                                  T.C. Memo. 2019-24



                            UNITED STATES TAX COURT



     KATHERINE DENISE HENRY, Petitioner, AND TIMMY H. BLACK,
    Intervenor v. COMMISSIONER OF INTERNAL REVENUE, Respondent



      Docket No. 20138-16.                             Filed March 27, 2019.



      Katherine Denise Henry, pro se.

      Timmy H. Black, pro se.

      Britton G. Wilson and Douglas S. Polsky, for respondent.



               MEMORANDUM FINDINGS OF FACT AND OPINION


      MARVEL, Judge: This case arises from petitioner’s request for relief from

joint and several liability under section 60151 with respect to an income tax


      1
          Unless otherwise indicated, all section references are to the Internal
                                                                           (continued...)
                                          -2-

[*2] liability arising from certain income earned by her former husband, Timmy H.

Black, that he failed to report on the joint return he filed with petitioner for the

2012 tax year. Respondent purportedly granted relief to petitioner under section

6015(c). The only relief she sought, however, was a refund of an overpayment for

the 2014 tax year that the Internal Revenue Service (IRS) applied to the 2012 joint

liability, and section 6015(c) does not permit refunds. Consequently, petitioner

filed a timely petition seeking review of respondent’s determination to deny relief

under section 6015(b) and (f). Intervenor filed a timely notice of intervention.

Respondent now concedes that petitioner is entitled to the relief sought under

section 6015(f).2 Only intervenor stands in the way of relief for petitioner. The

sole issue for decision is whether petitioner is entitled to relief under section

6015(f).

                                FINDINGS OF FACT

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

fact and facts drawn from stipulated exhibits are incorporated herein by this



      1
       (...continued)
Revenue Code, as amended, and all Rule references are to the Tax Court Rules of
Practice and Procedure.
      2
       In conceding relief under sec. 6015(f), respondent did not address the
applicability of sec. 1.6015-4(b), Income Tax Regs.
                                        -3-

[*3] reference. Petitioner resided in Kansas City, Missouri, at the time she filed

her petition. Intervenor also resided in Kansas City, Missouri, at the time he filed

his notice of intervention.

I.    The Marriage

      Petitioner and intervenor married on August 16, 1997, and the marriage

produced two children. During the marriage intervenor held a full-time position as

a firefighter, and starting in 2011 he began playing as a musician for a church

attended by the family. In 2012 the marriage failed, and petitioner filed a petition

for dissolution of marriage on July 25, 2012 (divorce proceeding). After a trial

held on February 27 and March 7, 2013, the Circuit Court of Jackson County,

Missouri (family court), granted the divorce on May 23, 2013.

      During the divorce proceeding intervenor’s income, and more specifically,

income from his second job as a church musician, became a contentious issue.

Intervenor failed to report any wages earned from the church in his initial income

disclosure to the family court. The church paid intervenor’s wages by check, and

intervenor either cashed the checks or deposited them into a separate account to

which petitioner did not have access. Petitioner nevertheless challenged

intervenor’s omission during the divorce trial. Despite intervenor’s testimony that

the church no longer paid him for playing, the family court sided with petitioner
                                         -4-

[*4] and included intervenor’s church wages in calculating intervenor’s support

obligations.

II.   Petitioner’s 2012 Tax Liability and Post-2012 Tax Compliance

      On February 15, 2013, while the divorce proceeding was pending but before

the trial took place, petitioner and intervenor filed a joint Federal income tax

return for the 2012 tax year. The return was prepared by a paid return preparer

during a meeting attended by both petitioner and intervenor. The return reported

total adjusted gross income of $64,778 but failed to include intervenor’s church

wages of $14,650. Intervenor claims that petitioner knew of the income and that

the reason for the omission was a missing Form W-2, Wage and Tax Statement.

Petitioner disavowed any knowledge of the income or any discussion related to a

missing Form W-2 at that time.

      On March 24, 2014, respondent sent petitioner and intervenor a “Notice

CP2000” proposing a deficiency of $2,243 attributable to the unreported wage

income from the church. On August 25, 2014, respondent issued a statutory notice

of deficiency to petitioner and intervenor. Neither petitioner nor intervenor

petitioned this Court with respect to the notice. On January 5, 2015, respondent

assessed the deficiency and an addition to tax for failure to pay under section

6651(a)(2) (plus interest).
                                          -5-

[*5] On March 9, 2015, respondent withheld $2,393 of a $6,689 overpayment

that petitioner claimed on her 2014 tax return and applied it to fully pay the 2012

joint tax liability of petitioner and intervenor. On March 16, 2015, respondent

sent a notice to petitioner informing her of this offset.

