                             T.C. Memo. 2014-240



                     UNITED STATES TAX COURT



LINDSAY M. JOHNSON, Petitioner, AND JOSHUA T. HART, Intervenor v.
      COMMISSIONER OF INTERNAL REVENUE, Respondent



   Docket No. 6664-13.                        Filed November 25, 2014.



   Lindsay M. Johnson, pro se.

   Joshua T. Hart, pro se.

   Sharyn M. Ortega, for respondent.
                                        -2-

[*2]        MEMORANDUM FINDINGS OF FACT AND OPINION1


       DAWSON, Judge: By final notice of determination dated December 21,

2012, respondent denied petitioner’s claim for relief from joint and several

liability under section 6015(f)2 with regard to the underpayment of Federal income

tax for 2007. Petitioner timely filed a petition with this Court for review of

respondent’s determination. Thereafter, petitioner’s former spouse, Joshua T. Hart

(intervenor), timely filed a notice to intervene pursuant to Rule 325(b) to oppose

any relief to petitioner under section 6015.




       1
        This case was tried before Judge Diane L. Kroupa on March 17, 2014. As
ordered by the Court, respondent filed a seriatim opening brief on June 16, 2014.
On June 16, 2014, Judge Kroupa retired from the Tax Court. On June 18, 2014,
the Court issued an order informing the parties of Judge Kroupa’s retirement and
proposing to reassign this case to another judicial officer of the Court for purposes
of preparing the opinion and entering the decision on the basis of the trial record
or, alternatively, allowing the parties to request a new trial. On July 14, 2014,
respondent filed a response consenting to the reassignment of this case; neither
petitioner nor intervenor filed a response regarding the reassignment. As ordered
by the Court, petitioner’s answering seriatim brief was due July 15, 2014. She did
not file a brief. While we could hold petitioner in default and dismiss this case,
see Rule 123(a), Tax Court Rules of Practice and Procedure, under these
circumstances we decline to do so. On August 27, 2014, the Court issued an order
assigning this case to Judge Howard A. Dawson, Jr.
       2
       All section references are to the Internal Revenue Code in effect at all
relevant times, and all Rule references are to the Tax Court Rules of Practice and
Procedure.
                                        -3-

[*3] The only issue for decision is whether petitioner is entitled to relief from

joint and several liability under section 6015(f) for the underpayment of income

tax plus statutory additions to tax and underpayment interest for 2007. We hold

that petitioner is not.

                               FINDINGS OF FACT3

Background

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

facts and the accompanying exhibits are incorporated herein by this reference.

Petitioner resided in California when she filed the petition.

Petitioner’s Dental Practice

       Petitioner holds a doctor of dental surgery degree. She acquired her dental

practice, Stonebrook Dental Care, on or about October 22, 2002. She operated the

dental practice as a sole proprietor and managed the finances along with an

accountant. Petitioner managed the dental practice for five years before selling it

on or about October 15, 2007. It was the sale of this dental practice that resulted

in most of the tax due in this case.


       3
       Because of the reassignment of this case for purposes of preparing the
opinion and entering the decision, we had no opportunity to observe the demeanor
of the witnesses, namely, petitioner and intervenor. Thus, we make no inferences
of credibility.
                                       -4-

[*4] Marriage and Subsequent Divorce

      Petitioner and intervenor were married on April 10, 2003. They have one

child. During 2007 intervenor worked for Wells Fargo & Co. Petitioner and

intervenor separated on July 28, 2008. Their divorce became final on September

9, 2010. Petitioner and intervenor signed their divorce agreement, which provides

in pertinent part:

      Wife shall be responsible for one half of the 2007 Federal tax
      obligation and will contact the Internal Revenue Service upon
      executing this Agreement to establish a repayment plan.

      Husband shall be responsible for one half of the 2007 Federal tax
      obligation and upon executing this Agreement will pay $25,000 for
      his share of the tax obligation and $4,000 plus penalties and interest
      owing for his share of the current $59,000 tax debt.

Petitioner’s counsel drafted the divorce agreement. Intervenor was not

represented by counsel.

