T .C . Summary Opinion 2008-3 3

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T .C . Summary Opinion 2008-3 3

UNITED STATES TAX COUR T

DEBRA E . BISHOP, Petitioner,

AND DAVID L . BISHOP, Intervenor v .

COMMISSIONER OF INTERNAL REVENUE, Responden t

Docket No . 7595-06S . Filed March 31, 2008 .

Barbara Lamar , for petitioner .

David L . Bishop, pro se .

Daniel N . Price , for respondent .

DAWSON,

Judge : This case was heard pursuant to section 7463

of the Internal Revenue Code in effect when the petition was

filed .' Pursuant to section 7463(b) the decision to be entere d

'Unless otherwise indicated, subsequent section references

are to the Internal Revenue Code, and all Rule references are to

the Tax Court Rules of Practice and Procedure .

RUED MAR 31 2008

- 2 is not reviewable by any other court, and this opinion shall not

be treated as precedent for any other case .

This case arises from a request for relief from joint and

several liability under section 6015(f) with respect to

petitioner's unpaid joint Federal income tax liabilities for

2000, 2001, and 2002 . Respondent initially determined that

petitioner was not entitled to relief from joint and several

liability under section 6015(f) . Petitioner timely filed a

petition seeking review of respondent's determination . In a

postpetition and pretrial review of respondent's initial

determination by the Austin, Texas, Appeals Office, reversing the

prior review by the Memphis, Tennessee, Appeals Office, it was

concluded that petitioner is entitled to relief . When the case

was called for trial, respondent's counsel stated that petitioner

and respondent both agreed that "petitioner is entitled to

relief ." However, David L . Bishop (intervenor) objected and

would not consent to signing the decision document . Thus we must

decide, on the basis of the testimony and documentary evidence in

this record, whether petitioner is entitled to relief under

section 6015(f) for the years involved .

Background

At the time the petition was filed, petitioner resided in

Texas .

- 3 On July 27, 2007, petitioner and respondent filed a joint

motion, pursuant to Rule 91(f), for intervenor to show cause why

the facts and evidence set forth in a proposed stipulation of

facts, together with attached exhibits, should not be accepted as

established for the purposes of this case . Intervenor filed a

response to the order to show cause, primarily on the ground that

he was not solely responsible for the unpaid taxes and that

petitioner should pay her share . At the trial the Court's order

to show cause was made absolute in that the facts and evidence

set forth in the proposed stipulation of facts were deemed to be

established for the purposes of this case, and most of the

exhibits were received into evidence and made a part of the

record .

Petitioner and intervenor were married in 1982 . They

continued to be married in 2000, 2001, and 2002 . They separated

in 2003 and were divorced on January 9, 2004 . They had two minor

children, a daughter and son, who were their dependents in 2000,

2001, and 2002 .

Petitioner has a high school education . During the years at

issue, she was employed as a claims processor for a health

insurance company . Intervenor has a college degree in

accounting, and during the years at issue worked as an auditor

for the Texas Workforce Commission . He now performs auditing

services as a consultant on an hourly subcontract basis . He was

- 4 previously a revenue agent who conducted income tax audits for

the Internal Revenue Service (IRS) . In 1994, intervenor was

indicted for bribing a public official in 1992 and 1993 . He pled

guilty to the charges . On January 6, 1995, U .S . District Court

Judge H .F . Garcia entered the judgment in the criminal case,

which imposed a special assessment of $50 on each of two counts

and a fine of $1,000 on each count and sentenced intervenor to 28

months of imprisonment in the custody of the U .S . Bureau of

Prisons . He was released from prison in 1997, at which time he

rejoined his wife and children . Sometime thereafter he began

working as an auditor for the Texas Workforce Commission .

On June 4, 1998, this Court entered a decision in the case

of Bishop v . Commissioner , docket No . 9641-97, that for 1992 and

1993 income tax deficiencies of $2,809 and $3,834 and section

6662(a) penalties of $562 and $626, respectively, were due from

him . He has paid the assessed deficiencies, penalties, and

interest in part .

