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United States Tax Court
T.C. Memo. 2023-10
KARI JANE FREMAN,
Petitioner,
AND RODNEY C. FREMAN,
Intervenor
v.
COMMISSIONER OF INTERNAL REVENUE,
Respondent
—————
Docket No. 8895-20.
Filed January 23, 2023.
—————
Kari Jane Freman, pro se.
Rodney C. Freman, pro se.
Christine A. Fukushima, Min Young Chan, Patrick J. Coleman, and
Jeffrey A Rodgers, for respondent.
MEMORANDUM FINDINGS OF FACT AND OPINION
JONES, Judge: This case arises from the request of petitioner,
Kari Jane Freman, made pursuant to section 6015, 1 seeking relief from
joint and several liability for federal income tax obligations arising from
tax returns she jointly filed with her former spouse and intervenor in
this case, Rodney C. Freman, for taxable years 2012, 2014, and 2015.
For taxable year 2012 Ms. Freman seeks relief under section 6015(b),
(c), or (f) from an understatement of tax liability resulting from the
1 Unless otherwise indicated, all statutory references are to the Internal
Revenue Code (Code), Title 26 U.S.C., in effect at all relevant times, all regulatory
references are to the Code of Federal Regulations, Title 26 (Treas. Reg.), in effect at all
relevant times, and all Rule references are to the Tax Court Rules of Practice and
Procedure.
Served 01/23/23
2
[*2] failure to report a taxable distribution from Mr. Freman’s
retirement account. For taxable years 2014 and 2015 Ms. Freman seeks
relief under section 6015(f) from the underpayments of tax liabilities
shown as due on the couple’s returns. 2 For the reasons discussed below,
we will grant partial relief to Ms. Freman.
FINDINGS OF FACT
Some of the facts are stipulated and are so found. The First
Stipulation of Facts and the Exhibits attached thereto, including the
administrative record, are incorporated herein by this reference. Ms.
Freman resided in California when she timely filed her Petition, but she
currently lives in Tennessee. Mr. Freman timely filed a Notice of
Intervention.
I.
The Marriage
On September 12, 1998, Ms. Freman married Mr. Freman; they
subsequently had a child. During the tax years at issue Ms. Freman and
Mr. Freman resided in California. Ms. Freman has a high school
education, was not employed outside of the home during the tax years
at issue, and primarily took care of the couple’s child. Throughout most
of the marriage, with limited exceptions, Mr. Freman was employed as
a full-time commodities trader for Monex Deposit Corp. (Monex).
Ms. Freman and Mr. Freman had their share of financial
difficulties, and finances were often a source of contention during their
marriage. Ms. Freman and Mr. Freman maintained joint checking and
savings accounts throughout their marriage. Additionally, Mr. Freman,
through his work with Monex, had a retirement account administered
by J.P. Morgan (Retirement Account).
However, while Ms. Freman and Mr. Freman maintained joint
accounts during their marriage, Mr. Freman was solely responsible for
making all financial decisions during the tax years at issue. Mr. Freman
handled the filing of tax returns during the marriage; and while Ms.
Freman was originally responsible for paying household bills, Mr.
2 An understatement of tax occurs when a taxpayer does not properly report
the amount of tax due, such as by omitting income from the return, improperly
characterizing income, or claiming an erroneous deduction. See Treas. Reg.
§ 1.6015-1(h)(4). An underpayment occurs when a taxpayer properly reports the
amount of tax due but does not pay that amount. See Leith v. Commissioner, T.C.
Memo. 2020-149, at *24–25.
3
[*3] Freman “would get angry” that the bank account balances were
decreasing, and he took that responsibility away from Ms. Freman.
Thereafter, the couple paid a number of bills late, including health
insurance premiums, electricity bills, water bills, and more.
Mr. Freman oversaw the filing of the couple’s joint federal income
tax returns, 3 and he retained Jerry Butler to prepare the tax returns for
the years at issue. Ms. Freman was not involved in the preparation of
the tax returns, and she was not given an opportunity to review the
contents of their returns before signing them. Mr. Freman told Ms.
Freman to hurry up and sign the returns because “there was no time,”
and “he had to get [them] in the mail [or else] . . . the IRS was going to
. . . garnish[] his wages.”
Additionally, Ms. Freman and Mr. Freman each maintain that
they suffered from significant health problems during the marriage,
while maintaining that the other did not. While the precise timeline is
unclear, Ms. Freman was hospitalized in an intensive care unit for a
time in 2015 and was subsequently prescribed narcotics to help her with
pain management. Meanwhile, in 2012, Mr. Freman was diagnosed with
an autoimmune disease that required him to obtain disability leave.
However, the disability insurance was not enough to cover
household expenses during the period of Mr. Freman’s disability. As a
result, in tax year 2012 Mr. Freman took a taxable distribution from his
Retirement Account to help the couple meet their financial obligations.
In order to receive the distribution, Mr. Freman signed and submitted a
“Termination/Distribution Form,” and Ms. Freman signed a notarized
spousal consent form, thereby waiving her rights to the Qualified
Annuity Benefit otherwise available under the retirement plan. Mr.
Freman’s Internal Revenue Service (IRS) Wage and Income Tax
Transcripts show a distribution of $172,342 and withholding tax of
$34,468. The distributed funds were used for regular household
expenditures in 2012 and 2013.
Additionally, because of the limitations imposed by the plan
administrator, Mr. Freman was not permitted to borrow against his
Retirement Account. Thus, Mr. Freman terminated his employment
with Monex to take the distribution. Because of the circumstances of his
3 Ms. Freman argues that she did not sign the tax returns at issue. We discuss
that argument below. See infra Part III.A.
4
[*4] separation, there was an understanding that Monex would rehire
Mr. Freman in the future.
On the limited facts in the record, it appears that Ms. Freman is
working part time, but she may be pursuing some form of disability
assistance. Meanwhile, Mr. Freman was rehired by Monex in 2014, and
he continued his employment through at least 2015.
II.
Tax Liabilities
A.
Tax Year 2012 Understatement
Ms. Freman and Mr. Freman timely filed a joint request for an
extension of time to file their 2012 tax return, but they failed to timely
file a return by the extended deadline. On or around February 29, 2016,
the IRS prepared a substitute for return (SFR) in accordance with
section 6020 that asserted a deficiency of $85,238 and withholding of
$36,057. 4 All income for the taxable year was attributable to Mr.
Freman, including inter alia $5,428 from a prior year state refund,
$68,025 of wages reported on Form W–2, Wage and Tax Statement, from
Mr. Freman’s employment at Monex, and $172,342 of income for the
taxable distribution from Mr. Freman’s Retirement Account.
After receiving the SFR, Ms. Freman and Mr. Freman filed Form
1040A, U.S. Individual Income Tax Return, dated March 9, 2016. 5
However, the Form 1040A did not report the taxable distribution from
the Retirement Account or the taxes withheld. On April 27, 2016, the
IRS issued a revised examination report showing adjustments to the
Form 1040A. The IRS also assessed additions to tax under section
6651(a)(1) and (2) because of the untimeliness of the 2012 return and
the failure to make payment.
4 The parties stipulated that on or around February 29, 2016, the IRS prepared
a substitute for return in accordance with section 6020. The Court notes that this
appears to be the date that the IRS sent Letter 1862, Initial Contact Letter–Substitute
for Return. However, Ms. Freman and Mr. Freman’s Account Transcript for Tax Year
2012 states that a 2012 return was either due or received (whichever is later) on June
1, 2015, and processed on June 29, 2015. This is consistent with another June 29, 2015,
entry on the account transcript that states: “Substitute tax return prepared by IRS.”
In any event, this discrepancy has no material impact on the resolution of this matter,
so we will defer to the stipulation.
5 The Form 1040A is labeled an “amended return” on Ms. Freman and Mr.
Freman’s IRS Account Transcript for taxable year 2012. Ms. Freman and Mr. Freman
did not, however, submit Form 1040X, Amended U.S. Individual Income Tax Return.
5
[*5] The IRS issued a notice of deficiency to Ms. Freman and Mr.
Freman on July 8, 2016. Neither filed a petition with this Court to
challenge the notice of deficiency. On January 2, 2017, the IRS assessed
a deficiency of $60,953 and additions to tax and penalties. Ms. Freman
and Mr. Freman established an installment plan around June 2016 but
ultimately stopped making payments.
B.
Tax Year 2014 Underpayment
On or around November 9, 2016, Ms. Freman and Mr. Freman
filed an untimely joint return for taxable year 2014. The 2014 tax return
reported adjusted gross income totaling $82,234 and income tax liability
of $6,789. All income for the taxable year was attributable to Mr.
Freman. Because of the untimeliness of the 2014 return and the failure
to make payment, the IRS assessed additions to tax under section
6651(a)(1) and (2).
C.
Tax Year 2015 Underpayment
On October 16, 2016, Ms. Freman and Mr. Freman filed an
untimely joint return for taxable year 2015. The 2015 tax return
reported adjusted gross income of $91,182 and income tax liability of
$8,064. The tax liability shown on the 2015 return is solely attributable
to Mr. Freman. However, Mr. Freman, who oversaw the preparation of
the 2015 tax return, did not report $11,883 in cancellation of
indebtedness income attributable to Ms. Freman’s credit card
expenditures. 6 Because of the untimeliness of the 2015 return and the
failure to make payment, the IRS assessed additions to tax under section
6651(a)(1) and (2).