Joint 2007 Federal Tax Return

      Petitioner and intervenor timely filed a joint Form 1040, U.S. Individual

Income Tax Return, for 2007,4 reporting the following income: (1) total wages of

$155,802, arising from intervenor’s employment with Wells Fargo & Co.;


      4
        Both petitioner and intervenor willingly signed the Form 8879, IRS e-file
Signature Authorization, for 2007. A certified public accountant prepared their
return.
                                         -5-

[*5] (2) taxable interest of $169, earned on a jointly held account; (3) income of

$24,007 reported on Schedule C, Profit or Loss From Income, arising from

petitioner’s dental practice; (4) capital gain of $203,236, all resulting from the sale

of petitioner’s dental practice; (5) other gains of $44,076 from the sale of business

property related to petitioner’s dental practice; and (6) distributions reported on

Forms 1099-R, Distributions From Pensions, Annuities, Retirement or Profit-

Sharing Plans, IRAs, Insurance Contracts, etc., and totaling $32,050 from three

separate accounts held solely in petitioner’s name. They reported total tax due of

$83,942 and Federal income tax withholding from intervenor’s wages of $28,213,

resulting in a total amount due of $58,123 (which included an estimated tax

penalty of $2,394). Petitioner and intervenor understood that they owed the

amount due but did not remit payment when they filed their 2007 return.

       Petitioner and intervenor experienced both marital and financial difficulties.

They discussed the reported but unpaid 2007 Federal income tax liability.

2007 Income Tax Debt and Subsequent Returns

       Petitioner and intervenor filed a joint 2008 Form 1040 in which refund

credits of $1,500 and $14,798 were applied against their outstanding 2007 tax

liability.
                                          -6-

[*6] Petitioner separately filed a 2009 Form 1040 in which she applied a $418

credit against the outstanding 2007 tax liability.

      On June 14, 2010, intervenor signed a $25,000 check payable to the U.S.

Treasury and sent it to the Internal Revenue Service to be applied toward payment

of his share of the 2007 tax liability.

      Between October 2010 and February 2011 petitioner made four payments of

$300 and one payment of $255 toward the outstanding 2007 tax liability.

      At the time of trial a levy of $300 every two weeks had been imposed on

intervenor’s wages. The first payment was on February 8, 2013. As of February

10, 2014, intervenor’s levy resulted in payment of $8,100 toward the outstanding

2007 tax liability.

      As of February 10, 2014, the outstanding balance due for the 2007 tax

liability was approximately $25,500.

Petitioner’s Health

      Petitioner was diagnosed with bipolar I disorder. She was hospitalized in

June 2006 for approximately seven days and subsequently in August 2008 for

approximately five days. She returned to work in June 2009. Petitioner

successfully managed her bipolar disorder with medication. She has not been

hospitalized for this disorder since 2008.
                                        -7-

[*7] Petitioner’s Request for Innocent Spouse Relief

      On November 23, 2011, petitioner filed Form 8857, Request for Innocent

Spouse Relief, requesting relief from joint and several liability under section

6015(f) for the 2007 unpaid liability. On her Form 8857 she stated that she was

not a victim of spousal abuse or domestic violence. Petitioner attached to the

Form 8857 three documents: a personal statement; a letter from her physician; and

a copy of the divorce agreement. On the Form 8857 petitioner did not report any

monthly wage income but listed her assets as approximately $1,000 cash on hand

and reported that she had received funds from a section 401(k) plan as part of the

divorce settlement. Petitioner did not provide a dollar amount for these funds.

Petitioner’s Financial Condition

      On the Form 8857 petitioner reported that she was receiving $3,600 in

monthly income from California’s State Disability Insurance Program and $1,250

in monthly child support from intervenor. In addition, petitioner had: (1) a

rollover individual retirement account (IRA) with Union Bank with an $89,000

fair market value and (2) a Roth IRA with Vanguard Fiduciary Trust with a fair

market value of $5,000. Petitioner made this contribution in 2011.

      Petitioner has held part- or full-time employment since the end of 2011.