Before and after 2000, petitioner and intervenor began

living beyond their means, purchasing a new home, furniture, and

automobiles and incurring substantial expenses and debts .

Intervenor was a domineering person who controlled their

financial matters and prepared their Federal income tax returns .

During the years at issue he advised petitioner to decrease her

tax withholding by increasing her exemptions . He also decreased

- 5 his own tax withholding . Those actions resulted in the

underpayments of tax for the years 2000 through 2002 and the

failure to make any payments on the unpaid tax liabilities after

they were assessed .

Petitioner did not sign the joint Federal income tax returns

for 2000 and 2001 . Intervenor did not disclose or discuss with

petitioner the contents of those returns . However, petitioner

gave her Forms W-2, Wage and Tax Statement, to intervenor for

those years, and they were attached to the returns . Intervenor

did not file the return for either year until June 4, 2002 . It

was not until late 2002 or early 2003 that petitioner became

aware that intervenor had made no payments on the unpaid taxes

for 2000 and 2001 of $2,532 and $4,685, respectively .

Petitioner did sign the joint Federal income tax return for

2002, which reported wages for intervenor and her . No Forms W-2

were attached to the return . The total underpayment of tax for

that year is $6,105 .

Petitioner subsequently corrected her withholding and

entered into an installment agreement with the IRS to pay the

balance of her tax due for 2003 . It appears that she is

presently current in paying her Federal income tax .

During 2007, in a final review and reversal of respondent's

initial determination, Appeals Officer Handrick of the Austin

Office concluded that petitioner should be granted full equitable

relief under section 6015(f) for 2000, 2001, and 2002 . His

explanation and analysis contained in an Appeals case memorandum,

and approved by the Appeals team manager, states, in part, as

follows :

It appears that the Government will be able to show

that the petitioner had reason to know that Mr . Bishop

was not going to pay the unpaid tax liabilities .

Therefore, it does not appear that the petitioner

qualifies under the first opportunity .

The following are factors that may be relevant to

whether the Service will grant equitable relief under

the second opportunity .

(i) Marital status . Whether the requesting spouse is

separated (whether legally separated or living apart)

A

or divorced from the non-requesting spouse .

temporary absence, such as an absence due to

incarceration, illness, business, vacation, military

service, or education, shall not be considered

separation for purposes of this revenue procedure if it

can be reasonably expected that the absent spouse will

return to a household maintained in anticipation of his

or her return . See Treas . Reg . section 1 .60153(b)(3)(i) for the definition of a temporary absence .

The petitioner is divorced . The MAC has determined

that this factor favors relief and I concur .

(ii) Economic hardship . Whether the requesting spouse

would suffer economic hardship (within the meaning of

section 4 .02(1)(c) of this revenue procedure) if the

Service does not grant relief from the income tax

liability . According to the petitioner her monthly

income barely covers monthly expenses . The petitioner

is raising 2 children and is supposed to receive child

support from Mr . Bishop but has not received anything

since 2004 . In addition, it should be noted that when

Mr . Bishop was in prison, the petitioner was

responsible for supporting her two children and

incurred a considerable amount of debt which she is

currently paying off . In fact the taxpayer was making

monthly payments in accordance with a Chapter 13

bankruptcy that was dismissed on September 12, 2003 .

The MAC has determined that the petitioner will not

incur an economic hardship if relief is not granted . I

disagree . It appears that the petitioner will incur an

economic hardship if relief is not granted . Therefore,

this factor does favor relief .

(iii)

Knowledge or reason to know .

(A) Underpayment cases . In the case of an income tax

liability that was properly reported but not paid,

whether the requesting spouse did not know and had no

reason to know that the non-requesting spouse would not

pay the income tax liability . As previously stated, it

appears that the taxpayer had reason to know that her

ex-husband was not going to pay the liabilities in

question . Therefore, this factor weighs against

relief .

