holding that the taxpayer did not receive a significant benefit from the unpaid tax liability where she was not aware of the tax refunds for 20 years and there was no indication that her lifestyle improved after the husband deposited the refunds in his account
How later courts described this case
- holding that the taxpayer did not receive a significant benefit from the unpaid tax liability where she was not aware of the tax refunds for 20 years and there was no indication that her lifestyle improved after the husband deposited the refunds in his account
- finding that taxpayer was a college graduate but lacked any tax, business, or accounting background
- applying Rev. Proc. 2000-15, supra
Written by the judges who cited it.
The opinion
T.C. Memo. 2008-230
UNITED STATES TAX COURT
LOIS WIENER, Petitioner v.
COMMISSIONER OF INTERNAL REVENUE, Respondent
Docket No. 17984-04. Filed October 14, 2008.
Larry Kars, for petitioner.
Shawna A. Early, for respondent.
MEMORANDUM FINDINGS OF FACT AND OPINION
MARVEL, Judge: This case arises under section 60151 from
petitioner’s request for relief from joint and several liability
for unpaid Federal income tax liabilities for 1979, 1980, and
1
Unless otherwise indicated, all section references are to
the Internal Revenue Code, as amended, and all Rule references
are to the Tax Court Rules of Practice and Procedure.
- 2 -
1981 (1979-81 tax liabilities). Respondent determined petitioner
was not entitled to relief. Petitioner timely petitioned the
Court to review respondent’s determination. The issue for
decision is whether respondent correctly determined that
petitioner was not entitled to relief under section 6015(b) or
(f).
FINDINGS OF FACT
Some of the facts have been stipulated and are so found.
The stipulation of facts and supplemental stipulation of facts
are incorporated herein by this reference. Petitioner resided in
New York when her petition was filed.
Background
Petitioner and Jay Wiener (Mr. Wiener) were married in 1952.
As of the date of trial, they were still married. On the date of
trial petitioner was 75 years old, and Mr. Wiener was 75 years
old. Both have a history of health problems. Mr. Wiener’s
medical condition sends him to the hospital for several days at a
time approximately twice each year.
Petitioner graduated with a bachelor of arts degree from
Syracuse University in 1951. Her course work did not include
accounting, finance, or math classes. From 1951 through 1954
petitioner worked in the customer service department of AT&T. In
1954 petitioner became a full-time homemaker. Petitioner
remained a full-time homemaker until around the time of trial,
- 3 -
when she began selling clothing from her home. Petitioner relied
on Mr. Wiener to take care of family financial and tax matters,
including the management of the Loismae Wiener Trust,2 a trust
created by petitioner’s mother. Petitioner was a beneficiary of
the trust, and Mr. Wiener was the trustee.
During the years at issue Mr. Wiener owned his own business,
which was the principal source of support for him and for
petitioner. At some point during this period, Mr. Wiener’s
business began to experience cashflow problems, and he started
taking funds from the Charles Wiener Trust.3
As of the date of trial, Mr. Wiener was in the process of
closing his business because it had not generated income for 2 or
3 years. On the date of trial, the Wieners’ cashflow consisted
primarily of Social Security payments, funds from the Loismae
Wiener Trust, and funds from the Charles Wiener Trust.
2
The Last Will and Testament of petitioner’s mother, Hazel
Kellmanson, which created the Loismae Wiener Trust, gave Mr.
Wiener, in his discretion as trustee, the power to distribute
income and principal to petitioner during her lifetime for her
support, maintenance, and general welfare.
3
The Charles Wiener Trust apparently was a testamentary
trust created by Mr. Wiener’s father. Mr. Wiener’s mother was
the trustee. Over a time period that is undefined in the record,
Mr. Wiener received approximately $290,000 from the Charles
Wiener Trust. Mr. Wiener signed over some of the checks issued
by the trust to his business. Mr. Wiener claims the trust
payments were loans. However, the alleged loans were not
memorialized by promissory notes, and Mr. Wiener made no interest
payments. The trust agreement for the Charles Wiener Trust was
not introduced into evidence, so we cannot ascertain from the
agreement itself the identity of the trust beneficiaries.
- 4 -
Petitioner had begun selling clothing from her home, and Mr.
Wiener was looking for a job.
During the years in issue petitioner and Mr. Wiener
maintained a joint checking account. Petitioner wrote household
checks from the account, and Mr. Wiener wrote larger checks, such
as those for investments or real estate taxes. When petitioner
wrote household checks, she told Mr. Wiener the total amount of
the checks so that he could deposit additional funds into the
account if necessary. Petitioner and Mr. Wiener usually
discussed large purchases before Mr. Wiener wrote checks to pay
for the purchases.
The bank statements for the joint checking account were
mailed to the Wieners’ home address. Mr. Wiener reconciled the
account and monitored the checkbook balance.
During the years at issue and in the following years, the
Wieners’ lifestyle was modest. Although petitioner traveled with
Mr. Wiener on at least one business trip to Egypt and Mr. Wiener
purchased a ring for petitioner as a 30th anniversary present,
the Wieners did not take expensive vacations, nor did they
purchase any other jewelry or luxury items.
Mr. Wiener was not abusive to petitioner, nor did he
threaten petitioner. However, as set forth more fully below, Mr.
Wiener withheld information regarding important financial and tax
- 5 -
matters from his wife and misled her regarding the 1979-81 tax
liabilities during the period from 1979 to 2001.
Sinclair Global Arbitrage
Sometime before November 1979 Martin Bond (Mr. Bond), Mr.
Wiener’s accountant, introduced Mr. Wiener to Sinclair Global
Arbitrage (SGA), a limited partnership, and recommended that he
invest in it. Mr. Wiener attended several meetings with Mr. Bond
regarding SGA, but petitioner did not.
Mr. Wiener ultimately decided to invest in SGA. On November
9, 1979, Mr. Wiener wrote two checks to SGA totaling $106,250
from the Wieners’ joint checking account.4 On May 13, 1980, Mr.
Wiener wrote another check to SGA for $58,839.84. Petitioner did
not sign any of the checks, nor did she know about them. Mr.
Wiener did not tell his wife anything about the investment in
SGA.
Mr. Wiener received a Schedule K-1, Partner’s Share of
Income, Credits, Deductions, etc., for 1981, which reported that
Mr. Wiener was a limited partner in SGA who owned a .8169-percent
4
Mr. Wiener testified that the funds he used to make the SGA
investment actually came from his business. Mr. Wiener claimed
that because he had to make the investment personally, he
withdrew the necessary funds from his business and deposited the
funds in the Wieners’ joint checking account. Although
petitioner did not introduce any documentation supporting Mr.
Wiener’s testimony, Mr. Wiener testified that he attempted to get
documentation from his bank and that the documentation was no
longer available because of the passage of time.
- 6 -
partnership interest. Petitioner’s name did not appear on the
Schedule K-1, nor did it appear on any correspondence from SGA.
Tax Returns
Petitioner and Mr. Wiener filed joint Federal income tax
returns for 1979, 1980, and 1981. Mr. Bond prepared the returns
from information given to him by Mr. Wiener or Mr. Wiener’s
office manager. Petitioner did not provide information for the
preparation of the tax returns to Mr. Bond, nor did petitioner
discuss the returns with Mr. Bond after he prepared them. After
Mr. Bond prepared each year’s return, he would bring the return
to Mr. Wiener’s office. Mr. Wiener signed both his name and
petitioner’s name to the return and mailed it to the IRS.5
Petitioner did not review any of the returns for 1979, 1980, or
1981.6 Each of the 1979-81 returns reported an overpayment and
claimed a refund. Petitioner did not know about the refunds, and
she did not benefit from them beyond normal support.7
5
Petitioner states on brief that she gave Mr. Wiener her
permission to sign the returns for her, and she does not dispute
that the returns were joint returns for purposes of sec. 6015.
6
On the questionnaire that petitioner submitted to the IRS
in support of her request for relief, she stated that she signed
the returns, but at trial she testified that she did not sign the
returns.
