Fla. Power

Light Co. v. Lorion, 470 U.S. 729, 744 (1985) (“If the record

before the agency does not support the agency action, if the

agency has not considered all relevant factors, or if the

reviewing court simply cannot evaluate the challenged agency

action on the basis of the record before it, the proper course,

except in rare circumstances, is to remand to the agency for

additional investigation or explanation.”); Virk v. INS, 295 F.3d

1055, 1060-61 (9th Cir. 2002) (remanding a denial by the INS of a

motion to reopen proceedings where the INS failed to consider all

relevant factors); see also Yale-New Haven Hosp. v. Leavitt, 470

F.3d 71, 87 (2d Cir. 2006) (remanding an administrative decision

to the Department of Health and Human Services after finding it

was adopted in an arbitrary and capricious manner); Stuttering

Found. of Am. v. Springer, 498 F.Supp.2d 203, 213-14 (D.D.C.

2007) (finding the Office of Personnel Management misapplied

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Federal tax law when classifying a charitable organization and

remanding the issue to the agency for a new factual determination

under correct standards). When this happens, the agency is able

to compile a new (or at least supplemental) administrative

record, and judicial review on remand can be done using an abuse-

of-discretion standard applied against that record.6

Remand is not an option in innocent-spouse cases under

current law. In Friday v. Commissioner, 124 T.C. 220, 222

(2005), we held that “whether relief is appropriate under section

6015 is generally not a ‘review’ of the Commissioner’s

determination in a hearing but is instead an action begun in this

Court.” Friday is a division opinion. We must follow it. See

Sec. State Bank v. Commissioner, 111 T.C. 210, 213 (1998), affd.

214 F.3d 1254 (10th Cir. 2000); Hesselink v. Commissioner, 97

T.C. 94, 99-100 (1991).

IV. Equitable Relief Under Section 6015(f)

Having unpacked this preliminary baggage, we turn to the

case before us. Section 6015(f) allows relief to a requesting

spouse “if taking into account all the facts and circumstances,

it is inequitable to hold the individual liable.” The

Commissioner exercises his discretion using Revenue Procedure

6

As is always the case in administrative law, general

principles yield to any specific governing statute. See, e.g.

Nguyen v. Shalala, 43 F.3d 1400, 1403 (10th Cir. 1994) (outlining

specific statutory remedies available to a court reviewing denial

of Social Security disability claims).

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2000-15, 2000-1 C.B. at 447, a framework guiding the exercise of

his discretion when determining whether or not to grant equitable

relief. We also follow that revenue procedure in reviewing his

determination and deciding what relief is appropriate.7 See,

e.g., Washington v. Commissioner, 120 T.C. 137, 147-52 (2003);

Jonson v. Commissioner, 118 T.C. 106, 125-26 (2002), affd. 353

F.3d 1181 (10th Cir. 2003).

Rev. Proc. 2000-15, sec. 4.01, 2000-1 C.B. at 448, has seven

general requirements that all requesting spouses must meet for

relief under section 6015(f). The Commissioner concedes that

Nihiser meets all seven conditions.

The procedure also has a safe harbor. This safe harbor

grants relief to a requesting spouse if she meets three

conditions. Rev. Proc. 2000-15, sec. 4.02, 2000-1 C.B. at 448.

The first requires that:

At the time relief is requested, the

requesting spouse is no longer married to,

or is legally separated from, the

nonrequesting spouse, or has not been a

member of the same household as the

nonrequesting spouse at any time during the

7

Nihiser filed Form 8857 in November 2002, and received a

preliminary determination letter in March 2003. The procedure in

effect when she filed her request for relief was Revenue

Procedure 2000-15, 2000-1 C.B. at 447. It has been superseded by

Revenue Procedure 2003-61, 2003-2 C.B. at 296, but the new

revenue procedure applies only to requests for relief filed on or

after November 1, 2003, or those pending on November 1, 2003, for

which no preliminary determination letter has been issued as of

that date. Id., sec. 7, 2003-2 C.B. at 299. We therefore apply

Revenue Procedure 2000-15 to this case.

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12-month period ending on the date relief was

requested;

id. sec. 4.02(1)(a). The parties agree that Nihiser was married

when she requested relief, but she argues that her de facto

separation qualifies as a legal separation. Nihiser offers no

authority for her position, however. We don’t need to consider

this condition because Nihiser fails the second condition in this

safe harbor test. As discussed below in section IV.D., Nihiser

knew at the time she signed them, the tax shown on the joint

returns would not be paid. So Nihiser does not qualify for the

safe harbor.

