                                T.C. Memo. 2018-25



                         UNITED STATES TAX COURT



              JEFFREY WILFRED HEEDRAM, Petitioner v.
           COMMISSIONER OF INTERNAL REVENUE, Respondent



      Docket No. 679-17.                             Filed March 7, 2018.



      Jeffrey Wilfred Heedram, pro se.

      Adam L. Flick, Stephanie J. Rakoski, and Hannah K. Wikins (specially

recognized), for respondent.



            MEMORANDUM FINDINGS OF FACT AND OPINION


      PUGH, Judge: Petitioner seeks review under section 6015(e)(1) of

respondent’s determination that he is not entitled to relief from joint and several

liability for taxable year 2014 with respect to unpaid tax of $1,206 that was
                                         -2-

[*2] reported on the joint Federal income tax return he filed with Delphia Fegans,

his former spouse.1

      The issue for decision is whether Mr. Heedram is entitled to equitable relief

from joint and several liability under section 6015(f).

                               FINDINGS OF FACT

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

facts are incorporated herein by this reference. Petitioner resided in the State of

Texas when he timely filed his petition.

      Petitioner, a native of Jamaica, met Ms. Fegans in 2009. They married in

2011 and remained married in 2014. Their divorce became final in October 2015,

but they continued to live in the same house for financial reasons until August

2016. The couple filed joint Federal income tax returns for tax years 2012, 2013,

and 2014. During their marriage Ms. Fegans was responsible for financial matters,

including preparing and filing their joint income tax returns. She had unpaid

Federal tax debts before their marriage. She had entered into a payment plan but

stopped payment on that plan after only a couple of months.


      1
        Unless otherwise indicated all section references are to the Internal
Revenue Code of 1986, as amended and in effect at all relevant times. Rule
references are to the Tax Court Rules of Practice and Procedure. All monetary
amounts are rounded to the nearest dollar.
                                         -3-

[*3] The couple’s 2014 joint Form 1040, U.S. Individual Income Tax Return

(joint return), reported total wages of $45,735, total Federal income tax owed of

$2,805, tax withheld of $1,599, and tax due of $1,206. Of the tax liability reported

as owed on the joint return, $147 is attributable to petitioner’s wages reported on

the return (after taking into account withholding credits). The remaining $1,059

tax liability is attributable to Ms. Fegans’ wages.

      The Internal Revenue Service (IRS) Wage and Income Transcript for 2014

also shows that petitioner received wages reported on a Form 1099-MISC,

Miscellaneous Income, by R.J. Carroll Co. (R.J. Carroll) of $5,631. These wages

were not reported on the joint return. Petitioner had stopped working for R.J.

Carroll in 2013, and the record includes no other evidence to connect petitioner

with this income. Petitioner and Ms. Fegans credibly testified that petitioner did

not work for R.J. Carroll in 2014.

      Ms. Fegans timely filed their 2014 joint return. Petitioner reviewed and

signed the joint return before it was filed. He was aware at the time the joint

return was filed that they were having difficulty meeting mortgage payments and

were seeking relief under the “HARP” program. He also was aware that the joint

return showed tax owed, and he was aware of Ms. Fegans’ prior Federal tax debt.

Still, while Ms. Fegans explained the financial difficulties to petitioner, he had
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[*4] only a general understanding of the tax issues that the couple faced. And she

told him that she would arrange a payment plan for the outstanding tax debt.

      In the Agreed Final Decree of Divorce signed October 20, 2015, petitioner

and Ms. Fegans agreed that Ms. Fegans would pay “[a]ll federal income taxes,

including all penalty and interest, on income taxes due on * * * [Ms. Fegans’]

income from and after January 1, 2011.” They also agreed that petitioner would

pay “[a]ll federal income taxes, including all penalty and interest, on income taxes

due on * * * [petitioner’s] income from and after January 1, 2011.”

      On June 17, 2015, respondent’s Cincinnati Centralized Innocent Spouse

Operation received petitioner’s Form 8857, Request for Innocent Spouse Relief,

for 2014. On the Form 8857, petitioner indicated that he remained married to, and

continued to live with, Ms. Fegans and that the couple was having financial issues

because he knew that “[t]here was a challenge paying the monthly mortgage”. On

October 3, 2016, respondent issued a Final Determination letter denying petitioner

innocent spouse relief for tax year 2014 under section 6015(f).