6 The parties stipulated that “[Ms. Freman] was not issued any information
returns according to her 2015 Wage and Income Transcript, a copy of which is attached
hereto as Exhibit 21-R.” Contrary to the parties’ stipulation, Ms. Freman’s Wage and
Income Transcript reflects that she was issued Form 1099–C, Cancellation of Debt.
This form states that $10,349 of principal credit card expenditures and $1,534 of
interest were canceled on December 31, 2015. See, e.g., Brooks v. Commissioner, T.C.
Memo. 2012-25, 2012 WL 246459, at *3 (stating that the Code generally treats
discharge of indebtedness as income, including both principal and interest, subject to
limited exceptions). This stipulation is clearly contrary to the facts that we have found
are established by the record, and we shall disregard it. See Cal-Maine Foods, Inc. v.
Commissioner, 93 T.C. 181, 195 (1989).
6
[*6] III.
Divorce
Ms. Freman filed for divorce, and Mr. Freman was served with a
petition for divorce, sometime in November 2017. 7 After filing for
divorce, Ms. Freman and her minor child resided in the marital
residence until on or about March 10, 2018, when she moved into a
recreational vehicle. A judgment of dissolution was entered in or about
July 2021 by the Superior Court of California, County of Riverside. 8
Proceedings are still pending to determine spousal and child support, as
well as to determine the outcome of the property settlement.
IV.
Ms. Freman’s Request for Section 6015 Spousal Relief
On February 21, 2019, the IRS’s Cincinnati Centralized Innocent
Spouse Operation (CCISO) received Ms. Freman’s Form 8857. 9 Ms.
Freman stated: “I just signed where he told me to, unaware who [sic] or
when [the returns] were being filed.” On the Form 8857, Ms. Freman
responded “no” to question 8, asking whether she or another family
member were subject to spousal abuse or domestic violence during the
tax years at issue. Nonetheless, she completed Part V, which is reserved
for requesting taxpayers who “were (or are now) a victim of domestic
violence or spousal abuse.”
Ms. Freman indicated on Form 8857 that Mr. Freman
(1) physically harmed or threatened her, her children, or other family
members, (2) made her afraid to disagree with him, (3) criticized or
insulted her or frequently put her down, (4) withheld money for food,
clothing, or other basic needs, and (5) made most or all of the decisions
for her, including financial decisions. Ms. Freman also stated that
[Mr. Freman] was verbally & mentally abusive to myself
and my daughter, daughters school have CPS [sic] to the
7 Ms. Freman’s Form 8857, Request for Innocent Spouse Relief, states that she
and Mr. Freman legally separated on November 10, 2017, and that the divorce would
be finalized on September 26, 2018. At trial Ms. Freman’s testimony clarified that Mr.
Freman was served with the divorce proceedings only in November 2017. There is no
evidence that the parties obtained a legal separation before obtaining a judgment of
dissolution in or about July 2021.
8 The record does not contain any documentary evidence stating when Ms.
Freman and Mr. Freman’s decree of divorce was entered, but the parties testified that
a judgment of dissolution was entered in or about July 2021.
9 Ms. Freman’s Form 8857 is dated August 9, 2018, but was not received by
CCISO until February 21, 2019.
7
[*7]
house regarding his physical abuse / corp. punishment to
our daughter. He was awarded 1 HR week [sic] of
supervised visitation due to anxiety he causes [our
daughter.]
Additionally, Ms. Freman stated in Part VI, additional
information, that
[Mr. Freman] would become verbally & mentally abusive
when monetary matters were involved. I trusted he would
handle and take care of all IRS doings as I never knew who
was preparing our taxes, what we owed or why . . . .
I had to get my daughter out of 2 toxic abusive relationship
that cause great anxieties (see attached letter from Yvette
Chavez [Marriage Family Therapist)]. He was awarded
supervised visitation for 1 HR. week to which she refuses
to go. My daughter has a therapy dog and horse due to
anxiety brought on [illegible] the father (Rod) . . .
I have yet to find out who prepared taxes, I was not
informed of filings currently[.] I was not involved with
finances of paying joint bills or utilities. He took them from
me, and did not involve me in household finances unless
they were late and he would get verbally abusive.
Ms. Freman’s Form 8857 indicated that she had a checking account with
$300, total monthly income of $1,160, and total monthly expenses (for
herself and child) of $1,910. Ms. Freman did not attach any supporting
documentation to her Form 8857. 10
In response to Ms. Freman’s request for relief, Mr. Freman filed
Form 12508, Questionnaire for Non-Requesting Spouse. Mr. Freman
alleged inter alia that Ms. Freman (1) prepared or helped prepare their
returns, (2) gathered receipts and canceled checks, (3) gave tax
documents to the person who was preparing the returns, (4) asked the
10 On her Form 8857 Ms. Freman says: “[S]ee attached letter from Yvette
Chavez MFT.” The Court notes that no such attachment is included in the record. The
CCISO evaluation reflects that Full Scope Tax Examiner C. Norris (TE Norris) asked
Ms. Freman for information regarding instances of abuse, but that none was
submitted. Further, no such letter was listed in the “supporting materials” considered
by TE Norris. Similarly, Appeals Officer David Rassenfoss (AO Rassenfoss) stated that
“[t]he [requesting spouse] made general unsupported allegations [of abuse] that were
not supported with documentation and were refuted by the [nonrequesting spouse].”
8
[*8] person who prepared the returns to explain any items or amounts,
and (5) reviewed the returns before filing them. Further, Mr. Freman
stated that Ms. Freman was “[a]lways!” aware of any financial problems.
CCISO assigned Ms. Freman’s request to TE Norris. Relying on
Ms. Freman’s allegations, TE Norris believed that she should receive a
full grant of spousal relief for the tax years at issue. For the taxable year
2012 understatement, TE Norris granted preliminary relief under
section 6015(c), finding that Ms. Freman did not have actual knowledge
of the understatement and Mr. Freman handled all the finances, among
other considerations. 11 For the taxable year 2014 and 2015
underpayments, TE Norris granted preliminary relief under section
6015(f), finding that Ms. Freman met the streamlined factors for relief
because, among other things, Mr. Freman maintained exclusive control
over the household finances.
On July 30, 2019, the IRS issued a preliminary determination,
granting Ms. Freman full relief for the tax years at issue. In response,
Mr. Freman submitted Form 12509, Statement of Disagreement,
received August 21, 2019, and requested reconsideration from the IRS
Independent Office of Appeals (Appeals).
Mr. Freman’s appeal of the preliminary determination was
assigned to AO Rassenfoss. AO Rassenfoss held separate phone calls
with Ms. Freman and Mr. Freman to discuss the case. On February 13,
2020, Appeals issued a notice of final determination, denying Ms.
Freman’s request for relief for the tax years at issue.
Appeals determined that Ms. Freman’s actual knowledge of the
items of income made her ineligible for relief under section 6015(b)
or (c). 12 Appeals found that Ms. Freman met the threshold requirements
for relief under 6015(f), but she did not meet the streamlined factors for
relief. AO Rassenfoss determined that Ms. Freman was not entitled to
streamlined relief because she had knowledge of the omitted items and
did not have a reasonable expectation that Mr. Freman would pay the
CCISO’s determination appears to be partially based on Ms. Freman’s
erroneous representation on her Form 8857 that she and Mr. Freman were legally
separated on November 10, 2017. CCISO’s determination states that “[n]o info
provided, did ask[] for decree or separation papers, nothing submitted.”
11
12 Appeals denied relief under section 6015(c) because of Ms. Freman’s
knowledge and does not appear to have relied on Ms. Freman’s erroneous
representation on her Form 8857 that she and Mr. Freman were legally separated on
November 10, 2017.
9
[*9] taxes. AO Rassenfoss also determined that Ms. Freman was not
entitled to relief under the full equitable relief analysis for the same
reason. 13
In its conclusion, the Appeals Case Memorandum states that
“[c]onsidering the totality of all the facts and circumstances, [Mr.
Freman’s] appeal was considered and CCISO’s determination to allow
relief [is] found to be unsupported by fact and law. . . . It would be unfair
to simply grant relief when [Ms. Freman] has failed to satisfy her burden
of proof.”
OPINION
I.
Jurisdiction
The Tax Court is a court of limited jurisdiction and can exercise
its jurisdiction only to the extent provided by Congress. § 7442; Judge v.
Commissioner, 88 T.C. 1175, 1180–81 (1987); Naftel v. Commissioner,
85 T.C. 527, 529 (1985); see also Rules 13(a) and (b), 320(b). Pursuant to
section 6015(e), this Court has jurisdiction to review a stand-alone
petition when the taxpayer files a petition no later than the close of the
90th day after the Commissioner has issued a final determination
denying the requesting spouse’s claim for relief. See § 6015(e)(1)(A)(ii),
(i)(I).
Ms. Freman timely filed a stand-alone Petition with this Court on
July 10, 2020. 14 Accordingly, this Court has jurisdiction under section
6015(e) to review Appeals’ final determination denying Ms. Freman’s
request for relief for the tax years at issue. Additionally, pursuant to
section 6015(e)(4) and Rule 325, Mr. Freman filed a Notice of
Intervention and became a party to this case, opposing relief, on March
21, 2022.
