United States Tax Court
Agency decision
Ask Donna
What actually matters in this document.
Text
United States Tax Court
162 T.C. No. 2
SYDNEY ANN CHANEY THOMAS,
Petitioner
v.
COMMISSIONER OF INTERNAL REVENUE,
Respondent
—————
Docket No. 12982-20.
Filed January 30, 2024.
—————
P and her spouse H filed joint federal income tax
returns for 2012, 2013, and 2014, but did not pay the full
amount of tax shown on each return. After H’s death,
P sought relief from joint and several liability pursuant to
I.R.C. § 6015(f). R denied P’s request, and P petitioned our
Court seeking a determination under I.R.C. § 6015(e).
P and R agree that P meets the seven “threshold
conditions” that must be satisfied for a requesting spouse
to be eligible for equitable relief under I.R.C. § 6015(f). See
Rev. Proc. 2013-34, § 4.01, 2013-43 I.R.B. 397, 399–400,
modifying and superseding Rev. Proc. 2003-61, 2003-2 C.B.
296. But they disagree on whether, under the facts and
circumstances, P is entitled to relief.
P contends that she is entitled to a streamlined
determination to grant equitable relief under I.R.C.
§ 6015(f). See Rev. Proc. 2013-34, § 4.02, 2013-43 I.R.B.
at 400. In the alternative, P contends that she is entitled
to relief under the equitable factors set forth in Rev. Proc.
2013-34, § 4.03(2), 2013-43 I.R.B. at 400–03. R disputes
both contentions.
Also for our Court’s consideration is an evidentiary
issue. R objects to the admissibility of certain letters in the
Served 01/30/24
2
administrative record on the ground that they are
inadmissible hearsay. P counters that the letters are
admissible regardless of the hearsay rule given that I.R.C.
§ 6015(e)(7) instructs our Court to review the
administrative record, which includes the disputed letters.
Held: Applying Rule 802 of the Federal Rules of
Evidence, the Court overrules R’s hearsay objection.
Held, further, P is not entitled to equitable relief
under I.R.C. § 6015(f).
—————
Megan L. Brackney, for petitioner.
Julie V. Skeen and Sharyn M. Ortega, for respondent.
TORO, Judge: This case arises from a request by petitioner,
Sydney Ann Chaney Thomas, for relief from joint and several liability
under section 6015 1 with respect to the 2012, 2013, and 2014 taxable
years. In a previous opinion we resolved an evidentiary matter that
arose during trial. See Thomas v. Commissioner, No. 12982-20, 160 T.C.
(Feb. 13, 2023) (reviewed). The two remaining issues for decision are
(1) whether certain letters in the administrative record on which
Ms. Thomas relies must be excluded from evidence as inadmissible
hearsay and (2) whether Ms. Thomas is entitled to relief under section
6015(f). As we discuss below, we resolve the first issue in favor of
Ms. Thomas and the second issue in favor of the Commissioner.
FINDINGS OF FACT
The parties have filed a Stipulation of Facts as supplemented and
related Exhibits. We incorporate the parties’ Stipulation of Facts as
supplemented and the attached Exhibits by this reference. We tried this
case during the Court’s San Francisco, California, trial session, on
1 Unless otherwise indicated, statutory references are to the Internal Revenue
Code, Title 26 U.S.C. (I.R.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. We round
all monetary values to the nearest dollar.
3
April 4, 2022. Ms. Thomas resided in California when she filed her
Petition.
I.
Ms. Thomas and Mr. Thomas
Ms. Thomas is a business owner, part-time college instructor, and
former bank employee. She holds a bachelor of science degree in
political science and government and economics from Oregon State
University.
In 1994, Ms. Thomas married her next-door neighbor, Tracy A.
Thomas. Mr. Thomas held a finance degree and worked for Halliburton.
He eventually transitioned into a career in the construction industry.
The Thomases’ marriage initially was a happy one, and the couple
went on to have two daughters. Eventually, they purchased a 2,366square-foot, 4-bedroom, 2½-bath, single-family home in Moraga,
California (Moraga Property), an affluent suburb of San Francisco.
Around this time, Mr. Thomas was making good money, so Ms. Thomas
stopped working to take care of their children. Also around this time,
the Thomases purchased a 2,025-square-foot, 3-bedroom, 2½-bath
second home that was built in 2007 in the Tahoe National Forest
(Truckee Property) near various ski resorts in the Lake Tahoe area.
Mr. Thomas also purchased a five-carat diamond ring for Ms. Thomas
that she still owned at the time of trial.
II.
The Thomases’ Finances and Their Tax Problems
As the years went by, the Thomases’ relationship began to break
down. Coinciding with their growing marital problems, the Thomases
began experiencing financial problems. Sometime between 2007 and
2009, Mr. Thomas stopped receiving regular bonuses from his employer
as a result of the global financial crisis. He eventually left his job for
others in the construction industry.
Around this time, the Thomases were having trouble making
credit card and mortgage payments. At one point, they defaulted on
approximately $125,000 in credit card debt. And in 2011 the Moraga
Property went into foreclosure. But, before the Moraga Property could
be auctioned off, Ms. Thomas got the home out of foreclosure. Then, to
help pay their mortgages in 2012, 2013, and 2014, the Thomases took
early retirement distributions of $95,000, $90,000, and $78,300,
respectively, from an individual retirement account. Ms. Thomas knew
about the early retirement distributions when they occurred.
4
For the 2012, 2013, and 2014 tax years, the Thomases jointly filed
federal income tax returns with the Internal Revenue Service (IRS).
Ms. Thomas signed these returns. In relevant part, each return
reported income tax due in excess of the amount the Thomases paid.
The 2012 return reported unpaid income tax of $21,016. The 2013
return reported unpaid income tax of $24,868. And the 2014 return
reported unpaid income tax of $27,219. The Thomases did not pay these
amounts at the time they filed their returns, and most of the amounts
remained outstanding at the time of trial. Ms. Thomas knew about the
underpayments at the time the Thomases filed their returns.
Around this time, Ms. Thomas sold property she had inherited
from her mother and used a portion of the proceeds to buy a 2013 Land
Rover for her personal use.
On December 1, 2013, Ms. Thomas wrote to the IRS with respect
to the Thomases’ 2012 return, requesting relief from at least part of their
unpaid tax liabilities. In this letter, Ms. Thomas said that the Thomases
“will have to resort to pulling even more money out of [their] nearly
depleted retirement account to pay the remaining [balance] for the 2012
tax year.” Stipulation of Facts Ex. 7-J, at 1.
