United States Tax Court

United States Tax Court

T.C. Memo. 2024-56

KIRAN RAWAT,

Petitioner,

AND RAGHVENDRA SINGH,

Intervenor

v.

COMMISSIONER OF INTERNAL REVENUE,

Respondent

__________

Docket No. 11350-18.

Filed May 13, 2024.

__________

Kiran Rawat, pro se.

Raghvendra Singh, pro se.

Sharyn M. Ortega and Brian A. Pfeifer, for respondent.

MEMORANDUM FINDINGS OF FACT AND OPINION

GALE, Judge: By a final determination dated May 8, 2018,

respondent determined that petitioner was not entitled to innocent

spouse relief pursuant to section 6015(b), (c), or (f) 1 for taxable years

1998–2002 and 2008–14.

Petitioner timely petitioned for

redetermination of respondent’s decision on June 8, 2018. Petitioner’s

husband intervened to support petitioner’s claim for relief.

The Court granted respondent’s Motion to Dismiss for Lack of

Jurisdiction for 2008–09 and 2011–14. The Court also granted

1 Unless otherwise indicated, statutory references are to the Internal Revenue

Code, Title 26 U.S.C., in effect at all relevant times, regulation references are to the

Code of Federal Regulations, Title 26 (Treas. Reg.), in effect at all relevant times, and

Rule references are to the Tax Court Rules of Practice and Procedure.

Served 05/13/24

2

[*2] respondent’s Motion for Partial Summary Judgment for 1998–2002

and 2010 in which respondent moved for summary adjudication that

petitioner is (1) ineligible for relief pursuant to section 6015 on the

ground of res judicata for 1998, 1999, 2001, and 2002, (2) ineligible for

relief pursuant to section 6015 for 2000 because she did not file a joint

return for that year, and (3) ineligible for relief pursuant to section

6015(b) or (c) for 2010 because her claim was not filed timely. The only

issue remaining for decision is whether petitioner is entitled to equitable

relief from joint and several liability for 2010 under section 6015(f).

FINDINGS OF FACT

Some of the facts are stipulated and are so found. The First

Stipulation of Facts and the attached Exhibits are incorporated herein

by this reference. Petitioner resided in California when the Petition was

timely filed.

Petitioner and intervenor were married in 1996. They were

legally separated under the law of California as of January 1, 2000.

Petitioner and intervenor untimely filed a joint return for 2010 in June

2011. At that time they had a case pending in this Court covering their

taxable years 1997–2002, for which respondent had determined

deficiencies. Petitioner had received the notice of deficiency for those

years.

On May 18, 2012, respondent issued to petitioner and intervenor

a notice of deficiency for 2008–10. The deficiency for 2010 resulted

primarily from the following adjustments: $345,032 of unreported

cancellation of indebtedness income reported to petitioner on Form

1099–A, Acquisition or Abandonment of Secured Property; disallowed

expense deductions of $182,256 from Schedule C, Profit or Loss From

Business; $35,452 of unreported long-term capital gain; and $26,064 of

intervenor’s unreported retirement income.

Petitioner and intervenor untimely filed with the Court a Petition

to redetermine the 2010 deficiency. The Court accordingly dismissed

the case for lack of jurisdiction.

Petitioner and intervenor continued to file joint returns each year

through 2018.

Petitioner and intervenor have joint outstanding balances due for

federal income tax for 2001, 2002, 2012, 2013, and 2014.

3

[*3] Petitioner received her nursing license in 1997. Before 2000 she

worked for various nursing facilities as an employee and as a contractor

through intervenor’s nurse staffing agency. In 2000 petitioner began

nursing work as an employee for a hospital. In the three years preceding

trial, petitioner earned taxable wages of $114,446, $89,467, and

$115,914. Petitioner’s annual income at the time of trial is unknown

because she did not provide any pay stubs beyond December 2018. From

2015 to 2020 petitioner made contributions totaling $140,224 to her

employer-sponsored retirement plan.