This leaves an eight-factor balancing test to consider

before deciding if relief would be “equitable.” Rev. Proc.

2000-15, sec. 4.03, 2000-1 C.B. 448-49. The Commissioner may

consider other factors, but this is where he starts. Ewing, 122

T.C. at 47-48; Rev. Proc. 2000-15, sec. 4.03. We can summarize

the eight factors in a table (those factors not in dispute are in

italics):

Weighs for Relief Neutral Weighs against

Relief

Separated or Still married N/A

divorced

Abuse present No abuse present N/A

No significant Significant benefit

benefit

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Weighs for Relief Neutral Weighs against

Relief

N/A Later compliance Lack of later

with Federal tax compliance with

laws Federal tax laws

No knowledge or N/A Knowledge

reason to know

Economic hardship if N/A No economic hardship

relief not granted

Tax liability N/A Liability

attributable to non- attributable to

requesting spouse petitioner

Non-requesting No divorce decree Petitioner

spouse responsible responsible for

for paying tax under paying tax under

divorce decree divorce decree

The Commissioner conceded that the attribution factor weighs

in Nihiser’s favor, and that the significant-benefit,

noncompliance-with-tax-laws, and nonrequesting-spouse’s-legal

obligation-to-pay-the-tax factors are neutral. We treat the

parties’ agreement that Nihiser received no significant benefit

from the underpayment as weighing in her favor.8 That leaves

Nihiser disputing only the Commissioner’s determination

concerning the marital-status, knowledge, abuse, and hardship

factors.

8

Rev. Proc. 2000-15, sec. 4.03, does not state that the

absence of a significant benefit will weigh in a petitioner’s

favor, but only that receiving a significant benefit will weigh

against her. Nonetheless, we decided in Ferrarese v.

Commissioner, T.C. Memo. 2002-249 (and other cases cited), that

the absence of a significant benefit should be a positive factor

for petitioners.

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And here we meet the Commissioner’s first abuse of

discretion in this case--he simply failed to consider all the

factors listed in Revenue Procedure 2000-15 when making his

determination. See Walter Trans. Inc. v. United States, 432 F.

Supp. 2d 955, 959 (W.D. Mo. 2006) (citing Sukhov v. Gonzales, 403

F.3d 568, 570 (8th Cir. 2005) (stating that an abuse of

discretion may be found where the Appeals officer fails to

consider all factors presented); Gall v. United States, 552 U.S.

____, 128 S. Ct. 586, 607 (2007) (Alito, J., dissenting) (citing

cases analyzing several areas of law that require consideration

of all factors to avoid an abuse of discretion). The Appeals

officer made no findings on either the marital-status or abuse

factors, and both these factors are at issue. As we also find

below, the Commissioner’s determination on the economic-hardship

factor was erroneous in failing to consider reasonably all the

facts in the administrative record. We therefore find that the

Commissioner has abused his discretion, and examine the disputed

factors with an eye to determining the appropriate relief

available to Nihiser under section 6015.

This course of action follows from our holding in Friday.

If we find an abuse of discretion, it is up to us--in the words

of section 6015(e)--“to determine the appropriate relief

available to the individual under this section” rather than

remand the case to the IRS for a reopening of the administrative

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record and a consideration for the first time of evidence we

received during the trial. And so we next ask not just whether

the Commissioner abused his discretion in denying Nihiser relief,

but, if he did, what is “the appropriate relief available?”

A. Marital Status

The IRS’s finding on the marital status factor is confusing.

The CCISO’s workpapers show that the initial IRS reviewer

regarded Nihiser’s situation as weighing in favor of relief,

though leaving it unmentioned in the March 2003 letter to her.

The subsequent notice of determination doesn’t mention the factor

at all, except summarily as one of “several factors * * *

considered,” so we have no idea how it was weighed in the end.

The revenue procedure itself is not a model of clarity on

how the IRS should go about analyzing this factor. In the

section discussing qualification for the safe harbor, marital

status is important, and we’re told when to look and what to look

for. See supra p. 16.