In 2016, Mr. Thomas texted Ms. Thomas that “[t]he taxes and
mortgages have been dealt with [and] now it is in IRS and Chase’s
court.” Stipulation of Facts Ex. 6-J, at 20. However, this was not the
end of the Thomases’ tax issues. The Thomases continued to argue over
their finances. In July 2016, for example, the Thomases argued about a
$1,000 plane ticket Ms. Thomas purchased for their daughter to go to
Hawaii. In 2016, they also argued over various personal expenses
incurred by Ms. Thomas and their daughters (who at the time of trial
were 21 and 22 years old), including a trip to Paris Ms. Thomas was
taking with one daughter, among other expenditures. And they argued
about expenses for Ms. Thomas’s sailing apparel business, Ocean SF, in
which Mr. Thomas had invested.
On July 26, 2016, Mr. Thomas passed away, leaving Ms. Thomas
as his sole heir. Mr. Thomas’s estate consisted primarily of his interest
in the Moraga Property and the Truckee Property, as well as a 2004
Lexus, a Porsche Boxster, and a golf membership at a country club.
Ms. Thomas also was left to deal with the finances and unpaid income
taxes.
5
In the years following Mr. Thomas’s death, Ms. Thomas traveled
to New York with one of her daughters to celebrate that daughter’s
birthday. She also traveled to Rome, Paris, and Florence, to Napa for
wine tastings, and to Tahoe for skiing with her daughters. She took out
loans to put her daughters through college, gave one daughter $3,500
for an advanced math class, and paid for her daughters’ cell phones and
car insurance.
During these same years, Ms. Thomas maintained a blog. She
blogged about Mr. Thomas, her two daughters, her lifestyle, and Ocean
SF. She blogged about her various trips with her daughters and about
purchasing her daughter “a gorgeous bottle green Dior bag for her 18th
birthday.” Stipulation of Facts Ex. 13-J, at 29. In the same blog post,
she stated that she “own[s] five bags,” including a “white Italian Furla,”
two from Kate Spade, and a “black woven Bottega Veneta.” Id. The
following day, she blogged about paying a business coach “$220 per
hour” for private sessions. Id. at 49. In another post from about a year
after Mr. Thomas died, Ms. Thomas wrote that she would “listen[]
politely as friends said, you have to sell your Tahoe house, and be
realistic. For the record, I will never sell my Tahoe house. Ever.” Id.
at 15.
III.
Ms. Thomas’s 2018 Bankruptcy
On October 1, 2018, Ms. Thomas filed for bankruptcy. As part of
her bankruptcy proceedings, on December 12, 2018, she filed Official
Form 106Sum, Summary of Your Assets and Liabilities and Certain
Statistical Information. On her Form 106Sum, she reported combined
monthly income of $9,515 and monthly expenses of $7,650. She also
reported the values of her two properties, the Moraga Property and the
Truckee Property. She reported the value of the Moraga Property as
$1,488,865 and the value of the Truckee Property as $681,246.
On January 14, 2019, the bankruptcy case was dismissed.
IV.
The Request for Innocent Spouse Relief
On July 16, 2019, Ms. Thomas filed with the IRS Form 8857,
Request for Innocent Spouse Relief, seeking, in relevant part, relief from
her unpaid tax liabilities for the 2012, 2013, and 2014 tax years.
On November 19, 2019, Ms. Thomas submitted additional
documentation to the IRS in support of her claim for relief. Among the
documents she sent to the IRS were letters from two of her friends that
6
she relied on to support her claim for innocent spouse relief, including
one from Gina Cefalu, which discussed Ms. Thomas’s attempt to sell her
Moraga Property in 2018.
On March 12, 2020, Ms. Thomas spoke with the IRS hearing
examiner reviewing her request for innocent spouse relief. During this
call, she told the IRS hearing examiner that her income was $6,800 per
month and that her expenses were $4,320 per month.
On September 8, 2020, the IRS denied Ms. Thomas’s request for
innocent spouse relief. On November 9, 2020, she petitioned our Court
for review. As of March 28, 2022, Ms. Thomas’s unpaid federal tax
liabilities (not including accrued interest) were $6,715 for 2012, $26,311
for 2013, and $27,607 for 2014, or $60,633 in total.
V.
Ms. Thomas’s Income
At the time of trial, Ms. Thomas was receiving income from
various sources. Among them were her Truckee Property, which she
sometimes rented out, her part-time teaching role at the University of
California, Berkeley, her leadership training business, and various side
jobs such as catering, home staging, and both dog walking and dog
sitting. With respect to her Truckee Property, Ms. Thomas leased out
the property from January 15 to March 30, 2022, for two weeks each
month. In total, she received at least $13,500 from this rental
agreement. Also in February and March 2022, Ms. Thomas rented her
Truckee Property through Airbnb during the times her lessee was not
there. In total, she received approximately $4,550 from her Airbnb
reservations.
Ms. Thomas also operated her own sailing apparel business. The
record does not disclose how much income she received from this
business. But, for 2020, Ocean SF reported on its Form 1120,
U.S. Corporation Income Tax Return, total income of $15,542 and a net
operating loss of $4,621. 2
In addition to the monthly income Ms. Thomas reported during
her bankruptcy in December 2018 and to the IRS in March 2020,
Ms. Thomas reported adjusted gross income for 2017 of approximately
$72,000. Furthermore, her checking account statement for February 8
to March 7, 2022, shows total deposits of $9,693, including deposits from
2 The Form 1120 shows the name of the entity as “Ocean SP Inc,” rather than
Ocean SF, which we assume is typographical error.
7
Venmo and Zelle accounts totaling $2,805 and a “Mobile Deposit” of
$4,500.
VI.
Ms. Thomas’s Assets
Relevant to this case, at the time of trial Ms. Thomas continued
to own both the Moraga Property and the Truckee Property. 3
In September 2018, Ms. Thomas listed the Moraga Property for
sale with the help of her realtor friend Ms. Cefalu. A listing for the
property shows that it was on the market from September 12 until
September 20, 2018. The listing price for the property was $1.45 million.
The property was not sold. In the letter from Ms. Cefalu accompanying
Ms. Thomas’s submission to the IRS on November 19, 2019, Ms. Cefalu
indicated that the “feedback we received on the home in the first
weekend was that it was $200K overpriced.” Stipulation of Facts
Ex. 6-J, at 12. But, in December 2018, Ms. Thomas reported the value
of the Moraga Property as $1,488,865 on her bankruptcy Form 106Sum,
nearly $40,000 more than what she had listed the property for three
months earlier.
With respect to the Truckee Property, in July 2019, the Placer
County, California, Assessor’s Office sent Ms. Thomas a letter reporting
that the property had a value of $670,000 for tax assessment purposes.
A similar home across the street from Ms. Thomas’s Truckee Property
sold at some point before trial for $1.1 million.