(iv) Non-requesting spouse's legal obligation . Whether

the non-requesting spouse has a legal obligation to pay

the outstanding income tax liability pursuant to a

divorce decree or agreement . This factor will not

weigh in favor of relief if the requesting spouse knew

or had reason to know, when entering into the divorce

decree or agreement, that the non-requesting spouse

would not pay the income tax liability . The divorce

decree appears to be silent with respect to the tax

liabilities . The MAC has determined that this factor

weighs against relief . I disagree . Where the divorce

decree is silent, this factor is a neutral factor . See

Connie Washington v . Commissioner , 120 T .C . 137 .

Therefore, this factor is neutral .

(v) Significant benefit . Whether the requesting spouse

received significant benefit (beyond normal support)

from the unpaid income tax liability or item giving

rise to the deficiency . See Treas . Reg . section

1 .6015-2(d) . Where there is no significant benefit,

the Tax Court has ruled that this factor is neutral .

See Teresa J . Fox v . Commissioner , T .C . Memo . 2006-22 .

The MAC has determined that this factor weighs against

relief . I disagree . Since the petitioner received no

significant benefit, this factor is neutral .

(vi) Compliance with income tax laws . Whether the

requesting spouse has made a good faith effort to

comply with income tax laws in the taxable years

following the taxable year or years to which the

request for relief relates . Tax compliance is a factor

that the Commissioner will consider only against

granting relief .

Ewing v . Commissioner , 122 T .C . 32 .

The MAC has determined that this factor weighs in favor

of relief . I disagree . Based upon the Ewing case,

this factor is neutral .

Factors that, if present in a case, will weigh in favor

of equitable relief, but will not weigh against

equitable relief if not present in a case, include, but

are not limited to, the following :

Abuse . Whether the non-requesting spouse abused the

requesting spouse . The presence of abuse is a factor

favoring relief . A history of abuse by the nonrequesting spouse may mitigate a requesting spouse's

knowledge or reason to know . The MAC has determined

that there was no physical abuse . However, abuse is

not limited to physical abuse .

There can also be verbal and mental abuse . According

to the petitioner, when she asked Mr . Bishop why there

wasn't much income tax being withheld from her weekly

pay, he told her not to worry and trust him because he

worked for the IRS . When she persisted, Mr . Bishop

yelled at her and threatened her . The petitioner also

discovered that Mr . Bishop was accessing her bank

account to pay pornography sites .

When she confronted him about that, Mr . Bishop became

very agitated and began yelling at her . In addition,

the taxpayer feared that Mr . Bishop would retaliate

against their children . It wasn't until the petitioner

discovered that Mr . Bishop was having an affair that

she decided to file for a divorce . Therefore, it

appears that this factor does favor relief .

*

In summation, it appears that three factors favor

relief, one weighs against relief and the rest are

neutral . Therefore, since the factors in favor of

relief outweigh the one factor against, the petitione r

is entitled to innocent spouse relief in accordance

with I .R .C . section 6015(f) .

Respondent's counsel agrees with Appeals Officer Handrick's

analysis and concedes that petitioner is entitled to full

equitable relief under section 6015(f) .

Petitioner's present income, reasonable living expenses, and

substantial debt create an economic hardship that would make it

exceedingly difficult and burdensome for her to pay the unpaid

income tax liabilities for 2000, 2001, and 2002 .

While petitioner was not physically abused by intervenor,

she was mentally and emotionally abused by his rage and threats .

When petitioner was moving out of the family home during their

separation, intervenor's threats caused such havoc that she

requested police protection and filed a report regarding his

conduct toward her . Their children were concerned and upset

about intervenor's temperamental outbursts and verbal harassment

of their mother .

Intervenor has made no efforts to pay the assessed income

tax liabilities for 2000, 2001, and 2002 .

Discussion

A predicate to relief under section 6015 is that a joint

income tax return was filed . Sec . 6015(a)(1), (b)(1)(A) . Thus,

if the Court should find that petitioner did not file joint

returns for 2000 and 2001, we would be required to deny her claim

for section 6015 relief for those years .