But we have to look at the description of this factor in a

different part of the Procedure, section 4.03(1)(a)’s description

of when the marital-status factor weighs in favor of granting

relief when applying the eight-factor balancing test. This

description is different--it says that marital status weighs in

favor of relief when the “requesting spouse is separated (whether

legally separated or living apart) or divorced from the

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nonrequesting spouse.” Rev. Proc. 2000-15, sec. 4.03(1)(a),

(emphasis added). We infer from the absence of any reference to

separate “households” in this description of the marital-status

factor (in contrast to the safe harbor condition discussed supra)

that spouses can be “living apart” even in the same household.

This is actually a good description of how Nihiser and

Connolly were living when she requested relief in late 2002.

Nihiser’s intent, buttressed by her actions, shows that her

relationship with Connolly was drastically changed on July 9,

1999, when he flourished divorce papers at her. From then on,

they no longer shared a bedroom, and she reasonably thought that

her husband had filed for legal separation--even reporting that

day as the start of their legal separation on her forms

requesting innocent-spouse relief. She explained on these forms

that they remained under the same roof only because of their

financial situation. We believe her, and find that she was

“living apart” from her husband both when she requested relief

and when the Commissioner made his determination. We thus agree

with the apparent conclusion reached by the CCISO in its initial

consideration of her request that this factor weighs in favor of

relief. The Appeals officer making the Commissioner’s final

determination abused his discretion by not discussing and

weighing this factor.

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We are not certain that this is where our analysis of this

factor should end. As is often the case in the sort of troubled

marriages that spawn requests for innocent-spouse relief,

alienation became separation and finally divorce. By the time of

trial, Nihiser had without any doubt been living in a separate

household--remember that by then her husband was an inmate--and

filed for divorce as well. So, if we are to follow Friday’s

command that we judge the merits of a request for innocent-spouse

relief without remanding for additional factfinding, we would

find on the basis of the trial record as well as the

administrative record that this factor weighs in Nihiser’s

favor.9

B. Abuse

The next contested factor is spousal abuse. The revenue

procedure doesn’t actually define “abuse,”10 but does say that

proof that the “requesting spouse was abused by the nonrequesting

9

Compare this analysis to the law governing judicial review

in Social Security benefit cases cited supra note 6. In those

kind of cases, a court may remand a case to the Social Security

Administration when new evidence arises that is material and

where there is good cause for the late submission. 42 U.S.C.

sec. 405(g) (2006). There is no requirement that the new

evidence existed when the agency first made its decision, though

the new evidence must relate to the petitioner’s condition on or

before the date of that decision. See Williams v. Barnhart, 178

Fed. Appx. 785, 792 (10th Cir. 2006).

10

Black’s Law Dictionary defines abuse as “physical or

mental maltreatment, often resulting in mental, emotional,

sexual, or physical injury.” Black’s Law Dictionary 10 (8th ed.

2004).

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spouse, but such abuse did not amount to duress,” weighs in favor

of relief. Rev. Proc. 2000-15, sec. 4.03(1)(c), 2000-1 C.B. at

449. And this obviously lets us infer that “abuse” is at least

sometimes somehow lesser than “duress.”

Duress is a concept we’ve had a lot to say about. Courts

have long considered duress to be a reason to relieve a taxpayer

from joint liability where her spouse coerces her to sign a tax

return. See Furnish v. Commissioner, 262 F.2d 727, 733 (9th Cir.

1958); affg. in part and remanding in part Funk v. Commissioner,

29 T.C. 279 (1957); Stanley v. Commissioner, 81 T.C. 634 (1983);

Brown v. Commissioner, 51 T.C. 116, 119-120 (1968); Stanley v.

Commissioner, 45 T.C. 555, 565 (1966). Duress is a subjective

analysis, where the “focus is on the mind of the individual at

the relevant time in question, rather than on the means by which

the given state of mind was induced.” In re Hinkley, 256 B.R.

814, 825 (Bankr. M.D. Fla. 2000); see also Stanley, 45 T.C. at

561. An extreme case is “Sign the return or I pull the trigger.”

But in tax law duress means any constraint of will so strong that

it makes a person reasonably unable to resist demands to sign a

return. When that happens, innocent-spouse relief is unavailable

even if she applies for it, because duress means the return isn’t

treated as joint. See Raymond v. Commissioner, 119 T.C. 191,

195-96 (2002); Brown, 51 T.C. at 120-21.

- 23 -

And there are also a good number of cases analyzing abuse-

not-amounting-to-duress in considering whether one spouse knew or

should have known about the other’s wrongdoing. E.g., Kistner v.