As of March 15, 2022, the outstanding principal on the Moraga
Property was $1,068,028. But Ms. Thomas had been delinquent on the
Moraga Property mortgage for a number of years and the ending balance
of her account, including charges for principal, interest, taxes and
insurance, as well as expenses paid by the loan servicer, was $1,400,577.
Also as of March 15, 2022, the outstanding principal on the Truckee
Property was $630,008, and the ending balance of Ms. Thomas’s account
was $631,777. Her monthly payments on the Truckee Property were at
least $2,882.
3 She also continued to own the five-carat diamond ring, but has presented no
evidence as to its value, other than to testify that “there’s not a big resale for rings like
that.” Trial Tr. 77.
8
OPINION
Before we begin our discussion of the merits, we address the
Commissioner’s argument that certain contents of the administrative
record (i.e., letters from third parties that Ms. Thomas submitted to the
IRS during her administrative hearing) are inadmissible hearsay in our
Court. In short, they are not.
The rule against hearsay applies only when it is not supplanted
by federal statute, other rules of the Federal Rules of Evidence, or any
rules prescribed by the Supreme Court. Fed. R. Evid. 802; see also
4 Christopher B. Mueller & Laird C. Kirkpatrick, Federal Evidence
§ 8:64 (4th ed. 2023) (“[Rule 802] bars hearsay evidence unless other
federal Rules or Acts of Congress pave the way to admit hearsay.”). 4 In
the context of innocent spouse relief, section 6015(e)(7) provides such a
supplanting statute.
Specifically, it instructs us to base our
determinations on “the administrative record established at the time of
the [IRS’s] determination” and “any additional newly discovered or
previously unavailable evidence.” I.R.C. § 6015(e)(7). The statute does
not provide any limitations on our consideration of the administrative
record. And there is no dispute between the parties that the
administrative record includes the letters Ms. Thomas submitted to the
IRS in 2019. To apply the rule against hearsay to exclude these
documents from our consideration would undermine Congress’s clear
direction as articulated in section 6015(e)(7).
More generally, the Commissioner’s assertion that the Federal
Rules of Evidence should be applied to limit our review of the
administrative record in innocent spouse cases would seem to swallow
our scope of review in such cases, potentially rendering much of the
administrative record subject to challenge. It would make little sense
for proceedings in which Congress has instructed us to review the
administrative record to devolve into lengthy disputes over which
aspects of the record may actually be considered. And section 6015 does
not permit such an outcome.
4 Fed. R. Evid. 802.
The Rule Against Hearsay—
Hearsay is not admissible unless any of the following provides
otherwise:
•
a federal statute;
•
these rules; or
•
other rules prescribed by the Supreme Court.
9
Our analysis is consistent with the views the Advisory Committee
to the Federal Rules of Evidence expressed when recommending the
adoption of Rule 802. The Advisory Committee Notes explain that the
rule against hearsay does not apply to any “hearsay which is made
admissible by other rules adopted . . . by Act of Congress” even though
such hearsay otherwise “would not qualify under these Evidence Rules.”
Fed. R. Evid. 802 advisory committee note to 1972 proposed rules. The
Notes then list illustrative examples of circumstances in which Congress
has provided such a supplanting rule. The examples include 29 U.S.C.
§ 161(4), which describes procedures for hearings and investigations of
the National Labor Relations Board and allows affidavits as proof of
service in certain circumstances. Another example is 10 U.S.C. § 8900
(previously 10 U.S.C. § 7730), which provides that, in judicial
proceedings related to certain suits against the United States, affidavits
may sometimes be accepted as evidence in lieu of testimony. Similarly
here, Congress provided a special rule for the evidence our Court
considers in a particular category of cases, and we are not free to
disregard its instruction. Cf., e.g., Wagner v. Minn. Life Ins. Co.,
184 F. Supp. 3d 845, 849–50 (D. Mont. 2016) (noting that two exhibits
found in the administrative record the court was reviewing were
admissible under Rule 802 even though they would otherwise constitute
hearsay); United States v. Clarke, 628 F. Supp. 2d 15, 18 (D.D.C. 2009)
(noting the “inescapable conclusion that, to the extent Rules 801 through
803 are inconsistent with [the relevant statutory provision,] 8 U.S.C.
§ 1443(e), the more specific provision—§ 1443(e)—governs and requires
that the certificate of naturalization be admitted into evidence” (citing
Fed. R. Evid. 802)), aff’d sub nom. United States v. Straker, 800 F.3d 570
(D.C. Cir. 2015) (per curiam).
Our analysis is also consistent with how courts have approached
more typical administrative record cases, in which a court generally
reviews the record to decide whether an agency’s action was an abuse of
discretion. See, e.g., Black v. Long Term Disability Ins., 582 F.3d 738,
746 n.3 (7th Cir. 2009) (“The Federal Rules of Evidence . . . do not apply
to an ERISA administrator’s benefits determination, and we review the
entire administrative record, including hearsay evidence relied upon by
the administrator.” (citing Speciale v. Blue Cross & Blue Shield Ass’n,
538 F.3d 615, 622 n.4 (7th Cir. 2008))). It has long been settled that
administrative agencies are not bound by the Federal Rules of Evidence.
See FTC v. Cement Inst., 333 U.S. 683, 705–06 (1948); see also
Fed. R. Evid. 101(a) (noting that the Federal Rules of Evidence “apply
to proceedings in United States courts”).
Accordingly, agencies
generally may consider hearsay evidence in support of a contested
10
finding of fact. See Richardson v. Perales, 402 U.S. 389, 402 (1971);
Calhoun v. Bailar, 626 F.2d 145, 148–49 (9th Cir. 1980); Hoonsilapa v.
INS, 575 F.2d 735, 738 (9th Cir. 1978). And in reviewing an agency’s
determination for abuse of discretion, courts may consider hearsay
evidence as substantial evidence supportive of an agency finding of fact.
See Perales, 402 U.S. at 402, 407–08; Calhoun, 626 F.2d at 149
(“To constitute substantial evidence, hearsay declarations, like any
other evidence, must meet minimum criteria for admissibility—it must
have probative value and bear indicia of reliability.”). We see no
indication that Congress intended a different result in this context,
where we review the administrative record de novo.
Of course, as in a case we review for abuse of discretion, here
(where we review de novo) there may be questions as to whether
evidence in the administrative record is probative and reliable. See
Perales, 402 U.S. at 407–08; Calhoun, 626 F.2d at 149; see also Marino
v. Commissioner, T.C. Memo. 2021-130, at *21–23. And, in determining
whether evidence in the administrative record is probative and reliable,
we may consider indicia of reliability such as whether a document is or
contains hearsay. We necessarily consider such questions as part of our
de novo review of the claims Ms. Thomas advances. The Commissioner,
however, is not entitled to strike portions of the administrative record
on hearsay grounds. 5 Rather, based on the congressional command in
section 6015(e)(7), Ms. Thomas is allowed to rely on the administrative
record for whatever it can bear.