      Petitioner is employed currently. He sends approximately $400 per month

to his mother, who lives in Jamaica. He is not required to send this amount but

does so to support his mother and his two children who live with her. His current
                                          -5-

[*5] income generally covers his expenses, including this $400, but does not leave

much at the end of each month for him.

                                       OPINION

      Generally, married taxpayers may elect to file a joint Federal income tax

return. Sec. 6013(a). After making this election, each spouse generally is jointly

and severally liable for the entire tax due for that taxable year. Sec. 6013(d)(3);

Butler v. Commissioner, 114 T.C. 276, 282 (2000). A requesting spouse,

however, may seek relief from joint and several liability under section 6015(b) or,

if eligible, may allocate liability under section 6015(c). Sec. 6015(a). If relief is

not available under subsection (b) or (c), a requesting spouse may seek equitable

relief under subsection (f). Because this case involves failure to pay tax shown on

a return, rather than a deficiency, petitioner may be eligible for relief under section

6015(f) only. See Washington v. Commissioner, 120 T.C. 137, 146-147 (2003).

      Section 6015(f)(1) gives the Commissioner discretion to grant equitable

relief from joint and several liability if, “taking into account all the facts and

circumstances, it is inequitable to hold the individual liable for any unpaid tax or

any deficiency (or any portion of either)”.

      This Court has jurisdiction to review respondent’s denial of petitioner’s

request for equitable relief under section 6015(f). See sec. 6015(e)(1). In doing
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[*6] so, we apply a de novo standard of review, as well as a de novo scope of

review. Porter v. Commissioner, 132 T.C. 203, 210 (2009). Petitioner bears the

burden of proving that he is entitled to relief under section 6015(f). See Rule

142(a); see also Porter v. Commissioner, 132 T.C. at 210.

I. Threshold Conditions for Granting Relief

      The Commissioner has outlined procedures for determining whether a

requesting spouse qualifies for equitable relief under section 6015(f) from joint

and several liability. We consult these when reviewing the Commissioner’s denial

of relief, but we are not bound by them as our analysis and determination

ultimately turn on an evaluation of all the facts and circumstances. Molinet v.

Commissioner, T.C. Memo. 2014-109; Sriram v. Commissioner, T.C. Memo.

2012-91; see Pullins v. Commissioner, 136 T.C. 432, 438-439 (2011); Porter v.

Commissioner, 132 T.C. at 210.

      These procedures, set forth in Rev. Proc. 2013-34, sec. 4.01, 2013-43 I.R.B.

397, 399, outline seven threshold conditions that a spouse must meet to qualify for

relief under section 6015(f): (1) the requesting spouse filed a joint return for the

taxable year for which relief is sought; (2) the relief is not available to the

requesting spouse under section 6015(b) or (c); (3) the claim for relief is timely

filed; (4) no assets were transferred between the spouses as part of a fraudulent
                                         -7-

[*7] scheme; (5) the nonrequesting spouse did not transfer disqualified assets to

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

the filing of a fraudulent joint return; and (7) absent certain enumerated

exceptions, the tax liability from which the requesting spouse seeks relief is

attributable to an item of the nonrequesting spouse or an underpayment resulting

from the nonrequesting spouse’s income. Respondent does not challenge that

petitioner meets the threshold conditions for relief as to the liability associated

with Ms. Fegans’ income.

      As to the liability associated with petitioner’s income, we must determine

whether any exceptions to the attribution rule apply. Those exceptions are: (a)

attribution solely because of the operation of community property law; (b) nominal

ownership; (c) misappropriation of funds (the requesting spouse did not know or

have reason to know that funds intended for payment of tax were misappropriated

by the nonrequesting spouse); (d) abuse before the return was filed that affected

the requesting spouse’s ability to challenge the treatment of items on the return or

question payment of any balance due; and (e) fraud committed by the

nonrequesting spouse that is the reason for the erroneous item. Rev. Proc. 2013-

34, sec. 4.01(7). The evidence before us does not support application of any of

these exceptions. Therefore, we conclude that petitioner is not qualified for relief
                                        -8-

[*8] as to the $147 attributable to his income. Our analysis below will be limited

to the remaining $1,059 attributable to Ms. Fegans’ income.