7
Mr. Wiener testified that he believes he deposited the
refund checks resulting from his distributive share of the SGA
losses for 1979-81 into the Wieners’ joint account and then
transferred the refund amounts to his business.
- 7 -
The Wieners’ joint returns for 1979, 1980, and 1981 deducted
SGA partnership losses of $128,789, $610,080, and $207,517,
respectively. Respondent audited SGA for 1979, 1980, and 1981,8
disallowed certain partnership deductions, and mailed a notice of
deficiency to petitioner and Mr. Wiener that disallowed the SGA
loss deductions and determined deficiencies for 1979, 1980, and
1981.
A petition was filed in this Court on behalf of the Wieners
seeking a redetermination of the deficiencies for 1979-81, docket
No. 27006-90. On July 17, 1991, the Court entered a stipulated
decision in docket No. 27006-90. Petitioner did not sign the
stipulated decision. In accordance with the stipulated decision,
on August 23, 1991, respondent assessed income tax liabilities
against the Wieners of $49,745 and $41,388 for 1979 and 1980,
respectively, and on September 30, 1991, respondent assessed an
income tax liability against the Wieners of $3,746 for 1981.9
On November 29, 1991, approximately 3 months after
respondent assessed the 1979-81 tax liabilities, petitioner
transferred the marital home (the Morris Lane property)10 to the
8
Petitioner was not involved in the audit, and Mr. Wiener
did not tell her about it.
9
Respondent also assessed interest for the years 1979-81.
10
The record does not disclose how the Morris Lane property
was titled before it was transferred to the Charles Wiener Trust.
However, the parties to the indenture that conveyed the Morris
(continued...)
- 8 -
Charles Wiener Trust ostensibly in consideration for substantial
sums previously advanced to Mr. Wiener by the trust. On the date
of the transfer, petitioner did not know about the 1979-81 tax
liabilities or that she was personally liable for them. After
the transfer, petitioner and Mr. Wiener continued to live at the
Morris Lane property, and they paid the mortgage and other
household expenses from their joint checking account.
On January 6, 1992, respondent filed a notice of Federal tax
lien against petitioner and Mr. Wiener with respect to the 1979-
81 tax liabilities.
In 1998 the Wieners entered into an installment agreement
with respondent to pay the 1979-81 tax liabilities. Mr. Wiener
told petitioner at the time that the tax liabilities related to
his business and that he would take care of them. Under the
installment agreement, the Wieners were required to pay $1,800
per month no later than the 30th of each month, beginning in May
1998.11 The Wieners generally made timely payments through June
2001. Starting in July 2001, the Wieners made installment
10
(...continued)
Lane property to the Charles Wiener Trust were petitioner and the
Charles Wiener Trust. We infer from this that petitioner owned
the Morris Lane property before the Nov. 29, 1991, transfer.
11
The parties stipulated that payments were to begin in
September 1998. However, the installment agreement lists May 30,
1998, as the first due date, and the Wieners’ Certificates of
Official Record for 1979 and 1980 show monthly payments starting
in May 1998.
- 9 -
payments of $800 each month until September 2002 when they
stopped making payments.
In 2001 pursuant to an agreement between the IRS and the
Wieners, the Federal tax lien that had attached to the Morris
Lane property was released, and the Morris Lane property was
sold. Petitioner and Mr. Wiener purchased a new residence in
Armonk, New York, that, under the agreement with the IRS, was
titled in their joint names and was subject to the Federal tax
lien. The new home was purchased with the proceeds from the sale
of the Morris Lane property. The record does not contain
documentation establishing who sold the Morris Lane property and
in whose name the new residence was titled. However, Mr. Wiener
testified that the agreement with the IRS required the new
residence to be titled in the names of both petitioner and Mr.
Wiener.12
Petitioner’s Innocent Spouse Claim
In 2001 in connection with collection activities related to
the 1979-81 tax liabilities, petitioner learned for the first
time that the tax liabilities were attributable to Mr. Wiener’s
investment in SGA. At that time one of respondent’s revenue
12
Petitioner and Mr. Wiener reside in the new residence, and
petitioner listed the residence as an asset on a Form 433-A,
Collection Information Statement for Wage Earners and Self-
Employed Individuals, that she submitted to the IRS on or about
Mar. 28, 2005. We infer from the record as a whole that the
Wieners’ current marital home is titled in both of their names.
- 10 -
officers suggested that petitioner apply for relief from the
1979-81 tax liabilities under section 6015. On or about
March 26, 2002, petitioner filed Form 8857, Request for Innocent
Spouse Relief (And Separation of Liability and Equitable Relief),
on which she requested relief from joint and several liability
for the 1979-81 tax liabilities pursuant to section 6015(b), (c),
and (f). On or about October 15, 2003, respondent issued a
letter to petitioner informing her that her request for relief
had been denied. Petitioner filed a protest with respondent’s
Appeals Office.
On June 24, 2004, respondent issued a notice of
determination that denied petitioner’s request for relief under
section 6015 for each of the years in issue. The notice of
determination was addressed to petitioner, but the salutation
referenced “Ms. Nick”. The notice simply stated that “We did not
find you eligible for relief” under section 6015(b), (c), or (f)
and gave no indication of the analysis that the Appeals Office
used or the evidence it relied on in making its determination.
Petitioner timely petitioned this Court pursuant to section
6015(e) alleging that respondent’s determination that petitioner
was not entitled to relief for 1979-81 was in error.
On or about March 28, 2005, petitioner submitted a Form 433-
A, Collection Information Statement for Wage Earners and Self-
Employed Individuals, to respondent. On the Form 433-A,
- 11 -
petitioner did not disclose that she had a beneficial interest in
the Loismae Wiener Trust established under the will of her
deceased mother,13 nor did she disclose the existence of the
Charles Wiener Trust from which Mr. Wiener had obtained
substantial funds in the past to support his business.
Petitioner did disclose, however, that as of March 2005 she and
Mr. Wiener owned the following assets:
Asset Fair Market Value
Various bank accounts $1,972.67
Marital home 750,000.00
Furniture/Personal effects 10,000.00
Jewelry 30,000.00
She also disclosed that she and Mr. Wiener had some dividend and
interest income, that both she and Mr. Wiener received Social
Security payments, and that the Wieners’ total monthly living
expenses exceeded their gross monthly income. Because petitioner
and Mr. Wiener own their home and have no outstanding mortgage,
their total monthly living expenses did not include any mortgage
or rent payment.
At trial petitioner introduced copies of several 2005
account statements for the Loismae Wiener trust account at
Charles Schwab & Co. and various checks dated in 2005 that had
cleared the account. The payees on the checks included
13
Petitioner, however, did disclose the existence of her
beneficial interest in the Loismae Wiener Trust on her 2002 and
2004 Federal income tax returns.
- 12 -
petitioner, Mr. Wiener, and his business. The value of the
Loismae Wiener trust account at Charles Schwab & Co. as of March
31, 2005, was $38,535.84.
OPINION
In general married taxpayers who file a joint Federal income
tax return for a taxable year are jointly and severally liable
for the full amount of that year’s tax liability. Sec.
6013(d)(3); Butler v. Commissioner, 114 T.C. 276, 282 (2000).
Under section 6015, however, a spouse may obtain relief from
joint and several liability if the spouse satisfies certain
requirements.14
Section 6015(a)(1) provides that a spouse who has made a
joint return may elect to seek relief from joint and several
liability under section 6015(b) (dealing with relief from
liability for an understatement of tax on a joint return).
Section 6015(a)(2) provides that a spouse who is eligible to do
so may elect to limit that spouse’s liability for any deficiency
with respect to a joint return under section 6015(c). Relief
from joint and several liability under section 6015(b) or (c) is
available only with respect to a deficiency for the year for
which relief is sought. Sec. 6015(b)(1)(D), (c)(1); see H. Conf.