She earned a total of $18,991 in 2011 from her dentistry work; her 2011 monthly
                                         -8-

[*8] expenses were $4,885. In 2012 petitioner earned $67,896 from her dentistry

work. In both 2012 and 2013 she received monthly child support payments of

approximately $460 from intervenor. At the end of 2012 petitioner’s rollover IRA

had a $93,000 fair market value, and her Roth IRA had a $5,300 fair market value.

Petitioner’s February 2014 Schwab money market fund account statement

reflected a $45,000 balance.

      As of mid-2013 petitioner had reestablished a private dental practice in

Roseville, California (operating as Nothing But Wisdom Teeth).

      With the exception of 2007, petitioner is current with her individual Federal

income tax filings and payment obligations. Petitioner received tax refunds of

$2,083 for 2010, $7,034 for 2011, and $4,757 for 2012.

Preliminary and Final Determinations

      In September 2012 the Internal Revenue Service issued a preliminary

determination denying petitioner section 6015(f) relief. Petitioner appealed the

IRS’ preliminary determination to the IRS Office of Appeals (Appeals Office). In

a Letter 3279C, Final Appeals Determination, dated December 21, 2012, the

Appeals Office upheld the IRS’ determination, denying petitioner’s request for

section 6015(f) relief. Petitioner timely filed a petition in this Court.
                                         -9-

[*9] Intervenor’s Request for Innocent Spouse Relief

      On August 1, 2013, intervenor filed a Form 8857 requesting relief under

section 6015(f) for the unpaid liability for 2007. He stated in part as follows:

      A payment plan was established with the IRS for payment of the taxes
      when the 2007 Form 1040 was filed. Upon the finalization of our
      divorce in 2010, the divorce decree * * * clearly states that each party
      was responsible for one half of the remaining taxes owed for 2007. I
      have since paid in full my share of the 2007 tax debt.

      [Our] divorce decree clearly states that each of us was responsible for
      one half of the remaining tax liability from 2007. I have paid my half
      in full at this time. My former spouse set up a payment plan with the
      IRS for her share of the tax debt and began making payments towards
      her share of the debt. My former spouse has since fallen behind on
      her payment plan. This has caused my wages to be garnished. I
      would like to be relieved of this tax liability at this time so that I will
      not be subject to future unexpected wage garnishments.

                                      OPINION

I. Statutory Framework

      Pursuant to section 6013(a), a married taxpayer may generally elect to file a

joint Federal income tax return. After making the election, each spouse is jointly

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

spouse seeking relief from joint and several liability may follow procedures

established in section 6015. If the disputed liability involves nonpayment of taxes

shown on a joint return, the only relief available is under section 6015(f). See
                                         - 10 -

[*10] Washington v. Commissioner, 120 T.C. 137, 146-147 (2003). Pursuant to

section 6015(f), the Commissioner is authorized 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 applies a de novo scope and standard of review to a taxpayer’s

request for innocent spouse relief. Porter v. Commissioner, 132 T.C. 203, 210

(2009). The requesting spouse bears the burden of proof with respect to relief

under section 6015(f). Id. (citing Rule 142(a)).

II. Threshold Conditions Under Rev. Proc. 2013-34, 2013-43 I.R.B. 397

      The Commissioner has prescribed guidelines to determine whether a

taxpayer qualifies for equitable relief from joint and several liability. These

guidelines are enunciated in Rev. Proc. 2013-34, sec. 4, 2013-43 I.R.B. 397, 399-

403, modifying and superseding Rev. Proc. 2003-61, 2003-2 C.B. 296. See, e.g.,

Reilly-Casey v. Commissioner, T.C. Memo. 2013-292. This Court considers these

guidelines in the light of the attendant facts and circumstances to decide whether

equitable relief is appropriate under section 6015(f), but the Court is not bound by

them. See Pullins v. Commissioner, 136 T.C. 432, 438-439 (2011); Sriram v.