       Since filing her 2012 tax return, petitioner has remained in compliance with

her tax filing and payment obligations.

III.   Petitioner’s Section 6015 Request for Relief

       On March 20, 2015, petitioner filed a request for section 6015 relief to

recover the portion of her 2014 tax refund that respondent had applied against the

unpaid joint tax liability for 2012. Petitioner based her request for relief on a lack

of knowledge of the unreported income, her limited participation in the

preparation of the return, her financial hardship, and her limited financial

expertise. Petitioner claimed $955 in assets, a monthly income, including alimony

and Government assistance, of $2,128, and monthly expenses of $2,653.

       As part of the administrative process, on April 17, 2015, respondent notified

intervenor of petitioner’s request for section 6015 relief and of his right to

participate by providing additional information. Intervenor, as the nonrequesting

spouse, completed a questionnaire on which he claimed that petitioner had full

knowledge of the unreported income and participated equally in household
                                         -6-

[*6] finances and the preparation of the 2012 tax return. Intervenor alleged that

petitioner knew about the unreported income because: (1) she signed the 2011 tax

return which included income from the same church; (2) the parties consulted their

tax preparer regarding the missing Form W-2, and their tax preparer suggested

they amend the return at a later date; and (3) in the divorce proceedings, after his

initial nondisclosure, his church income was included for purposes of calculating

spousal and child support.

      On February 1, 2016, respondent issued a preliminary determination

proposing to deny relief to petitioner. Respondent proposed to deny relief under

section 6015(b) and (c) because petitioner had actual knowledge of the unreported

income and had reason to know of the tax understatement. Respondent proposed

to deny relief under section 6015(f) because petitioner had knowledge of the

understatement and failed to establish economic hardship.

      Petitioner appealed respondent’s preliminary determination by filing a

statement of disagreement indicating she would like her section 6015 case

transferred to the Appeals Office. The statement of disagreement largely reiterated

petitioner’s position in her initial request for section 6015 relief. Appeals Officer

(AO) Karen Lancaster held telephone conferences with petitioner and intervenor

and accepted document submissions from both parties.
                                        -7-

[*7] On July 26, 2016, AO Lancaster issued a final Appeals determination

purportedly granting relief under section 6015(c) but denying a refund to

petitioner. AO Lancaster found that petitioner did not qualify for relief under

section 6015(b) because she had reason to know of the unreported income that

triggered the deficiency. AO Lancaster did not address relief under section

6015(f) in either the final Appeals determination or the case memorandum.3

      On September 13, 2016, petitioner filed a timely petition with this Court.

On December 14, 2016, intervenor filed a timely notice of intervention. Trial was

held on February 5, 2018, in Kansas City, Missouri. As of the trial date, petitioner

was working as an instructional assistant for special needs children but resigned

that position as of the end of the 2017-18 school year because of a serious medical

condition. Petitioner was receiving Social Security disability payments of $999

per month because of her medical condition. After her resignation became

effective, petitioner’s only income would be her Social Security disability

payments and her $500 monthly alimony payments.




      3
       We surmise that the Appeals Office did not address relief under sec.
6015(f) because it “granted” relief under sec. 6015(c). Sec. 6015(f) relief applies
only when the requesting spouse does not qualify for relief under sec. 6015(b) and
(c). Sec. 6015(f)(2).
                                          -8-

[*8]                                  OPINION

       We have jurisdiction to review respondent’s denial of petitioner’s request

for relief under section 6015. See sec. 6015(e)(1). In doing so we apply a de novo

standard of review as well as a de novo scope of review. See Porter v.

Commissioner, 132 T.C. 203, 210 (2009). As a general rule, a taxpayer requesting

relief under section 6015 bears the burden of proving that he or she is entitled to

relief. See Rule 142(a); Porter v. Commissioner, 132 T.C. at 210.

       Married taxpayers may file a joint Federal income tax return. Sec. 6013(a).

Spouses who elect to file a joint return for a tax year are required to compute their

tax for the tax year on the aggregate income of both spouses, and the liability for

that tax is joint and several. See sec. 6013(d)(3). Under certain circumstances,

however, a taxpayer who filed a joint return may qualify for relief from joint and

several liability. Sec. 6015.