14
Sec. 6015 applies to tax liabilities arising after July
22, 1998, and to tax liabilities arising on or before July 22,
1998, but remaining unpaid as of such date. Internal Revenue
Service Restructuring and Reform Act of 1998 (RRA), Pub. L. 105-
206, sec. 3201(g), 112 Stat. 740.
- 13 -
Rept. 105-599, at 252-254 (1998), 1998-3 C.B. 747, 1006-1008. If
relief is not available under either section 6015(b) or (c), an
individual may seek equitable relief under section 6015(f).
Petitioner contends that she is entitled to full relief from
liability under section 6015(b) or (f).15
Our jurisdiction to review petitioner’s request for relief
is conferred by section 6015(e), which allows a spouse who has
requested relief from joint and several liability to contest the
Commissioner’s denial of relief by filing a timely petition in
this Court.
A. Section 6015(b)
Section 6015(b)(1) authorizes the Commissioner to grant
relief from joint and several liability if the taxpayer
requesting relief satisfies each requirement of subparagraphs (A)
through (E). Section 6015(b)(1) provides:
SEC. 6015(b). Procedures For Relief From Liability
Applicable to All Joint Filers.--
(1) In general.--Under procedures prescribed
by the Secretary, if--
(A) a joint return has been made for a
taxable year;
(B) on such return there is an
understatement of tax attributable to
erroneous items of 1 individual filing the
joint return;
15
The parties agree that petitioner does not qualify for
relief under sec. 6015(c) because she is still married to Mr.
Wiener.
- 14 -
(C) the other individual filing the
joint return establishes that in signing the
return he or she did not know, and had no
reason to know, that there was such
understatement;
(D) taking into account all the facts
and circumstances, it is inequitable to hold
the other individual liable for the
deficiency in tax for such taxable year
attributable to such understatement; and
(E) the other individual elects (in such
form as the Secretary may prescribe) the
benefits of this subsection not later than
the date which is 2 years after the date the
Secretary has begun collection activities
with respect to the individual making the
election,
then the other individual shall be relieved of
liability for tax (including interest, penalties,
and other amounts) for such taxable year to the
extent such liability is attributable to such
understatement.
The requirements of section 6015(b)(1) are stated in the
conjunctive. Therefore, if the requesting spouse fails to meet
any one of them, she does not qualify for relief. Alt v.
Commissioner, 119 T.C. 306, 313 (2002), affd. 101 Fed. Appx. 34
(6th Cir. 2004).
Except as provided by section 6015, the requesting spouse
bears the burden of proving that she satisfies each requirement
of section 6015(b)(1).16 See Rule 142(a); Jonson v.
16
Sec. 7491(a) shifts the burden of proof in cases arising
in connection with examinations commencing after July 22, 1998.
RRA sec. 3001(c)(1), 112 Stat. 727. Because respondent’s
examination of the Wieners’ returns began before July 22, 1998,
(continued...)
- 15 -
Commissioner, 118 T.C. 106, 113 (2002), affd. 353 F.3d 1181 (10th
Cir. 2003). Respondent concedes that petitioner meets the
requirements of subparagraphs (A) and (E) of section 6015(b)(1).
However, he argues that petitioner has not satisfied the
requirements set forth in subparagraphs (B), (C), or (D) of
section 6015(b)(1).
1. Section 6015(b)(1)(B)
Section 6015(b)(1)(B) requires that the tax returns in issue
contain an understatement of income tax attributable to the
nonrequesting spouse. The parties agree that the understatements
of income tax arose from the disallowance of SGA’s partnership
losses.
Petitioner argues that the investment in SGA is wholly
attributable to Mr. Wiener. Respondent contends that the
investment is attributable to both spouses as a jointly held
investment because Mr. Wiener purchased the interest with checks
from the Wieners’ joint checking account. Respondent cites two
of this Court’s opinions to support the proposition that
investments made with funds from joint bank accounts are joint
investments. The cases, however, are distinguishable.
In Ellison v. Commissioner, T.C. Memo. 2004-57, we for
several reasons held that the partnership interests in issue,
16
(...continued)
sec. 7491 does not apply.
- 16 -
which were purchased with joint funds, were jointly owned. The
requesting spouse had agreed to invest jointly with her husband
in the partnerships. Id. The partnership interests were
purchased with joint funds and were held in joint name. The
partnerships treated the requesting spouse as a partner, as
evidenced by the Schedules K-1 and other partnership documents.
Id.
Similarly, in Capehart v. Commissioner, T.C. Memo. 2004-268,
affd. 204 Fed. Appx. 618 (9th Cir. 2006), we held that the
partnership interests in issue, which were also purchased with
joint funds, were jointly owned. Both spouses signed the
partnership’s subscription agreement and selected the joint
ownership option provided on the agreement. Id.; see also
Abelein v. Commissioner, T.C. Memo. 2004-274. The requesting
spouse in Capehart was actively involved in the investment. She
wrote checks to pay for the investment, made telephone calls
regarding the investment, and received and reviewed partnership
documents. Capehart v. Commissioner, supra; see also Abelein v.
Commissioner, supra.
Petitioner had no involvement with or knowledge of SGA when
Mr. Wiener invested in it. Petitioner did not write any checks
to or communicate with SGA. Mr. Wiener did not tell petitioner
about the SGA investment until approximately 20 years after the
investment was made, and petitioner was not otherwise aware of
- 17 -
the SGA investment. Furthermore, SGA did not address any
communications to petitioner, and the 1981 Schedule K-1, the only
one in evidence, was issued solely in Mr. Wiener’s name.
Petitioner testified that she did not know about the SGA
investment until she learned about it as the result of contacts
that were made in approximately 2001, more than 20 years after
Mr. Wiener had invested in SGA, by an IRS employee who was trying
to collect the unpaid tax liabilities. We accept as credible
petitioner’s testimony regarding when she first learned about the
SGA investment. We also accept as credible evidence showing that
Mr. Wiener wrote the SGA checks from the Wieners’ joint checking
account without petitioner’s knowledge and that the resulting
partnership interest was registered only in his name. Moreover,
Mr. Wiener credibly testified that the funds to make the SGA
investment came from his business. We conclude on the totality
of the facts and circumstances that the disallowed losses were
generated with respect to an investment made by and registered to
Mr. Wiener, and the tax understatements resulting therefrom were
attributable to Mr. Wiener, not to petitioner.
2. Section 6015(b)(1)(C)
Section 6015(b)(1)(C) requires a requesting spouse to prove
that, when she signed the return for the year for which she is
seeking relief, she did not know and had no reason to know of an
understatement of tax on the return. Based on the record, we are
- 18 -
satisfied that petitioner did not have actual knowledge of the
understatements attributable to the SGA investment at the time
Mr. Wiener signed the returns on her behalf. However, we must
also decide whether, on the dates Mr. Wiener signed the 1979-81
returns on petitioner’s behalf, petitioner had reason to know
that the returns understated the Wieners’ tax liabilities for
those years.
This case is appealable, barring a stipulation to the
contrary, to the Court of Appeals for the Second Circuit.
Consequently, we are bound to apply the law of the circuit as
summarized below. See Golsen v. Commissioner, 54 T.C. 742
(1970), affd. 445 F.2d 985 (10th Cir. 1971). The Court of
Appeals for the Second Circuit has adopted the “reason to know”
standard utilized in Price v. Commissioner, 887 F.2d 959 (9th
Cir. 1989), revg. an Oral Opinion of this Court. See Hayman v.
Commissioner, 992 F.2d 1256, 1261 (2d Cir. 1993), affg. T.C.
Memo. 1992-228. A taxpayer has reason to know of an
understatement if a reasonably prudent taxpayer in her position
at the time she signed the return could be expected to know that
the return contained the understatement. See Price v.
