T.C. Summary Opinion 2005-137

T.C. Summary Opinion 2005-137

UNITED STATES TAX COURT

MARY JANE SYLVE, Petitioner, AND NORMAN V. SYLVE, Intervenor v.

COMMISSIONER OF INTERNAL REVENUE, Respondent

Docket No. 13881-02S.

Filed September 19, 2005.

Jonathan P. Decatorsmith, for petitioner.

Norman V. Sylve, pro se.

Jason W. Anderson, for respondent.

CARLUZZO, Special Trial Judge:

This case was heard pursuant

to the provisions of section 7463 of the Internal Revenue Code in

effect at the time the petition was filed.

Unless otherwise

indicated, subsequent section references are to the Internal

Revenue Code in effect for 1998.

Rule references are to the Tax

Court Rules of Practice and Procedure.

The decision to be

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

should not be cited as authority.

In a notice of deficiency dated May 29, 2002, respondent

determined a deficiency of $9,438 in petitioner’s 1998 Federal

income tax, a $1,122 section 6651(a)(1) addition to tax, and a

$1,888 section 6662(a) accuracy-related penalty.

decision are:

The issues for

(1) Whether petitioner, who filed a 1998 joint

Federal income tax return with intervenor, signed that return

under duress; if not, then (2) whether petitioner is entitled to

relief from joint and several liability under section 6015;1 if

not, then (3) whether petitioner’s failure to file a timely 1998

return was due to reasonable cause; and (4) whether the

underpayment of tax required to be shown on petitioner’s 1998

return is a substantial understatement of income tax.

Background

Some of the facts have been stipulated and are so found.

At

the time the petition was filed, petitioner resided in Hickory

Hills, Illinois.

1

References to sec. 6015 are to that section as added to

the Internal Revenue Code by the Internal Revenue Service

Restructuring and Reform Act of 1998, Pub. L. 105-206, sec. 3201,

112 Stat. 734. Sec. 6015 generally applies to any liability for

tax arising after July 22, 1998, and any liability for tax

arising on or before July 22, 1998, that remains unpaid as of

such date. See Cheshire v. Commissioner, 115 T.C. 183, 189

(2000), affd. 282 F.3d 326 (5th Cir. 2002); H. Conf. Rept. 105599, at 251 (1998), 1998-3 C.B. 747, 1005.

- 3 Petitioner and intervenor were married on August 6, 1977.

They have four children.

Petitioner and intervenor separated

in September 1997, and their marriage was dissolved by a February

24, 2000, judgment entered by the Circuit Court of Cook County,

Illinois.

Throughout the divorce proceedings, petitioner was

represented by Enrico J. Mirabelli, Esquire (Mr. Mirabelli), and

his associate Tracy M. Rizzo, Esquire (Ms. Rizzo).

Intervenor

was also represented by counsel during the divorce proceedings.

As of the date of their divorce, petitioner and intervenor had

amassed a substantial amount of what is repeatedly referred to in

the record as “marital debts.”

At all times relevant, intervenor was employed by United

Parcel Service (UPS).

Petitioner, who at the time had only a

high school education, was employed only for a brief period

during her marriage to intervenor.

For the most part, according

to her trial testimony, during her marriage to intervenor,

petitioner “stayed at home raising the children”.

Following her

divorce, petitioner was employed as a teacher’s assistant.

During their marriage, petitioner and intervenor maintained

a joint checking account.

For the most part, they made mutual

decisions regarding their marital finances and major

expenditures.

However, petitioner generally paid the monthly

bills and signed most of the checks from the joint checking

account.

- 4 At some point during the divorce proceedings, petitioner was

informed by Mr. Mirabelli that intervenor had funds on deposit in

an individual retirement account maintained with Dean Witter

Reynolds, Inc. (the Dean Witter IRA), that could be used to pay

the marital debts.

On April 1, 1998, the divorce court entered a

document styled “Qualified Domestic Relations Order Dean Witter

Reynolds, Inc.” (the QDRO).

The QDRO assigns intervenor’s entire

interest in the Dean Witter IRA to petitioner.

The QDRO also

directs the “immediate distribution of said interest/participant

share” to petitioner “in two parts”; i.e., 20 percent was to be

withheld on petitioner’s behalf for Federal income tax purposes,

and “the balance shall be distributed” to petitioner.