       Section 6015 provides three avenues for relief from joint and several

liability. Section 6015(a)(1) provides that under section 6015(b) a spouse who has

filed a joint return may seek relief from joint and several liability for an

understatement of tax. Section 6015(a)(2) provides that under 6015(c) a spouse

who meets certain criteria may elect to allocate a joint liability as permitted by

section 6015(d) (generally, as if the spouses had filed separate returns). If relief is
                                          -9-

[*9] not available under either section 6015(b) or (c), a taxpayer may seek

equitable relief under section 6015(f), which the Commissioner may grant in his

discretion.

      Petitioner contends that she is entitled to full relief from the 2012 liability

and, more specifically, to a refund of the 2014 overpayment that respondent

applied against the 2012 joint liability. We construe her contentions as a prayer

for relief under section 6015(f).

      Respondent has now conceded that petitioner is entitled to relief under

section 6015(f). We construe that concession as an acknowledgment that

petitioner is not entitled to relief under sections 6015(b) or (c). We will decide the

only remaining dispute between petitioner and intervenor, which is whether

petitioner is entitled to relief under section 6015(f).

      A requesting spouse may seek relief under section 6015(f) upon a showing

that: (1) taking into account all the facts and circumstances, it would be

inequitable to hold the requesting spouse liable for any unpaid tax and (2) the

requesting spouse does not qualify for relief under subsection (b) or (c). That

petitioner is not eligible for relief under section 6015(b) or (c) is not disputed.

We, therefore, turn our inquiry to whether, under the facts and circumstances, it

would be inequitable to hold petitioner liable for the unpaid tax.
                                        - 10 -

[*10] The Commissioner published guidance in Rev. Proc. 2013-34, 2013-43

I.R.B. 397, modifying and superseding Rev. Proc. 2003-61, 2003-2 C.B. 296,

setting forth the framework that the IRS uses to evaluate requests for relief under

section 6015(f). Under Rev. Proc. 2013-34, supra, a taxpayer must first meet

certain threshold conditions in section 4.01, and then he or she must either qualify

for a streamlined determination to grant relief under section 4.02 or qualify under

the full facts and circumstances test of section 4.03. Id. sec. 4.01, 4.02, and 4.03,

2013-43 I.R.B. at 399-403. We consider these factors in the light of the attendant

facts and circumstances, but we are not bound by them. See Pullins v.

Commissioner, 136 T.C. 432, 438-439 (2011).

1.    Threshold Conditions

      Rev. Proc. 2013-34, sec. 4.01, 2013-43 I.R.B. at 399, sets forth seven

threshold conditions that a requesting spouse must satisfy to qualify for relief

under section 6015(f): (1) the requesting spouse filed a joint Federal income tax

return for the relevant year; (2) the requesting spouse does not qualify for relief

under section 6015(b) or (c); (3) the requesting spouse filed a timely request for

relief; (4) no assets were transferred between the spouses as part of a fraudulent

scheme; (5) the nonrequesting spouse did not transfer disqualified assets to the

requesting spouse; (6) the requesting spouse did not knowingly participate in the
                                         - 11 -

[*11] filing of a fraudulent joint return; and (7) the liability from which relief is

sought is attributable to an item of the nonrequesting spouse.

      Respondent concedes, and intervenor does not dispute, that petitioner meets

the threshold conditions. Petitioner meets the first, second, third, and seventh

requirements: (1) petitioner filed a joint return; (2) as inferred from respondent’s

concession, petitioner does not qualify for alternate relief; (3) petitioner filed a

timely claim for relief; and (7) the liability is attributable to intervenor. The

remaining requirements relate to fraud or improper asset transfers, and no party

contends that there was fraud or improper asset transfers, nor do we find any

evidence of such. Consequently, we find that petitioner meets the threshold

conditions for relief under section 6015(f).

2.    Streamlined Determination

      When a requesting spouse satisfies the threshold conditions of Rev. Proc.

2013-34, sec. 4.01, we next consider whether the requesting spouse is entitled to a

streamlined determination of equitable relief pursuant to Rev. Proc. 2013-34, sec.

4.02, 2013-43 I.R.B. at 400. A requesting spouse is eligible for a streamlined

determination if, among other requirements, as of the date she filed the return, she

did not know or have reason to know of an understatement on the joint income tax

return. Rev. Proc. 2013-34, sec. 4.02.
                                           - 12 -

[*12] Because petitioner had reason to know of the understatement, see infra pp.

13-16, we find petitioner does not qualify for a streamlined determination.

3.        All Facts and Circumstances

          If a requesting spouse is not entitled to a streamlined determination, we

evaluate the request for relief taking into account all the facts and circumstances.