Commissioner, supra at 965. Factors to consider in analyzing
whether a taxpayer had reason to know of the understatement
include: (1) The taxpayer’s level of education; (2) the
taxpayer’s involvement in the family’s business and financial
- 19 -
affairs; (3) the presence of expenditures that appear lavish or
unusual when compared to the family’s past levels of income,
standard of living, and spending patterns; and (4) the culpable
spouse’s evasiveness and deceit concerning the couple’s finances.
See Hayman v. Commissioner, supra at 1261; Price v. Commissioner,
supra at 965 (citing Stevens v. Commissioner, 872 F.2d 1499, 1505
(11th Cir. 1989), affg. T.C. Memo. 1988-63).
Our analysis of certain of the above-listed factors is
generally in petitioner’s favor. Petitioner was a college
graduate without any business, tax, or accounting background.
She paid only the household bills. Petitioner did not reconcile
the joint checking account. She informed Mr. Wiener as to the
total amount of the checks she wrote, and he deposited sufficient
money into the account to cover the checks, if necessary.
Although Mr. Wiener generally consulted petitioner when he wrote
checks for larger expenditures, Mr. Wiener alone was responsible
for the couple’s investments and did not discuss those
investments with petitioner. When petitioner finally asked Mr.
Wiener about tax liabilities necessitating the 1998 installment
agreement, he told petitioner that they related to his business,
in which petitioner was not involved.
We also note that the Wieners’ lifestyle did not improve
during the years in issue, and petitioner did not benefit from
- 20 -
the tax refunds beyond normal support. The Wieners did not take
luxurious vacations or purchase expensive items during the years
in issue or in later years.
The foregoing recitation of facts does not complete the
required analysis, however. Under Price v. Commissioner, supra,
a taxpayer has reason to know of an understatement if she has a
duty to inquire and fails to satisfy that duty. The requesting
spouse has a duty to inquire when she “[knows] enough facts to
put her on notice that such an understatement exists.” Id. at
965. A tax return reporting a large deduction that significantly
reduces a couple’s tax liability generally puts the taxpayer who
joins in filing a joint return on notice that the return may
contain an understatement. See Levin v. Commissioner, T.C. Memo.
1987-67. The requesting spouse is deemed to have constructive
knowledge of the understatement if she fails to inquire. Price
v. Commissioner, supra at 965; see also Von Kalinowski v.
Commissioner, T.C. Memo. 2001-21 (requesting spouse found to
possess constructive knowledge of understatement where income of
$370,263 was offset by losses of $228,133).
Petitioner did not prepare the tax returns, nor did she
speak with Mr. Bond about any of the tax returns in issue.
Petitioner did not review or sign the returns before they were
filed.17 In so doing, petitioner abdicated her right to review
17
Although the record contains some contradictory evidence,
(continued...)
- 21 -
and sign her joint tax returns in favor of her husband, who did
have knowledge of the SGA losses and the resulting refunds that
were claimed on the returns. A taxpayer who files a joint return
with her spouse may not turn a blind eye to the joint return and
thereby avoid the duty to inquire. Price v. Commissioner, supra
at 965 (citing Levin v. Commissioner, supra); see also Hayman v.
Commissioner, supra at 1262. Petitioner is charged with
constructive knowledge of what she would have seen if she had
examined her 1979-81 returns. What she would have seen was the
deduction of a large loss attributable to SGA on each return.
Her constructive knowledge of the SGA deductions was sufficient
to impose on her an obligation to inquire, but she failed to make
any inquiry regarding the SGA losses claimed on the returns.
Even a cursory examination of the 1979-81 joint returns would
have revealed substantial overpayments that were directly
attributable to the large SGA losses claimed on Schedules E,
Supplemental Income Schedule, attached to the returns. The
losses significantly reduced or eliminated the Wieners’ adjusted
gross income in each of the years 1979-81. A reasonably prudent
person with a college-level education filing a joint return with
his or her spouse would have questioned deductions of such
magnitude. See, e.g., Mora v. Commissioner, 117 T.C. 279, 289
17
(...continued)
we accept petitioner’s testimony that she did not review or sign
the 1979-81 joint returns before Mr. Wiener filed them with the
IRS.
- 22 -
(2001) (losses that almost completely eliminated wages imposed
duty to inquire).
We conclude that petitioner, under the facts and
circumstances of this case, had a duty to inquire regarding the
partnership losses claimed on her 1979-81 returns. Because she
failed to satisfy her duty of inquiry,18 we find that she had
reason to know of the understatements. See Hayman v.
Commissioner, 992 F.2d at 1262; Mora v. Commissioner, supra at
289.
Petitioner failed to prove that she satisfied all of the
requirements of section 6015(b).19 Consequently, we sustain
respondent’s determination denying petitioner relief from joint
and several liability under section 6015(b)(1).
B. Section 6015(f)
Section 6015(f) provides an alternative means of relief for
a requesting spouse who does not otherwise qualify for relief
18
Because petitioner abdicated her right and responsibility
to inspect her 1979-81 joint tax returns and therefore did not
make any attempt to inquire regarding the SGA losses on the
returns, this case is distinguishable from Friedman v.
Commissioner, 53 F.3d 523 (2d Cir. 1995), affg. in part and revg.
in part T.C. Memo. 1993-549. In Friedman v. Commissioner, supra
at 531, the Court of Appeals for the Second Circuit concluded
that a spouse requesting relief under former sec. 6013(e), the
predecessor to sec. 6015, had satisfied her duty of inquiry when
she asked her husband about the propriety of deductions claimed
on the joint return and was told that they came from a tax
shelter but that she should not worry.
19
Because petitioner failed to satisfy the sec.
6015(b)(1)(C) requirement, we need not address or decide whether
petitioner satisfied the sec. 6015(b)(1)(D) requirement.
- 23 -
under subsection (b) or (c) of section 6015. Sec. 6015(f)(2).
Under section 6015(f), the Secretary may grant equitable relief
to a requesting spouse based upon the facts and circumstances of
the requesting spouse’s case.
This Court, like other Federal courts, is a court of limited
jurisdiction, and it may exercise its jurisdiction only to the
extent authorized by Congress. Sec. 7442; Moore v. Commissioner,
114 T.C. 171, 175 (2000); Naftel v. Commissioner, 85 T.C. 527,
529 (1985). Section 6015(e)20 confers jurisdiction on this Court
to review a determination under section 6015(f). It provides in
pertinent part as follows:
SEC. 6015(e). Petition for Review by Tax Court.--
(1) In general.--In the case of an individual
against whom a deficiency has been asserted and who
elects to have subsection (b) or (c) apply, or in the
case of an individual who requests equitable relief
under subsection (f)--
(A) In general.-- In addition to any other
remedy provided by law, the individual may
petition the Tax Court (and the Tax Court shall
have jurisdiction) to determine the appropriate
relief available to the individual under this
section * * *
20
Congress amended sec. 6015(e) to confirm the Tax Court’s
jurisdiction over stand-alone sec. 6015(f) cases, effective with
respect to a liability arising or remaining unpaid after Dec. 20,
2006. See Tax Relief and Health Care Act of 2006 (TRHCA), Pub.
L. 109-432, div. C, sec. 408, 120 Stat. 3061. Because this case
involves tax liabilities remaining unpaid after Dec. 20, 2006,
sec. 6015(e) as amended by TRHCA applies. However, our
jurisdiction in this case does not depend upon sec. 6015(e) as
amended because this is not a stand-alone case for relief solely
under sec. 6015(f), and a deficiency in tax has been asserted
against petitioner.
- 24 -
Regarding the standard of review that the Court applies in
determining whether a taxpayer is entitled to relief under
section 6015(f), we have held that we ordinarily examine the
Commissioner’s determination to deny equitable relief under
section 6015(f) for abuse of discretion.21 See Washington v.