Raymond v .

Commissioner , 119 T .C . 191, 194-197 (2002) .

- 10 Married taxpayers may elect to file a joint Federal income

tax return . Sec . 6013(a) . Generally, a joint return must be

signed by both spouses . Sec . 1 .6013-1(a)(2), Income Tax Regs .

However, where both spouses intend to file a joint return, the

failure of one spouse to sign the return will not preclude its

treatment as a joint return .

Estate of Campbell v . Commissioner ,

56 T .C . 1, 12 (1971) . Petitioner and intervenor agree that they

intended to file joint returns for 2000 and 2001, and respondent

has not challenged their right to do so . See Acquaviva v .

Commissioner , T .C . Memo . 1996-542 .

In . general, spouses who file a joint Federal income tax

return are jointly and severally liable for the full amount of

the tax liability shown or required to be shown on the return .

Sec . 6013(d)(3) ;

Butler v . Commissioner , 114 T .C . 276, 28 2

(2000) . However, a spouse may seek relief from joint and several

liability under section 6015 if certain requirements are met .

Petitioner seeks equitable relief under section 6015(f) .

Section 6015(f) provides :

SEC . 6015(f) . Equitable Relief .--Under procedures

prescribed by the Secretary, if-(1) taking into account all the facts and

circumstances, it is inequitable to hold the

individual liable for any unpaid tax or any

deficiency (or any portion of either) ; an d

(2) relief is not available to such

individual under subsection (b) or (c) ,

the Secretary may relieve such individual of such liability .

- 11 Because petitioner seeks relief from underpayments of tax rather

than understatements of tax, relief is not available to her under

section 6015(b) and (c) . See Washington v . Commissioner , 120

T .C . 137, 145-147 (2003) .

On December 20, 2006, Congress amended section 6015(e)(1) to

provide that this Court has jurisdiction over stand-alone section

6015(f) cases .2 Tax Relief and Health Care Act of 2006, Pub . L .

109-432, div . C, sec . 408(a), (c), 120 Stat . 3061, 3062 .3

Respondent concedes that we have jurisdiction over this case

under section 6015(e) as amended .

2Tax Relief and Health Care Act of 2006, Pub . L . 109-432,

div . C, sec . 408(c), 102 Stat . 3062, provides that "The

amendments made by * * * [sec . 408] shall apply with respect to

liability for taxes arising or remaining unpaid on or after [Dec .

20, 20061 . "

3Sec .

6015(e)

SEC .

6015(e) .

now provides :

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 .-- * * * 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 * * * [Emphasis added .]

- 12 The Commissioner uses guidelines prescribed in Rev . Proc .

2003-61, 2003-2 C .B . 296, to determine whether a taxpayer

qualifies for relief from joint and several liability under

section 6015(f) . 4

A.

Rev . Proc . 2003-61, Sec . 4 .0 1

Before the, Commissioner will consider a taxpayer's request

for relief under section 6015(f), the taxpayer must satisfy the

seven threshold conditions listed in Rev . Proc . 2003-61, sec .

4 .01, 2003-2 C .B . at 297 . The parties agree that petitioner

satisfies each of the conditions .

B.

Rev . Proc . 2003-61, Sec . 4 .02

1.

In Genera l

Rev . Proc . 2003-.61, sec . 4 .02(1), 2003-2 C .B . at 298,

provides that equitable relief will ordinarily be granted as to

unpaid liabilities if, in addition to the seven threshold

conditions, each of the following elements is satisfied :

(a) On the date of the request for relief, 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 12-month

period ending on the date of the request for relief .

'Rev . Proc . 2003-61, 2003-2 C .B . 296, supersedes Rev . Proc .

2000-15, 2000-1 C .B . 447, 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 . Rev . Proc . 2003-61, secs . 6 and 7,

2003-2 C .B . at 299 . Petitioner's request for relief was filed on

May 20, 2005 .