Commissioner, T.C. Memo. 2012-91. The guidelines begin by establishing
                                         - 11 -

[*11] threshold conditions set forth in Rev. Proc. 2013-34, sec. 4.01, 2013-43

I.R.B. at 399-400, that must be satisfied before the Commissioner will consider a

request for section 6015(f) equitable relief. The threshold requirements, stated in

the conjunctive, are: (1) the requesting spouse filed a joint return for the year for

which relief is sought; (2) 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 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 exceptions, the income tax liability from which

the requesting spouse seeks relief is attributable, either in full or in part, to an item

of the nonrequesting spouse.

      Respondent concedes that the first six conditions have been met. We

therefore address only the seventh condition, namely, whether the income tax

liability from which relief is sought is attributable to an underpayment resulting

from the nonrequesting spouse’s income, unless a specified exception applies. See

Rev. Proc. 2013-34, sec. 4.01(7).

      The primary consideration herein, and the basis of the negative

determination, is that petitioner generated the income from her dental practice and
                                         - 12 -

[*12] none of it is attributable to intervenor. Petitioner’s tax liability is

attributable to her self-employment income and from the capital gain and other

gain resulting from the sale of her dental practice. As explained below, petitioner

has not proved that any exception to meeting this threshold condition applies.

      For the seventh condition, the Commissioner may still consider granting

relief regardless of whether the underpayment is attributable to the requesting

spouse if any of the following exceptions applies: (1) attribution solely due to

operation of community property law; (2) nominal ownership;

(3) misappropriation of funds; (4) abuse; or (5) fraud committed by the

nonrequesting spouse. Id.

      The dental practice was solely petitioner’s. Intervenor was then a full-time

Wells Fargo wage earner. Thus, exceptions (1) and (2) do not apply here.

Petitioner has not asserted or demonstrated that intervenor misappropriated funds

or acted fraudulently. Therefore, exceptions (3) and (5) also do not apply.

Petitioner points us only to the remaining exception--abuse.

      Rev. Proc. 2013-34, sec. 4.03(2)(c)(iv), 2013-43 I.R.B. at 402, states that

“[a]buse 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
                                         - 13 -

[*13] independently and be able to do what is required under the tax laws.”

Claims of abuse require corroborating evidence or specificity in allegations. See,

e.g., Deihl v. Commissioner, T.C. Memo. 2012-176. We take all facts and

circumstances into account in determining the presence of abuse. Rev. Proc.

2013-34, sec. 4.01. A requesting spouse must establish: (1) that she was the

victim of abuse before the return was filed, and (2) that, as a result of the prior

abuse, she was not able to challenge the treatment of any items on the return or

was not able to question the payment of any balance due reported on the return, for

fear of the nonrequesting spouse’s retaliation. Id. sec. 4.01(7)(d).

      Petitioner has not established, and the record does not support, that she was

a victim of abuse before the return was filed and that, as a result of any such abuse,

she was not able to challenge the treatment of any items on the return or was not

able to question the payment of any balance due reported on the return for fear of

intervenor’s retaliation. On her 2011 request for innocent spouse relief petitioner

indicated that she was not the victim of spousal abuse or domestic violence at any

relevant time. Yet, once her claim was denied, it was not until she filed her March

21, 2013, petition in this Court that she indicated that she was “involved in an

emotionally abusive marriage”. At trial petitioner mentioned two alleged

incidences that she considered abusive, but she did not give any specific details.
                                          - 14 -

[*14] She did not call any witnesses or provide any documentation to support her

claims of abuse. There is no evidence in the record that petitioner filed a report

concerning abuse or that she raised the issue of abuse in any prior legal

proceedings with intervenor. Thus, we conclude that petitioner failed to carry her

burden of proving that she was abused for section 6015(f) purposes or that any

such abuse affected her ability to challenge or question the handling of the joint

2007 income tax return. See, e.g., Wang v. Commissioner, T.C. Memo. 2014-206.

Petitioner did not overcome her failure to meet the attribution factor. Accordingly,

we hold that petitioner does not satisfy the seventh threshold condition of Rev.

Proc. 2013-34, sec. 4.01, and is therefore ineligible to request section 6015(f)

relief.

