                         T.C. Summary Opinion 2017-7



                        UNITED STATES TAX COURT



              LAVERNE RENEE HUDSON, Petitioner v.
          COMMISSIONER OF INTERNAL REVENUE, Respondent



      Docket No. 20015-15S.                       Filed February 8, 2017.



      Laverne Renee Hudson, pro se.

      Trevor B. Maddison, for respondent.



                             SUMMARY OPINION


      ARMEN, Special Trial Judge: This case was heard pursuant to the

provisions of section 7463 of the Internal Revenue Code in effect when the
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petition was filed.1 Pursuant to section 7463(b), the decision to be entered is not

reviewable by any other court, and this opinion shall not be treated as precedent

for any other case.

          Petitioner applied to the Internal Revenue Service (IRS) for relief from joint

and several liability, commonly called innocent spouse relief. After receiving no

response from the IRS and waiting the requisite period of time, petitioner filed a

petition with the Court.2

          The sole issue for decision by the Court is whether petitioner is entitled to

relief from joint and several liability under section 6015(f) for 2008. We hold that

she is.




          1
        Unless otherwise indicated, all subsequent section references are to the
Internal Revenue Code, as amended and in effect at all relevant times. All Rule
references are to the Tax Court Rules of Practice and Procedure.
          2
        Usually the Court’s jurisdiction in an innocent spouse case is founded on a
notice of final determination denying a requesting spouse’s application for relief.
Sec. 6015(e)(1)(A)(i)(I). Even though petitioner did not receive such a notice, the
Court has jurisdiction under sec. 6015(e)(1)(A)(i)(II) because petitioner filed her
petition more than six months after applying to the IRS for sec. 6015 relief.
                                        -3-

                                    Background

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

incorporates by reference the parties’ stipulation of facts and accompanying

exhibits.

      Petitioner resided in the State of Maryland at the time that the petition was

filed with the Court.

      In November 1993 petitioner married Anthony W. Hudson. The couple has

three children, who were born in 1995, 1996, and 1998. Petitioner and Mr.

Hudson remain legally married, but they are essentially estranged. Petitioner has

remained in the marriage because she regards the vow of marriage as sacrosanct

and does not believe in divorce. Petitioner has not enjoyed the benefits of a lavish

lifestyle at any time during her marriage.

      In November 1995 petitioner and Mr. Hudson acquired a single-family

residence on Belair Drive in Bowie, Maryland (Belair Drive property). Petitioner

and Mr. Hudson purchased the Belair Drive property jointly, and they resided

there until 2008.

      In 2008 Mr. Hudson purchased a single-family residence on Alyssa Court in

Brandywine, Maryland (Alyssa Court property). Mr. Hudson is the sole owner of

the Alyssa Court property. Petitioner and Mr. Hudson resided at the Alyssa Court
                                         -4-

property from 2008 through 2014. Petitioner and Mr. Hudson continued to own

the Belair Drive property, which they rented to petitioner’s parents from 2008

through 2014. Petitioner and Mr. Hudson subsequently moved back to the Belair

Drive property in 2014 when petitioner’s parents moved to a senior living facility.

      On December 1, 2009, petitioner and Mr. Hudson filed a joint Federal

income tax return for 2008. Much of the liability reported on the return went

unpaid. The unpaid portion was largely attributable to an early withdrawal by Mr.

Hudson in 2008 from his retirement account that he used to finance his purchase

of the Alyssa Court property.

      Petitioner holds a bachelor of arts degree in justice. Although she spent

most of her married life as a homemaker, in August 2012 she began work as a

criminal assistant in the Office of the Clerk of the Circuit Court for Prince

George’s County, Maryland, a position that paid a modest salary. In December

2013 petitioner resigned her position because of increased stress related to work

and home life. Since then she has been unemployed although she has recently

begun to actively seek new employment.

      In 2013 Mr. Hudson filed for liquidating bankruptcy under chapter 7 of the

Bankruptcy Act. In 2014 he was granted a discharge by the bankruptcy court that
                                          -5-

included the unpaid Federal tax liability for 2008. Notwithstanding his bankruptcy

proceeding, Mr. Hudson continues to own the Alyssa Court property.3

      In June 2014 petitioner filed Form 8857, Request for Innocent Spouse

Relief, seeking relief from joint and several liability for the unpaid liability

reported on the 2008 Federal income tax return that she and Mr. Hudson had filed.

On the Form 8857 petitioner reported monthly income of $1,753 and monthly

expenses of $2,240. Petitioner’s monthly income consisted in part of gifts from

family members but mostly from rental income attributable to the Belair Drive

property.

      Later in 2014 petitioner’s vehicle was repossessed.