In short, by statute, we are required to consider the full
administrative record and must therefore overrule the Commissioner’s
hearsay objection with respect to the letters. See Fed. R. Evid. 802.
We now turn to the merits of this case. 6
If the Commissioner wanted to test the contents of the letters, he could have
called their authors as witnesses at trial. But he did not do so.
5
6 In his Reply Seriatim Brief, the Commissioner objects to various articles cited
in Ms. Thomas’s brief on the grounds that they are inadmissible hearsay, violate the
rules pertaining to expert witness testimony, and were not admitted as evidence at
trial. The Commissioner also filed a Motion to Strike (Doc. 72) raising similar
objections to these cited articles. The Commissioner is correct that evidence, including
evidence in the nature of expert testimony, cannot be submitted on brief. But we do
not interpret Ms. Thomas’s arguments that way. And, in any event, the articles to
which the Commissioner objects do not affect the outcome of this case. We therefore
will deny the Commissioner’s Motion.
11
I.
Joint and Several Liability
Married taxpayers may elect to file a joint federal income tax
return. I.R.C. § 6013(a). If a joint return is made, the tax is computed
on the spouses’ aggregate income, and each spouse is fully responsible
for the accuracy of the return and is jointly and severally liable for the
entire amount of tax shown on the return or found to be owing. I.R.C.
§ 6013(d)(3); Pullins v. Commissioner, 136 T.C. 432, 437 (2011). But in
certain circumstances, a spouse who has made a joint return may seek
relief from joint and several liability under procedures set forth in
section 6015. I.R.C. § 6015(a). Section 6015 provides a requesting
spouse with three alternatives:
(1) full or partial relief under
subsection (b), (2) proportionate relief under subsection (c), or (3) if relief
is not available under subsection (b) or (c), equitable relief under
subsection (f). Pullins, 136 T.C. at 437.
As the parties agree, subsections (b) and (c) do not apply in this
case because we have before us only an underpayment of tax, not an
understatement of tax or a deficiency, as required by subsections (b)
and (c). Pullins, 136 T.C. at 437 n.5. Therefore, the only relief available
is under subsection (f). See Pullins, 136 T.C. at 437 n.5; see also
Washington v. Commissioner, 120 T.C. 137, 146–48 (2003). And we have
jurisdiction to consider Ms. Thomas’s request for relief from joint and
several liability. See I.R.C. § 6015(e)(1)(A).
Ms. Thomas generally has the burden of proving her entitlement
to relief under section 6015(f). See Rule 142(a); Porter v. Commissioner,
132 T.C. 203, 210 (2009) (reviewed). As we have discussed, we review
the Commissioner’s determination to deny relief under a de novo
standard of review. I.R.C. § 6015(e)(7). 7 Also, as we stated above, the
scope of our review is limited to “the administrative record established
at the time of the [Commissioner’s] determination, and . . . any
additional newly discovered or previously unavailable evidence.” Id. We
will consider the 36 stipulated Exhibits admitted into evidence in this
case, which were either part of the administrative record or otherwise
fall within section 6015(e)(7). See Thomas, 160 T.C., slip op. at 4–5. We
will also consider Ms. Thomas’s trial testimony because it was
“unavailable evidence” at the time of the administrative proceeding.
See, e.g., Freman v. Commissioner, T.C. Memo. 2023-10, at *10; Sleeth
7 As discussed in our opinion of February 13, 2023, in this case, paragraph (7)
applies to this case because Ms. Thomas filed her Petition after July 1, 2019. See
Thomas, 160 T.C., slip op. at 4–5.
12
v. Commissioner, T.C. Memo. 2019-138, at *3, aff’d, 991 F.3d 1201 (11th
Cir. 2021).
II.
Relief Under Section 6015(f)
As relevant to this case, when relief is unavailable under
section 6015(b) or (c), section 6015(f) grants the Commissioner discretion
to relieve a requesting spouse of joint liability if, considering all of the
circumstances, it would be inequitable to hold the requesting spouse
liable for the unpaid tax, or any portion thereof. Section 6015(f)
authorizes granting such equitable relief “[u]nder procedures prescribed
by the Secretary.”
As is the case here, for requests filed on or after September 16,
2013, and for requests pending in any federal court on or after
September 16, 2013, Revenue Procedure 2013-34, 2013-43 I.R.B. 397,
modifying and superseding Rev. Proc. 2003-61, 2003-2 C.B. 296,
prescribes factors that the Commissioner considers in determining
whether equitable relief is appropriate under section 6015(f). See also
Treas. Reg. § 1.6015-4(c). We consult the same factors as the
Commissioner when considering a request for relief. See Pullins, 136
T.C. at 438 (citing Washington, 120 T.C. at 147–52); see also Jones v.
Commissioner, T.C. Memo. 2019-139, at *13–14, aff’d, No. 20-70013,
2022 WL 327473 (9th Cir. Feb. 3, 2022). But we are not bound by them.
See Minton v. Commissioner, T.C. Memo. 2018-15, at *12 (collecting
authorities).
Section 4.01 of Revenue Procedure 2013-34 sets forth seven socalled threshold conditions that must be satisfied for a requesting
spouse to be eligible for equitable relief under section 6015(f). The
parties agree that Ms. Thomas meets the threshold conditions, so we
will not discuss them further.
III.
Streamlined Determination Under Revenue Procedure 2013-34
When, as here, the threshold conditions are satisfied, section 4.02
of Revenue Procedure 2013-34 describes circumstances in which the
Commissioner will make a streamlined determination to grant equitable
relief under section 6015(f).
To be eligible for a streamlined
determination, the requesting spouse must establish that she (1) is no
longer married to the requesting spouse, (2) would suffer economic
hardship if relief were not granted, and (3) 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.
13
Rev. Proc. 2013-34, § 4.02, 2013-43 I.R.B. at 400; see also Severance v.
Commissioner, T.C. Memo. 2023-101, at *13. Because of Mr. Thomas’s
death, the first requirement is satisfied. The parties dispute whether
Ms. Thomas has satisfied the second and third requirements for a
streamlined determination. Because Ms. Thomas has not established
that she would suffer economic hardship if she is not granted relief
under section 6015(f), we conclude that she is not eligible for a
streamlined determination. We therefore need not address the third
requirement.
A.
Economic Hardship
Under the Revenue Procedure, 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.”
Rev. Proc. 2013-34, § 4.03(2)(b), 2013-43 I.R.B. at 401; see also Treas.