13 Appeals analyzed the factors in the following manner. Factors for Relief:
Marital Status. Neutral Factors: Economic Hardship, Legal Obligation to Pay,
Significant Benefit, Mental or Physical Health. Factors Against Relief: Knowledge, Tax
Compliance. Appeals also determined that the abuse factor was neutral and did not
negate the knowledge factor because Ms. Freman made general and unsupported
allegations of abuse that were not supported by documentation and lacked specificity.
14 The notice of determination at issue is dated February 13, 2020, meaning
the 90-day period to file a petition with this Court originally ended on May 13, 2020.
However, because of the COVID-19 pandemic, Ms. Freman’s deadline to file with this
Court was extended until July 15, 2020. See I.R.S. Notice 2020-23, 2020-18 I.R.B. 742.
10
[*10] II.
A.
Preliminary Matters
Evidentiary Considerations
First, the scope of review in the present matter is limited.
Subsection (e)(7) was added to section 6015 by the Taxpayer First Act,
Pub. L. No. 116-25, § 1203, 133 Stat. 981, 988 (2019). Section 6015(e)(7)
provides that the scope of our review is limited to the “administrative
record established at the time of the determination, and . . . any
additional newly discovered or previously unavailable evidence.” See
Soler v. Commissioner, T.C. Memo. 2022-78, at *5–6. Section 6015(e)(7)
applies to all petitions filed with this Court on or after July 1, 2019, the
date of enactment. See Sutherland v. Commissioner, 155 T.C. 95, 96–97,
105 (2020). Ms. Freman’s Petition was filed on July 10, 2020, and thus
section 6015(e)(7) is applicable. We will consider the 34 stipulated
Exhibits15 that were admitted into evidence without objection (all but
Exhibit 34-R were part of the administrative record). 16 In addition, we
will consider Ms. Freman and Mr. Freman’s testimony, which was not
part of the administrative record. See Sleeth v. Commissioner, T.C.
Memo. 2019-138, at *3, aff’d, 991 F.3d 1201 (11th Cir. 2021).
Second, the Court, through its review of the record, has noted that
Exhibit 34-R, a copy of the Retirement Account Termination/
Distribution Form and attached spousal consent form, is an incomplete
document. The Exhibit contains only pages one, four, and five; pages two
and three are not included in the record. The incomplete nature of the
document will affect the weight that it is accorded in our findings. See,
e.g., Barnes v. Commissioner, T.C. Memo. 2004-266, 2004 WL 2650717,
at *8.
15 This case was originally set for a remote trial at the San Diego, California,
trial session on September 20, 2021, but was ultimately continued. In anticipation of
that trial session, Ms. Freman submitted a Pretrial Memorandum to the Court (Doc.
16). Ms. Freman’s Pretrial Memorandum included a number of attachments in the
nature of evidence. While the extent to which we could consider these documents is
unclear, none of these attachments were included in or attached to the First
Stipulation of Facts and were not otherwise offered or admitted into evidence.
Accordingly, the Court cannot consider them.
16 Stipulation of Fact ¶ 43 states that “[o]n March 22, 2022, Mr. Freman
provided a legible copy of documents relating to his pension and annuities distribution
in tax year 2012, a copy of which is attached hereto as Exhibit 34-R.” Because the
parties stipulated the inclusion of Exhibit 34-R and because it was admitted without
objection, we assume without deciding that Exhibit 34-R constitutes “newly discovered
or previously unavailable” evidence within the meaning of section 6015(e)(7).
11
[*11] B.
Credibility of Witnesses
In deciding whether a taxpayer has carried her burden of proof,
witness credibility is an important consideration. Ishizaki v.
Commissioner, T.C. Memo. 2001-318, 2001 WL 1658189, at *7. “[T]he
distillation of truth from falsehood . . . is the daily grist of judicial life.”
Diaz v. Commissioner, 58 T.C. 560, 564 (1972). “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.” Kropp
v. Commissioner, T.C. Memo. 2000-148, 2000 WL 472840, at *3.
Generally, we found Ms. Freman’s testimony to be credible. In contrast,
we found some, but not all, of Mr. Freman’s testimony to be lacking in
credibility, sincerity, and candor.
III.
Section 6015
Married taxpayers may elect to file a joint federal income tax
return. § 6013(a). If a joint return is made, the tax is computed on the
spouses’ aggregate income, each spouse is fully responsible for the
accuracy of the return, and each spouse is jointly and severally liable for
the entire amount of tax shown on the return or found to be owing.
§ 6013(d)(3); Butler v. Commissioner, 114 T.C. 276, 282 (2000).
Nevertheless, section 6015 provides three potential avenues and
procedures for relief from joint and several liability: (1) full or partial
relief for an understatement of tax under section 6015(b),
(2) proportionate relief for an understatement of tax under section
6015(c), and (3) full or partial relief for an understatement or
underpayment of tax under section 6015(f).
Ms. Freman seeks relief from joint and several liability under
section 6015(b), (c), and (f) for the understatement for taxable year 2012
and under section 6015(f) for the underpayment for taxable years 2014
and 2015. We apply a de novo standard of review to any determination
made by the Commissioner under section 6015. § 6015(e)(7); see Porter
v. Commissioner, 132 T.C. 203, 210 (2009), superseded in part by statute,
Taxpayer First Act § 1203, 133 Stat. at 988. As previously discussed, our
scope of review is limited to the administrative record established at the
time of the Commissioner’s determination and any newly discovered or
previously unavailable evidence. § 6015(e)(7). Ms. Freman, as the
requesting spouse, generally bears the burden of proving that she is
entitled to relief. See Rule 142(a); Porter, 132 T.C. at 210.
12
[*12] A.
Joint Return Requirement, Generally
As discussed further below, the availability of each type of relief
under section 6015 depends upon the filing of a joint return. See
§ 6015(a)(1), (b)(1)(A), (c)(1); Treas. Reg. §§ 1.6015-2(a)(1), 1.6015 3(a),
1.6015-4(a), (c); see also Rev. Proc. 2013-34, § 4.01, 2013 43 I.R.B. 397,
399. Whether a joint return was filed is a question of fact, the resolution
of which depends on the intent of the parties. Okorogu v. Commissioner,
T.C. Memo. 2017-53, at *19 (citing Heim v. Commissioner, 27 T.C. 270,
273–74 (1956), aff’d, 251 F.2d 44 (8th Cir. 1958)). To file jointly, both
spouses must intend to make a joint return. See Lane v. Commissioner,
26 T.C. 405, 408–09 (1956).
Ms. Freman alleges that she did not sign the returns for the tax
years at issue and that Mr. Freman forged her signatures. 17 As a
consequence of this argument, if it is true that Ms. Freman did not file
joint returns for the tax years, her assertion would be self-defeating
because filing a joint return is a prerequisite to obtaining relief from
joint and several liability under section 6015. See § 6015(a); Franc v.
Commissioner, T.C. Memo. 2010-79, 2010 WL 1558333, at *1–2; see also
Raymond v. Commissioner, 119 T.C. 191, 195–97 (2002). In any event,
Ms. Freman has stipulated that she and Mr. Freman filed joint returns
for the tax years at issue. We treat this stipulation as a conclusive
admission. See Rule 91(e); see also Franc v. Commissioner, 2010 WL
1558333, at *1.
17 We rely on the parties’ stipulation that Ms. Freman and Mr. Freman filed a
joint return, but we will briefly address some of Ms. Freman’s arguments. A copy of
the 2012 return is not included in the record, the 2014 paper return includes a
signature for Kari Freman, and the 2015 return was filed electronically. The signature
on the 2014 return is similar to Ms. Freman’s signature as it appears on other
documents in the record. But even if Ms. Freman did not sign the returns, this does
not necessarily mean that they were not joint returns. See Harris v. Commissioner,
T.C. Memo. 1961-324, 1961 WL 565. If an income tax return is intended by both
spouses as a joint return, it is not determinative that one spouse failed to sign it. Lane,
26 T.C. at 408. Ms. Freman did not file a separate return for any of the tax years at
issue, and she did not otherwise attempt to disavow the filed returns. See Heim, 27
T.C. at 274. Further, the couple filed joint tax returns throughout the marriage and
Mr. Freman always handled the preparation of the tax returns during the marriage,
which indicates a level of historic reliance on Mr. Freman to file returns. See Estate of
Campbell v. Commissioner, 56 T.C. 1, 12–13 (1971). Additionally, Ms. Freman testified
that she signed the returns because she “trusted that [Mr. Freman] would handle [the
taxes] appropriately.” These actions indicate, at some level, tacit consent to the filing
of joint returns, and Ms. Freman would otherwise fail to satisfy her burden of
establishing that she did not intend to file joint returns with Mr. Freman.
13
[*13] B.
Section 6015(b) Relief
1.