Petitioner and intervenor at various times managed numerous

rental properties. Petitioner was at least the nominal owner of these

properties. In 2017 the California Court of Appeal for the Third District

affirmed a trial court’s decision finding petitioner and intervenor liable

for violations of state tenancy law in a suit brought by one of their

tenants. In that case the trial court found by clear and convincing

evidence that petitioner “owned, managed and controlled the subject

property” and that she “ratified and approved the . . . conduct of

defendant [intervenor Raghvendra] Singh” with respect to the rental

property in question. That court ordered certain of petitioner’s

properties to be placed into receivership for disposition to satisfy the

couple’s creditors. For 2018 petitioner received Forms 1098, Mortgage

Interest Statement, relating to three of those properties. Petitioner

owned at least one of the properties as of June 4, 2021. The record is

otherwise unclear as to the actual number and value of the properties

that had been placed into receivership or that petitioner continued to

own as of the time of trial.

On August 31, 2017, respondent received from petitioner Form

8857, Request for Innocent Spouse Relief, seeking relief from the 2010

liability. On her Form 8857, petitioner failed to disclose her ownership

of any real property or retirement accounts in the space provided to

disclose her assets.

In the final determination denying relief, respondent determined

that petitioner was ineligible for relief pursuant to section 6015(b) or (c)

for 2010 because her claim was untimely. Respondent further found

that she did not qualify for equitable relief under section 6015(f) because

a portion of the deficiency is attributable to her and under the

circumstances it was not unfair to hold her jointly liable for the

deficiency.

4

[*4]

I.

OPINION

Relief Under Section 6015(f)

Generally, married taxpayers may elect to file a joint federal

income tax return. § 6013(a). If a joint return is made, each spouse is

generally jointly and severally liable for the entire tax due on their

aggregate income for that year. § 6013(d)(3). Under section 6015(a) a

spouse may seek relief from joint and several liability under section

6015(b) or, if eligible, may allocate liability according to provisions set

forth in section 6015(c). If a taxpayer does not qualify for relief under

section 6015(b) or (c), the taxpayer may seek equitable relief under

section 6015(f). § 6015(f)(1)(B); Porter v. Commissioner, 132 T.C. 203,

206 (2009). We held petitioner is not entitled to relief under subsections

(b) and or (c) for 2010 in granting respondent’s aforementioned Motion

for Partial Summary Judgment with respect to that year.

Under section 6015(f) the Secretary may grant equitable relief to

a requesting spouse if, considering all the facts and circumstances, it

would be inequitable to hold the requesting spouse liable for any unpaid

tax or deficiency. In determining whether a taxpayer is entitled to relief

under section 6015(f) for petitions filed before July 1, 2019, the Court

applies a de novo standard and scope of review. Porter, 132 T.C. at 210;

cf. Sutherland v. Commissioner, 155 T.C. 95, 104 (2020) (holding that

section 6015(e)(7) does not apply to petitions filed before July 1, 2019).

Petitioner bears the burden of proving that she is entitled to equitable

relief under section 6015(f). See Rule 142(a); Porter, 132 T.C. at 210.

The Commissioner has specified the procedures governing

equitable relief in Rev. Proc. 2013-34, 2013-43 I.R.B. 397, modifying and

superseding Rev. Proc. 2003-61, 2003-2 C.B. 296. Although we are not

bound by Rev. Proc. 2013-34, and our determination ultimately rests on

an evaluation of all the facts and circumstances, we analyze petitioner’s

request under the guidelines set forth therein to ascertain whether she

is eligible for relief. See Pullins v. Commissioner, 136 T.C. 432, 438–39

(2011); Johnson v. Commissioner, T.C. Memo. 2014-240, at *10.