- 13 (b) On the date the requesting spouse signed the

joint return, the requesting spouse had no knowledge or

reason to know that the nonrequesting spouse would not

pay the income tax liability . The requesting spouse

must establish that it was reasonable for the

requesting spouse to believe that the nonrequesting

spouse would pay the reported income tax liability .

* * *

(c) The requesting spouse will suffer economic

hardship if the Service does not grant relief . * * *

Petitioner and intervenor were divorced at the time

petitioner filed her request for relief . Respondent has

determined that petitioner will suffer economic hardship if

relief is not granted, and we agree . Thus, the dispute is

whether petitioner had knowledge or reason to know that

intervenor would not pay the reported tax liabilities for 2000,

2001, and 2002 .

2 .

Knowledge or Reason To Kno w

This element is satisfied if the requesting spouse did not

know or have reason to know when she signed the return that the

taxes would not be paid . Rev . Proc . 2003-61, sec . 4 .02(1)(b) .

Accordingly, petitioner must establish that it was reasonable for

her to believe that intervenor would pay the reported tax

liabilities .

Although petitioner may not have been aware of the tax

liabilities intervenor reported on the 2000 and 2001 returns

because the returns were not signed by or discussed with her an d

she did not actually know that there were unpaid taxes until at

- 14 least late 2002 or early 2003, we think petitioner should have

had reason to believe that those tax liabilities might exist

because of their mounting debts and severe financial situation .

Of course, petitioner knew there were unpaid taxes due for 2002

because she signed the return for that year and confronted

intervenor about the unpaid taxes due for that year as well as

for the 2 prior years . Furthermore, she knew about the tax

liabilities when she joined intervenor as a party in a chapter 13

bankruptcy proceeding in February 2003 . Therefore, we conclude

that petitioner did not satisfy the knowledge or reason to know

element of Rev . Proc . 2003-61, sec . 4 .02, and thus does not

qualify for equitable relief under that section of the revenue

procedure .

C.

Rev . Proc . 2003-61, Sec . 4 .0 3

Where the requesting spouse fails to qualify for relief

under Rev . Proc . 2003-61, sec . 4 .02, the Commissioner may

nonetheless grant relief under Rev . Proc . 2003-61, sec . 4 .03,

2003-2 C .B . at 298-299 . Rev . Proc . 2003 -61, sec . 4 .03, provides

that where the seven threshold conditions have been satisfied and

the requesting spouse does not qualify for relief under Rev .

Proc . 2003-61, sec . 4 .02, 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

- 15 liable . Rev . Proc . 2003-61, sec . 4 .03, lists 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) . As Rev . Proc . 2003-61, sec . 4 .03,

makes clear, no single factor is determinative in any particular

case, all factors are to be considered and weighed appropriately,

and the list of factors is not intended to be exclusive .

Rev . Proc . 2003-61, sec . 4 .03(2)(a), 2003-2 C .B . at 298-299,

lists the following factors that the Commissioner will weigh in

determining whether to grant equitable relief :

(i) Marital status . Whether the requesting spouse

is separated * * * or divorced from the nonrequesting

spouse . * *

(ii) Economic hardship . Whether the requesting

spouse would suffer economic hardship (within the

meaning of section 4 .02(1)(c) of this revenue

procedure) if the Service does not grant relief from

the income tax liability .

(iii)

Knowledge or reason to know .

(A) Underpayment cases . * * * whether the

requesting spouse did not know and had no reason to

know that the nonrequesting spouse would not pay the

income tax liability .

*

(iv) Nonrequesting spouse's legal obligation .

Whether the nonrequesting spouse has a legal obligation

to pay the outstanding income tax liability pursuant to

a divorce decree or agreement . * * *

(v) Significant benefit . Whether the requesting

spouse received significant benefit (beyond normal

support) from the unpaid income tax liability * * *

- 16 (vi) Compliance with income tax laws . Whether the

requesting spouse has made a good faith effort to

comply with income tax laws in the taxable years

following the taxable year or years to which the

request for relief relates .