By letter

dated April 3, 1998, intervenor’s divorce counsel transmitted the

QDRO to Dean Witter Reynolds, Inc. (Dean Whitter) with specific

instructions that the proceeds from the Dean Witter IRA be

forwarded to Mr. Mirabelli on behalf of petitioner.

A Distribution Request Form Account Termination (the form)

was processed by Dean Witter several weeks later.

signed, but not dated, by intervenor.

The form is

The form proceeds as

though intervenor, rather than petitioner, was the “participant”

with respect to the Dean Witter IRA and directs the proceeds of

the account to be paid to petitioner, without any amounts

withheld for Federal income tax purposes.

- 5 On May 7, 1998, Dean Witter issued a check to petitioner,

in care of her attorney, Mr. Mirabelli, for $25,211, which

represented the entire balance of the Dean Witter IRA.

On

May 14, 1998, these funds were deposited in an escrow account in

the name of petitioner and, as petitioner’s agent, Mr. Mirabelli.

Intervenor did not directly receive any proceeds from the Dean

Witter IRA.

Over the years, petitioner and intervenor filed joint

Federal income tax returns during their marriage.

Petitioner did

not participate in the preparation of their joint tax returns,

but she generally “glanced over” them at or about the time she

signed them.

In 1999, petitioner and intervenor signed a Tax

Indemnification Agreement in which, among other things, they

agreed to file joint 1998 Federal and State income tax returns.

The Tax Indemnification Agreement stated, in part, that neither

one of them:

(1) Has “any knowledge as to the accuracy of the

information supplied by the other relative to the preparation of

said returns”, and (2) will hold the other responsible for any

additional taxes, interest, or penalties as a result of the

information each supplied with respect to their joint returns.

Taking into account an extension request submitted by

intervenor, the 1998 joint return was due on or before August 15,

1999.

That return was completed by intervenor’s paid tax return

- 6 preparer on July 15, 1999.

The income reported on that return

does not include the distribution from the Dean Witter IRA.

Intervenor signed the 1998 return on July 19, 1999.

He presented

the return to petitioner for her signature, but she refused to

sign it without first having the return reviewed by Ms. Rizzo.

To that end, intervenor mailed the return to his divorce

attorney, who in turn, forwarded the return to Ms. Rizzo.

On

September 10, 1999, Ms. Rizzo sent the 1998 return to petitioner,

which she signed on September 17, 1999, and apparently returned

to Ms. Rizzo.

According to Ms. Rizzo, the original signed 1998

returns (Federal and State) were inadvertently put into the

divorce proceeding’s discovery files and remained there until

discovered after their due dates had passed.

October 29, 1999, Ms. Rizzo:

In a letter dated

(1) Notified intervenor’s divorce

counsel that the returns were that day sent to the Internal

Revenue Service, and (2) asked to be notified “if the Internal

Revenue Service or the Illinois Department of Revenue issue

any sort of penalties against Mr. & Mrs. Sylve for this late

filing”.

The 1998 return was received and filed by respondent on

October 31, 1999.

The Marital Settlement Agreement (settlement agreement)

which was incorporated into the divorce judgment required

intervenor to pay $2,500 per month to petitioner as monthly

family support, which payments continued at all times relevant to

- 7 this proceeding.

Petitioner was also granted “sole and exclusive

ownership of the [marital residence], free and clear of any claim

or interest by [intervenor]”.2

The settlement agreement further provided, in relevant part,

that:

(1) Petitioner “shall be awarded as her sole and exclusive

property the escrow account currently held by her attorneys free

and clear of any claim made by [intervenor]”, (2) with the

exception of approximately $9,300 in the children’s tuition

arrearage, the funds in petitioner’s escrow account would be used

to pay marital debts, (3) intervenor was “solely and exclusively

responsible” for the children’s tuition arrearage, (4) petitioner

and intervenor each pay one-half of the current and future school

tuition for the minor children, and (5) the refund claimed on the

1998 joint return be used to fix the roof of the marital

residence.

On September 6, 2000, respondent sent to petitioner and

intervenor a notice of proposed adjustments with respect to their

1998 return.

The notice stated, in part, that the Dean Witter

IRA distribution was includable in their 1998 income.

On March 16, 2001, petitioner submitted to respondent a

Form 8857, Request for Innocent Spouse Relief, requesting the

2

At the time of the divorce, the marital residence was

worth approximately $175,000. The remaining unpaid mortgage on

the residence at that time was approximately $20,000.