Commissioner, 18 F.3d 1521, 1526 (11th Cir. 1994), revg. T.C.

Memo. 1991-463; Estate of Brown v. Commissioner, T.C. Memo.

1988-297. A classic instance is when abuse helps explain a

spouse’s failure to inquire about noncompliance with tax law.

E.g., Aude v. Commissioner, T.C. Memo. 1997-478 (finding that

threats and intimidation explained why a requesting spouse didn't

review or inquire about the joint returns); Makalintal v.

Commissioner, T.C. Memo. 1996-9 (determining that, “in light of

the frequent physical abuse” by the nonrequesting spouse and his

“general refusal to discuss his business and financial affairs

with petitioner, * * * petitioner’s inquiry was reasonable and

sufficient to satisfy her duty of inquiry”).11

But it’s abuse as a factor by itself, not just as a relevant

bit of evidence about one spouse’s state of knowledge, that we’re

looking for in this case. This is an important point because it

liberates us from focusing on the moment the return is signed--

the relevant abuse precedes that moment, but there’s no

suggestion in the Procedure or any other source of relevant law

11

Rev. Proc. 2003-61, sec. 4.03(2)(b)(i), 2003-2 C.B. at

299, although not the revenue procedure that applies here,

likewise states that a history of abuse by the nonrequesting

spouse may mitigate a requesting spouse’s knowledge or reason to

know.

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that limits our consideration of whether a spouse was abused only

to abuse that causes a particular instance of noncompliance with

the tax law.

This leads to the heart of our inquiry: What is abuse for

purposes of innocent-spouse relief? Verifiable physical harm is

likely sufficient. See, e.g., McKnight v. Commissioner, T.C.

Memo. 2006-155 (finding abuse where alcoholic nonrequesting

spouse physically shoved, hit, cut, and beat the requesting

spouse on multiple occasions, one of which left her on crutches).

But can psychological mistreatment in the absence of physical

harm be “abuse”? We think the answer to that question is “yes”.

Being a xanthippe is not by itself enough, but we have recognized

that a nonrequesting spouse can engage in mental, emotional, and

verbal abuse sufficiently severe to incapacitate a requesting

spouse in the same manner as a physically abusive spouse.

Compare Grubich v. Commissioner, T.C. Memo. 1993-194 (abuse found

in extreme belittling and constant disparaging of the requesting

spouse’s contribution to the family business).

We are aware of the danger that requesting spouses, in

trying to escape financial liability, may easily exaggerate the

level of nonphysical abuse. Innocent-spouse cases often spring

from the dissolution of troubled marriages, and there is an

obvious incentive to vilify the nonrequesting spouse. Our cases

therefore require substantiation, or at least specificity, in

- 25 -

allegations of abuse. See, e.g., Fox v. Commissioner, T.C. Memo.

2006-22 (weighing abuse as a positive factor where a police

report corroborated the requesting spouse’s claim of assault);

Knorr v. Commissioner, T.C. Memo. 2004-212 (finding no abuse

where requesting spouse provided only generalized claims of

physical and emotional abuse); Collier v. Commissioner, T.C.

Memo. 2002-144 (finding no abuse in absence of specific details).

We have also hesitated to find abuse when marital conflict

is understandably distressing but doesn’t significantly alter a

requesting spouse’s behavior. See, e.g., Krasner v.

Commissioner, T.C. Memo. 2006-31 (spouse didn't hesitate to leave

her children with nonrequesting spouse, and police reports

reflected little evidence of unwanted physical contact or mental

abuse); Ogonoski v. Commissioner, T.C. Memo. 2004-52 (lack of

abuse in the anxiety caused by uncertainty as to whether

nonrequesting spouse would pay taxes); Ewell v. Commissioner,

T.C. Memo. 1988-265 (no abuse where there was domineering but no

physical abuse or mental intimidation).

This is not a terribly well-developed corner of tax law, and

it is not one in which we can really get much help by looking at

detailed regulations or the ordinary canons of construction.