Rev. Proc. 2013-34 provides a three-step analysis for Internal

Revenue Service (IRS) personnel to follow in evaluating requests for

relief. Section 4.01 lists seven threshold conditions that must be met

before the IRS will grant any relief. Rev. Proc. 2013-34, § 4.01, 2013-43

I.R.B. at 399. Section 4.02 lists circumstances in which the IRS will

make a streamlined determination granting equitable relief. Id. § 4.02,

5

[*5] 2013-43 I.R.B. at 400. For taxpayers not eligible for a streamlined

determination, section 4.03 prescribes a list of nonexclusive factors that

the IRS will consider in determining whether equitable relief should be

granted. Id. § 4.03, 2013-43 I.R.B. at 400–03. Respondent concedes that

petitioner meets the seven threshold conditions.

A.

Streamlined Determination

A streamlined determination granting equitable relief under

section 6015(f) is available if the requesting spouse can establish that

he or she (1) is no longer married to the nonrequesting spouse, (2) would

suffer economic hardship if relief were not granted, and (3) lacked

knowledge or reason to know of the understatement at the time the

return at issue was signed. Rev. Proc. 2013-34, § 4.02. As discussed

below, petitioner does not satisfy the economic hardship condition and

is therefore not eligible for a streamlined determination of equitable

relief.

Economic hardship exists “if satisfaction of the tax liability in

whole or in part will cause the requesting spouse to be unable to pay

reasonable basic living expenses.” Id. § 4.03(2)(b), 2013-43 I.R.B. at 401.

The requesting spouse “must demonstrate that imposing joint and

several liability is ‘inequitable in present terms’ . . . and poses a present

economic hardship.” Pullins, 136 T.C. at 446 (quoting Von Kalinowski

v. Commissioner, T.C. Memo. 2001-21, slip op. at 20). We have

“consistently looked beyond the taxable year at issue to apply subsection

(f).” Hall v. Commissioner, 135 T.C. 374, 380 (2010). We therefore

evaluate the requesting spouse’s financial situation and prospects as of

the time of trial. See Pullins, 136 T.C. at 446–47.

A requesting spouse can demonstrate economic hardship by

showing that his or her (1) annual income is below 250% of the federal

poverty guidelines, 2 or (2) monthly income exceeds his or her reasonable

basic monthly living expenses by $300 or less. Rev. Proc. 2013-34,

§ 4.03(2)(b). To demonstrate economic hardship, the requesting spouse

must also show that he or she does not have assets from which he or she

could make payments toward the tax liability and still meet reasonable

2 The federal poverty guidelines are updated periodically in the Federal

Register by the U.S. Department of Health and Human Services (HHS) under the

authority of 42 U.S.C. § 9902(2). In February 2021 HHS published new guidelines

which set the federal poverty line for a one-person household at $12,880 and for a

three-person household at $21,960. Annual Update of the HHS Poverty Guidelines,

86 Fed. Reg. 7732, 7733 (Feb. 1, 2021).

6

[*6] basic living expenses. Id. If she fails to satisfy either requirement,

then the Commissioner “will consider all facts and circumstances

(including the size of the requesting spouse’s household) in determining

whether the requesting spouse would suffer economic hardship if relief

is not granted.” Id.

Petitioner would not suffer economic hardship if denied relief

from the 2010 liability. For a household of three, 250% of the applicable

federal poverty guidelines is $54,900 of annual income. In the three

years preceding trial, petitioner earned in excess of $100,000 in two of

the years and nearly $100,000 in the other. While the record does not

establish her annual income at the time of trial, she did not allege that

she could not meet her reasonable basic living expenses if relief is not

granted. Additionally, petitioner’s substantial contributions to her

employer-sponsored retirement plan further suggest that she has

sufficient assets to avoid economic hardship if relief is not granted.

Petitioner testified that all of the properties that she and

intervenor once managed had been placed into receivership but did not

provide evidence to corroborate her testimony. Petitioner received three

Forms 1098 for 2018 detailing the amount of mortgage interest she paid

relating to those properties. Considering her receipt of the Forms 1098,

the lack of evidence in the record to the contrary, and her lack of candor

on the matter, we find that petitioner still owns and controls real

property other than her residence. Under these circumstances it is clear

that petitioner would not suffer economic hardship if denied relief.