      In April 2016 petitioner was notified by the Motor Vehicle Administration

of the State of Maryland that her driver’s license would not be renewed if unpaid

State taxes were not fully paid. A letter from the comptroller of Maryland

indicates that the taxes relate to individual income tax for 2008.

      In October 2016 petitioner entered into a consumer debt settlement program

on the basis of financial hardship in order to obtain help consolidating and

managing her nontax debts.


      3
       For the fiscal year ending June 30, 2017, the assessed value of the Alyssa
Court property for real estate tax purposes is $603,500.
                                          -6-

      Petitioner is currently unemployed and struggles to pay her reasonable

living expenses. Her parents, her sister, and her friends also provide some

financial support.

                                      Discussion

      In general, a spouse who files a joint Federal income tax return is jointly

and severally liable for the entire tax liability. Sec. 6013(d)(3). However, a

spouse seeking relief from joint and several liability (i.e., so-called innocent

spouse relief) must follow procedures set forth in section 6015. If the liability

involves the nonpayment of tax reported on a joint return, the only relief that is

available is that prescribed under section 6015(f). See Hopkins v. Commissioner,

121 T.C. 73, 88 (2003); see also Block v. Commissioner, 120 T.C. 62, 66 (2003).

In that regard section 6015(f) authorizes the Commissioner to grant equitable

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

circumstances, it is inequitable to hold a taxpayer liable for the unpaid tax.

       In deciding whether petitioner is entitled to section 6015(f) relief the Court

applies a de novo scope and standard of review. See Porter v. Commissioner, 132
                                          -7-

T.C. 203, 210 (2009). The spouse requesting relief generally bears the burden of

proving that she is entitled to relief.4 See id. (citing Rule 142(a)).

       The Commissioner has published guidance setting forth criteria to be

considered in determining whether a requesting spouse is entitled to relief under

section 6015(f). See Rev. Proc. 2013-34, sec. 4, 2013-43 I.R.B. 397, 399-403. In

deciding a case, the Court considers these factors as well as any other relevant

factors. Although the Court consults these guidelines, see Washington v.

Commissioner, 120 T.C. 137, 147-152 (2003), the Court is not bound by them in

that our decision ultimately turns on an evaluation of all of the facts and

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

v. Commissioner, 132 T.C. at 210; Hudgins v. Commissioner, T.C. Memo. 2012-

260.

       Under the Commissioner’s published guidance, the requesting spouse must

first satisfy certain threshold conditions set forth in Rev. Proc. 2013-34, sec. 4.01,

2013-43 I.R.B at 399. Respondent does not address those conditions, let alone

dispute that they are satisfied. As a result, the Court proceeds as if they are.5



       4
       Either spouse may be entitled to relief under sec. 6015(f). This Summary
Opinion uses the pronoun “she” because Mrs. Hudson is the petitioner.
       5
           The evidentiary record also supports this approach.
                                          -8-

      When the threshold conditions have been satisfied, the Commissioner will

ordinarily grant relief with respect to an underpayment of tax if the requesting

spouse satisfies each of the so-called streamlined requirements set forth in Rev.

Proc. 2013-34, sec. 4.02, 2013-43 I.R.B. at 400. Petitioner does not qualify for

streamlined relief because she remains married to Mr. Hudson. See id. sec.

4.02(1), 4.03(2)(a).

      Where a requesting spouse meets the threshold conditions but fails to

qualify for a streamlined determination, she may still be eligible for equitable

relief if, taking into account all of the facts and circumstances, it would be

inequitable to hold her liable for the unpaid tax. See id. sec. 4.03(1). The

guidelines list the following nonexclusive factors that the Commissioner takes into

account in determining whether to grant equitable relief: (1) marital status; (2)

economic hardship; (3) knowledge or reason to know that the tax liability would

or could not be paid; (4) legal obligation; (5) significant benefit from the unpaid

income tax liability; (6) compliance with income tax laws; and (7) mental or

physical health at the time of filing. Id. sec. 4.03(2).

       We shall not analyze individually all seven of the factors enumerated in

Rev. Proc. 2013-34, sec. 4.03, as several of them are neutral and some are of little

importance. Instead, we shall focus on what we regard as the two most important
                                         -9-

factors that inform our decision, i.e., (1) economic hardship and (2) significant

benefit, or more precisely, lack of significant benefit, from the unpaid liability.

See Hudgins v. Commissioner, T.C. Memo. 2012-260, at *39-*40 (“In section

6015(f) cases * * * we do not simply count factors.”); Cullen v. Commissioner,

T.C. Memo. 2004-176, 2004 WL 1682835 at *6 (“[S]ome factors are more

important than others * * * [and may] dictate the ultimate result.”).