Section 6015(b), Generally
Ms. Freman seeks relief under section 6015(b) for the
understatement of tax for taxable year 2012. To qualify for relief under
section 6015(b), the requesting spouse must satisfy all of the following
conditions: (A) a joint return was filed for the taxable year; (B) there was
an understatement of tax attributable to erroneous items of the
nonrequesting spouse on the return; (C) the requesting spouse did not
know and had no reason to know of the understatement at the time that
the return was signed; (D) taking into account all of the facts and
circumstances, it is inequitable to hold the requesting spouse liable for
the deficiency in tax attributable to such understatement; and (E) the
requesting spouse made a timely election for relief under section
6015(b). 18 § 6015(b)(1). Ms. Freman bears the burden of proving her
entitlement to relief under section 6015(b). Alt v. Commissioner, 119
T.C. 306, 311 (2002), aff’d, 101 F. App’x 34 (6th Cir. 2004).
These conditions are stated in the conjunctive, and thus a failure
to meet any one of them precludes relief under section 6015(b). Alt, 119
T.C. at 313; Haltom v. Commissioner, T.C. Memo. 2005-209, 2005 WL
2132599, at *4. However, under certain limited circumstances, a
requesting spouse may receive partial relief if they satisfy every
requirement except the lack of knowledge requirement. See § 6015(b)(2).
Respondent concedes that Ms. Freman satisfies the requirements
of section 6015(b)(1)(A), (B), and (E). Ms. Freman and Mr. Freman filed
a joint return for taxable year 2012, the understatement on the return
was solely attributable to Mr. Freman, and Ms. Freman made a timely
election for relief because respondent has not begun collection activities
for the 2012 tax liability. Respondent argues, however, that Ms. Freman
does not satisfy the lack of knowledge or reason to know requirement
under section 6015(b)(1)(C) or the equitable considerations requirement
under section 6015(b)(1)(D).
18 The requirements of section 6015(b)(1)(C) and (D) are “virtually identical” to
the requirements of former section 6013(e)(1)(C) and (D). Doyel v. Commissioner, T.C.
Memo. 2004-35. Thus, cases analyzing those requirements are instructive to our
analysis. Id.; see also Butler, 114 T.C. at 283.
14
[*14]
2.
Lack of Knowledge Requirement
Under section 6015(b)(1)(C), the requesting spouse must
establish that in signing the return he or she did not know and had no
reason to know the return contained an understatement. A requesting
spouse has knowledge or reason to know of an understatement if he or
she actually knew of the understatement or if a reasonable person in
similar circumstances would have known of the understatement.
Jacobsen v. Commissioner, T.C. Memo. 2018-115, at *11, *14 (citing
Treas. Reg. § 1.6015-2(c)), aff’d, 950 F.3d 414 (7th Cir. 2020); see also
Pietromonaco v. Commissioner, 3 F.3d 1342, 1345 (9th Cir. 1993), rev’g
T.C. Memo. 1991-361.
“A taxpayer who signs a return is generally charged with
constructive knowledge of its contents.” Porter, 132 T.C. at 211. A
taxpayer seeking to establish they had no reason to know of an
understatement “must show that she was unaware of the circumstances
that gave rise to the error and not merely unaware of the tax
consequences. . . . Section 6015 does not protect a spouse who turns a
blind eye to facts readily available to her.” Id. at 212. Notwithstanding
a requesting spouse’s knowledge or reason to know, a requesting spouse
may receive partial relief if they establish that he or she did not know
and had no reason to know the full extent of the understatement. See
§ 6015(b)(2); Jacobsen, T.C. Memo. 2018-115, at *11.
a.
Actual Knowledge
A spouse lacks actual knowledge if she is unaware of the
circumstances that give rise to the error on the tax return. Soler, T.C.
Memo. 2022-78, at *7 (citing Bokum v. Commissioner, 94 T.C. 126,
145–46 (1990), aff’d, 992 F.2d 1132 (11th Cir. 1993)). We must consider
all facts and circumstances when determining whether a requesting
spouse had actual knowledge of an understatement. Treas. Reg.
§§ 1.6015-2(c), 1.6015-3(c)(2)(iv). In the case of omitted income, actual
knowledge generally means knowledge of receipt of the income. Treas.
Reg. §§ 1.6015-2(c), 1.6015-3(c)(2)(i)(A).
Ms. Freman had actual knowledge that Mr. Freman received a
distribution from his Retirement Account in taxable year 2012. Ms.
Freman testified as much, saying that she and Mr. Freman “went down
[to Monex] together” to get the distribution. Ms. Freman also signed a
notarized spousal consent form, which was part of the Termination/
15
[*15] Distribution Form, that further evidences her awareness of the
transaction.
However, Ms. Freman disputes her knowledge and awareness of
the full extent of the transaction. Mr. Freman’s Wage and Income
Transcript for taxable year 2012 reflects a total distribution amount of
$172,342 and withholding tax of $34,468. Conversely, Ms. Freman
testified that she “thought [the distribution] was [$]90,000.” Ms. Freman
continued, stating:
I knew [the distribution] was [$]90[,000], and [Mr. Freman]
had told me that the taxes had been taken out of it. . . . I
found out later, if there is — if these are two separate
situations, I don’t know anything about [$]172,000. But we
did take money out. . . . we were told it was $90,000. [Mr.
Freman] told me he paid all the taxes on it and there were
no taxes due.
We find Ms. Freman’s testimony credible. First, Ms. Freman’s
testimony is, in part, an admission against her own interest. Her
testimony is that she knew about the transaction and that, when all was
said and done, she and Mr. Freman received $90,000. This testimony is
detrimental to her own pecuniary interest and also precludes relief
under section 6015(b) for the portion of the understatement for which
she had actual knowledge. See Treas. Reg. §§ 1.6015-2(c),
1.6015-3(c)(2)(ii). Second, the Termination/Distribution Form, as
admitted into evidence, is a partial document. Only pages one, four, and
five are present; pages two and three are missing. The form, as
submitted into evidence, establishes only that Ms. Freman was aware of
the circumstances giving rise to the error on the tax return but does not
establish Ms. Freman’s knowledge of the exact amount of the
distribution. 19 Cf. Cheshire v. Commissioner, 115 T.C. 183, 197 (2000)
19 The “Payment Election” selected on page one of the Termination/Distribution
Form is “Total Cash Distribution.” It is unclear whether this means the total amount
of the distribution was made in cash or that a distribution was made in cash for the
total amount of the account.
Under the “Payment Election” section, another payment option is “Direct
Rollover of Entire Account.” The fact that one payment option clearly mentions and
references the balance of the account while the “Total Cash Distribution” option lacks
such a clear reference leads to ambiguity. Further adding to the ambiguity is the
“Signatures and Authorizations” section, which states in part: “I consent to an
immediate distribution of the elected portion of my Vested Account Balance.”
16
[*16] (holding that the requesting spouse was not entitled to relief when
she knew about the full amount of proceeds from a retirement account
distribution, and was just unaware of the misstatements on the return),
aff’d, 282 F.3d 326 (5th Cir. 2002).
We take at face value Ms. Freman’s testimony that she had actual
knowledge of only part of the amount of the Retirement Account
distribution, that “[Mr. Freman] told [her] he paid all the taxes on [the
distribution] and there were no taxes due,” and that thereafter the
couple received $90,000. That is, Ms. Freman had knowledge of the
Retirement Account distribution such that, after applicable federal
taxes, she and Mr. Freman received $90,000 (hereinafter $90,000
Amount).
b.
Reason to Know
The Court must now determine whether Ms. Freman had reason
to know of the understatement of tax attributable to any amount above
the $90,000 Amount that she actually knew about for taxable year 2012.
A requesting spouse has reason to know of an understatement if a
reasonable person in similar circumstances would have known of the
understatement. Treas. Reg. § 1.6015-2(c). This standard is not abstract,
however, as the prudent taxpayer must be placed in Ms. Freman’s
particular circumstances. See Resser v. Commissioner, 74 F.3d 1528,
1536 (7th Cir. 1996), rev’g and remanding T.C. Memo. 1994-241.
Ms. Freman had reason to know of the understatement on the
taxable year 2012 return if she had constructive knowledge. “Courts
have interpreted the reason-to-know element to encompass two separate
types of constructive knowledge.” Greer v. Commissioner, 595 F.3d 338,
345 (6th Cir. 2010), aff’g T.C. Memo. 2009-20. A requesting spouse has
constructive knowledge if either (1) they know facts sufficient to give
him or her reason to know of an understatement reflected on the return,
or (2) even if they do not have reason to know of an understatement, the
requesting spouse may know facts sufficient to place him or her on notice
(Emphasis added.) The reference to an “elected portion” suggests the ability to elect a
distribution of a partial amount of the account, yet such an option is not available on
any of the pages admitted into evidence.
Ultimately, it is the incomplete nature of the form that gives rise to this
ambiguity and affects the weight that this form is afforded in our findings. See, e.g.,
Barnes v. Commissioner, 2004 WL 2650717, at *8.
17
[*17] of a possible understatement, giving rise to a duty of inquiry.
Jacobsen, T.C. Memo. 2018-115, at *14–15.
All facts and circumstances must be considered when
determining whether a requesting spouse had reason to know of an
understatement on a return. Treas. Reg. § 1.6015-2(c). Relevant
considerations include (but are not limited to) (1) the requesting spouse’s
level of education; (2) the requesting spouse’s involvement in the
financial and business activity of the family; (3) the presence of
expenditures that appear lavish or unusual when compared with the
family’s past levels of income, standard of living, and spending patterns;
and (4) the culpable spouse’s evasiveness and deceit about the family’s
finances. Price v. Commissioner, 887 F.2d 959, 965 (9th Cir. 1989) (citing
Stevens v. Commissioner, 872 F.2d 1499, 1505 (11th Cir. 1989), aff’g T.C.