Rev . Proc . 2003-61, sec . 4 .03(2)(b), 2003-2 C .B . at 299,

lists two positive factors that the Commissioner will weigh in

favor of granting equitable relief . They are :

(i) Abuse . Whether the nonrequesting spouse

abused the requesting spouse . * * *

(ii) Mental or physical health . Whether the

requesting spouse was in poor mental or physical health

on the date the requesting spouse signed the return or

at the time the requesting spouse requested relief .

* * *

Before we consider and apply the above factors, we will

comment on the testimonial credibility of the two key witnesses,

petitioner and intervenor . In many respects their testimony is

critical to our disposition of the issue involved herein . Their

testimony boils down essentially to a "she said/he said "

situation .

In Kropp v . Commissioner , T .C . Memo . 2000-148, we stated

that "As a trier of fact, it is our duty to listen to the

testimony, observe the demeanor of the witnesses, weigh the

evidence, and determine what we believe ." In Diaz v .

Commissioner , 58 T .C . 560, 564 (1972), we observed similarly that

the process of distilling truth from the testimony of witnesses,

whose demeanor we observe and whose credibility we evaluate, is

the daily grist of judicial life . We are not required to accept

- 17 testimony if it is improbable, unreasonable, or questionable .

MacGuire v . Commissioner , 450 F .2d 1239, 1244-1245 (5th Cir .

1971), affg . T .C . Memo . 1970-89 .

We find that petitioner's testimony was credible in material

respects . By contrast, we find that intervenor's testimony was

not credible . Having observed intervenor and evaluated his

demeanor as a witness, we reject certain aspects of his

testimony, not merely because we sometimes found it inconsistent,

vague, evasive, or misleading, but because we simply do not

believe it .

We turn now to weighing the factors in considering whether

petitioner qualifies for equitable relief under Rev . Proc . 200361, sec . 4 .03 .

1 .

Marital Statu s

Petitioner and intervenor separated in 2003 and divorced in

2004 . This factor weighs in favor of granting relief .

2 .

Economic Hardshi p

As previously found and for the reasons stated, we conclude

that petitioner has established to our satisfaction that she will

suffer economic hardship if she is not granted equitable relief .

This factor weighs in favor of granting relief .

3.

Knowledge or Reason To Kno w

For the reasons stated in our analysis of this factor under

Rev . Proc . 2003-61, sec . 4 .02, we conclude that petitioner has

- 18 failed to establish that she did not have reason to know that

intervenor would not pay the income tax liabilities for the years

at issue . This factor weighs against granting relief .

4 .

Nonrequesting Spouse ' s Legal Obligatio n

The divorce decree did not contain a provision as to which

spouse had a legal obligation to pay the outstanding income tax

liabilities for 2000, 2001, and 2002 . This factor is neutral .

5 .

Significant Benefi t

Petitioner did not receive significant benefit beyond normal

support from the unpaid income tax liabilities . This factor is

neutral .

6.

Compliance With Income Tax Law s

Tax compliance is a factor considered by the Commissioner

only against granting relief . Respondent does not contend that

petitioner did not make a good faith effort to comply with her

Federal income tax obligations in years subsequent to 2002 . And

respondent does not contend that this factor applies .

Consequently, this factor is neutral .

7 .

Abus e

As previously indicated, while petitioner was not physically

abused by intervenor ,

respondent determined, and we agree, that

there was mental and emotional abuse sufficient to support

relief . Thus, this factor weighs in favor of granting relief .

- 19 Conclusio n

There are three factors that favor granting equitable

relief, one that weighs against granting it, and the remainder

that are neutral . Accordingly, after considering all the facts

and circumstances, we conclude that it would be inequitable to

hold petitioner liable for the underpayments of tax for 2000,

2001, and 2002 . Therefore, petitioner is entitled to relief

under section 6015(f) .

To reflect the foregoing,

Decision will be entere d

for petitioner .