Economic Hardship

      Rev. Proc. 2013-34, sec. 4.03(2)(b), 2013-43 I.R.B. at 401, states that an

economic hardship “exists if satisfaction of the tax liability in whole or in part will

cause the requesting spouse to be unable to pay reasonable basic living expenses.”

A determination whether a requesting spouse will suffer economic hardship is

based on rules similar to those in section 301.6343-1(b)(4), Proced. & Admin.

Regs. The facts and circumstances considered in this inquiry include: (1) the

requesting spouse’s age, employment status and history, ability to earn, and

number of dependents; (2) the amount reasonably necessary for food, clothing,

housing, medical expenses, transportation, and current tax payments; (3) any

extraordinary circumstances such as special education expenses, a medical

catastrophe, or a natural disaster; and (4) any other factor bearing on economic

hardship. Id. In addition, the IRS considers the requesting spouse’s current
                                        - 10 -

income (including how the requesting spouse’s income compares to Federal

poverty guidelines) and assets in comparison with his or her expenses. Rev. Proc.

2013-34, sec. 4.03(2)(b).

      Although we are not required to accept a taxpayer’s testimony uncritically,

see Ishizaki v. Commissioner, T.C. Memo. 2001-318, neither are we required to

reject a taxpayer’s testimony if we find it credible, see, e.g., Washington v.

Commissioner, 120 T.C. at 150. We accept petitioner’s testimony, as we found

her to be thoroughly honest, forthright, and credible and her testimony to be

compelling.

      On Form 8857 petitioner reported that her monthly income was $1,753 and

that her monthly expenses were $2,240. Most of the monthly income that she

listed on Form 8857 was rental income from the Belair Drive property. However,

at some point in 2014 (after she had submitted the Form 8857) petitioner no longer

received rental income from that property because the prior tenants, her parents,

had moved into a senior living facility during that year and ceased paying rent.

Shortly thereafter, petitioner and Mr. Hudson moved back into the Belair Drive

property, where she currently resides. Insofar as the Alyssa Court property is

concerned, the record is unclear whether it is income producing; regardless,
                                        - 11 -

however, petitioner has no ownership interest in that property, as it is owned

solely by Mr. Hudson.

      Petitioner no longer owns a car since hers was repossessed in 2014.

Additionally, petitioner is precluded from renewing her driver’s license until her

Maryland State income taxes are paid. Petitioner also has incurred nontax debt

and recently entered into a consumer debt program on the basis of financial

hardship in order to obtain help consolidating and managing nontax debts. All of

these matters negatively affect her employment prospects.

      Petitioner is currently unemployed and receives some financial support from

her parents, her sister, and her friends. She struggles to pay her reasonable living

expenses.

      In sum, we find that requiring petitioner to pay the outstanding Federal

income tax liability for 2008 would result in financial hardship to her.

Lack of Significant Benefit From the Unpaid Liability

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

generally “[a] significant benefit is any benefit in excess of normal support”, such

as the benefits of a lavish lifestyle, in which instance this factor will weigh against

relief. On the other hand, “[i]f only the nonrequesting spouse significantly

benefitted from the unpaid tax * * *, and the requesting spouse had little or no
                                         - 12 -

benefit, or the nonrequesting spouse enjoyed the benefit to the requesting spouse’s

detriment, this factor will weigh in favor of relief.” Id.

      Petitioner has not enjoyed the benefits of a lavish lifestyle; indeed, her

lifestyle, particularly in recent years, has been quite the contrary. Further, the

unpaid portion of the tax that was reported on the joint Federal income tax return

that petitioner and Mr. Hudson filed for 2008 was largely attributable to the early

withdrawal made by Mr. Hudson from his retirement account that he used to

finance his purchase of the Alyssa Court property. Mr. Hudson titled that property

in his sole name, and petitioner has never had an ownership interest in it.6

      In sum, we find that Mr. Hudson significantly benefited from the unpaid

Federal income tax for 2008 and that petitioner did not. We further find that if

relief were not available to petitioner under section 6015(f), then Mr. Hudson

would benefit from that unpaid tax to petitioner’s detriment because his liability

for the unpaid tax for 2008 was discharged in bankruptcy. See Rev. Proc. 2013-

34, sec. 4.03(2)(e).




      6
       As previously mentioned, notwithstanding his bankruptcy proceeding Mr.
Hudson continues to own the Alyssa Court property, the current assessed value of
which is $603,500.
                                        - 13 -

                                     Conclusion

      In view of the foregoing, and on the basis of our review of all of the facts

and circumstances, we hold that it would be inequitable to hold petitioner liable

for the unpaid Federal income tax for 2008. Accordingly, she is entitled to relief

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

      To reflect the foregoing,


                                                       Decision will be entered

                                                 for petitioner.