Reg. § 301.6343-1(b)(4). The requesting spouse must demonstrate that
imposing joint and several liability is “‘inequitable in present terms,’
Von Kalinowski v. Commissioner, T.C. Memo. 2001-21, and poses a
present economic hardship.” Pullins, 136 T.C. at 446. We have
“consistently looked beyond the taxable year at issue to apply
subsection (f),” Hall v. Commissioner, 135 T.C. 374, 380 (2010), and we
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 (1) her annual income is below 250% of the federal poverty
guidelines8 or (2) her monthly income exceeds her reasonable basic
monthly living expenses by $300 or less. Rev. Proc. 2013-34, § 4.03(2)(b),
2013-43 I.R.B. at 401. To demonstrate economic hardship, the
requesting spouse must also show that she does not have assets from
which she can make payments toward the tax liability and still meet her
reasonable basic living expenses. Id.; see also Pocock v. Commissioner,
T.C. Memo. 2022-55, at *22–23.
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)
8 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 January 2022, HHS published new guidelines,
which set the federal poverty line for a one-person household at $13,590 and for a
three-person household at $23,030. Annual Update of the HHS Poverty Guidelines,
87 Fed. Reg. 3315, 3316 (Jan. 21, 2022); see also Parker v. Commissioner, T.C. Memo.
2022-110, at *7 n.5.
14
in determining whether the requesting spouse would suffer economic
hardship if relief is not granted.” Rev. Proc. 2013-34, § 4.03(2)(b),
2013-43 I.R.B. at 401.
B.
Application to Ms. Thomas
To show that she will suffer an economic hardship if she is not
granted innocent spouse relief, Ms. Thomas contends that we should
find that her annual income is less than 250% of the federal poverty line
and that she does not otherwise have sufficient assets to pay off the
federal income tax liabilities and still adequately meet her reasonable
basic living expenses. But, as we discuss below, Ms. Thomas has not
adequately supported either claim. 9
1.
Ms. Thomas’s Income
We first consider Ms. Thomas’s claim that her annual income is
less than 250% of the federal poverty line. Specifically, she claims that
the record supports “total annual income of, at best, approximately
$37,800 per year.” Pet’r’s Answering Br. at 77. Assuming, as
Ms. Thomas proposes, that she has a household size of three people, 10
her annual income would fall below 250% of the federal poverty line if it
were less than $57,575 ($23,030 × 2.5 = $57,575) as of the time we tried
this case. While Ms. Thomas has presented some evidence of her
income, there are significant holes in the record that preclude us from
concluding that her total income is below 250% the federal poverty line.
We begin by noting that Ms. Thomas has provided us with little
documentary evidence to support her claim that her annual income is
what she approximates, and certainly not enough to satisfy her burden
of proof on the matter. To the extent she has provided us with
documentation, some of the documents suggest that her income is far
greater than $37,800 per year. For example, she has provided a lease
agreement and a list of Airbnb reservations showing total rental income
of over $18,000 from her Truckee Property during the first three months
of 2022. This alone suggests that her income approximation may be low.
Additionally, Ms. Thomas has provided us with her checking account
9 Ms. Thomas also has not provided us with an adequate basis for calculating
her reasonable basic monthly living expenses beyond providing her mortgage
statements. For that reason alone, we could conclude that she has not satisfied her
burden of proof. Nevertheless, we will address her arguments.
10 We note that this is a generous assumption given that Ms. Thomas’s two
daughters are both adults.
15
statement for February 8 to March 7, 2022. This statement shows
nearly $9,700 in deposits during that one-month period. Among these
deposits are unexplained amounts totaling $2,805 from Venmo and Zelle
accounts and a “Mobile Deposit” of $4,500. Suppl. Stipulation of Facts
Ex. 22-P, at 2–4. If these deposits reflect Ms. Thomas’s regular income,
then they would show that her annual income far exceeds $37,800. And
Ms. Thomas has made no effort to explain these deposits.
Ms. Thomas’s testimony about her income is similarly unhelpful
to her case. 11 At one point she testified that on average she receives
about $35,000 annually in rental income, $3,200 every ten weeks she
teaches at the University of California, Berkeley, and $100 every two
weeks from a client to whom she provides leadership coaching. This
income alone would place her above the $37,800 she approximates. 12
But Ms. Thomas also testified that she does “a lot of side hustles,”
including catering and home staging, which provide her additional
income that she reports “in [her] tax returns.” Trial Tr. 115:3–7.
Relatedly, she testified that her “2021 taxes are going to have a lot of
different sources of income.” Trial Tr. 115:18–19. Noticeably absent
from her testimony is an estimate of her income from these various side
jobs. One can reasonably ask if the unexplained deposits into her
checking account are from these “side hustles.” But because the record
does not disclose her income from these sources, we are left to guess at
the total amount of her income.
The record is also silent about any income Ms. Thomas may
receive from her sailing apparel business. Although Ms. Thomas
testified that her business is “highly unprofitable,” Trial Tr. 112:23, the
only documentation on the record in support of her testimony is a copy
of Ocean SF’s tax year 2020 return, which shows that Ocean SF reported
a loss from the business of $4,621 for the year. Given that we tried this
case more than a year later, we find the information on Ocean SF’s 2020
tax year return an unreliable metric for determining what income
Ms. Thomas received from the business in 2022. Again, it is certainly
possible that her sailing apparel business accounts for some of the
11 We note that, throughout the trial, we were troubled by inconsistencies in
Ms. Thomas’s testimony, which appeared to change according to what would be most
helpful in the moment. In multiple respects we found her to be an unreliable witness.
12 At another point, however, Ms. Thomas testified that she earned only $1,000
per month in rental income “at the most.” Trial Tr. 9:25–10:1.
16
unexplained deposits into her checking account, and Ms. Thomas has
not presented anything to the contrary.
Finally, we note that the income amounts Ms. Thomas claims on
brief are generally inconsistent with the income amounts she previously
reported to the IRS and during her bankruptcy. For her 2017 tax year,
the record shows that Ms. Thomas reported about $72,000 in adjusted
gross income. During her 2018 bankruptcy, Ms. Thomas reported
receiving income of approximately $9,500 per month. The record further
shows that, in March 2020, she told an IRS hearing examiner that she
had monthly income of approximately $6,800. Nothing in the record
persuades us that her circumstances have changed significantly since
March 2020. And these prior accounts of Ms. Thomas’s income are closer
to the amount the record actually supports than to her $37,800
estimate—an amount that would represent income of only $3,150 per
month.
Accordingly, for the reasons discussed above, Ms. Thomas has not
established that her income is less than 250% of the federal poverty line.
2.
Ms. Thomas’s Assets
Next, we address Ms. Thomas’s argument that she lacks
sufficient assets from which she can pay her federal tax liabilities while
still meeting her reasonable basic living expenses. Upon a review of the
record, we conclude that Ms. Thomas has not demonstrated that she has
insufficient equity in her two homes to cover her federal income tax
liabilities while also meeting her reasonable basic living expenses.