II. Elements for Streamlined Determination

      When the threshold conditions have been met, the guidelines allow a

requesting spouse to qualify for a streamlined determination of relief from the IRS

under section 6015(f) if all of the following conditions are met: (1) the requesting

spouse is divorced from the nonrequesting spouse, is legally separated from the

nonrequesting spouse under State law, is a widow or widower and is not an heir to

the nonrequesting spouse’s estate that would have sufficient assets to pay the tax

liability, or has not been a member of the same household as the nonrequesting

spouse at any time during the 12-month period ending on the date the IRS makes

its determination; (2) the requesting spouse will suffer economic hardship if relief

is not granted; and (3) in an underpayment case such as this, the requesting spouse

had no knowledge or reason to know when the return was filed that the

nonrequesting spouse would not or could not pay the tax liability reported on the

joint tax return. Rev. Proc. 2013-34, sec. 4.02, 2013-43 I.R.B. at 400.

      We conclude that petitioner fails to qualify for a streamlined determination

of relief. Petitioner has not indicated that he will suffer economic hardship if
                                          -9-

[*9] relief is not granted, although taking into account his credible testimony we

do not think he has significant means to pay the tax liability at issue as we discuss

below.

III. Factors Used To Determine Whether Relief Will Be Granted

      Where, as here, a requesting spouse meets the threshold conditions but fails

to qualify for relief under the guidelines for a streamlined determination, the

requesting spouse still may be eligible for equitable relief if, taking into account

all the facts and circumstances, it would be inequitable to hold the requesting

spouse liable for the underpayment. See Rev. Proc. 2013-34, sec. 4.03, 2013-43

I.R.B. at 400-403. The following are nonexclusive factors that the Commissioner

takes into account when determining whether to grant equitable relief: (1) marital

status; (2) economic hardship; (3) in the case of an underpayment, knowledge or

reason to know that the nonrequesting spouse would not or could not pay the tax

liability reported on the joint tax return; (4) legal obligation; (5) significant

benefit; (6) compliance with tax laws; and (7) mental or physical health. Id.

      Respondent argues that petitioner’s marital status weighs against relief

because petitioner was married to Ms. Fegans at the time he filed the Form 8857,

and they continued to live together after their divorce was final. We disagree. He

credibly testified that they lived together only because of financial issues and they
                                        - 10 -

[*10] were divorced and were no longer living together at the time of trial.

Because we consider petitioner’s eligibility de novo, we consider his marital status

at the time of trial. See Wilson v. Commissioner, T.C. Memo. 2010-134, 2010

WL 2465471, at *6, aff’d, 705 F.3d 980 (9th Cir. 2013). Therefore we conclude

that this factor favors relief.

       Respondent also argues that petitioner will not suffer economic hardship if

we deny relief. A requesting spouse suffers economic hardship if the satisfaction

of the tax liability, in whole or in part, would cause him to be unable to pay

reasonable basic living expenses. See Rev. Proc. 2013-34, sec. 4.03(2)(b).

Petitioner bears the burden of proving that he will suffer economic hardship if we

do not grant him relief from joint and several liability. See Rule 142(a); Johnson

v. Commissioner, T.C. Memo. 2014-240 (explaining that hardship cannot be

hypothetical, that the requesting spouse must introduce evidence to support the

claim, and that regular income, in addition to savings, available to the requesting

spouse supports the conclusion that there would be no economic hardship). We

believe petitioner’s testimony that he does not have much left at the end of each

month after paying his living expenses and sending money to his mother to

support her and his two children. Nonetheless, we cannot conclude on the basis of
                                         - 11 -

[*11] this testimony alone that he will suffer economic hardship. We treat this

factor as neutral.

      Respondent relies on petitioner’s statements on the Form 8857 to argue that

he knew or had reason to know, as of the date the joint return was filed, that Ms.

Fegans would not or could not pay the income tax liability. See Rev. Proc. 2013-

34, sec. 4.03(2)(c)(ii). Petitioner testified, consistent with the statements on that

form, that he knew about the difficulty paying the mortgage. He also testified that

he knew the tax liability would not be paid when the joint return was filed.

However, he also credibly testified that he believed Ms. Fegans would set up

another payment plan. His testimony was supported by that of Ms. Fegans. She

explained that he was not sophisticated regarding financial matters or the tax

liability that the couple faced on the 2014 joint return.