Memo. 1988-63).
Ms. Freman has a high school education, and there is no evidence
that she has a business, accounting, or tax background. We have
frequently decided this factor in favor of taxpayers who lack education
in finance, even if the requesting spouse is otherwise highly educated.
See Wang v. Commissioner, T.C. Memo. 2014-206, at *20. Further, Ms.
Freman was not involved in managing the family finances, which was
solely the domain of Mr. Freman. Both Ms. Freman and Mr. Freman
testified that the amounts received from the Retirement Account
distribution were used to meet basic household needs, and there is no
evidence to conclude that there were any lavish or extravagant
expenditures. Finally, Ms. Freman was not in control of the couple’s
finances, and she had limited knowledge about the topic, such as who
was preparing the tax returns. 20
Even in the light of the foregoing, Ms. Freman still had reason to
know of the amount above the $90,000 Amount. Both Ms. Freman and
20 Proposed Treasury Regulation § 1.6015-2(b), 80 Fed. Reg. 72649, 72659 (Nov.
20, 2015), provides that a requesting spouse will be treated as not having knowledge
or reason to know if they were subject to abuse or financial control by the
nonrequesting spouse and because of such abuse or financial control the requesting
spouse was not able to challenge the treatment of any item on the joint return for fear
of retaliation by the nonrequesting spouse. The standard under the proposed
regulation is similar to the standard applicable under section 6015(f). The standard
under section 6015(b), however, is different from current Treasury Regulation
§ 1.6015-2, which does not provide an exception for financial control. A proposed
regulation is given no greater weight than a position advanced by the Commissioner
on brief. See Ordlock v. Commissioner, 126 T.C. 47, 70 n.6 (2006) (Thornton, J.,
concurring).
18
[*18] Mr. Freman testified that they had a joint bank account during
the tax years at issue. Further, Mr. Freman stated to AO Rassenfoss
that the distribution was deposited into the couple’s joint bank account.
A deposit into a joint bank account is sufficient to establish that Ms.
Freman had reason to know of the full amount of the distribution. See
Culver v. Commissioner, 116 T.C. 189, 197 (2001) (stating that deposits
into a joint bank account would indicate that the requesting spouse
should have had reason to know of embezzled funds); Richard v.
Commissioner, T.C. Memo. 2011-144, 2011 WL 2553379, at *3 (stating
that circumstantial evidence, such as a deposit in a joint bank account,
may indicate that the requesting spouse had reason to know of the
retirement account distribution).
Ms. Freman had knowledge or reason to know of the full amount
of the distribution and she is ineligible for full or apportioned relief
under this section. She had actual knowledge of the $90,000 Amount
and reason to know of the remainder of the distribution. Thus, Ms.
Freman had knowledge of the distribution under section 6015(b)(1)(C)
and cannot qualify for relief under section 6015(b).
C.
Section 6015(c) Relief
1.
Section 6015(c), Generally
Ms. Freman seeks relief under section 6015(c) for the
understatement of tax for taxable year 2012. To qualify for relief under
section 6015(c), the requesting spouse must satisfy all of the following
conditions: (1) a joint return was filed for the taxable year; (2) at the
time of the election, the requesting spouse was separated or divorced
from the nonrequesting spouse or was not 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; and (3) the requesting
spouse made a timely election for relief. § 6015(c)(1), (3). However, if the
Commissioner demonstrates that, at the time of signing the return, a
requesting spouse had actual knowledge of the item giving rise to a
deficiency (or a portion thereof), the requesting spouse shall be ineligible
for relief under this section for the deficiency (or portion thereof).
§ 6015(c)(2), (3)(C).
Respondent concedes that Ms. Freman satisfies the joint return
requirement under section 6015(c)(1), and he does not dispute that she
satisfies the timely election for relief requirement under section
6015(c)(3)(B) because respondent has not begun collection activities for
19
[*19] the 2012 tax liability. Respondent argues, however, that Ms.
Freman does not satisfy the separated, divorced, or living apart
requirement under section 6015(c)(3)(A)(i) or the lack of actual
knowledge requirement under section 6015(c)(3)(C).
2.
Separated, Divorced, or Living Apart Requirement
Section 6015(c) provides that an individual is eligible to elect the
application of subsection (c) if, at the time the election is filed, the
individual is no longer married to, or is legally separated from, the
nonrequesting spouse with whom they filed the joint return; or such
individual was not a member of the same household as the individual
with whom such joint return was filed at any time during the 12 month
period ending on the date such election is filed. § 6015(c)(3)(A)(i). We
will analyze each of the foregoing in turn.
a.
Legally Separated or Divorced
First, when Ms. Freman filed her election under section 6015(c),
she was still married and was not legally separated from Mr. Freman.
This determination is made at the time the election for spousal relief is
filed and in accordance with section 7703 and the regulations
thereunder. Treas. Reg. § 1.6015-3(b)(1). An individual shall not be
considered married if they are legally separated from their spouse under
a decree of divorce or of separate maintenance. § 7703(a)(2).
California Family Code § 2340 (West 2022) provides: “A judgment
of dissolution of marriage shall specify the date on which the judgment
becomes finally effective for the purpose of terminating the marriage
relationship of the parties.” Ms. Freman and Mr. Freman both testified
that a judgment of dissolution was entered in or about July 2021, by a
court in Riverside County, California. The parties have not submitted a
copy of their judgment of dissolution into evidence, and Ms. Freman has
not provided any other documentary evidence, such as a judgment of
legal separation, to rebut the conclusion that she was still legally
married to, and not legally separated from, Mr. Freman when she filed
her request for relief on February 21, 2019. Because Ms. Freman was
not legally separated or divorced at the time she filed her election for
relief, she does not satisfy the requirement of section 6015(c)(3)(A)(i) on
that basis.
20
b.
[*20]
Living Apart
Ms. Freman had not lived separate and apart from Mr. Freman
for a period of 12 months on the date that she filed her election for relief.
Spouses who reside in the same dwelling are considered members of the
same household. Treas. Reg. § 1.6015-3(b)(3)(ii); Rev. Proc. 2013-34,
§ 4.03(2)(a)(iv), 2013-43 I.R.B. at 400–01. Mr. Freman, on his Form
12508, stated that Ms. Freman moved out of the marital residence “as
of March 10, 2018.” At trial, Ms. Freman testified that she moved out of
the marital residence in “maybe March [or] April” of 2018. Even
assuming arguendo that Ms. Freman moved out on March 1, 2018, the
earliest date one could reasonably infer, she still would be a few weeks
shy of meeting the required 12 month period of living separate and apart
from Mr. Freman when she filed her election for relief on February 21,
2019. Because Ms. Freman had not lived separate and apart from Mr.
Freman for a period of 12 months when she filed her election for relief,
she does not satisfy the requirement of section 6015(c)(3)(A)(i).
We therefore agree with respondent that at the time Ms. Freman
filed her election for relief, she was still married and not legally
separated from Mr. Freman, and she also had not lived separate and
apart from him for a period of 12 months. 21 See Vetrano v.
Commissioner, 116 T.C. 272, 282–83 (2001), supplementing T.C. Memo.
2000-128. We need not complete an analysis of whether Ms. Freman had
actual knowledge because she does not meet the separated, divorced, or
living apart requirement under section 6015(c)(3)(A)(i). We find that Ms.
Freman cannot qualify for relief for the 2012 understatement under
section 6015(c).
D.
Section 6015(f) Relief
Finally, because Ms. Freman does not qualify for relief under
section 6015(b) or (c), she may seek relief under section 6015(f) for the
understatement of tax for taxable year 2012. Additionally, she can seek
relief only under section 6015(f) for the underpayments of tax for taxable
years 2014 and 2015. Section 6015(f) provides relief from joint and
several liability if it is inequitable to hold the requesting spouse liable
for any unpaid tax or any deficiency (or any portion thereof) after taking
21 Ms. Freman did not file a second election for relief after she had lived
separate and apart from Mr. Freman for a period of 12 consecutive months. See Treas.
Reg. § 1.6015-1(h)(5).
21
[*21] into account all the facts and circumstances. § 6015(f)(1)(A);
Porter, 132 T.C. at 206; Treas. Reg. § 1.6015-4(a).
Treasury Regulation § 1.6015-4(c) directs us to Revenue
Procedure 2013-34 for relevant guidance. 22 Revenue Procedure 2013-34
sets forth a three-step analysis for evaluating section 6015(f) claims for
relief: (1) the requesting spouse must satisfy the seven threshold
requirements, Rev. Proc. 2013-34, § 4.01; (2) the requesting spouse must
satisfy the three-part test for streamlined relief, id. § 4.02, 2013-43
I.R.B. at 400; or (3) if a requesting spouse does not satisfy the test for
streamlined relief, the requesting spouse may still qualify for relief from
joint and several liability if it would be inequitable to hold them liable
in the light of the nonexclusive list of factors outlined in Revenue
Procedure 2013-34, § 4.03. Although the Court considers those
procedures when reviewing the Commissioner’s determination, the
Court is not bound by them. Leith, T.C. Memo. 2020-149, at *19.