- 8 relief contemplated by subsections (b), (c), and (f), of section

6015.

In addition to other determinations made in the abovereferenced notice of deficiency dated May 29, 2002, respondent

determined that petitioner was not entitled to relief under

section 6015.

Discussion

A. Duress

Subject to a variety of conditions and limitations not

relevant here, spouses “may make a single return jointly of

income taxes”.

Sec. 6013(a).

If for any year they do, then “the

tax shall be computed on the aggregate income and the liability

with respect to the tax shall be joint and several.”

Sec.

6013(d)(3).

Petitioner and intervenor signed and filed a joint 1998

Federal income tax return.

Petitioner now claims that she should

not be held liable for the subsequently determined deficiency

resulting from an examination of that return because she signed

that return under duress.

If what purports to be a joint Federal income tax return is

signed under duress by a taxpayer, the document does not

constitute a joint return, joint and several liability for the

tax reported on the return does not arise, and this Court has

jurisdiction to redetermine the taxpayer’s liability on the basis

- 9 of a separate return.

See Stanley v. Commissioner, 81 T.C. 634,

637-639 (1983); Brown v. Commissioner, 51 T.C. 116, 119 (1968)

(and cases cited therein).

We see little point in burdening this opinion with a

detailed discussion identifying and applying factors considered

by this and other Federal courts when addressing a taxpayer’s

claim that a Federal income tax return has been signed under

duress.

Suffice it to note that an act performed at the advice

of legal counsel is wholly inconsistent with a subsequent claim

that the consequences of that act can be avoided by a claim of

duress, and we are aware of no authority that suggests otherwise.

Petitioner refused to sign the 1998 return when directly

asked to do so by intervenor.

Nevertheless, upon advice of

counsel she eventually signed the 1998 return, even if her

decision to do so was prompted, as her brief suggests, “in order

to facilitate the divorce settlement and in order to keep her

children * * * in school”.

Petitioner’s claim that she signed

the 1998 joint return under duress is rejected.

B.

Section 6015 Relief

As previously stated, spouses filing a joint Federal income

tax return are jointly and severally liable for taxes shown on

the return or found to be owing.

Sec. 6013(d)(3).

Relief from

joint and several liability is available to certain taxpayers

under section 6015.

- 10 There are three types of relief available under section

6015.

In general section 6015(b)(1) provides full or apportioned

relief from joint and several liability, section 6015(c) provides

proportionate tax relief to divorced or separated taxpayers, and

section 6015(f) provides equitable relief from joint and several

liability in certain circumstances if neither section 6015(b) nor

(c) is available.

Petitioner is not entitled to relief under section 6015(b)

or (c) for at least two reasons.

First, the unreported income,

that is, the distribution from the Dean Witter IRA, is, contrary

to the suggestions made in her brief, attributable to petitioner.

The QDRO assigns 100 percent of intervenor’s interest in the

Dean Witter IRA to petitioner.

That being the situation, the

distribution from the Dean Witter IRA is considered a

distribution to her.

See sec. 408(d)(6); cf. Jones v.

Commissioner, T.C. Memo. 2000-219.

Second, even if the

distribution were attributable to intervenor, knowledge of that

distribution precludes relief under section 6015(b) or (c).

Cheshire v. Commissioner, 115 T.C. 183, 195 (2000), affd. 282

F.3d 326 (5th Cir. 2002); see also King v. Commissioner, 116 T.C.

198 (2001).

Petitioner’s position that she was unaware of the

circumstances surrounding the distribution ignores a fundamental

rule of agency; i.e., knowledge to the agent is imputed to

- 11 the principal.

See Hartman v. Prudential Ins. Co. of Am.,

9 F.3d 1207, 1212 (7th Cir. 1993); All States Trailer Co. v.

American Ins. Co., 234 F.2d 783, 786 (7th Cir. 1956).

Petitioner’s divorce counsel were certainly aware of the

distribution, and their knowledge is imputed to petitioner.

Consequently, petitioner is not entitled to relief under section

6015(b) or (c), and we turn our attention to petitioner’s claim

for relief under section 6015(f).

If a taxpayer is not entitled to relief under section

6015(b) or (c), then the taxpayer, under procedures prescribed by

respondent, is entitled to equitable relief if “taking into

account all the facts and circumstances, it is inequitable to

hold the individual liable for any * * * deficiency”.