          Nonetheless, even assuming petitioner has met the threshold conditions for

relief, she must then demonstrate that equitable relief is appropriate under certain

factors. See id. secs. 4.02 and 4.03, 2013-43 I.R.B. at 400. If the requesting

spouse then satisfies the so-called streamlined conditions under Rev. Proc. 2013-

34, sec. 4.02, relief may be granted. If, however, relief is not available under Rev.

Proc. 2013-34, sec. 4.02, then the Commissioner will look to the facts and

circumstances as set forth in Rev. Proc. 2013-34, sec. 4.03, to determine whether

relief from joint and several liability is available to the requesting spouse.
                                        - 15 -

[*15] III. Streamlined Determination Granting Relief

      Rev. Proc. 2013-34, sec. 4.02, sets forth elements that a requesting spouse

must satisfy to qualify for a streamlined determination under section 6015(f) as

follows: (1) on the date the IRS makes its determination, the requesting spouse is

no longer married to, or is legally separated from, the nonrequesting spouse; (2) the

requesting spouse will suffer economic hardship if relief is not granted; and (3) on

the date the joint return was filed, the requesting spouse 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 return. Although petitioner finalized her

divorce from intervenor in September 2010 and meets the first criterion, she fails to

meet the other two. Petitioner must satisfy all three.

      A requesting spouse will suffer economic hardship when payment of part of

all of the liability will prevent her from meeting her reasonable basic living

expenses. Rev. Proc. 2013-34, sec. 4.03(2)(b), 2013-43 I.R.B. at 401. A

requesting spouse’s future ability to earn may also be a consideration. Pullins v.

Commissioner, 136 T.C. at 446-447. A hardship cannot be hypothetical; the

requesting spouse must introduce evidence to support her claim, analyzed as of the

date of trial, that she would suffer economic hardship. Id. There is no economic

hardship where, although the taxpayer is unable to pay the liability all at once, she
                                        - 16 -

[*16] is able to meet her reasonable basic living expenses while making periodic

payments. See, e.g., O’Neil v. Commissioner, T.C. Memo. 2012-339.

      On the basis of the record before us, we conclude that payment of the tax due

(in whole or part) would not be an economic hardship for petitioner. As of the trial

date she was working as a dentist and shared custody of her child with intervenor.

In addition to the $68,000 of income she earned in 2012 and payments she received

from intervenor, she had a $45,000 money market account and IRAs.

      The outstanding balance due for petitioner and intervenor’s 2007 tax year

was approximately $25,500 as of February 27, 2014. From the evidence before us,

petitioner has not proved that she would suffer economic hardship if section

6015(f) relief were not granted.

      Where a tax liability is properly reported but not paid, a requesting spouse

who at the time of filing knew or had reason to know that the nonrequesting spouse

would not or could not pay the tax liability fails to meet the third prong of Rev.

Proc. 2013-34, sec. 4.02. In determining whether a requesting spouse had reason to

know the tax would not be paid, several factors are considered, including the

requesting spouse’s level of education, involvement in the activity that produced

the tax liability, involvement in the household financial affairs, and financial
                                        - 17 -

[*17] expertise, as well as other factors. See, e.g., Stephenson v. Commissioner,

T.C. Memo. 2011-16.

      Petitioner had reason to know as well as actual knowledge that intervenor

would not pay her portion of the tax liability due. She knew when she signed the

return that the couple was having financial difficulties, that there was an amount

due on the 2007 return, that no payment was made at the time the return was filed,

and that intervenor was not going to pay that amount. Petitioner is a well-educated

individual who operated a dental practice as a sole practitioner for five years and

who knew that the sale of her dental practice triggered most of their 2007 tax

liability. Moreover, there is no evidence of intervenor’s deceit or evasiveness

regarding the filing of the 2007 tax return or the nonpayment of the amount due.

      In some instances abuse may be a mitigating factor as to knowledge or

reason to know. As stated above, petitioner has not established that she was the

victim of spousal abuse or that intervenor controlled the household financial affairs

and limited her access to them. Petitioner has failed to show that she was a victim

of abuse for section 6015(f) purposes. The abuse exception is unavailable to

petitioner as a means of mitigating the fact that she had actual knowledge that

intervenor could not and would not pay the understatement of tax. In sum,
                                          - 18 -

[*18] petitioner is not entitled to relief from joint and several liability under the so-

called streamlined provisions of Rev. Proc. 2013-34, sec. 4.02.