1.
Threshold Requirements
The requesting spouse must meet seven threshold requirements
to be considered for relief under section 6015(f). Rev. Proc. 2013-34,
§ 4.01. Those requirements are (a) the requesting spouse filed a joint
return for the taxable year for which relief is sought; (b) relief is not
available to the requesting spouse under section 6015(b) or (c); (c) the
claim for relief is timely filed; (d) no assets were transferred between the
spouses as part of a fraudulent scheme; (e) the nonrequesting spouse did
not transfer disqualified assets to the requesting spouse; (f) the
requesting spouse did not knowingly participate in the filing of a
fraudulent joint return; and (g) absent certain enumerated exceptions,
the tax liability from which the requesting spouse seeks relief is
attributable to an item of the nonrequesting spouse. 23 Rev. Proc. 2013
34, § 4.01.
Respondent agrees that the threshold conditions are “likely met”
for all years at issue. A review of the facts shows that is largely true.
First, Ms. Freman and Mr. Freman filed joint returns for the 2012, 2014,
22 Rev. Proc. 2000-15, 2000-1 C.B. 447, superseded by Rev. Proc. 2003-61, 2003-
2 C.B. 296, superseded by Rev. Proc. 2013-34 (IRS RPR), 2013-43 I.R.B. 397.
23 For the purposes of the analysis under section 6015(f) and Revenue
Procedure 2013-34, if any item is attributable or partially attributable to the
requesting spouse solely because of the operation of community property laws, then
that item or portion thereof will be considered attributable only to the nonrequesting
spouse. Rev. Proc. 2013-34, § 4.01(7)(a).
22
[*22] and 2015 tax years at issue. See supra Part III.A. Second, Ms.
Freman is not entitled to relief under section 6015(b) or (c) for the tax
year 2012 understatement, and she can seek relief for the
underpayments for taxable years 2014 and 2015 only under section
6015(f). See supra Part III.B and C. Third, Ms. Freman timely filed her
claim for relief before the expiration of the 10-year periods of limitation
for collection. See Rev. Proc. 2013-34, § 4.01(3)(a); see also § 6502.
Fourth, there are no allegations of asset transfers made pursuant to a
fraudulent scheme. Fifth, there are no allegations of any disqualified
asset transfers. Sixth, there are no facts to suggest that Ms. Freman
knowingly participated in filing a fraudulent joint return. Finally,
seventh, the understatement on the tax year 2012 return is solely
attributable to Mr. Freman, as are the underpayments of tax reflected
as due on the 2014 and 2015 returns. However, the Court notes that Ms.
Freman is ineligible for section 6015(f) relief to the extent any of the
2015 underpayment is attributable to her cancellation of indebtedness
income that was not included on the return. Thus, Ms. Freman satisfies
the threshold requirements for relief, with the lone exception of any
liability attributable to her unreported cancellation of indebtedness
income for tax year 2015.
2.
Streamlined Determination Elements
Revenue Procedure 2013-34, § 4.02 sets forth circumstances
under which the Commissioner will make a streamlined determination
granting equitable relief to the requesting spouse. These include that
she establishes that she (a) is no longer married to the nonrequesting
spouse (marital status requirement), (b) would suffer economic hardship
if not granted relief (economic hardship requirement), and (c) did not
know or have reason to know that there was an understatement or
deficiency on the joint income tax return or did not know or have reason
to know that the nonrequesting spouse would not or could not pay the
underpayment of tax reported on the joint income tax return (lack of
knowledge requirement). Id. The requesting spouse must establish that
she satisfies each of the three elements to receive a streamlined
determination granting relief. Id.
a.
Marital Status Requirement
This factor is met if the requesting spouse is no longer married to
the nonrequesting spouse. Id. § 4.02(1). Because Ms. Freman has
received a judgment or decree of divorce, this factor favors relief.
23
[*23]
b.
Economic Hardship Requirement
This factor is met when a failure to grant relief from joint and
several liability would cause the requesting spouse to be unable to pay
reasonable basic living expenses. Id. § 4.02(2), 4.03(2)(b). If denying
relief would not cause the requesting spouse economic hardship, this
factor is neutral. Id. Generally, a requesting spouse would suffer
economic hardship if (1) the requesting spouse’s income is less than
250% of the federal poverty guidelines, 24 or if her monthly income
exceeds her reasonable basic living expenses by $300 or less, and (2) the
requesting spouse does not have assets from which the requesting
spouse can make payments towards the tax liability and still meet
reasonable basic living expenses. Id.; see also Contreras v.
Commissioner, T.C. Memo. 2019-12, at *16–17.
Additionally, if neither of the foregoing tests is met, then the
Court will also consider additional factors such as (1) the taxpayer’s age
and earning potential, (2) an amount reasonably necessary for food,
clothing, housing, medical expenses, and transportation, (3) the amount
of assets available to pay the taxpayer’s expenses, (4) the cost of living
in the geographical area in which the taxpayer lives, and (5) any other
factors bearing on economic hardship. Rev. Proc. 2013-34, § 4.02(2)
(citing id. § 4.03(2)(b) (“Whether the requesting spouse will suffer
economic hardship is determined based on rules similar to those
provided in Treas. Reg. § 301.6343-1(b)(4) . . . .”)).
Ms. Freman’s Form 8857, dated August 9, 2018, and received by
CCISO on February 21, 2019, states that she had a checking account
with $300, total monthly income of $1,160, and total monthly expenses
of $1,910. At trial Ms. Freman testified that after she left the marital
home she moved into a recreational vehicle. She testified that her lessors
“took [her] in knowing [her] situation with practically nothing to give
them, knowing that [she] would get a job with the school district and be
able to pay at that point.” Ms. Freman also stated that she was awarded
$3,000 a month in spousal and child support and that when she received
a fraction of that amount from Mr. Freman, the lessors were “very
gracious to [her] and to [her] daughter and let [her] stay there just on
24 See 42 U.S.C. § 9902(2). The Department of Health and Human Services
poverty guidelines for 2022 provide that a household with two persons in the
contiguous 48 states has a poverty threshold of $18,310. Annual Update of the HHS
Poverty Guidelines, 87 Fed. Reg. 3315, 3316 (Jan. 21, 2022). Thus, 250% of this
threshold is $45,775.
24
[*24] that little bit that [Mr. Freman] had given [her] until [she became]
employed [in 2018].”
This Court is tasked with evaluating Ms. Freman’s economic
position at the time of trial on April 5, 2022. Pullins v. Commissioner,
136 T.C. 432, 446–47 (2011). A hypothetical hardship is insufficient to
justify relief, and a taxpayer must demonstrate that imposing joint and
several liability is “inequitable in present terms.” Id. at 446 (emphasis
added) (quoting Von Kalinowski v. Commissioner, T.C. Memo. 2001-21,
2001 WL 77034, at *8). Ms. Freman is in her mid-50’s, has a high school
education, and supports herself and her minor child. Ms. Freman was
not employed outside of the home during the tax years at issue; and on
the limited record before the Court, it appears to the Court that she is
currently working part time, but she may be pursuing some form of
disability assistance. Ms. Freman’s Wage and Income Transcript for
taxable year 2020, the most recent evidence available to the Court,
shows that she received $9,737 of wages, tips, and other compensation,
and $13,366 of unemployment compensation. These facts favor a finding
of economic hardship. See, e.g., Contreras, T.C. Memo. 2019-12,
at *17–18.
However, the Court has nothing more than a historic snapshot of
Ms. Freman’s financial situation and brief testimony about her prior
living arrangements. Ms. Freman testified that she “pay[s] [her] bills
when [they’re] due” but otherwise did not provide any testimony or
present any other evidence detailing her current income, living
expenses, assets, or debts. Neither did she provide evidence, if any is
available, of any spousal or child support amounts she receives from Mr.
Freman, whether she is still receiving government assistance, or what
she could reasonably expect to receive from the division of marital
assets. See Wang, T.C. Memo. 2014-206, at *38.
At most Ms. Freman has advanced an argument for a
hypothetical hardship. See Henson v. Commissioner, T.C. Memo.
2012-288, at *17–19; see also Mencias v. Commissioner, T.C. Memo.
2017-109, at *12. Ms. Freman has the burden of proof, and she has not
met that burden because she did not provide any testimony or
documentary evidence to substantiate her claim of economic hardship.
See Rule 142(a). Accordingly, we must treat this factor as neutral.
Because Ms. Freman fails to meet the economic hardship
requirement, she is ineligible for streamlined relief. We now proceed to
the full equitable relief analysis.
25
[*25]
3.
Full Equitable Relief Analysis
Under the full equitable relief analysis of section 6015(f), the
Court will consider the following factors: (a) current marital status;
(b) whether the requesting spouse would suffer economic hardship if
relief were not granted; (c) in understatement cases, whether the
requesting spouse knew or had reason to know of the understatement,
or in underpayment cases, whether the requesting spouse knew or had
reason to know that the nonrequesting spouse would not or could not
pay the tax liability, and in either case, the effect of any spousal abuse
or financial control; (d) whether either spouse has a legal obligation to
pay the outstanding federal income tax liability; (e) whether the
requesting spouse significantly benefited from the understatement or
underpayment; (f) whether the requesting spouse has made a good faith
effort to comply with the income tax laws in the years following the tax
years for which relief is sought, and (g) whether the requesting spouse
was in poor mental or physical health at the time the joint return was
filed. Rev. Proc. 2013-34, § 4.03(2).
a.