Commissioner, 120 T.C. 137, 146 (2003); Butler v. Commissioner,
114 T.C. at 292. However, in Porter v. Commissioner, 130 T.C.
___ (2008), a case that decided the appropriate scope of review
in section 6015(f) cases, the opinion of the majority refrained
from deciding any issue relating to the standard of review, id.
at ___ n.10 (slip op. at 13 n.10), and the concurring opinion of
Judge Wherry, in which seven other Judges joined, questioned
whether our existing precedent was still applicable in light of
the 2006 amendments to section 6015(f) and contended that a de
novo standard of review is now the correct standard of review in
section 6015(f) cases, id. at ___ (slip op. at 49-53).
We need not and do not decide herein the issue of the
appropriate standard of review under section 6015(f). We cannot
apply an abuse of discretion standard because the notice of
determination that is in the record did nothing more than deny
21
Under this standard of review, we defer to the
Commissioner’s determination unless it is arbitrary, capricious,
or without sound basis in fact. Jonson v. Commissioner, 118 T.C.
106, 125 (2002), affd. 353 F.3d 1181 (10th Cir. 2003). A
requesting spouse bears the burden of proving that the
Commissioner abused his discretion in denying relief under sec.
6015(f). See Rule 142(a); Jonson v. Commissioner, supra at 113.
- 25 -
petitioner relief under section 6015. The notice of
determination did not contain any analysis or recite any factual
determinations that we can review for abuse of discretion. The
only analysis to which we are privy is the analysis contained in
an undated “Supplemental Case Memo” that the parties stipulated
was “issued by respondent’s appeals officer”. The “Supplemental
Case Memo” states as follows:
This case was returned from Counsel for further
consideration. Counsel felt that there were
inconsistencies in the analysis. Counsel also felt
that the appeals determination was based on the
examiner’s determination and did not reflect an
independent determination.
The unnamed Appeals officer then addresses the inconsistencies
but does not show how he or she analyzed the factors that Rev.
Proc. 2000-15, 2000-1 C.B. 447, discussed below, required the
Appeals officer to consider. Because we cannot ascertain what
analysis was made by the Appeals officer in reaching his or her
determination that petitioner is not entitled to relief under
section 6015(f), we cannot review the determination for abuse of
discretion.22 Instead, we shall examine the trial record de novo
to decide whether respondent properly concluded that petitioner
is not entitled to relief.
The Commissioner prescribed procedures in Rev. Proc. 2000-
15, supra, that IRS personnel must use to determine whether a
22
We have held that we do not remand sec. 6015(f) cases.
Friday v. Commissioner, 124 T.C. 220 (2005).
- 26 -
requesting spouse qualifies for relief under section 6015(f).23
Although the notice of determination does not state that
respondent used the procedures specified in Rev. Proc. 2000-15,
supra, the Appeals officer who considered petitioner’s request
for relief was obligated to do so. In addition, this Court has
applied the procedures and analysis specified in Rev. Proc. 2000-
15, supra, in reviewing the Commissioner’s determination to deny
relief under section 6015(f) in other cases. See, e.g.,
Washington v. Commissioner, supra at 147-152; Jonson v.
Commissioner, 118 T.C. at 125-126. In this case, both of the
parties rely on Rev. Proc. 2000-15, supra, and both parties
address the factors enumerated therein.
1. Rev. Proc. 2000-15, Sec. 4.01
Before the Commissioner will consider a taxpayer’s request
for relief under section 6015(f), the taxpayer must satisfy the
following seven threshold conditions listed in Rev. Proc. 2000-
15, sec. 4.01, 2000-1 C.B. at 448:
(1) The requesting spouse filed a joint return for
the taxable year for which relief is sought;
(2) Relief is not available to the requesting
spouse under § 6015(b) or 6015(c);
23
Rev. Proc. 2003-61, 2003-2 C.B. 296, which supersedes Rev.
Proc. 2000-15, 2000-1 C.B. 447, is effective for requests for
relief filed on or after Nov. 1, 2003, and for requests for
relief pending on Nov. 1, 2003, for which no preliminary
determination letter has been issued as of that date. Petitioner
requested relief on Mar. 26, 2002, and respondent issued the
preliminary determination letter before Nov. 1, 2003; therefore,
Rev. Proc. 2003-61, supra, is inapplicable here.
- 27 -
(3) The requesting spouse applies for relief no
later than two years after the date of the Service’s
first collection activity after July 22, 1998, with
respect to the requesting spouse;
(4) Except as provided in the next sentence, the
liability remains unpaid. A requesting spouse is
eligible to be considered for relief in the form of a
refund of liabilities for: (a) amounts paid on or
after July 22, 1998, and on or before April 15, 1999;
and (b) installment payments, made after July 22, 1998,
pursuant to an installment agreement entered into with
the Service and with respect to which an individual is
not in default, that are made after the claim for
relief is requested;
(5) No assets were transferred between the spouses
filing the joint return as part of a fraudulent scheme
by such spouses;
(6) There were no disqualified assets transferred
to the requesting spouse by the nonrequesting spouse.
If there were disqualified assets transferred to the
requesting spouse by the nonrequesting spouse, relief
will be available only to the extent that the liability
exceeds the value of such disqualified assets. For
this purpose, the term “disqualified asset” has the
meaning given such term by § 6015(c)(4)(B); and
(7) The requesting spouse did not file the return
with fraudulent intent.
Although respondent’s position is not entirely clear,
respondent appears to concede that petitioner meets conditions
(1), (2), (3), and (4). Respondent, however, objects to the
transfer of the Wieners’ principal residence to the Charles
Wiener Trust approximately 3 months after the 1979-81 tax
liabilities were assessed and appears to contend that the
transfer was either a fraudulent transfer between spouses, see
- 28 -
Rev. Proc. 2000-15, sec. 4.01(5), or a transfer of a disqualified
asset, see id. sec. 4.01(6).
a. Transfer of Assets Between Spouses
Rev. Proc. 2000-15, sec. 4.01, does not define the phrase
“transferred between the spouses”. At first glance, it does not
appear that a transfer of a principal residence by the requesting
spouse to a trust created by or under the will of a third party
(in this case, a relative of Mr. Wiener) would qualify as a
transfer between spouses. Respondent contends that the transfer
was not an arm’s-length transfer, was not for adequate
consideration, and was not valid. Respondent does not really
explain, however, how these complaints render the transfer a
fraudulent transfer between spouses within the meaning of Rev.
Proc. 2000-15, sec. 4.01(5).
The transfer about which respondent complains was a transfer
of the Morris Lane property, which petitioner and Mr. Wiener used
as their personal residence, to the Charles Wiener Trust. The
transfer was effected by an indenture that petitioner executed on
November 29, 1991, in favor of the trust. The real property
transfer report attached to the indenture recites that the
transfer took the form of a sale on December 2, 1991, that it was
not an arm’s-length sale, and that the sale price was $320,000.
Mr. Wiener testified that the transfer was made in consideration
of approximately $290,000 of “loans” the Charles Wiener Trust had
- 29 -
made over an undefined period of time to help finance his
business.
Although we understand respondent’s concern about the timing
of the transfer, we reject respondent’s implied argument that the
transfer was a transfer between spouses as part of a fraudulent
scheme by such spouses within the meaning of Rev. Proc. 2000-15,
sec. 4.01(5). The transfer was not between petitioner and Mr.
Wiener; it was between petitioner and the Charles Wiener Trust.
Nothing in Rev. Proc. 2000-15, sec. 4.01(5), suggests that a
transfer of an asset between the requesting spouse and a trust
qualifies as a transfer between spouses. Although we can
envision a situation where a trust might qualify as the alter ego
of a spouse in certain circumstances, respondent does not argue
that a transfer to the Charles Wiener Trust was the substantive
equivalent of a transfer to Mr. Wiener.24
However, even if petitioner’s transfer of the Morris Lane
property to the Charles Wiener Trust could be characterized as a
transfer between spouses within the meaning of Rev. Proc. 2000-
15, sec. 4.01(5), we cannot conclude on the record before us that
the transfer was part of a fraudulent scheme between the Wieners.
