T .C. Summary Opinion 2009-170
UNITED STATES TAX COURT
ARIANEL TORRES, Petitioner, AND
FRANZ HURTADO, Intervenor v .
COMMISSIONER OF INTERNAL REVENUE, Respondent
Docket No. 3759-06S. Filed November 23, 2009 .
CARLUZZO, Special Trial Judge :
This case was. heard
pursuant to the provisions of section 7463 .
‘Unless otherwise indicated, section references are to the
Internal Revenue Code of 1986, as amended , in effect for the
‘relevant period .
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1 Pursuant to section
7463(b), the decision to be entered is not reviewable by any
other court, and this opinion shall not be cited as precedent for
any other case .
In a final notice of determination dated December 1, 2005,
respondent denied. petitioner’s claim for section 6015 relief with
respect to the joint and several liability arising from the 200 0
joint Federal income tax return filed by petitioner and
intervenor (the 2000 joint return). According to that notice,
relief was denied because petitioner was not eligible for section
6015(b) or (c) relief, and she did not qualify for equitable
relief under section 6015(f). Intervenor opposes allowing
petitioner any section 6015 relief. Because the tax liability
from which petitioner seeks relief results from an underpayment
of the tax liability shown on the 2000 joint return, petitioner
does not qualify for relief under section 6015.(b) or (c). That
being so, we further consider and discuss only whether petitioner
is entitled to relief under section 6015(f) .
Background
Some of the facts have been stipulated and are so found .
At the time the petition was filed, petitioner and intervenor
resided at separate addresses in California .
Petitioner and intervenor were married in August 1996, they
separated in August 2001, and were divorced in May 2003. They .
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have one child. During the first 3 years of their marriage
petitioner lived in Mexico and intervenor lived in California .
They filed joint Federal income tax returns for taxable years
1996 through 2000 .
In 1996 petitioner purchased a parcel of land in Mexico .
She paid for it in installments from income earned while employed
in Mexico. Petitioner made the final payment sometime during
1998 .
In 1999 petitioner purchased a condominium in Mexico. At
the time of this purchase petitioner was unemployed. Some of the
mortgage-payments for the condominium were made through
withdrawals from intervenor’s bank account, to which petitioner
had limited access .
In December 1999 petitioner moved from her condominium in
Mexico to :her mother’s home .inhCalifornia. :% Shortly thereafter,
in February 2000, petitioner moved in with intervenor. At that
time petitioner was unemployed and intervenor worked for Yahoo!,
Inc .
In connection with their divorce, petitioner and intervenor
entered into a “Marital Settlement Agreement” (the agreement),
effective as of April 1, 2003, which-was incorporated into the
divorce. decree. The agreement addresses- Federal income tax
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notices and audits but does not specify which spouse would be
responsible for any unpaid income tax for 2000 .
On April 14, 2003, petitioner and intervenor signed and
filed the 2000 joint return after respondent notified them that a
substitute for return was being prepared for that year. The 2000
joint return shows income of $71,6842 and an income tax liability
of $9,459, of which $6,243 was unpaid. Some of the income shown
on the return was used to purchase a used car for petitioner ,
some was used to make a loan to petitioner’s mother, some was
used to make mortgage payments on petitioner’s condominium in
Mexico, and some was available to and used for unspecified
purposes by petitioner’s father .
In August 2004 petitioner timely submitted a Form 8857,
Request for Innocent Spouse Relief (request for relief), and Form
12510, Questionnaire for Requesting Spouse (questionnaire) .
Petitioner stated on her questionnaire that she did not sign the
2000 joint return and that she did not have access to
intervenor’s bank account. Both allegations are inconsistent
with testimony and other evidence presented at trial, and
petitioner concedes that she was mistaken on her questionnaire .
In the final notice of determination respondent denied
petitioner’s request for relief on the grounds that she :
2Intervenor prepared the 2000 joint return. All of the
income reported on the return is attributable to him .
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(1) Failed to establish a reasonable belief the tax liabilit y
`reported on the return would be paid ;’ (2) failed to establis h
that she would suffer economic hardship if not relieved of .the
tax liability ; and (3) benefited significantly from the unpaid
tax liability .
At the time petitioner filed her petition she was a student
at San Jose State and employed full time as a diet clerk at .a
hospital in San Jose. Her education was financed in part through
student loans .
Discussion
- Introduction
In general, married taxpayers may elect to file a joint
Federal’income tax return. Sec. 6013(a). After making the
election for a year, each spouse is jointly and severally liable
for the entire Federal income tax liability assessed for that
year, whether as reported .on the joint return or subsequently
determined to be due. Sec .’6013(d)(3) ; see sec. 1 .6013-4(b),
.Income Tax Regs. Subject to various conditions and in a variety
of ways set forth in section 6015, an individual who has made a
joint return with his or her spouse for a year may seek relief
from the joint and several liability arising from that joint
return .