Marital Status Factor
As discussed supra Part III.D.2.a., Ms. Freman is divorced from
Mr. Freman. Accordingly, this factor weighs in favor of relief.
b.
Economic Hardship Factor
This factor weighs in favor of relief when a failure to grant relief
from joint and several liability would cause the requesting spouse to be
unable to pay reasonable basic living expenses. Id. § 4.03(2)(b). If
denying relief would not cause the requesting spouse economic hardship,
this factor is neutral. Id. As discussed supra Part III.D.2.b., Ms. Freman
has not presented sufficient evidence to prove her claim of economic
hardship. Accordingly, this factor is neutral.
c.
Lack of Knowledge Factor
The standard for the lack of knowledge element is different with
regard to an understatement of tax, such as the one for taxable year
2012, and an underpayment of tax, such as those for taxable years 2014
and 2015. However, in both cases, knowledge may be mitigated in
certain circumstances where there is abuse or financial control by the
nonrequesting spouse. See Rev. Proc. 2013-34, § 4.03(2)(c)(i) and (ii).
26
[*26]
i.
Understatement Case
With regard to the understatement of tax for taxable year 2012,
the analysis is similar to the discussion for the lack of knowledge factor
under section 6015(b). See supra Part III.B.2. 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 joint return
was filed. Rev. Proc. 2013-34, § 4.03(2)(c)(i)(A). This factor weighs
against relief if the requesting spouse knew or had reason to know of the
item giving rise to the understatement as of the date the joint return
was filed. Id.
As discussed above, Ms. Freman had actual knowledge of the
$90,000 Amount of the understatement for taxable year 2012, and
reason to know of any amounts above the $90,000 Amount. However,
this analysis is subject to our analysis regarding abuse and financial
control. See infra Part III.D.3.c.iii.
ii.
Underpayment Case
With regard to the underpayments of tax for taxable years 2014
and 2015, this factor weighs in favor of relief if the requesting spouse
reasonably expected the nonrequesting spouse to pay the tax liability
reported on the return. Rev. Proc. 2013-34, § 4.03(2)(c)(ii). This factor
weighs against relief if it was not reasonable for the requesting spouse
to believe that the nonrequesting spouse would or could pay the tax
liability reported on the return. Id.
Specifically, the requesting spouse must establish that (1) when
they signed the return they did not know and had no reason to know
that the tax reported on the return would not be paid, and (2) it was
reasonable for the requesting spouse to believe that the nonrequesting
spouse would pay the tax shown due. Rev. Proc. 2013-34, § 4.03(2)(c)(ii);
see Morello v. Commissioner, T.C. Memo. 2004-181, 2004 WL 1765148,
at *4.
At the time Mr. Freman filed the joint tax returns for taxable
years 2014 and 2015, Ms. Freman had reason to know that the tax
reported on the returns would not be paid, and it was not reasonable to
believe that Mr. Freman would pay the amounts shown as due. Ms.
Freman testified that after Mr. Freman assumed control of the finances
the couple had “electricity being shut off, health insurance being shut
off, water being shut off, et cetera, et cetera, because [Mr. Freman]
would not let [her] pay the bills.” Further, when asked whether she
27
[*27] thought that “Mr. Freman was not paying the taxes on time,” Ms.
Freman replied that “[Mr. Freman] would tell me he would get an
extension, but at that point, I’m like, okay, whatever that means,
however long it’s for. But I never knew if he went back and did it or not.”
It is clear from the facts that Ms. Freman knew that Mr. Freman
made a habit of not paying the bills on time. In the light of these
circumstances, Ms. Freman should have been on notice that Mr. Freman
would not or could not pay the tax due for taxable years 2014 and 2015.
See Pullins, 136 T.C. at 444–45. However, this analysis is still subject to
our analysis regarding abuse and financial control. 25 See infra Part
III.D.3.c.iii.
iii.
Abuse and Financial Control
Notwithstanding the foregoing analysis regarding Ms. Freman’s
knowledge or reason to know of the understatement of tax for taxable
year 2012, and the underpayments of tax for taxable years 2014 and
2015, both analyses are subject to an exception. Knowledge may be
negated if the nonrequesting spouse abused the requesting spouse or
maintained control of the household finances by restricting the
requesting spouse’s access to financial information such that the
nonrequesting spouse’s actions prevented the requesting spouse from
questioning or challenging the understatement on the return or the
underpayment of the liability. Rev. Proc. 2013-34, § 4.02(3)(a),
4.03(2)(c)(i) and (ii).
a)
Abuse
Ms. Freman alleges that she was a victim of abuse during the tax
years at issue. “Abuse comes in many forms and can include physical,
psychological, sexual, or emotional abuse, including efforts to control,
isolate, humiliate, and intimidate the requesting spouse, or to
undermine the requesting spouse’s ability to reason independently and
be able to do what is required under the tax laws.” Id. § 4.03(2)(c)(iv);
25 The analysis under section 6015(f) is subject to an exception for both abuse
and financial control. See Rev. Proc. 2013-34, § 4.02(3)(a), 4.03(2)(c)(i) and (ii). In
contrast, the analysis under section 6015(b) is subject to an exception only for abuse
but not financial control. See Treas. Reg. §§ 1.6015-2(c), 1.6015-3(c)(2)(ii). Proposed
Treasury Regulation § 1.6015-2(b) would, however, subject the section 6015(b) analysis
to an analysis for financial control, but the proposed regulation has not been finalized
and thus is given no greater weight than a position advanced by the Commissioner on
brief. See Ordlock, 126 T.C. at 70 n.6 (Thornton, J., concurring); see supra note 20.
28
[*28] see, e.g., Leith, T.C. Memo. 2020-149, at *27. This Court takes all
facts and circumstances into account in determining the presence of
abuse, and requires substantiation, or at a minimum, specificity, with
regard to allegations of abuse. Rev. Prov. 2013-34, § 4.01; see Nihiser v.
Commissioner, T.C. Memo. 2008-135, 2008 WL 2120983, at *10–11; see
also Deihl v. Commissioner, 603 F. App’x 527, 529 n.4 (9th Cir. 2015),
aff’g T.C. Memo. 2012-176. A generalized claim of abuse is insufficient.
See Thomassen v. Commissioner, T.C. Memo. 2011-88, 2011 WL
1518446, at *11–12, aff’d, 564 F. App’x 885 (9th Cir. 2014).
In addition to the statements on her Form 8857, Ms. Freman
made two brief statements at trial about her alleged abuse. First, Ms.
Freman stated: “I started off paying the bills of the household. But when
I would pay the bills and he would see the account would get lower, he
would get angry. And at that point, that’s when he took the bills from
me and said he would be handling all the financial situations.” Second,
Ms. Freman stated: “[I]f I said anything [about the finances], he would
get angry with me, yell at me, cuss at me, telling me — tell me he had it
handled, that he would take care of it.” Ms. Freman did not, however,
provide a more detailed account of abuse to corroborate her Form 8857,
and nearly the full extent of Ms. Freman’s statements on the topic of
abuse is reproduced above.
These statements lack the requisite specificity and corroborating
evidence for Ms. Freman to meet her burden of proof. See Nihiser v.
Commissioner, 2008 WL 2120983, at *10–11. We find Ms. Freman’s
statements credible, and while we do not doubt their sincerity, standing
alone they are too generalized to support a finding of spousal abuse. See
Thomassen v. Commissioner, 2011 WL 1518446, at *11; Knorr v.
Commissioner, T.C. Memo. 2004-212, 2004 WL 2094759, at *7.
b)
Financial Control
Ms. Freman alleges that Mr. Freman was solely in control of all
financial matters during the tax years at issue. While Ms. Freman’s
above statements are too generalized to support a finding of abuse, her
statements are not made in isolation. The Court must take all facts and
circumstances into account, and Ms. Freman’s statements are part of a
broader context wherein Mr. Freman was the sole source of income in
the household, was solely responsible for overseeing the preparation of
the tax returns, and assumed control of and solely managed the
finances.
29
[*29] The Court finds Ms. Freman’s statements credible, sincere, and
candid. Ms. Freman has a high school education, was not versed in
matters of finance, and was responsible for taking care of the couple’s
child during the tax years at issue. Ms. Freman was not involved with
managing the finances because Mr. Freman took that responsibility
from her and thereafter maintained full control of all financial matters.
On cross-examination Ms. Freman questioned Mr. Freman about her
having to ask permission to buy groceries and Mr. Freman responded:
“I don’t recall.” The Court does not find Mr. Freman’s testimony credible,
especially given the fact that he responded with some variation of “I
don’t recall” to many of Ms. Freman’s questions about his handling of
the finances.
Further, Ms. Freman did not participate in the preparation of the
tax returns and did not know who was preparing them during the tax
years at issue. Ms. Freman was not presented with a meaningful
opportunity to review the returns for the tax years at issue; and when
she asked to see the returns Mr. Freman told her “there was no time,”
that he “had to get [the returns] in the mail,” and that “the IRS was
going to be garnishing his wages, and to just sign it so he could leave.”