We have found that petitioner, the sole owner of the Morris Lane
property before its transfer to the Charles Wiener Trust, did not
24
The record contains documents pertaining to the transfer
of the house that were signed by Mr. Wiener’s mother, who was the
trustee of the Charles Wiener Trust.
- 30 -
know about her liability for the 1979-81 tax liabilities before
she transferred the property to the trust. Petitioner credibly
testified that she found out about the 1979-81 tax liabilities
during the course of finalizing the 1998 installment agreement
and that she did not discover the liabilities were the result of
Mr. Wiener’s investment in SGA until 2001.25
We conclude that the transfer in question was not a
fraudulent transfer between spouses within the meaning of Rev.
Proc. 2000-15, sec. 4.01(5), and that therefore the Rev. Proc.
2000-15, sec. 4.01(5), requirement is satisfied.
b. Transfer of Disqualified Assets
Rev. Proc. 2000-15, sec. 4.01(6), sets forth the following
threshold condition that a requesting spouse must satisfy in
order to qualify for relief under section 6015(f):
25
We also note that respondent probably benefited from the
transfer. We infer from the evidence that the Morris Lane
property was titled in petitioner’s name before petitioner
conveyed it to the Charles Wiener Trust. When petitioner and Mr.
Wiener wanted to sell the Morris Lane property and buy a smaller
house, they had to apply for a release of the Federal tax lien
that had attached to the property. In consideration for the
Wieners’ agreement to title their new residence in both of their
names and to take title subject to the lien, the IRS released the
lien on the Morris Lane property and permitted the Wieners to
acquire a smaller residence. The result is that the IRS acquired
an uncontested security interest in the Wieners’ current
residence, which is jointly owned. It is probable, depending on
applicable State law, that Mr. Wiener’s interest in the residence
is properly subject to the lien regardless of whether petitioner
qualifies for relief under sec. 6015(f). See United States v.
Craft, 535 U.S. 274 (2002).
- 31 -
(6) There were no disqualified assets transferred
to the requesting spouse by the nonrequesting spouse.
If there were disqualified assets transferred to the
requesting spouse by the nonrequesting spouse, relief
will be available only to the extent that the liability
exceeds the value of such disqualified assets. For
this purpose, the term “disqualified asset” has the
meaning given such term by § 6015(c)(4)(B) * * *
Section 6015(c)(4)(B)(i) defines “disqualified asset” as
any property or right to property transferred to an
individual making the election under this subsection
with respect to a joint return by the other individual
filing such joint return if the principal purpose of
the transfer was the avoidance of tax or payment of
tax.
The transfer of the Morris Lane property does not meet the
definition of a “disqualified asset” because it did not involve a
transfer to petitioner by Mr. Wiener. Section 6015(c)(4)(B)(i)
unequivocally defines “disqualified asset” as a transfer of
property or right to property by a nonrequesting spouse to a
requesting spouse. Because the transfer of the Morris Lane
property did not meet that definition, we conclude that
petitioner also satisfies the threshold requirement of Rev. Proc.
2000-15, sec. 4.01(6).
c. Fraudulent Intent
The final threshold requirement is set forth in Rev. Proc.
2000-15, sec. 4.01(7), and is satisfied if “The requesting spouse
did not file the return with fraudulent intent.” Respondent
makes no allegation that petitioner filed her 1979-81 joint
returns with fraudulent intent, and the record does not support
- 32 -
such a finding even if respondent had alleged it. We conclude
therefore that petitioner satisfies all of the threshold
conditions for section 6015(f) relief imposed by Rev. Proc. 2000-
15, sec. 4.01. We turn now to a review of the factors set forth
in Rev. Proc. 2000-15, sec. 4.03, 2000-1 C.B. at 448-449.
2. Rev. Proc. 2000-15, Sec. 4.03
Rev. Proc. 2000-15, sec. 4.03, provides that, in cases where
the threshold conditions set forth in Rev. Proc. 2000-15, sec.
4.01, have been satisfied but the requesting spouse does not
qualify for relief under Rev. Proc. 2000-15, sec. 4.02, 2000-1
C.B. at 44826 equitable relief may be granted under section
6015(f) if, taking into account all facts and circumstances, it
is inequitable to hold the requesting spouse liable. Rev. Proc.
2000-15, sec. 4.03(1) and (2), contains a list of positive and
negative factors that the Commissioner will take into account in
determining, on the facts and circumstances, whether to grant
full or partial equitable relief under section 6015(f).27 As
Rev. Proc. 2000-15, sec. 4.03, makes clear, no single factor is
26
Rev. Proc. 2000-15, sec. 4.02, 2000-1 C.B. at 448,
requires that at the time relief is requested, the requesting
spouse must no longer be married to the nonrequesting spouse.
Petitioner and Mr. Wiener remain married; therefore, relief under
Rev. Proc. 2000-15, sec. 4.02, is unavailable to petitioner.
27
The factors that we consider in determining whether it
would be inequitable for purposes of sec. 6015(f) are the same as
the factors that we consider in determining whether it would be
inequitable for purposes of sec. 6015(b)(1)(D). Alt v.
Commissioner, 119 T.C. 306, 316 (2002), affd. 101 Fed. Appx. 34
(6th Cir. 2004).
- 33 -
determinative in any particular case, all factors are to be
considered and weighed appropriately, and the listing of factors
is not intended to be exhaustive. See Washington v.
Commissioner, 120 T.C. at 148; Jonson v. Commissioner, 118 T.C.
at 125.
Rev. Proc. 2000-15, sec. 4.03(1), lists the following six
positive factors that the Commissioner will weigh in favor of
granting equitable relief:
(a) Marital status. The requesting spouse is
separated * * * or divorced from the nonrequesting
spouse.
(b) Economic hardship. The requesting spouse
would suffer economic hardship (within the meaning of
section 4.02(1)(c) of this revenue procedure) if relief
from the liability is not granted.
(c) Abuse. The requesting spouse was abused by
the nonrequesting spouse, but such abuse did not amount
to duress.
(d) No knowledge or reason to know. In the case
of a liability that was properly reported but not paid,
the requesting spouse did not know and had no reason to
know that the liability would not be paid. In the case
of a liability that arose from a deficiency, the
requesting spouse did not know and had no reason to
know of the items giving rise to the deficiency.
(e) Nonrequesting spouse’s legal obligation. The
nonrequesting spouse has a legal obligation pursuant to
a divorce decree or agreement to pay the outstanding
liability. This will not be a factor weighing in favor
of relief if the requesting spouse knew or had reason
to know, at the time the divorce decree or agreement
was entered into, that the nonrequesting spouse would
not pay the liability.
- 34 -
(f) Attributable to nonrequesting spouse. The
liability for which relief is sought is solely
attributable to the nonrequesting spouse.
Rev. Proc. 2000-15, sec. 4.03(2), lists the following six
negative factors that the Commissioner weighs against granting
equitable relief:
(a) Attributable to the requesting spouse. The
unpaid liability or item giving rise to the deficiency
is attributable to the requesting spouse.
(b) Knowledge or reason to know. A requesting
spouse knew or had reason to know * * * that the
reported liability would be unpaid at the time the
return was signed. This is an extremely strong factor
weighing against relief. Nonetheless, when the factors
in favor of equitable relief are unusually strong, it
may be appropriate to grant relief under § 6015(f) in
limited situations where a requesting spouse knew or
had reason to know that the liability would not be
paid, and in very limited situations where the
requesting spouse knew or had reason to know of an item
giving rise to a deficiency.
(c) Significant benefit. The requesting spouse
has significantly benefitted (beyond normal support)
from the unpaid liability * * *. See § 1.6013-5(b).
(d) Lack of economic hardship. The requesting
spouse will not experience economic hardship (within
the meaning of section 4.02(1)(c) of this revenue
procedure) if relief from the liability is not granted.
(e) Noncompliance with federal income tax laws.
The requesting spouse has not made a good faith effort
to comply with federal income tax laws in the tax years
following the tax year or years to which the request
for relief relates.