Petitioner is accordingly not entitled to a streamlined determination of

equitable relief from the 2010 liability.

B.

Equitable Factors

Rev. Proc. 2013-34 establishes the following seven nonexclusive

factors to be considered in determining whether equitable relief under

section 6015(f) should be granted: (1) the current marital status of the

spouses; (2) whether the requesting spouse will suffer economic

hardship if relief is not granted; (3) whether the requesting spouse knew

or had reason to know of the item giving rise to the understatement;

(4) whether either spouse has a legal obligation to pay the outstanding

liability; (5) whether the requesting spouse significantly benefited from

the understatement; (6) whether the requesting spouse has made a good

faith effort to comply with income tax laws in the years following the

year for which relief is sought; and (7) whether the requesting spouse

was in poor mental or physical health when the return at issue was filed,

7

[*7] when the request for relief was made, or at the time of trial. Rev.

Proc. 2013-34, § 4.03(2), 2013-43 I.R.B. at 400–03; see also Pullins, 136

T.C. at 448.

In making a determination under section 6015(f), the Court

considers the enumerated factors as well as any other relevant facts. No

single factor is dispositive, and “[t]he degree of importance of each factor

varies depending on the requesting spouse’s facts and circumstances.”

Rev. Proc. 2013-34, § 4.03(2); see Pullins, 136 T.C. at 448. We discuss

the factors that are most relevant to this case.

1.

Economic Hardship

We have found that petitioner would not suffer economic hardship

if denied relief from the 2010 liability. This factor is accordingly neutral.

Rev. Proc. 2013-34, § 4.03(2)(b).

2.

Knowledge or Reason to Know

In understatement cases, such as this one, this factor weighs in

favor of relief if the requesting spouse did not know or have reason to

know of the item giving rise to the understatement as of the date the

return was filed. Id. § 4.03(2)(c)(i)(A), 2013-43 I.R.B. at 401. This factor

weighs against relief if the requesting spouse knew or had reason to

know of the item. Id. A taxpayer who signs a return is generally

charged with constructive knowledge of its contents. Porter, 132 T.C.

at 211–12.

Although not controlling, we find that the regulations applicable

to knowledge under section 6015(b) and (c) provide a useful framework

for the analysis under section 6015(f). See Jacobsen v. Commissioner,

T.C. Memo. 2018-115, at *30–31 (applying the knowledge analysis under

section 6015(b) to the section 6015(f) analysis). Whether a requesting

spouse has actual knowledge of an erroneous item is determined upon

all facts and circumstances. Treas. Reg. § 1.6015-3(c)(2)(iv).

A requesting spouse has reason to know of an understatement if,

considering all the facts and circumstances, a reasonable person in

similar circumstances would have known of the understatement. Treas.

Reg. § 1.6015-2(c). A requesting spouse has constructive knowledge of

an understatement if he or she knows facts sufficient to place him or her

on notice of a possible understatement and fails to inquire. Price v.

Commissioner, 887 F.2d 959, 965 (9th Cir. 1989). Factors considered in

making this determination include the requesting spouse’s level of

8

[*8] education and/or business expertise, deceit or evasiveness by the

nonrequesting spouse, the requesting spouse’s degree of involvement in

the activity generating the understatement, the requesting spouse’s

involvement in business or household finances, and any lavish or

unusual expenditures compared with past spending levels. Rev. Proc.

2013-34, § 4.03(2)(c)(iii), 2013-43 I.R.B. at 402.

Petitioner is well educated and worked in a professional capacity

as a nurse. When she and intervenor signed and untimely filed the 2010

return, petitioner was aware of numerous issues with their joint returns

from prior years. By then, petitioner and intervenor’s returns for the

1997–2002 taxable years had been examined, a notice of deficiency had

been issued to them, and they had commenced litigation in this Court

for those years. Petitioner admits she received the foregoing notice of

deficiency. See Motsko v. Commissioner, T.C. Memo. 2006-17, slip op.

at 9–10 (stating that knowledge at the time of signing return that prior

years’ returns were being examined and signing of a late-filed return

were enough to trigger the “duty of inquiry” because reasonable person

would have been alerted to possible problems). This alone would cause

a reasonable person to inquire about the accuracy of the 2010 return.