When Ms. Freman asked Mr. Freman about this at trial he once again
responded: “I don’t recall.”
Even after Mr. Freman assumed control of the couple’s finances,
Ms. Freman still made reasonable efforts to inquire about them. For
example, Mr. Freman represented to his family that he claimed 99
dependents on their tax returns. Ms. Freman asked Mr. Freman to stop
doing this, and in response Mr. Freman got “angry with [Ms. Freman],
yell[ed] at [her], cuss[ed] at [her],” and told her that “he had it handled,
that he would take care of it.”
In the light of all the facts and circumstances, we find that Ms.
Freman’s knowledge is partially negated by Mr. Freman’s financial
control. See Robinson v. Commissioner, T.C. Memo. 2020-134, at *28–29
(finding requesting spouse entitled to relief because of nonrequesting
spouse’s financial control); Molinet v. Commissioner, T.C. Memo.
2014-109, at *12 (finding requesting spouse entitled to relief because of
nonrequesting spouse’s financial control); Waldron v. Commissioner,
T.C. Memo. 2011-288, 2011 WL 6259685, at *4–5 (finding requesting
spouse entitled to partial relief from liability); Bruen v. Commissioner,
T.C. Memo. 2009-249, 2009 WL 3617592, at *8–9 (finding requesting
spouse entitled to partial relief from liability).
30
[*30] Regarding the understatement of tax for taxable year 2012, we
find that this factor weighs against relief for the $90,000 Amount
because Mr. Freman’s financial control does not negate Ms. Freman’s
actual knowledge and clear awareness of that portion of the Retirement
Account distribution. However, we find that this factor weighs in favor
of relief for the amount of the distribution above the $90,000 Amount
and negates Ms. Freman’s reason to know of that portion of the
understatement for taxable year 2012 because Mr. Freman assumed
and sustained sole control of the finances; excluded Ms. Freman from
involvement; rebuffed her attempts to be involved except when he was
obligated to involve her; and misled Ms. Freman about the full extent of
the distribution transaction.
Regarding the underpayments of tax for taxable years 2014 and
2015, we find that this factor weighs in favor of relief and negates Ms.
Freman’s knowledge of Mr. Freman’s inability to pay the amounts due
because Mr. Freman assumed and sustained control over all financial
matters; Mr. Freman did not give Ms. Freman an opportunity to review
the returns at issue and she did not know the amounts due; Mr. Freman
was not forthcoming and “got angry” when Ms. Freman tried to inquire
about financial matters; and Mr. Freman otherwise excluded Ms.
Freman from the finances, saying that he “had it handled.” 26
d.
Legal Obligation Factor
This factor weighs in favor of relief when the nonrequesting
spouse, through a divorce decree or other legally binding agreement,
bears the sole legal obligation to pay the outstanding liability. Rev. Proc.
2013-34, § 4.03(2)(d). This factor weighs against relief if the requesting
spouse has the legal obligation to pay, and it is neutral if the divorce
decree is silent as to tax liabilities or the spouses are not separated. Id.
Because Ms. Freman has failed to provide this Court with any
documentation or other evidence regarding her legal obligation to pay,
or lack thereof, this factor is neutral.
26 Although Ms. Freman’s access to the joint bank account renders her
ineligible for relief under section 6015(b), see supra Part III.B.2.a., there is a different
standard for relief under section 6015(f), see supra note 20. Under section 6015(f) we
consider the existence and effects of abuse and financial control. Applying this
standard, we find that even though Ms. Freman and Mr. Freman maintained a joint
bank account, Mr. Freman still exercised the requisite level of financial control over
Ms. Freman. Thus, she is entitled to partial relief.
31
[*31]
e.
No Significant Benefit Factor
This factor weighs in favor of relief if the requesting spouse did
not receive a significant benefit, that is, a benefit in excess of normal
support, due to the understatement or underpayment of tax. Soler, T.C.
Memo. 2022-78, at *12–13 (citing Butner v. Commissioner, T.C. Memo.
2007-136); Rev. Proc. 2013-34, § 4.03(2)(e). This factor weighs against
relief if the requesting spouse received a significant benefit due to the
understatement or underpayment of tax. Rev. Proc. 2013-34,
§ 4.03(2)(e). There is no testimony nor any fact in the record that
suggests that Ms. Freman enjoyed a lavish lifestyle as a result of the
understatement or underpayments at issue. To the contrary, both Ms.
Freman and Mr. Freman testified that the proceeds from the
distribution were used for household bills and living expenses.
Accordingly, this factor weighs in favor of relief.
f.
Compliance Factor
This factor weighs in favor of relief if the requesting spouse is in
compliance with the tax laws for the tax years after being divorced from
the nonrequesting spouse. Id. § 4.03(2)(f)(i). This factor weighs against
relief if the requesting spouse is not in compliance for the tax years after
being divorced from the nonrequesting spouse. Id. This factor is neutral
if the requesting spouse has made a good faith effort to comply with the
tax laws but was unable to fully comply. Id.
Ms. Freman filed for divorce from Mr. Freman sometime in
November 2017, moved out of the marital residence in either March or
April of 2018, and received a judgment of dissolution sometime in or
about July 2021. The Court lacks sufficient information to determine
Ms. Freman’s compliance for the one taxable year after her divorce,
taxable year 2021. The jointly submitted First Stipulation of Facts was
submitted to the Court on April 4, 2022, and it does not contain any
information about Ms. Freman’s return for taxable year 2021. At trial
on April 5, 2022, Ms. Freman stated that she still had to file her 2021
tax return. The filing deadline for taxable year 2021 returns was not
until April 18, 2022, and thus the absence of this information is neutral.
See §§ 6072(a), 7503; I.R.S. News Release IR-2022-08 (Jan. 10, 2022). 27
27 See § 6072(a) (providing that a person required to make a return of income
under section 6012 shall file such return on April 15); § 7503 (providing that under the
Code, where the day prescribed to perform an act falls on a legal holiday in the District
32
[*32] For the years before she received a judgment of dissolution, Ms.
Freman has shown a good faith effort to comply with the income tax
laws. Ms. Freman did not file a return for taxable year 2018 although
the record does not contain enough evidence to determine whether Ms.
Freman had a filing requirement. Ms. Freman did, however, file tax
returns for taxable years 2019 and 2020 and stated at trial that “I have
filed my taxes on time by myself and paid what needs to be paid or gotten
back what was allotted to me.” Ms. Freman’s actual returns for taxable
years 2019 and 2020 are not in evidence, but her Account Transcripts
show that she timely filed her returns for both years and that she was
issued refunds. Ms. Freman has at least made a good faith effort to
comply with the federal tax laws in the years after she filed for divorce
although her level of compliance has not been perfect. See Hudgins v.
Commissioner, T.C. Memo. 2012-260, 2012 WL 3964890, at *37–38.
These facts also support treating this factor as neutral.
g.
Mental or Physical Health Factor
This factor weighs in favor of relief if the requesting spouse was
in poor physical or mental health at the time the returns from which she
seeks relief were filed, or at the time she requested relief. Rev. Proc.
2013-34, § 4.03(2)(g). If the requesting spouse was in neither poor
mental nor physical health, this factor is neutral. Id.
Ms. Freman testified that she was hospitalized for a time in 2015
and that she was subsequently prescribed narcotics to help her with
pain management. However, the scope of her health problems and the
exact timeline of any events remain unclear. Ms. Freman did not offer
any detailed testimony, documentary evidence, or witnesses to explain
the full scope of her health problems. Accordingly, this factor must be
treated as neutral.
4.
Conclusion
After weighing all the facts and circumstances, we find that Ms.
Freman is entitled to partial relief under section 6015(f). We find that it
of Columbia, the act shall be performed the next succeeding day that is not a Saturday,
Sunday, or legal holiday); D.C. Code Ann. § 28-2701 (West 2022) (District of Columbia
Emancipation Day fell on Saturday, April 16, 2022; the holiday was observed on the
next preceding date); Treas. Reg. § 301.7503-1(b) (citing D.C. Code Ann. § 28-2701). In
calendar year 2022, District of Columbia Emancipation Day fell on Saturday, April 16,
2022. Accordingly, the holiday was observed on Friday, April 15, 2022, and the filing
deadline fell on the succeeding Monday, April 18, 2022.
33
[*33] is not inequitable to hold Ms. Freman liable for tax on the $90,000
Amount for taxable year 2012 because she had actual and clear
awareness of that amount. However, we find that it is inequitable to
hold Ms. Freman liable for tax on any amounts above the $90,000
Amount for the taxable year 2012 understatement, and for the
underpayments for taxable years 2014 and 2015. 28 This is because Mr.
Freman’s financial control negated Ms. Freman’s reason to know of the
amounts of the distribution above the $90,000 Amount and her
knowledge of Mr. Freman’s inability to pay, among other factors that
weigh in favor of relief.
The Court has considered all the other contentions of the parties
and, to the extent not discussed above, finds those arguments to be
irrelevant, moot, or without merit.
Decision will be entered under Rule 155.
28 For taxable year 2015, Ms. Freman is, however, ineligible for relief to the
extent any of the 2015 underpayment is attributable to her cancellation of
indebtedness income.
This is a copy of a public record, reproduced as it was published. It is not legal advice, and it may not be the version a court would rely on. Check the official source before you cite it.