(f) Requesting spouse’s legal obligation. The
requesting spouse has a legal obligation pursuant to a
divorce decree or agreement to pay the liability.
- 35 -
Rev. Proc. 2000-15, sec. 4.03, provides in pertinent part that
the list of positive and negative factors is a partial listing
and that it is not intended to be exhaustive. Rev. Proc. 2000-
15, sec. 4.03, also confirms that the Secretary may grant
equitable relief if, taking into account all the facts and
circumstances, it is inequitable to hold the requesting spouse
liable for all or part of the unpaid liability or deficiency.
Our analysis of the relevant facts and circumstances is set forth
below.
a. Positive Factors
i. Marital Status
Petitioner and Mr. Wiener continue to be married. This
positive factor does not apply.
ii. Economic Hardship
An analysis of economic hardship under Rev. Proc. 2000-15,
supra, is conducted using rules similar to those provided in
section 301.6343-1(b)(4), Proced. & Admin. Regs. Rev. Proc.
2000-15, sec. 4.03(1)(b), 4.02(1)(c). Section 301.6343-
1(b)(4)(ii), Proced. & Admin. Regs., provides that the
Commissioner will evaluate a requesting individual’s claim of
economic hardship by considering any information offered by the
individual that is relevant to the determination, including, but
not limited to, the individual’s income, assets and liabilities,
- 36 -
age, ability to earn, responsibility for dependents, the amount
reasonably necessary for basic living expenses, and the allowable
living expenses for the individual’s geographic area.
Petitioner is 75 years old and has not been employed outside
the household since 1954. Petitioner’s monthly cashflow as of
the date of trial came from Social Security payments and
distributions from the Loismae Wiener Trust.28 Although
petitioner had begun selling clothing out of her house, the
activity had not yet generated a profit.
Petitioner and Mr. Wiener’s monthly expenses exceeded their
monthly Social Security payments. Although petitioner and Mr.
Wiener had covered their excess expenses in the past with funds
obtained from the Loismae Wiener Trust and the Charles Wiener
Trust, the record supports a finding that the Loismae Wiener
Trust, which was supposed to be for the benefit of petitioner,
had been used by Mr. Wiener, who was the trustee, as a source of
funding for Mr. Wiener’s business and had been reduced in value
to $38,535.84 as of March 31, 2005.29 The Wieners’ primary asset
is their home, which they valued at trial and in the Form 433-A
that they submitted to the IRS at $750,000. Although the home is
28
As of Mar. 31, 2005, the Loismae Wiener Trust had assets
with a value of $38,535.84.
29
The record does not clearly establish that the trust
account at Charles Schwab & Co. was the only asset of the Loismae
Wiener Trust, but we infer from the record as a whole that it
was.
- 37 -
not encumbered by any mortgage, it is encumbered by the Federal
tax lien. As of May 2005 the unpaid tax liabilities, including
interest and penalties, approximated $517,000.
Respondent argues petitioner did not prove that she will
suffer economic hardship because she did not file complete
information regarding her financial condition. Respondent
alleges failure in two respects: (1) Petitioner represented on
her Form 433-A that Mr. Wiener operated a business, and
petitioner failed to disclose Mr. Wiener’s job search, and (2)
petitioner did not include the Wieners’ beneficial interests in
the Loismae Wiener Trust and the Charles Wiener Trust in the
listing of their assets on the Form 433-A.
Petitioner submitted the Form 433-A to respondent almost a
year after respondent denied her relief. Respondent’s Appeals
Office could not have been misled by any alleged errors30 on the
March 28, 2005, Form 433-A regarding Mr. Wiener’s employment
status or petitioner’s interest in the trusts when it denied her
relief on June 24, 2004.
30
Petitioner did not misrepresent her husband’s employment
status on her Form 433-A. Checks issued from the Loismae Wiener
Trust to Mr. Wiener’s company prove that his business was still
active at the time petitioner submitted the Form 433-A to
respondent. Additionally, the Wieners’ 2002 and 2004 tax returns
and the Form 433-A put respondent on notice that Mr. Wiener’s
business was not successful. Mr. Wiener’s lack of business
income for at least 2 of 3 consecutive years and Mr. Wiener’s
testimony that he was finally closing his business at the time of
trial are not inconsistent with either the Form 433-A that lists
Mr. Wiener as a businessman or petitioner’s trial testimony that
Mr. Wiener was looking for a new job.
- 38 -
Although petitioner made at least one mistake in completing
the Form 433-A dated March 28, 2005, in that she did not disclose
her interest in the Loismae Wiener Trust, we do not conclude that
the omission was either deliberate or misleading when all of the
facts and circumstances are considered. Petitioner was required
to submit, and apparently did submit, copies of her 2002 and 2004
Federal income tax returns to the IRS as part of her application
for relief under section 6015. Both the 2002 and 2004 joint
returns disclosed her interest in the Loismae Wiener Trust. In
addition, on the Form 12510, Questionnaire for Requesting Spouse,
that petitioner submitted in support of her Form 8857, petitioner
filled out information regarding the Wieners’ monthly income and
expenses. One of the income items she listed was “Loans From
Family” in the amount of $1,811.31 Respondent’s investigation of
this item must have disclosed petitioner’s discretionary interest
in the Loismae Wiener Trust. In addition, Mr. Wiener testified
that respondent was aware of the Loismae Wiener Trust because the
31
Although the description of the source and the amount was
not necessarily accurate, both petitioner and Mr. Wiener
described the money they received from the trusts as “loans”
throughout this proceeding, and that description reflects their
contention that Mr. Wiener intended the distributions to be
loans. Moreover, it appears that the amount listed on the
questionnaire under the heading “Loans from Family” was the
amount necessary to make the Wieners’ monthly cash intake equal
the amount of their monthly expenses. The representation
implicit in the above was consistent with proof in the record
that Mr. Wiener used money from the two trusts to cover cashflow
shortfalls.
- 39 -
Wieners offered to compromise their 1979-81 tax liabilities with
funds from the trust.
Petitioner also did not fail to disclose any beneficial
interest in the Charles Wiener Trust. Although the record does
not contain any trust agreement or will establishing the Charles
Wiener Trust, there is no evidence that petitioner is or was a
beneficiary of the Charles Wiener Trust. In addition, respondent
must have known of the existence of the Charles Wiener Trust as
the result of negotiating the agreement with the Wieners and/or
the trust for the sale of the Morris Lane property.
The totality of the facts and circumstances supports a
finding that petitioner will suffer economic hardship if section
6015(f) relief is not granted. Petitioner’s primary asset is her
interest in her current home. Because the home is not encumbered
by a mortgage, petitioner does not make any mortgage payments.
Nevertheless, the monthly expenses of the Wieners exceed their
monthly income. Petitioner is in her 70s and has health
problems. Her husband also has serious health problems, and the
complications from his treatment require hospitalization
approximately twice each year.
Petitioner has no other significant source of income to pay
her reasonable living expenses. Her safety net consisting of her
interest in the Loismae Wiener Trust has been eroded over the
years by her husband’s frequent raids on trust assets and will
- 40 -
not likely remain available as a material source of petitioner’s
support for much longer. Petitioner has shown that her current
monthly income and remaining assets are insufficient to meet her
current level of monthly expenses and that she would experience
economic hardship if she were not granted relief. This factor
applies and favors granting relief.
iii. Abuse by Nonrequesting Spouse
Petitioner admits that Mr. Wiener did not abuse or threaten
her. This positive factor does not apply. Washington v.
Commissioner, 120 T.C. at 149.
iv. No Knowledge or Reason To Know
For the reasons stated in our analysis of this factor under
section 6015(b), we conclude petitioner had reason to know of the
items giving rise to the deficiencies and/or failed to satisfy
her duty of inquiry regarding the items. This positive factor
does not apply.
v. Nonrequesting Spouse’s Legal Obligation
Because petitioner is not separated or divorced from her
husband, this positive factor does not apply.
vi. Liabilities Solely Attributable to
Nonrequesting Spouse
We concluded earlier in this opinion that, because Mr.