Rev. Proc. 2013-34, sec. 4.03(2), 2013-43 I.R.B. at 400. Rev. Proc. 2013-34, sec.

4.03, focuses the analysis on a number of factors, including, but not limited to:

(a) marital status, (b) economic hardship, (c) knowledge, (d) legal obligations to

pay the tax, (e) significant benefits reaped from the understatement, (f) subsequent

compliance with income tax laws, and (g) mental or physical health. Id. No single

factor is determinative. Id.

          a.    Marital Status

          The marital status factor weighs in favor of relief when the requesting

spouse is no longer married to the nonrequesting spouse. Id. sec. 4.03(2)(a).

Because petitioner divorced intervenor in 2013, this factor weighs in favor of

relief.
                                          - 13 -

[*13] b.     Economic Hardship

      A requesting spouse will suffer economic hardship, which weighs in favor

of relief, if satisfaction of the tax liability will impair her ability to pay reasonable

basic living expenses. Id. sec. 4.03(2)(b), 2013-43 I.R.B. at 401; see also

McKnight v. Commissioner, T.C. Memo. 2006-155, 2006 WL 2087750, at *8.

This inquiry takes into account petitioner’s income, expenses, and assets. Rev.

Proc. 2013-34, sec. 4.03(2)(b). Petitioner’s medical condition currently prevents

her from holding full-time employment, severely hindering her income-earning

potential. As of the trial date, her monthly income, consisting of $500 in alimony

and $999 in Social Security disability payments, totaling $1,499, is substantially

lower than her total monthly expenses of $2,653. On the basis of her income and

expenses, as well as her serious medical challenges, we conclude that petitioner

would suffer economic hardship if we deny relief. This factor favors relief.

      c.     Knowledge or Reason To Know

      If the requesting spouse knew or had reason to know of the understatement

as of the date the joint return was filed, this factor will weigh against relief. Id.

sec. 4.03(2)(c)(i)(A). Although not controlling, we find that the regulations

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

for the analysis under section 6015(f). See, e.g., Jacobsen v. Commissioner, T.C.
                                       - 14 -

[*14] Memo. 2018-115 (applying the knowledge analysis under section 6015(b) to

the section 6015(f) analysis); Durland v. Commissioner, T.C. Memo. 2016-133

(applying the knowledge analysis under section 6015(c) to the section 6015(f)

analysis).

             i.    Actual Knowledge

      We consider all the facts and circumstances in deciding whether a taxpayer

had actual knowledge of unreported income. See sec. 1.6015-3(c)(2)(iv), Income

Tax Regs. Although the regulations provide only modest guidance, we can extract

some principles that inform our analysis. See id. First, knowledge of a spouse’s

receipt of income, which is not reported, constitutes actual knowledge of the

unreported income. Id. subdiv. (i)(A). Second, knowledge of the source of the

income does not in itself constitute actual knowledge of omitted income. Id.

subdiv. (iii). We accept as credible petitioner’s testimony that she did not know

that intervenor received a salary from the church for 2012 because intervenor

either cashed the checks or deposited them into a separate account she could not

access. Petitioner’s knowledge of the source of the income--that intervenor played
                                        - 15 -

[*15] for the church--does not establish actual knowledge that the church paid

wages to intervenor in 2012.4

      Both petitioner and intervenor provided testimony to the Court supporting

their respective positions. Intervenor’s testimony was not credible enough to

undermine our conclusion that petitioner did not have actual knowledge of

intervenor’s unreported income.

             ii.   Reason To Know

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

reasonable person in similar circumstances would have known of the

understatement. Sec. 1.6015-2(c), Income Tax Regs. We consider all the relevant

facts and circumstances in determining whether a requesting spouse had reason to

know of an understatement. Rev. Proc. 2013-34, sec. 4.03(2)(c)(iii), 2013-43

I.R.B. at 402. Although Rev. Proc. 2013-34, sec. 4.03(2)(c)(iii), lists several

factors that bear on the analysis,5 we find that the following factors are most


      4
       Additional factors that can indicate actual knowledge of unreported income
include: (1) any deliberate effort by the requesting spouse to avoid learning of the
unreported income and (2) joint ownership of the property giving rise to the
unreported income. Sec. 1.6015-3(c)(2)(iv), Income Tax Regs. Neither factor is
relevant in this case.
      5
       The factors listed in Rev. Proc. 2013-34, sec. 4.03(2)(c)(iii), 2013-43 I.R.B.
397, 402, include: (1) the requesting spouse’s level of education, (2) any deceit or
                                                                        (continued...)
                                         - 16 -

[*16] pertinent to our analysis: (1) whether petitioner knew of the source of the

income and (2) whether the omitted item represented a departure from a prior

reporting position. See sec. 1.6015-2(c), Income Tax Regs.