So we think it at least helpful to look at those factors widely

recognized as psychologically abusive where law has confronted

- 26 -

domestic violence. Scholars have identified a number of factors

that are common features of domestic abuse in domestic-relations

law and the subfield of criminal law arising from domestic

violence. In these fields, a psychologically abusive spouse is

one who may: (1) isolate the victim; (2) encourage exhaustion

by, for example, intentionally limiting food or interrupting

sleep; (3) behave in an obsessive or possessive manner; (4)

threaten to commit suicide, to murder the requesting spouse, or

to cause the death of family or friends; (5) use degrading

language including humiliation, denial of victim’s talents and

abilities, and name calling; (6) abuse drugs or alcohol,

including administering substances to the victim; (7) undermine

the victim’s ability to reason independently; or (8) occasionally

indulge in positive behavior in order to keep hope alive that the

abuse will cease.12

Although we’re certainly not prepared to make these factors

an exclusive list of what to look for--human perversity being

unimaginably creative--they at least give us some objective

indications that abuse, and not just a deviation from the ideal

of marital harmony, is what we’re seeing. We think these factors

indicate a relationship in which there is enough abuse to make it

12

See Mary Ann Douglas (Dutton), “The Battered Woman

Syndrome,” in Domestic Violence on Trial: Psychological and Legal

Dimensions of Family Violence 39 (Daniel Jay Sonkin ed., 1987)

(citing L. Walker, The Battered Woman Syndrome (1984)).

- 27 -

reasonable to conclude that the spouse seeking relief was less

likely to do what the Tax Code requires--making it more equitable

to relieve her from joint liability. We again stress, though,

that our consideration in such an underdeveloped area has to be

case by case. See, e.g., Sjodin v. Commissioner, T.C. Memo.

2004-205, vacated and remanded on another issue 174 Fed. Appx.

359 (8th Cir. 2006) (finding no mental abuse where nonrequesting

spouse was merely controlling and secretive).

In this case, the administrative record provides the

following account of psychological abuse: On the Form 8857,

Nihiser checked the box indicating that she had “been a victim of

domestic abuse and [feared] that filing a claim for innocent-

spouse relief [would] result in retaliation.” She repeated her

claim that she was the victim of abuse on her questionnaire and

in her letter, writing that her husband verbally abused her. She

also stated that he had a drug problem and she offered to provide

copies of positive urine test results from his counselor. She

also said that she filed a police report after he told her he had

a gun and made a suicide threat. Neither CCISO nor the Appeals

officer asked Nihiser for any such specific allegations--she

supplied them sua sponte. The administrative record tells us

that Nihiser feared her husband, and she stated in her paperwork

that she blamed his abusive behavior on cocaine. On her request

for relief, she offered to provide the Commissioner with a

- 28 -

statement from her neighbor attesting to the abuse, but neither

CCISO nor the Appeals officer followed up. She claimed that he

threatened to leave her and stick her with their tax bill. CCISO

agreed that Nihiser suffered verbal abuse, but conclusorily

dismissed it as not “enough of a factor to overcome continuing to

file joint returns with a balance due without taking corrective

action.” And, as with the marital-status factor, the Appeals

officer who actually issued the notice of determination didn’t

discuss the factor at all.

The trial record reinforced the abuse allegations Nihiser

made during the administrative process. She credibly testified

to her husband’s hot temper, describing a situation in which he

used foul language while upbraiding Nihiser in front of their

daughter. She said she was intimidated by his controlling

behavior to the point that she was in fear of her safety and the

wellbeing of their daughter. Considering the factors suggestive

of psychological abuse that we listed above--the threat of

suicide, the reasonable fear in someone economically dependent on

her spouse of being left without support, and the always lurking

explosive potential of someone abusing illegal drugs--we find

that Nihiser has shown, both in the administrative record and the

record assembled at trial, that the abuse factor should weigh in

her favor.

- 29 -

C. Economic Hardship

The next contested factor is whether forcing Nihiser to pay

the tax debt would cause her economic hardship. This factor

weighs in a requesting spouse’s favor when satisfaction of the

tax liability will cause her to be unable to pay her “reasonable

basic living expenses.” Sec. 301.6343-1(b)(4), Proced. & Admin.

Regs.13 In determining a reasonable amount for basic living

expenses, the Commissioner looks at any information provided by

the requesting spouse. See sec. 301.6343-1(b)(4)(ii), Proced. &

Admin. Regs.