Wiener was the sole investor in SGA and petitioner did not
participate in making the investment, the erroneous items giving
- 41 -
rise to the deficiencies are solely attributable to Mr. Wiener.
This factor favors granting relief.
b. Negative Factors
i. Attributable to the Requesting Spouse
Because the 1979-81 tax liabilities are attributable to Mr.
Wiener, this negative factor does not apply.
ii. Knowledge or Reason To Know
As discussed previously, we conclude that petitioner had
reason to know of the items giving rise to the deficiencies
and/or failed to satisfy her duty of inquiry regarding the items.
Ordinarily, this factor would weigh heavily against granting
petitioner equitable relief under section 6015(f). Rev. Proc.
2000-15, sec. 4.03(2)(b). In this case, however, Mr. Wiener
intentionally withheld information from petitioner regarding the
SGA investment and on several occasions actively misled her about
the existence and extent of the tax liabilities. We doubt
seriously whether petitioner would have received any meaningful
information from Mr. Wiener about the SGA investment even if she
had inspected the returns and inquired about the SGA losses. For
this reason we conclude that although this negative factor
applies, it is not entitled to greater weight in our analysis.
- 42 -
iii. Significant Benefit
Petitioner argues she did not significantly benefit beyond
normal support from the SGA investment losses giving rise to the
deficiencies. Factors indicating that a taxpayer receives a
significant benefit from a tax loss include paying a child’s
education expenses, making special purchases for the taxpayer or
her family, or frequent travel. See Washington v. Commissioner,
supra at 151; Monsour v. Commissioner, T.C. Memo. 2004-190. The
record does not establish that petitioner enjoyed any of these
benefits.
Respondent argues that petitioner benefited because the
Wieners received tax refunds as a result of the reported losses.
However, we have accepted as credible petitioner’s testimony that
she was not aware of the refunds until approximately 20 years
after the Wieners received them and that she did not benefit from
them. Mr. Wiener handled all deposits into the joint bank
account and reconciled the account balance. Mr. Wiener testified
that he believes the refunds were transferred to his business,
and we see no indication that petitioner’s lifestyle improved
after Mr. Wiener deposited the refunds.
We conclude on the totality of the facts and circumstances
that petitioner did not significantly benefit from the losses
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that gave rise to the deficiencies. This negative factor does
not apply.32
iv. Lack of Economic Hardship
As discussed previously, petitioner has established that she
will suffer economic hardship if relief is not granted. This
negative factor does not apply.
v. Noncompliance With Federal Income Tax
Laws in Subsequent Years
Respondent does not argue that petitioner has untimely filed
income tax returns or untimely paid any income taxes due for
years after 1981. Respondent instead contends that petitioner
was noncompliant with Federal income tax laws because she
transferred title to the Morris Lane property to the Charles
Wiener Trust, did not disclose her beneficial interest in the
Loismae Wiener Trust, stopped paying installments required by a
duly executed installment agreement, and did not submit
information in connection with several offer-in-compromise
requests.
This negative factor focuses on whether the requesting
spouse made a good-faith effort to comply with Federal income tax
laws in the tax years following the years to which the request
32
We treat the fact that a requesting spouse does not
significantly benefit from the item(s) giving rise to a
deficiency as an additional positive factor in our analysis of
whether a requesting spouse qualifies for relief under sec.
6015(f). See, e.g., Ferrarese v. Commissioner, T.C. Memo. 2002-
249.
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for section 6015(f) relief related. See Rev. Proc. 2000-15, sec.
4.03(2)(e). Respondent does not assert that petitioner and Mr.
Wiener failed to file all required returns or failed to pay all
required taxes for years following the years at issue.
Respondent’s complaint focuses instead on actions that he
apparently contends demonstrate petitioner’s willingness to game
the tax system in favor of her own economic position.
We have already addressed the disclosure issues and
petitioner’s transfer of the Morris Lane property. While we
agree with respondent that the timing of the transfer is
suspicious and was probably motivated, at least in part, by Mr.
Wiener’s knowledge of the resolution of the Tax Court litigation
and/or the assessments that occurred in August and September of
1991, we do not find that the transfer violated any obligation to
report or pay tax in years after 1981 or that petitioner knew
about the assessments at the time she transferred title to the
Morris Lane property. Mr. Wiener was aware of the 1979-81 tax
liabilities, and we suspect that his motivation in encouraging
petitioner to transfer title to the house was related, at least
in part, to concerns that the IRS might seize and sell the home.
However, the record does not persuade us that petitioner
deliberately attempted to avoid or evade payment of a known tax
liability. Mr. Wiener credibly testified that he kept petitioner
in the dark regarding the SGA investment, the audit of SGA, and
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the resulting Tax Court litigation. Petitioner did not sign the
stipulated decision resolving the litigation. Both petitioner
and Mr. Wiener testified that petitioner did not learn that she
was liable for substantial income tax liabilities resulting from
the SGA investment until 2001, approximately 20 years after the
1979-81 tax liabilities were assessed and approximately 10 years
after petitioner transferred the Morris Lane property to the
Charles Wiener Trust.
We turn then to petitioner’s conduct with respect to the
installment agreement. Petitioner and Mr. Wiener entered into an
installment agreement in 2001 that required them to make monthly
payments of $1,800. They made the required payments for several
years until their financial condition worsened. Although the
record is not clear, it appears that Mr. Wiener attempted to
contact the revenue officer with whom he had negotiated the
agreement to let him know that the Wieners could no longer afford
to make the $1,800 monthly payment. In any event, the Wieners
continued to make monthly payments, albeit in a reduced amount,
until they stopped making payments completely in 2002 when
petitioner filed her request for section 6015 relief.
We do not view these facts as establishing a lack of good-
faith compliance on petitioner’s part. Rightly or wrongly,
petitioner relied on her husband to deal with the details of
their financial and tax matters. We cannot conclude that a
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failure to abide by the terms of an installment agreement in the
face of financial difficulties equals a failure on petitioner’s
part to make a good-faith effort to comply with Federal tax laws
after 1981.
We conclude that this negative factor does not apply.
vi. Requesting Spouse’s Legal Obligation
Because petitioner was not solely responsible for paying the
liabilities at issue, this negative factor does not apply.
c. Conclusion
Of the six positive factors, two factors weigh in favor of
relief and four factors do not apply. Of the six negative
factors, one factor weighs against granting petitioner section
6015(f) relief, and the other factors do not apply. The positive
and negative factors enumerated in Rev. Proc. 2000-15, sec. 4.03,
however, are not the only things we consider. We recognize that
petitioner did not review her tax returns, but her failure was
consistent with her apparently well-established but unwise
reliance on her husband to manage their financial and tax
affairs. Even if petitioner had reviewed the tax returns and
inquired about the SGA losses, we believe that it is unlikely
petitioner would have received the information necessary to
evaluate whether to file the returns as prepared. Mr. Wiener
consistently misled petitioner by not telling her about the
investment in SGA and then representing to petitioner years later
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that any tax issues with the IRS related to his business and
would be resolved. Petitioner, who is in her 70s and has health
problems, did not significantly benefit beyond normal support
from the deduction of the SGA losses, and she has suffered from
her reliance on her husband who in his capacity as a trustee of a
trust established under the will of petitioner’s mother for
petitioner’s benefit repeatedly took funds from the trust to
cover various expenses. As of the date of trial, the trust has
been reduced to less than $39,000 and will provide little
security for petitioner in the future. Given petitioner’s age,
her health, and the financial hardship that she will experience
if she is not granted relief under section 6015(f), we conclude
on the totality of the record that petitioner qualifies for
relief under section 6015(f) and that respondent’s determination
to the contrary is in error.
We have carefully considered all remaining arguments made by
the parties and, to the extent not discussed above, find those
arguments to be irrelevant, moot, or without merit.
To reflect the foregoing,
Decision will be entered
for petitioner.