       On their joint return for the year preceding the year at issue here, petitioner

and intervenor reported intervenor’s wage income from the same church that paid

intervenor in 2012. Moreover, during the divorce trial--held two weeks after the

filing of the return--petitioner alleged that intervenor had omitted his church

wages from his income disclosure. Petitioner’s challenge at the divorce trial at the

very least indicates, and we find, that petitioner knew at the time she signed the

2012 joint return that intervenor continued to play for the church in 2012.

Because petitioner knew that intervenor received a salary from the church in 2011

and that intervenor continued to play for the church in 2012, we find that

petitioner had reason to know that intervenor received income from his work as a

musician, which was not reported on the 2012 joint return. This factor weighs

against relief.




       5
       (...continued)
evasiveness of the nonrequesting spouse, (3) the requesting spouse’s degree of
involvement in the activity generating the liability, (4) the requesting spouse’s
involvement in household financial matters, (5) the requesting spouse’s financial
expertise, and (6) any lavish or unusual expenditures.
                                         - 17 -

[*17] d.      Legal Obligation

       If the nonrequesting spouse had a legal obligation to pay the outstanding tax

liability, apart from the income tax laws, this factor weighs in favor of relief; if the

requesting spouse had the obligation, this factor weighs against relief. Rev. Proc.

2013-34, sec. 4.03(2)(d). This factor is neutral in the absence of any legal

agreement assigning responsibility for the payment of outstanding income tax

liabilities. Id. Because we find nothing in the record indicating that either

petitioner or intervenor had a legal obligation to pay this outstanding joint tax

liability, this factor is neutral.6

       e.     Significant Benefit

       If the requesting spouse receives a significant benefit from the

understatement, this factor weighs against relief. Id. sec. 4.03(2)(e). Under Rev.

Proc. 2013-34, supra, if the unpaid tax is small such that neither spouse received a

significant benefit, this factor is neutral. This Court, however, treats the lack of a

significant benefit as a factor favoring relief. See, e.g., Wang v. Commissioner,


       6
       The divorce decree allocates the Federal tax dependency exemptions for the
children to intervenor. Petitioner, however, claimed the benefits with respect to
one child for the 2014 tax year, alleging that intervenor gave her permission to do
so. Intervenor contends that he did not agree to allow petitioner to claim the
benefit and petitioner is not entitled to relief because she claimed an improper
benefit. We need not decide this dispute to decide the sec. 6015(f) issue before us.
                                         - 18 -

[*18] T.C. Memo. 2014-206, at *40. Because petitioner did not receive any

benefit from intervenor’s unreported income, we find this factor favors relief.

      f.     Compliance With Income Tax Laws

      If the requesting spouse has made a good faith effort to comply with the

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

relief relates, this factor weighs in favor of relief. Rev. Proc. 2013-34, sec.

4.03(2)(f). Because petitioner has complied with the income tax laws in the years

following her divorce, this factor favors relief.

      g.     Mental and Physical Health

      “This factor will weigh in favor of relief if the requesting spouse was in

poor mental or physical health * * * at the time the requesting spouse requested

relief.” Id. sec. 4.03(2)(g), 2013-43 I.R.B. at 403. We also consider a taxpayer’s

mental and physical health at the time of trial. See Pullins v. Commissioner, 136

T.C. at 454; Bell v. Commissioner, T.C. Memo. 2011-152. At the time of trial,

petitioner suffered from a serious medical condition, so we find that this factor

weighs in favor of relief.

4.    Conclusion

      After considering and weighing all the factors, we find it would be

inequitable to hold petitioner liable for the 2012 tax liability. Although we do not
                                        - 19 -

[*19] base our decision on a simple tally of the factors, we note that five factors

weigh in favor of relief, one is neutral, and one weighs against relief. See Hudgins

v. Commissioner, T.C. Memo. 2012-260, at *39-*40. After considering all of the

relevant facts and circumstances, we find that petitioner meets the requirements of

section 6015(f) and is entitled to relief under section 6015(f). The Court has

considered all the other contentions of the parties and, to the extent not discussed

above, finds those arguments to be irrelevant, moot, or without merit.

      To reflect the foregoing,


                                                 Decision will be entered for

                                       petitioner.