A taxpayer who does not qualify for relief under section
6015(b) or (c) may be relieved from joint and several liability
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pursuant to section 6015(f) if, taking into account all the facts
and circumstances, it would be inequitable to hold the taxpayer
liable for any unpaid tax or ..deficiency .
- Section 6015(f) Relief
We review, de novo, petitioner’s entitlement to relief under
section 6015(f). See Porter v. Commissioner , 132 T .C .
(2009) .
The Commissioner has issued revenue procedures listing
factors to be considered in determining whether relief should. .be
granted under section 6015(f). Rev. Proc. 2003-61, 2003-2 C .B .
296, modifying and superseding Rev. Proc. 2000-15, 2000-1 C .B .
447 .3
Rev. Proc. 2003-61, sec. 4 .01, 2003-2 C .B. at 297, sets
forth threshold conditions that individuals seeking relief under
section 6015(f) must satisfy. Respondent concedes that,
petitioner satisfies the threshold conditions .
Where the requesting spouse satisfies the threshold
requirements of Rev. Proc. 2003-61, sec. 4 .01, then Rev. Proc .
2003-61, sec. 4 .02, 2003-2 C .B. at 298, sets forth circumstances
in which relief will ordinarily be granted under section 6015(f)
with respect to an underpayment of a properly reported liability .
To qualify for relief under Rev. Proc. 2003-61, sec. 4 .02(1) ,
3The guidelines set forth in Rev. Proc. 2003-61, 2003-2 C .B .
296, are effective for requests for relief filed, as in this
case , on or after Nov. 1, 2003. Id. sec. 7, 2003-2 C .B. at 299 .
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2003-2 C .B. at’ 298, the spouse seeking relief must : (1) No
longer be married to, be legally separated from, or not have been
a member of the same household of the other spouse at`any time
during the 12-month period ending on the date of the request for
relief ; (2) have had no knowledge or reason to know when the
spouse seeking relief’signed the return that the other spouse
would not pay the tax liability ; and (3) suffer economic hardship
if relief is not granted. The .parties dispute whether petitioner
would suffer. economic hardship if her request for relief were not
granted .
Generally, economic hardship exists if collection of the tax
liability will .cause the spouse seeking relief to be unable to
pay his or her reasonable basic living expenses. Butner v .
Commissioner , T .C. Memo. 2007-136. The following nonexclusive
factors to be considered in determining whether the. spouse
seeking relief can pay reasonable basic living expenses are set
forth in section 301 .6343-1(b)(4), Proced. ‘& Admin. Regs. : (1)
The age, employment status and history, ability to earn, and
number of-dependents of the spouse seeking relief ; (2) an amount
reasonably necessary for food, clothing, housing, medical
expenses, transportation, current°tax payments, and expenses
necessary to the production of income for the spouse seeking
relief ; (3) the cost of living in the geographic area of the
spouse seeking relief ; (4) the amount of property available to
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satisfy the expenses of the spouse seeking relief ; (5) any
extraordinary circumstances ; e .g ., special education expenses, a
medical catastrophe, or a natural disaster ; and (6) any other
factor bearing on economic hardship .
Petitioner contends that she is unable to pay the tax
liability because her monthly income barely covers her monthly
expenses .4 She testified that she had accrued approximately
$50,000 in student loans and was financially responsible for her
son. Petitioner offered no documentation to substantiate her
monthly income and/or expenses. Furthermore, at trial she
claimed an additional $300 in monthly expenses that was not
claimed on her questionnaire .
The lack of receipts, bills, or other statements _
substantiating petitioner’s claimed expenses makes it difficult
to determine the types of expenses accounted for, whether the
expenses were reasonable, and whether. her estimates of those
expenditures are, in fact, accurate .
A copy of a schedule of petitioner’s assets and debts
submitted .to the Superior Court of California, County of Santa
Clara, was introduced into evidence in this case. That schedule
shows $17,200 in assets, encumbered by $8,800. Included in the
list of assets is the parcel of land she purchased in Mexico i n
4Petitioner testified that her monthly income of $1,600
equaled her monthly expenses .
1996 ($4,000), the condominium she purchased in Mexico in 1999
($9,000), and the used car she purchased. in 2000 ($3,500) .
Petitioner also claimed $43,050 in debts on that schedule,
including student loans ($27,000) and credit cards ($15,300). .
According to the schedule, petitioner pays $563 a month towards
the satisfaction of her debts .
Considering the foregoing, and taking into account the
factors set forth in section 301 .6343-1(b)(4), Proced. & Admin .