Additionally, most of the adjustments that caused the

understatement for 2010 are attributable to petitioner. Nearly 60% of

the adjustments for 2010 stem from Form 1099–A issued to petitioner

herself. Petitioner testified that she was not involved with the

properties and that intervenor maintained control and made all

decisions with respect to their management of the properties. The

California Superior Court’s finding that petitioner owned, controlled,

and managed the properties, however, contradicts her testimony and

indicates that she had knowledge of and participated in the endeavor.

Petitioner also failed to produce documentary evidence or

testimony describing her involvement, or lack thereof, in the Schedule C

activity that produced the disallowed deductions. Considering the

amount of the disallowed loss deductions in relation to the household’s

income—which consisted primarily of petitioner’s salary—a reasonable

person from petitioner’s perspective would have been alerted to the

potential invalidity of the claimed deductions. Under the foregoing

circumstances, petitioner, at minimum, had a duty to inquire further

with respect to their 2010 return. Because she failed to discharge this

duty, she had reason to know of the items giving rise to the

understatement.

9

[*9] Knowledge or reason to know may be negated where the

requesting spouse establishes that (1) he or she was a victim of abuse

and (2) because of that abuse, and for fear of the nonrequesting spouse’s

retaliation, he or she was unable to challenge the treatment of any items

on the joint return or to question the payment of any amount due. Rev.

Proc. 2013-34, § 4.03(2)(c)(i)(A). Abuse includes efforts to control,

isolate, humiliate, and intimidate the requesting spouse or to undermine

her ability to reason independently. Id. § 4.03(2)(c)(iv), 2013-43 I.R.B.

at 402. To invoke the abuse exception, the requesting spouse must

provide substantiation or specificity regarding the alleged abuse. See

Johnson, T.C. Memo. 2014-240, at *13.

Petitioner’s claims of abuse are unpersuasive. First, she did not

allege in her Form 8857 or her Petition that she suffered abuse. The

first indication of her abuse allegation was in the Pretrial Memorandum

she filed approximately two years after she filed the Petition in this case.

Second, petitioner testified without providing specific examples that her

signatures with respect to the 2010 return were either forged or made

under duress and that intervenor made all financial decisions. At no

point throughout this case has she expressed fear of retaliation from

intervenor if she were to inquire about their tax compliance. We have

not been provided with evidence necessary to find that the presence of

abuse negates her knowledge of the tax items at issue as contemplated

by section 4.03(2)(c)(i) of Rev. Proc. 2013-34. This factor weighs against

relief.

3.

Tax Law Compliance

If a taxpayer is still married to the nonrequesting spouse,

whether or not legally separated or living apart, and continues to file

joint returns with them after requesting relief, then this factor will be

neutral if the returns are in compliance, and weigh against relief if they

are not. Id. § 4.03(2)(f)(ii), 2013-43 I.R.B. at 402–03.

After 2010, petitioner and intervenor remained married and

continued to file joint tax returns through 2018. They still have

outstanding federal tax liabilities for 2012, 2013, and 2014. Petitioner

claimed “unmarried head of household” status on her 2019 return

despite still being married to intervenor, and she has not filed a return

for 2020. This factor weighs against relief.

10

[*10] II.

Conclusion

Upon weighing the facts and circumstances, we find petitioner is

not entitled to innocent spouse relief under section 6015(f) for 2010. Her

testimony lacked merit, and in the light of her considerable income and

assets, knowledge and participation in the items giving rise to the

understatement, and consistent record of noncompliance with tax law,

we find it would not be inequitable to deny relief.

We have considered all of the parties’ arguments and, to the

extent they are not addressed herein, we find them to be moot,

irrelevant, or without merit.

To reflect the foregoing,

Decision will be entered for respondent.