In support of her claim, Ms. Thomas provided various documents
that she says establish the fair market values of her Moraga Property
and her Truckee Property. She also testified about the condition of these
properties. On the basis of the information in the record, Ms. Thomas
argues that the value of the Moraga Property is $1.25 million and the
value of her Truckee Property is $670,000. If one were to credit the
values Ms. Thomas proffers and her ending account balances on the
mortgages for the two properties at the time of our trial ($1,400,577 and
$631,777), the expected proceeds from sales of the properties would be
insufficient to cover the amounts owed, leaving nothing to satisfy
Ms. Thomas’s federal income tax liabilities. 13 But Ms. Thomas has not
13 We note that Ms. Thomas herself does not press this position. Instead, she
argues on brief that her equity in the Truckee Property at the time of trial was
17
demonstrated that the true values of her properties are what she says
they are, and the record suggests the values are actually much higher.
a.
The Moraga Property
We begin with the Moraga Property. Ms. Thomas’s proposed
valuation is based upon a property listing from September 2018, which
shows that the home was listed for $1.45 million. Then, Ms. Thomas
relies on a letter from her realtor friend dated November 14, 2019, in
which her friend says that the “feedback we received on the home in the
first weekend was that it was $200k overpriced.” Taken together,
Ms. Thomas says that these documents establish that her Moraga
Property is worth approximately $1.25 million. Ms. Thomas’s reasoning
is unpersuasive.
First, the documents she relies on are several years old. They
purport to value the property as of September 2018 when the relevant
timeframe for our analysis is when we tried this case in April 2022. See
Pullins, 136 T.C. at 446–47; see also Braen v. Commissioner, T.C. Memo.
2023-85, at *33 (questioning the reliability of comparable property sales
from five years before the year at issue in determining the value of
property). Ms. Thomas herself testified at trial that the values of her
homes, both in affluent, desirable areas, have “popped up” since 2018
“because we’ve had just such a crazy real estate [market].”
Trial Tr. 46:9. Ms. Thomas has made no effort to quantify this “pop up,”
whereas the Commissioner has submitted an estimate from a wellknown commercial website placing the home’s value in excess of
$2.1 million. Even if the Commissioner’s estimate is off base because of
deferred maintenance and other factors, as Ms. Thomas contends, just a
modest rate of appreciation over the 3½-year timeframe would result in
a potentially material increase in valuation for purposes of this case.
Indeed, the mere fact that Ms. Thomas’s lender has allowed her to
remain in the home without making payments for a number of years
suggests that the lender views the Moraga Property as significantly
appreciated and its position as appropriately collateralized.
Ms. Thomas has offered no evidence to fill these gaps or dispel these
inferences.
“approximately $40,000” and her equity in the Moraga Property was “approximately
$94,000.” Pet’r’s Answering Br. at 79. She argues that after “paying closing costs and
commissions, she likely would not have enough left to cover [her taxes].” Id. But, for
the reasons we discuss, she has not supported that these amounts accurately reflect
her equity in the two properties.
18
Second, nothing in the record indicates that the original listing
price or Ms. Thomas’s friend’s comments that her home was overpriced
were backed by sufficient data and expertise. Ms. Thomas did not call
her friend to testify about the Moraga Property, so we have little basis
from which to judge her qualifications for appraising real estate. And
Ms. Thomas has not obtained a formal appraisal.
Finally, Ms. Thomas’s own bankruptcy filing from three months
after the property was listed for sale contradicts her valuation. In the
filing from December 2018, Ms. Thomas reported the value of the
Moraga Property as $1,488,865, a much higher amount than the
$1.25 million valuation she proffers now. Even the self-reported value
from her bankruptcy listing, which does not reflect the “pop-up” of the
intervening 3½ years, might leave her with enough equity in her two
properties to pay her unpaid taxes and meet her reasonable basic living
expenses. And accounting for intervening appreciation of the property
from 2018 to the time of trial in 2022, Ms. Thomas’s equity would more
than cover her debts.
b.
The Truckee Property
Next, we consider Ms. Thomas’s claim that her Truckee Property
(a 2,025-square-foot, 3-bedroom, 2½-bath second home a short distance
from multiple ski resorts in the Lake Tahoe area) is worth $670,000.
As with the Moraga Property, we do not believe this valuation is
established by the record.
Ms. Thomas’s estimated valuation is based solely on a letter dated
July 2019, from the Placer County, California, Assessor’s Office, which
reported the assessed value of her Truckee Property for property tax
purposes as $670,000 as of January 1, 2019. Again, this document is
several years old and does not purport to reflect the property’s value as
of the time we tried this case. Moreover, there is no indication that the
assessed value in the letter actually represented the fair market value
of the property at the time. It, again, is simply an assessed value for
property tax purposes, and nothing in the record indicates that it was
backed by a fair market value appraisal.
As with the Moraga property, the Commissioner submitted an
estimate from a well-known commercial website placing the fair market
value of the Truckee Property over $1.2 million around the time of trial.
And Ms. Thomas herself testified that the “exact same home on the same
side of the street” sold for $1.1 million three months before trial—
19
exceeding what she says her property is worth by more than $400,000.
Trial Tr. 111:13–16. Although she also testified that this other home is
in a better condition than her property, 14 even a generous $200,000 price
reduction to account for any difference in condition would give her
$270,000 in equity—presumably more than enough to pay her federal
tax liabilities after accounting for closing costs, commission, and taxes.
In short, Ms. Thomas has not demonstrated that her equity in
either of her two properties is insufficient to meet her income tax
liabilities. And the record does not support her claim that selling either
of the two properties to pay her federal tax liabilities would leave her
without the ability to pay her reasonable basic living expenses. 15
Accordingly, we conclude that Ms. Thomas has not established that she
will suffer economic hardship if relief is not granted. Nor do we believe
that the facts and circumstances of this case, as revealed by the record,
warrant such a conclusion. Thus, she is not entitled to a streamlined
determination.
IV.
Equitable Factors
For cases in which the threshold conditions are met, but the
requesting spouse is not eligible for a streamlined determination,
section 4.03(2) of Revenue Procedure 2013-34 sets out seven
nonexclusive factors to be considered in determining whether a
requesting spouse is entitled to equitable relief under section 6015(f).
Those factors are: (1) the taxpayer’s marital status, (2) whether the
requesting spouse will suffer economic hardship absent relief,
(3) whether the requesting spouse had knowledge or reason to know that
the nonrequesting spouse would not or could not pay the income tax
liabilities, (4) whether either spouse had a legal obligation to pay the
liabilities, (5) whether the requesting spouse significantly benefited
14 Ms. Thomas testified at several points that both her homes have significant
“deferred maintenance.” Trial Tr. 46:10, 47:5–6, 58:11. But in describing her expenses
she also testified that “we do a lot of maintenance” on the Truckee Property, which,
according to Placer County public records, was only 15 years old at the time of trial.