      We have held consistently that a requesting spouse carries his burden of

proof to establish that he reasonably believed his spouse would pay an outstanding

liability where the requesting spouse is not involved in the family finances or

sophisticated about them and the nonrequesting spouse has the income to make the

payments. See Torrisi v. Commissioner, T.C. Memo. 2011-235 (holding that the

requesting spouse’s belief that the nonrequesting spouse would pay the tax

liability was reasonable when the nonrequesting spouse’s business was generating
                                        - 12 -

[*12] substantial income, the requesting spouse did not assist the nonrequesting

spouse in paying all bills, and the nonrequesting spouse asked the requesting

spouse to make a check payable to the IRS for a specific amount that was less than

the total amount due); see also Waldron v. Commissioner, T.C. Memo. 2011-288

(holding that the requesting spouse reasonably believed the nonrequesting spouse

would pay a portion of the unpaid tax liabilities at the time the return was signed

because the nonrequesting spouse had made his share of monthly payments for the

initial three years on an installment agreement entered into near the time the joint

return was signed).

      Conversely, we have concluded that a requesting spouse had reason to know

that the nonrequesting spouse would not pay when the requesting spouse handled

the finances and the nonrequesting spouse lacked financial means. See Cutler v.

Commissioner, T.C. Memo. 2013-119 (holding that the requesting spouse knew

that the nonrequesting spouse found financial matters unpleasant and refused to

deal with them and therefore the requesting spouse knew she had to prepare the

returns and could not reasonably expect the nonrequesting spouse to pay the tax);

Yosinski v. Commissioner, T.C. Memo. 2012-195 (holding it was not reasonable

to believe the nonrequesting spouse would pay the tax when the nonrequesting

spouse had no source of substantial income and the record did not indicate the
                                        - 13 -

[*13] nonrequesting spouse had any assets of substantial value in her own name);

Stolkin v. Commissioner, T.C. Memo. 2008-211 (holding that the requesting

spouse’s knowledge of the couple’s financial difficulties deprives the requesting

spouse of reason to believe that the nonrequesting spouse will pay the tax

liability). We conclude on this record that petitioner has established that he

reasonably expected Ms. Fegans to pay the tax liability reported on the joint

return. She earned most of the wages in the year before us and handled the

finances for the couple. Therefore, this factor weighs in favor of relief.

       Respondent concedes that under the final divorce decree Ms. Fegans bears

the legal obligation to pay the Federal income tax owed on her income but argues

that this factor is neutral because petitioner “clearly knew” at the time he entered

into the divorce decree that Ms. Fegans could not pay the outstanding liability.

But we have found above that petitioner reasonably believed, on the basis of his

limited understanding of Ms. Fegans’ financial situation, that she would set up a

new payment plan. We conclude, therefore, that this factor favors relief.

       Respondent concedes that neither petitioner nor Ms. Fegans received a

significant benefit from the unpaid income tax liability. This factor therefore

favors relief.
                                         - 14 -

[*14] Finally, respondent argues that petitioner was not in compliance with the tax

laws because of the failure to include the income reported as paid to petitioner by

R.J. Carroll for 2014. Section 6201(d) shifts to the Commissioner the burden to

produce evidence, other than an information return, connecting income with the

taxpayer where the taxpayer has asserted a reasonable dispute with regard to

income reported on the information return and has cooperated fully with the

Commissioner. Respondent provided no evidence as to petitioner’s cooperation or

lack thereof and concedes that we do not have jurisdiction over any resulting

deficiency from the inclusion of this income on the joint return. We do not think it

reasonable to conclude that petitioner was not in compliance where he and Ms.

Fegans both credibly testified that he did not work for R.J. Carroll in 2014 and

respondent offered no other evidence to connect him with this income. We

conclude therefore that this factor is neutral.

      Lastly, the parties did not raise, nor have we identified in the record, any

mental or physical health problems. Therefore, this factor also is neutral.

      All of the factors either favor relief or are neutral. We also conclude that it

would be inequitable to hold petitioner liable for the tax liability associated with

Ms. Fegans’ income because of the relative financial positions and sophistication

of Ms. Fegans and petitioner in their marriage. Therefore, we will grant petitioner
                                         - 15 -

[*15] relief from joint and several liability under section 6015(f) for the tax

associated with Ms. Fegans’ income.

                                      Conclusion

      We sustain respondent’s determination that petitioner is not entitled to relief

from joint and several liability for taxable year 2014 with respect to the $147 of

unpaid Federal income tax attributable to his income. We also hold that petitioner

is entitled to relief from joint and several liability for the remaining $1,059

attributable to Ms. Fegans’ income.

      We have considered all arguments made and facts presented in reaching our

decision and, to the extent not discussed above, we conclude that they are moot,

irrelevant, or without merit.

      To reflect the foregoing,


                                                        An appropriate decision will be

                                                  entered.