6015(f)(1);

Sec.

Washington v. Commissioner, 120 T.C. 137, 146-147

(2003).

We review the Commissioner’s determination to deny section

6015(f) equitable relief using an abuse of discretion standard

and defer to the Commissioner’s determination unless it is

arbitrary, capricious, or without sound basis in fact.

Jonson v.

Commissioner, 118 T.C. 106, 125 (2002), affd. 353 F.3d 1181 (10th

Cir. 2003).

As required by section 6015(f), the Commissioner has

prescribed procedures and factors to be used by the Internal

Revenue Service to determine whether a spouse qualifies for

- 12 relief under that subsection.

At the time that petitioner

requested relief under section 6015(f), those procedures were set

forth in Rev. Proc. 2000-15, 2000-1 C.B. 447.

(Subsequent

modification of these procedures by Rev. Proc. 2003-61, 2003-2

C.B. 296, does not affect the resolution of this case.)

Certain threshold conditions must be satisfied before the

Commissioner will consider a request for relief under section

6015(f).

See Rev. Proc. 2000-15, sec. 4.01, 2000-1 C.B. at 448.

Respondent does not contend that petitioner fails to satisfy

these threshold conditions for the year here under consideration,

and we focus our attention on other parts of the controlling

revenue procedure.

As in this case, if the requesting spouse satisfies the

threshold conditions of Rev. Proc. 2000-15, sec. 4.01, and relief

is unavailable under Rev. Proc. 2000-15, sec. 4.02, the

Commissioner looks to Rev. Proc. 2000-15, sec. 4.03, 2000-1 C.B.

at 448, to determine whether the taxpayer should be granted

equitable relief.

Section 4.03 of the revenue procedure provides a partial

list of positive and negative factors that the Commissioner is to

take into account when considering whether to grant an individual

full or partial equitable relief under section 6015(f).

Rev.

Proc. 2000-15, sec. 4.03(1) lists the following six factors

weighing in favor of granting relief for an unpaid liability:

- 13 (1) The requesting spouse is separated or divorced from the

nonrequesting spouse; (2) the requesting spouse would suffer

economic hardship if relief is denied; (3) the requesting spouse

was abused by the nonrequesting spouse; (4) the requesting spouse

did not know or have reason to know that the reported liability

would not be paid; (5) the nonrequesting spouse has a legal

obligation pursuant to a divorce decree or agreement to pay the

unpaid liability; and (6) the unpaid liability is attributable to

the nonrequesting spouse.

Giving petitioner the benefit of the

doubt, three of these factors weigh in favor of relief.

Rev. Proc. 2000-15, sec. 4.03(2), 2000-1 C.B. at 449, lists

the following six factors weighing against granting relief for an

unpaid liability:

(1) The unpaid liability is attributable to

the requesting spouse; (2) the requesting spouse knew or had

reason to know that the reported liability would be unpaid at the

time the return was signed; (3) the requesting spouse

significantly benefited (beyond normal support) from the unpaid

liability; (4) the requesting spouse will not suffer economic

hardship if relief is denied; (5) the requesting spouse has not

made a good faith effort to comply with Federal income tax laws

in the tax years following the tax year to which the request for

relief relates; and (6) the requesting spouse has a legal

obligation pursuant to a divorce decree or agreement to pay the

- 14 unpaid liability.

Again, giving petitioner the benefit of the

doubt, four of the factors weigh against granting relief.

The lists of factors are not exhaustive, no single factor is

determinative, and all factors should be considered and weighed

appropriately.

Rev. Proc. 2000-15, sec. 4.03.

Taking into

account the above-listed factors as applied to the facts in this

case, we conclude that respondent did not act arbitrarily,

capriciously, or without sound basis in fact in denying

petitioner’s request for equitable relief under section 6015(f).

Consequently, respondent’s denial is not an abuse of discretion.

C.

Addition to Tax and Penalty

Respondent imposed a section 6651(a)(1) addition to tax upon

the ground that the 1998 return was not timely.

Respondent also

imposed a section 6662(a) accuracy-related penalty upon the

ground that the underpayment of tax required to be shown on the

1998 return is a substantial understatement of income tax.

Respondent bears the burden of production with respect to each of

these items.

1.

See sec. 7491(c).