Trial Tr. 111:7. And the pictures she offered into evidence of the Truckee Property
(showing, for example, scratched doors) do not suggest hundreds of thousands of
dollars in damage.
15 Although Ms. Thomas argues that she relies on renting her Truckee Property
for income, for reasons already discussed, we are unpersuaded that she would be left
with insufficient proceeds from a sale of the property after paying her federal tax
liabilities to continue meeting her reasonable basic living expenses for at least a
reasonable period.
20
from the underpayments, (6) whether the requesting spouse has
complied with income tax laws in the years following those to which the
request for relief relates, and (7) the mental or physical health of the
requesting spouse. Rev. Proc. 2013-34, § 4.03(2), 2013-43 I.R.B.
at 400–03. These factors are to be weighted appropriately, and no one
factor is determinative. Id. at 400; see also Yancey v. Commissioner,
T.C. Memo. 2017-59, at *19 (collecting cases).
The only factors in dispute are whether Ms. Thomas will suffer
economic hardship absent relief, whether Ms. Thomas knew or had
reason to know that Mr. Thomas would not or could not pay the income
tax liabilities, and whether Ms. Thomas significantly benefited from the
underpayment. The parties agree that the other factors are neutral. As
we will discuss below, we believe that the facts and circumstances of this
case weigh against granting the relief Ms. Thomas seeks. Accordingly,
we find for the Commissioner.
A.
Economic Hardship
For the reasons discussed above, we conclude that Ms. Thomas
has not established that she will suffer economic hardship absent relief.
See supra Opinion Part III. Accordingly, this factor is neutral. See Rev.
Proc. 2013-34, § 4.03(2)(b).
B.
Knowledge or Reason to Know
We now turn to whether Ms. Thomas knew or had reason to know
of the underpayments of income tax underlying this case.
1.
Applicable Principles
In the case of an income tax liability that was reported but not
paid, this factor weighs in favor of relief if the requesting spouse
reasonably expected the nonrequesting spouse to pay the liability within
a reasonable period after the filing of the return. Rev. Proc. 2013-34,
§ 4.03(2)(c)(ii), 2013-43 I.R.B. at 401; see also Jones, T.C. Memo. 2019139, at *18. A reasonable expectation of payment is presumed if the
spouses submitted a request for an installment agreement to pay the
taxes by the later of 90 days after the due date for payment of the tax or
90 days after the return was filed. Rev. Proc. 2013-34, § 4.03(2)(c)(ii).
The factor weighs against relief, however, if the requesting
spouse’s expectation was unreasonable in view of all the facts and
circumstances. Id. For example, if, before the filing of the income tax
21
return, the requesting spouse knew that the nonrequesting spouse had
financial difficulties or other issues with the IRS or other creditors, or
was aware of difficulties in timely paying bills, then this factor generally
weighs against relief. Id.
Other facts and circumstances considered in determining
whether the requesting spouse had reason to know whether the
nonrequesting spouse could or would pay a reported income tax liability
include, but are not limited to, the requesting spouse’s level of education,
any deceit or evasiveness of the nonrequesting spouse, the degree of the
requesting spouse’s involvement in the activity generating the liability,
the requesting spouse’s involvement in business or household financial
matters, the requesting spouse’s business or financial expertise, and any
lavish or unusual expenditures compared with past spending levels. Id.
§ 4.03(2)(c)(iii), 2013-43 I.R.B. at 402; see also Minton, T.C. Memo. 201815, at *13–15 (collecting cases and analyzing the circumstances in which
our Court found that a requesting spouse had (or did not have)
knowledge or reason to know that the nonrequesting spouse would fail
to pay a liability).
Notwithstanding the requesting spouse’s knowledge or beliefs,
that knowledge may be negated, and this factor will weigh in favor of
the requesting spouse, 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 payment of the liability. Rev. Proc.
2013-34, § 4.03(2)(c)(ii); see also Pocock, T.C. Memo. 2022-55, at *25.
“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.” Rev. Proc. 2013-34, § 4.03(2)(c)(iv),
2013-43 I.R.B. at 402; see, e.g., Stephenson v. Commissioner, T.C. Memo.
2011-16, 2011 WL 219010, at *9. This Court takes all facts and
circumstances into account in determining the presence of abuse, see
Rev. Proc. 2013-34, § 4.01, and requires substantiation, or at a
minimum, specificity, with regard to allegations of abuse, see Nihiser v.
Commissioner, T.C. Memo. 2008-135, 2008 WL 2120983, at *9.
A generalized claim of abuse is insufficient. Pocock, T.C. Memo. 202255, at *26 (citing authorities).
22
2.
Application to Ms. Thomas
To begin, the record shows that Ms. Thomas knew of the unpaid
tax liabilities initially when the relevant returns were filed, a point
which she explicitly acknowledges in her brief. 16 See Pet’r’s Sur-Reply
Br. 19 (“Initially, [Ms. Thomas] knew that [Mr. Thomas] was not paying
the amounts due for 2012-2014.”). Nevertheless, she argues that
Mr. Thomas told her that he was handling the taxes as, for example,
when he texted her in 2016: “The taxes and mortgages have been dealt
with [and] now it is in IRS and Chase’s court.” But given that this text
message came at least a year after the 2014 return due date, we do not
see how it supports Ms. Thomas’s argument that she reasonably
expected Mr. Thomas to pay the liabilities within a reasonable time of
when payment was due. See Rev. Proc. 2013-34, § 4.03(2)(c)(ii). And
given their extensive history of financial problems, we seriously doubt
that Ms. Thomas’s expectation of payment was reasonable.
Despite her knowledge of the unpaid tax liabilities, Ms. Thomas
argues that this factor should favor relief because she was abused by her
husband and consequently was unable to question his payment of the
taxes. In support of Ms. Thomas’s claim that she was abused, the record
includes numerous descriptions of physically abusive behavior and
financial control, both general and specific, allegations of financial
control, as well as examples of verbally abusive text messages and
emails. The Commissioner has provided little to refute these claims of
abuse. So, according to the Revenue Procedure, this factor will weigh in
favor of relief if the abuse prevented Ms. Thomas from questioning or
challenging payment of the liability. See id.
Ms. Thomas provided some general testimony that she “was
scared to ask [Mr. Thomas] questions” related to the unpaid taxes.
Trial Tr. 120:7–8. Furthermore, many of her allegations of abuse, if
true, could reasonably cause someone to fear questioning a spouse for
fear of reprisal. But other aspects of the record suggest that Ms. Thomas
may not have been afraid to question Mr. Thomas’s financial decisions.