And Nihiser did at least partially fill out the relevant

section of the form. When CCISO looked at it, an IRS employee

tapped into IRS records and confirmed the bankruptcy filings and

absence of income reported from third parties. In considering

the safe-harbor factors, this seems to have been enough to cause

CCISO to conclude that “the requesting spouse will suffer

economic hardship.” But then, on the same page of the workpaper,

the employee listed lack of economic hardship as a factor

weighing against relief:

she is saying yes but her statement shows no

income at all, she has been separated from

him since 1999 and still is paying 2,000 per

13

In order to determine whether a requesting spouse will

suffer economic hardship, the revenue procedure directs us to the

test in section 301.6343-1(b)(4), Proced. & Admin. Regs. See

Rev. Proc. 2000-15, secs. 4.02(1)(c), 4.03(1)(b), (2)(d), 2000-1

C.B at 448-49.

- 30 -

month for rent or mortgage, her expenses are

very high like $200 month for clothings.

How this weighed in the IRS’s first round of consideration

is unclear, since economic hardship isn’t even mentioned in the

March 2003 letter. The IRS’s decision at the Appeals level is

easier to understand. The Appeals officer determined that

Nihiser would not suffer economic hardship because her and her

husband’s combined salaries were greater than their reasonable

basic living expenses. This was almost certainly due to

Nihiser’s having left part of the “average monthly household

income and expenses” section of the questionnaire blank because

she didn’t know of Connolly’s income.14 Nihiser told him that

she was scared to press Connolly on the question, and so would

drop the issue.

Here we again run into the problem of what time we should be

looking at to judge which way this factor weighs. When she

applied for relief, Nihiser’s own income was a meager couple

thousand dollars a year from part-time teaching. By the time

that the Appeals officer met with her in November 2003, she’d

14

Nihiser listed her monthly expenses as:

Rent $2,000

Food 500

Utilities 300

Telephone 65

Auto insurance 100

Auto - gas and repairs 250

Clothing 200

Total living expenses $3,415

- 31 -

returned to full-time teaching at a salary of about $68,000 and

she remained employed full time at the time of trial. However,

by the time of trial her wages were being garnished to pay a

substantial state-tax debt left over from her marriage.

The Appeals officer quite understandably didn’t spend too

much time pondering such subtleties. And a refusal to supply

information is ordinarily, of course, more than enough reason for

the IRS to consider an issue conceded. See McCoy Enters, Inc. v.

Commissioner, 58 F.3d 557, 563 (10th Cir. 1995) (can’t exercise

discretion if there is no information about a factor), affg. T.C.

Memo. 1992-693; Chimblo v. Commissioner, T.C. Memo. 1997-535

(same), affd. 177 F.3d 119 (2d Cir. 1999). But Nihiser credibly

testified that when she met with the Appeals officer to further

explain her situation, she was deterred from presenting more

complete financial information by the Appeals officer’s statement

that he would need to contact her husband again, and that she

would need to ask him about his finances. We find these

statements are highly likely to have kept some of this

information off the record. In a case like this, where a

petitioner credibly cites fear as a reason for not seeking

relevant information, we find that the Appeals officer abused his

discretion by not probing further. The regulation does, after

all, tell him to consider all available information when making

- 32 -

economic hardship determinations. See sec. 301.6343-1(b)(4),

Proced. & Admin. Regs.

We need not consider evidence outside the administrative

record to conclude that the Appeals officer clearly erred in

finding that Nihiser wouldn’t suffer economic hardship. She was,

when the case was before him, a schoolteacher in her mid-50s

living in Orange County with no asset other than an 18-year-old

car. She was also supporting a teenage daughter. The CCISO had

checked the IRS’s own records and found the history of bankruptcy

filings and lack of any third-party payments to Nihiser and

Connolly. It thus should have been screamingly obvious that she

would not be able to meet her basic living expenses if she had to

pay a tax liability of more than $200,000. We also do not need

the evidence presented at trial to determine that Connolly’s

financial contributions would soon end. The two had serious

marital problems, he had a substance-abuse problem, and they had

declared bankruptcy three times.