Regs ., we conclude that the satisfaction of the tax liability in
issue will not cause petitioner to be unable to pay basic living
expenses. Therefore, we conclude that peti:tionerwould not
suffer` economic hardship if relief were not granted .
Where, as here, a spouse fails to qualify under Rev. Proc .
2003-61, sec. 4 .02, relief may be granted under Rev. Proc. 2003-
61, sec. 4 .03, 2003-2 C .B. at 298. A nonexhaustive list of
factors to be considered when determining whether to grant
equitable relief under section 6015(f) is contained in Rev. Proc .
2003-61, sec. 4 .03. Those factors are: (1) Marital status ; (2)
economic hardship ; (3) whether the-spouse seeking relief knew or
had reason to know that the other spouse would not pay the income
tax liability ; (4) the other spouse’s legal obligation to pay the
tax liability ; (5) whether the spouse seeking relief obtained a
significant benefit from the nonpayment. of the tax liability ; and
(6) whether the spouse seeking relief complied with Federal
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income tax laws. We address below the application of the
foregoing factors to the facts and circumstances of the instant
case.
- Marital Status
Under Rev. Proc. 2003-61, sec. 4 .03(2)(a)(i), 2003-2 C .B. at
298, consideration is given to whether the spouse seeking relief
is separated or divorced from his or her .spouse. Petitioner and
intervenor were separated in August 2001 and were divorced in May
2003. Petitioner filed her claim for relief on August 28, 2004 .
The marital status factor favors relief .
- Economic Hardship
Under Rev. Proc. 2003-61, sec. 4 .03(2)(a)(ii), 2003-2 C .B .
at 298, consideration is given to whether the spouse seeking
relief would be unable to pay reasonable basic living expenses if
relief were not granted. As previously discussed, petitioner has
failed to establish that she would be unable to pay reasonabl e
basic living expenses if section 6015(f) relief were not granted .
This factor weighs against relief .
- Knowledge or Reason To Know
Under Rev. Proc. 2003-61, sec. 4 .03(2)(a)(iii) 2003-2 C .B .
at 298, consideration is given to whether the spouse seeking
relief knew or had reason to know that the other spouse would
not pay the liability. Respondent concedes that petitioner was
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unaware of any tax liability due at the time she signed the 2000
joint return. This factor also favors relief .
- Legal Obligation of Other Spouse
Under Rev. Proc. 2003-61, sec. 4 .03(2)(a)(iv), 2003-2 C .B .
at 298, consideration is given to whether the other spouse has a
.legal obligation to pay the outstanding income tax liability
pursuant to a divorce decree or an agreement. The agreement is
silent with regard to whether petitioner or intervenor is
responsible for the 2000 income tax liability. Accordingly, this
factor is neutral. See Washington v. Commissioner , 120 T .C. 137 ,
148-149 ( 2 003) .
- Significant Benefit
Under Rev. Proc. 2003-61, sec. 4 .03(2)(a) .(v), 2003-2 C .B. at
299, consideration is given to whether the spouse seeking relief
significantly benefited (beyond normal support) from the unpaid
income tax liability. If so, the significant benefit facto r
weighs against granting equitable, relief.
It is clear that some of the income that gave rise to the
unpaid 2000 tax liability inured to the benefit of petitioner .
At least some portion of the unpaid liability was used to make a
loan to petitioner’s mother, some was used to purchase a used car
for. petitioner, and some was used by petitioner’s father .
Furthermore it appears that at least some portion of the incom e
reported on the 2000 joint return was used by petitioner to pay
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the mortgage on her condominium in Mexico and her school tuition .
The facts and circumstances presented strongly suggest that
petitioner received a significant benefit from the failure to pay
the tax. Accordingly, this factor also weighs against relief .
- Petitioner’s Compliance With Federal Income Tax Laws.
Under Rev. Proc. 2003-61, sec. 4 .03(2)(a)(vi), 2003-2 C .B .
at 299, consideration is given to whether the spouse seeking
relief is in compliance with her income tax obligations .
Respondent. concedes that petitioner is in compliance with her
Federal income tax obligations in the taxable years following the
taxable year in issue, and therefore, the compliance factor
favors relief. See Harris v. Commissioner , T .C. Memo. 2009-26 .
Three factors weigh in favor of relief, two factors weigh
against relief, and three factors are neutral. Although the
decision is close, the significant benefit factor and the
economic hardship factor constrain us to conclude that it would
not be inequitable to hold petitioner liable for the income tax
liability arising from the 2000 joint return. Therefore, with
respect to that year, petitioner is not, entitled to section
6015(f) relief .
To reflect the foregoing,
Decision will be entered
for respondent .