Section 6651(a)(1) Addition to Tax

Section 6651(a)(1) provides for an addition to tax in an

amount equal to 5 percent of the amount of the tax shown on the

return for the first month, plus an additional 5 percent for each

additional month or fraction of a month during which the failure

to file continues, up to a maximum of 25 percent of the tax in

- 15 the aggregate.

This addition to tax is applicable unless the

taxpayer can demonstrate that the failure is due to a reasonable

cause and not due to willful neglect.

Petitioner agrees that the 1998 return was not timely.

Nevertheless, she argues against the application of the addition

to tax because it was “intervenor and his personal accountant

that prepared the 1998 return untimely”.

Petitioner’s position

in this regard ignores much of the undisputed evidence placed in

the record on this point, especially a joint exhibit that

establishes that the return was untimely because petitioner’s

divorce attorney misplaced the return in the divorce proceeding’s

discovery file.

Respondent has sustained his burden of

production with respect to the imposition of the addition to tax.

Petitioner has failed to establish that the failure to file the

return on a timely basis was due to reasonable cause and not

willful neglect.

See United States v. Boyle, 469 U.S. 241 (1985)

(taxpayers have a personal and nondelegable duty to file a timely

return, and reliance on a professional to file a return does not

provide reasonable cause for an untimely filing).

Respondent’s

imposition of the section 6651(a) addition to tax is sustained.

2.

Section 6662(a) Penalty

Section 6662(a) imposes an accuracy-related penalty of 20

percent of any portion of an underpayment of tax that is

attributable to a substantial understatement of income tax.

Sec.

- 16 6662(b)(2), (d).

An understatement of income tax is a

substantial understatement of income tax if it exceeds the

greater of $5,000 or 10 percent of the tax required to be shown

on the taxpayer’s return.

Sec. 6662(d)(1).

Ignoring conditions not relevant here, for purposes of

section 6662, an understatement is defined as the excess of the

amount of the tax required to be shown on the taxpayer’s return

over the amount of the tax which is shown on the return.

6662(d)(2)(A).

Sec.

In this case, for purpose of section 6662, the

difference between the amount of tax required to be shown on the

1998 return and the amount of tax shown on the return exceeds the

greater of 10 percent of the tax required to be shown on the 1998

return or $5,000.

Consequently, respondent has satisfied his

burden of production with respect to the accuracy-related penalty

based on a substantial understatement.

However, section 6664(c)(1) provides that the penalty under

section 6662(a) shall not apply to any portion of an underpayment

if it is shown that there was reasonable cause for the taxpayer’s

position and that the taxpayer acted in good faith with respect

to that portion.3

The determination of whether a taxpayer acted

with reasonable cause and in good faith is made on a case-by-case

3

While the Commissioner bears the burden of production

under sec. 7491(c), the taxpayer bears the burden of proof with

respect to reasonable cause. Higbee v. Commissioner, 116 T.C.

438, 446 (2001).

- 17 basis, taking into account all the pertinent facts and

circumstances.

See sec. 1.6664-4(b)(1), Income Tax Regs.

Reasonable cause requires that the taxpayer have exercised

ordinary business care and prudence as to the disputed item.

See

United States v. Boyle, supra; see also Estate of Young v.

Commissioner, 110 T.C. 297, 317 (1998).

Good faith, reasonable

reliance on the advice of an independent, competent professional

as to the tax treatment of an item may meet this requirement.

See United States v. Boyle, supra; sec. 1.6664-4(b), Income Tax

Regs.; see also Richardson v. Commissioner, 125 F.3d 551 (7th

Cir. 1997), affg. T.C. Memo. 1995-554; Ewing v. Commissioner, 91

T.C. 396, 423 (1988), affd. without published opinion 940 F.2d

1534 (9th Cir. 1991).

It is obvious to us that petitioner (and intervenor for that

matter) relied entirely on the advice and recommendations of

counsel with respect to the filing of the 1998 joint return.

We

are satisfied that, under the circumstances, her (their) reliance

was reasonable and in good faith.

Accordingly, we hold that

petitioner is not liable for a section 6662(a) accuracy-related

penalty for 1998.

Reviewed and adopted as the report of the Small Tax

Division.

- 18 To reflect the foregoing,

Decision will be entered

for respondent as to the

deficiency and the addition to

tax under section 6651(a)(1)

and for petitioner as to the

accuracy-related penalty

under section 6662(a).