There is yet another possibly difficult question hidden

here: When do we take the snapshot of a spouse’s finances to

decide if paying the overdue taxes would wreak a financial

hardship? The Appeals officer was understandably looking at her

situation at the time of his conference with her. But under

Ewing and Friday, we do not have to confine ourselves to the

administrative record. We think this means that, in gauging how

- 33 -

to weigh the economic-hardship factor, we should (at least once

we’ve found there to have been an abuse of discretion, and so

have to determine what relief should be available under section

6015) look at the evidence presented at trial, and the state of

her finances at that time. These only support her request--by

the time of trial, Connolly was in prison and thus was in no

position to contribute to her support. She had resumed teaching,

but her salary was about $5700 a month. On her request for

relief, she reported $3415 in basic living expenses. These are

reasonable expenses for a mother and daughter living in Orange

County, California. At trial she also credibly testified that

she has two additional reasonable monthly expenses: $480 tuition

for her daughter and $500 to pay the Franchise Tax Board for her

and her husband’s California tax debt. After subtracting state

taxes, federal income taxes, and Social Security and Medicare

taxes, we find that Nihiser’s current expenses use up most of her

income. But we must also consider Nihiser’s future ability to

earn her current salary and pay her basic living expenses. She

restarted her career late in life, and does not have a home or

other assets to rely on after she retires. We find that if she

is required to pay over $200,000 in taxes she will not be able to

pay her basic living expenses. We find that the economic-

hardship factor weighs in favor of relief.

- 34 -

D. Knowledge

The last contested factor is Nihiser’s knowledge of the

underpayment. This factor weighs against relief if she “knew or

had reason to know * * * the reported liability would be unpaid

at the time the return was signed.” Rev. Proc. 2000-15, sec.

4.03(2)(b), 2001-1 C.B. at 449. We agree with the Commissioner

that this factor does weigh against Nihiser. At the time she

signed the returns she did have reason to know the taxes would

not be paid. She and Connolly had filed for bankruptcy once when

she signed the 1996 return, twice when she signed the 1997-2000

returns, and three times when she signed the 2001 return, and

they had not made any other effort to pay their taxes. She also

suspected that her husband’s continuing drug habit was

contributing to their financial problems. We find no error in

the Commissioner’s finding on this point, and so find that he did

not abuse his discretion in concluding that this factor weighs

against relief. We find likewise on the basis of the trial

record. The knowledge factor therefore weighs against granting

relief.

Conclusion

After analyzing these contested factors, whether looking

only at the administrative record by itself or as supplemented by

the trial record, we find that the table should now look like

this:

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Weighs for Relief Neutral Weighs against

Relief

Marital Status

Abuse

No significant

benefit

Later compliance with

Federal tax laws

Knowledge

Economic hardship

Attribution

No divorce decree

Thus, Nihiser has five factors weighing in favor of relief and

only one weighing against. But the factor weighing against

relief is knowledge, and the revenue procedure tells us that

knowledge is an “extremely strong factor weighing against

relief.” Rev. Proc. 2000-15, sec. 4.03(2)(b), 2000-1 C.B. 449.

The Commissioner’s own procedure nevertheless anticipates at

least some cases where knowledge or reason to know will not be

enough to deny 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.” Id. A case like this one, where the only

factor weighing against relief is knowledge of underpayment and

all the other factors are neutral or in her favor, is logically

- 36 -

the most likely to be one of these “limited situations” where

relief is appropriate.

As in any multifactor balancing test, we must have something

in mind as the appropriate fulcrum when there are factors

weighing down both sides of the lever. And here we think that an

appropriate fulcrum is the extent to which the economic unity of

the household filing a joint return has been broken down by the

actions of the nonrequesting spouse in a way that didn’t allow

the requesting spouse a reasonable exit. As the Third Circuit

once wrote, the innocence we look for “within the meaning of this

statute is innocent vis-a-vis a guilty spouse whose income is

concealed from the innocent and spent outside the family.” Bliss

v. Commissioner, 59 F.3d 374, 380 n.3 (2d Cir. 1995) (discussing

former section 6013), affg. T.C. Memo. 1993-390. The knowledge

factor’s unique importance is, seen in this way, entirely

appropriate because in the ordinary course of events knowing her

husband is mishandling their joint return would allow a wife to

begin to pull away from the entanglement of joint liability. We

therefore find on the peculiar facts of this case that Nihiser’s

knowledge of her husband’s underpayment of their taxes is

outweighed by the abuse she suffered and her utter lack of any

benefit from the money. He kept her from seeing the broader

state of the family’s finances and spent the money on himself.

And since she began filing on her own, she has consistently

- 37 -

followed the tax law and paid her current taxes as they became

due. Her ability to act in response to her knowledge as her

marriage was dissolving was thus so reduced as to make relieving

her from the joint tax liability for the years in question the

appropriate relief under section 6015.

Decision will be entered

for petitioner.