For example, the record discloses several times when Ms. Thomas
expressly disagreed with Mr. Thomas about financial decisions. And
16 Notably, the record includes copies of the 2012–14 tax year returns, which
Ms. Thomas signed, showing unpaid income tax amounts for the years. Furthermore,
Ms. Thomas sent a letter to the IRS in December 2013 seeking relief from the unpaid
income tax liability for the 2012 tax year. These documents, even without
Ms. Thomas’s acknowledgment, indicate that she knew, or at least should have known,
of the unpaid tax liabilities around the time the returns were filed.
23
Ms. Thomas has never actually stated on the record that she disagreed
with the nonpayment of the taxes; she has said only that she disagreed
with the decision to take early distributions from the retirement
account, which underlaid at least some of the underpayments in this
case.
On the basis of the record before us, we have some doubt that this
factor weighs in favor of Ms. Thomas. But even if we were to find that
this factor favors relief on account of the abuse Ms. Thomas alleges, we
would find that it is outweighed by the significant benefit to her from
the unpaid income tax liabilities, which we will discuss below. See
Rev. Proc. 2013-34, § 4.03(2) (“In evaluating a claim for relief, no one
factor or a majority of factors necessarily determines the outcome. The
degree of importance of each factor varies depending on the requesting
spouse’s facts and circumstances.”); see also Treas. Reg. § 1.6015-2(d).
C.
Significant Benefit
A “significant benefit” is any benefit in excess of normal support,
such as owning luxury assets and taking expensive vacations. Rev. Proc.
2013-34, § 4.03(2)(e), 2013-43 I.R.B. at 402; see also Treas. Reg. § 1.60152(d). This factor weighs against relief if the requesting spouse received
a significant benefit due to the unpaid income tax liabilities. Rev. Proc.
2013-34, § 4.03(2)(e); see also Treas. Reg. § 1.6015-2(d). But if the
nonrequesting spouse controlled the household and business finances or
there was abuse such that the nonrequesting spouse made the decisions
on spending for a lavish lifestyle, then this factor is neutral.
Rev. Proc. 2013-34, § 4.03(2)(e).
The record contains several examples of the significant benefits
to Ms. Thomas while her income tax liabilities have remained unpaid.
To start, Ms. Thomas has benefited from owning two properties, both in
desirable areas, in which, as we discussed above, she may have
significant equity. To maintain these two properties, the Thomases took
early retirement distributions to pay the mortgages. These early
distributions partially underlaid the unpaid tax liabilities connected to
this case. And in using those proceeds to pay the mortgages, instead of
allocating a proper share to pay the taxes, Ms. Thomas directly benefited
from the unpaid liabilities. Even if she initially objected to taking the
early retirement distributions, this in no way reduces the resulting
benefits to her (i.e., owning two properties).
24
Next, Ms. Thomas significantly benefited from her purchase of a
luxury vehicle (the 2013 Land Rover) using proceeds she received from
an inheritance instead of paying the unpaid tax liabilities. The proceeds
that went to the Land Rover purchase alone might have covered a
significant share of the liabilities in this case. And while Ms. Thomas
testified that a portion of the inheritance went to pay the taxes, the
record does not disclose how much or for which year(s).
The record also discloses several vacations that Ms. Thomas and
her daughters enjoyed while the tax liabilities remained unpaid. This
includes Ms. Thomas’s paying for her daughter’s $1,000 plane ticket to
fly to Hawaii in 2016, taking her daughters on European vacations, and
taking other trips to Napa Valley and New York. While Ms. Thomas
testified that she did not pay all of these expenses herself, the record
supports a finding that many of them were paid out of her own pocket.
She also has continued to pay significant education expenses and other
expenses for her daughters, both of whom were adults at the time of trial
and for several years before.
Finally, Ms. Thomas’s blog also provides insight into her various
expenses since the unpaid tax liabilities arose.
For example,
Ms. Thomas blogged about purchasing a green Dior bag for her
daughter’s 18th birthday as well as owning several designer bags
herself. She has also blogged about paying a business coach $220 an
hour for private sessions. While Ms. Thomas may argue that her blog
does not reflect her reality, she has not convinced us that she did not
incur these expenses. And again, these expenses demonstrate how she
has significantly benefited from her unpaid taxes.
To the extent Ms. Thomas might argue that this factor is neutral
on account of abuse, a significant share of the lavish expenditures were
made by Ms. Thomas and not Mr. Thomas, as the examples above
demonstrate. And to the extent that she argues that some of these
purchases were made when she thought the taxes were paid, Revenue
Procedure 2013-34 draws no such distinction between expenses made
before a requesting spouse knows about unpaid liabilities and those
made after. In any event, the record shows that many of the lavish
expenses described above, including the Land Rover, vacations,
education expenses, and the green Dior bag, were incurred at times
when Ms. Thomas knew about the tax problems. So even if the legal
distinction she attempts to draw were accepted, her argument would be
contradicted by the factual record.
25
Finally, so far as Ms. Thomas argues that many of her expenses
were not in excess of normal support as measured by her particular
circumstances, see Porter, 132 T.C. at 212 (citing Estate of Krock v.
Commissioner, 93 T.C. 672, 678–79 (1989)), as a factual matter she has
not demonstrated that the expenses were normal to her when they were
paid. Given her testimony about her changing financial circumstances
over time, beginning as early as at least 2009, we believe that many of
the expenses that may have once been normal to her likely no longer
constituted normal support at the times relevant to this case. Therefore,
we find that her argument lacks sufficient support in the record.
Because Ms. Thomas has significantly benefited from not paying
her tax liabilities, we conclude that this factor weighs against relief.
D.
Conclusion
After weighing all of the facts and circumstances, we find that
Ms. Thomas is not entitled to relief under section 6015(f). Specifically,
we find she has significantly benefited from the underpayments of
income tax underlying this case, which weighs heavily against her
entitlement to relief. Notably, the unpaid tax liabilities are at least
partially attributable to early retirement distributions that were used
to make payments on mortgages on properties she continues to own and
in which she appears to have significant equity. It is not inequitable to
hold Ms. Thomas liable for the underpayments when she has failed to
demonstrate that she lacks sufficient equity in the properties to pay the
federal tax liabilities in full. And further weighing against her relief is
her continued spending for a lavish lifestyle despite knowing about the
unpaid liabilities and well after Mr. Thomas passed away. Thus, even
if the knowledge factor were treated as weighing in favor of relief on
account of abuse, Ms. Thomas has not shown that the facts and
circumstances here warrant granting relief.
To reflect the foregoing,
An appropriate order will be issued, and decision will be entered
for respondent.
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.