IV. Facts and Circumstances Analysis

      Where a requesting spouse meets all seven threshold conditions but does not

qualify for a streamlined determination, she may nevertheless be granted relief if,

taking into account all the facts and circumstances, it would be inequitable to hold

her liable for the underpayments. Rev. Proc. 2013-34, sec. 4.03, provides a list of

these nonexclusive factors, including: (1) whether the requesting spouse is

separated or divorced from the nonrequesting spouse; (2) whether the requesting

spouse would suffer economic hardship if relief is not granted; (3) in underpayment

cases whether, on the date the return was filed or the requesting spouse believed it

was filed, the requesting spouse did not have knowledge or reason to know that the

nonrequesting spouse would not or could not pay the tax liability at that time or

within a reasonable period of time after filing the return; (4) whether the

nonrequesting spouse or the requesting spouse has a legal obligation to pay the tax

liability pursuant to a decree of divorce or other agreement; (5) whether the

requesting spouse received a significant benefit from the item giving rise to the

deficiency; (6) whether the requesting spouse has made a good-faith effort to

comply with the Federal income tax laws for the taxable years following the
                                         - 19 -

[*19] taxable year to which the request for relief relates; and (7) whether the

requesting spouse was in poor mental or physical health at the time she signed the

return or requested relief. In making our determination under section 6015(f), we

consider these factors as well as any other relevant factors. No single factor is

determinative, and all factors are considered and weighed appropriately. See

Pullins v. Commissioner, 136 T.C. at 448.

      First, petitioner and intervenor were divorced before she filed her request for

innocent spouse relief. This factor weighs in favor of granting relief. Second,

petitioner had sufficient liquid assets to pay the balance on the tax liability, and she

would not suffer economic hardship by doing so. This factor weighs against

granting relief. Third, petitioner had actual knowledge of the underpayment and

that intervenor would or could not pay the tax due. This factor weighs against

relief because it was unreasonable for petitioner to believe that intervenor would or

could pay the tax liability due. Fourth, pursuant to the divorce agreement,

petitioner was legally obligated to pay half of the 2007 income tax liability due.

The intervenor has paid more than his portion. This factor weighs against relief.

Fifth, the record does not indicate that petitioner benefited beyond normal support

from the unpaid tax. This factor favors relief. Sixth, petitioner has been in

substantial compliance with the tax laws since 2007, the year at issue. This factor
                                         - 20 -

[*20] favors relief. Seventh, as previously explained, petitioner has failed to

establish that her medical condition affected her at the time the 2007 income tax

return was filed in September 2008 or at the time she submitted her request for

innocent spouse relief. According to petitioner’s physician, petitioner’s condition

had stabilized following her hospitalization, and she has managed the illness with

medication. Petitioner testified that she had no residual effects of her illness after

she separated from intervenor, and she was able to return to work in 2009 and

beyond. This factor is neutral. Finally, there is no evidence that intervenor rigidly

controlled the household finances or denied petitioner access to financial records.

This factor weighs against relief.

      After considering and weighing all the factors, we find that the equities do

not weigh in petitioner’s favor. As the preceding discussion shows, there are

factors that weigh in favor of and against relief and one factor is neutral. Our

decision whether relief is appropriate, however, is not based on a simple tally of

those factors. See, e.g., Hudgins v. Commissioner, T.C. Memo. 2012-260, at *39-

*40. Rather, our decision is heavily influenced by the unique circumstances in this

case. Accordingly, we hold that petitioner is not entitled to relief from joint and

several liability for 2007 under section 6015(f).
                                      - 21 -

[*21] We have considered all arguments made in reaching our decision and, to the

extent not mentioned, we conclude that they are moot, irrelevant, and without

merit.

         To reflect the foregoing,


                                               Decision will be entered

                                      for respondent.
