                               T.C. Memo. 2013-120



                          UNITED STATES TAX COURT



                  JUDITH T. MARZULLO, Petitioner v.
           COMMISSIONER OF INTERNAL REVENUE, Respondent



      Docket No. 3620-11.                           Filed May 6, 2013.



      Jeffrey Lee Cohen, for petitioner.

      Brianna B. Taylor, for respondent.



            MEMORANDUM FINDINGS OF FACT AND OPINION


      FOLEY, Judge: The issue for decision is whether petitioner, pursuant to

section 6015, is entitled to innocent spouse relief relating to 2003, 2004, 2005, and

2006 (years in issue).1


      1
      Unless otherwise indicated, all section references are to the Internal
Revenue Code in effect at all relevant times, and all Rule references are to the Tax
                                                                       (continued...)
                                         -2-

[*2]                           FINDINGS OF FACT

       In 1972, petitioner married John Marzullo and, in 1974, Mr. Marzullo

incorporated Marto Drug & Supply, Inc. (Marto Drug), which he owned and

operated. In addition, he served as chief executive officer (CEO) and a

pharmacist. Petitioner was the chief financial officer (CFO) and was responsible

for assisting customers, compiling sales journals, and writing checks from Marto

Drug’s business account. During their marriage, petitioner made bank deposits,

wrote checks, and paid household expenses through a joint money market account

(personal account) she held with Mr. Marzullo.

       In 2002, Mr. Marzullo lost his pharmacist’s license. Petitioner and Mr.

Marzullo hired a new pharmacist, but the business began to suffer serious financial

difficulties. In a desperate attempt to sustain the business, petitioner and Mr.

Marzullo used withdrawals from their respective individual retirement accounts

(IRAs) to pay business expenses. In 2002, 2003, 2004, and 2005 Mr. Marzullo

withdrew $30,000, $100,000, $290,000, and $239,791, respectively, from his

IRAs. In 2006, petitioner withdrew $73,182 from one of her IRAs. Petitioner and

Mr. Marzullo did not file Federal income tax returns relating to the years in issue.


       1
      (...continued)
Court Rules of Practice and Procedure.
                                         -3-

[*3] Respondent audited the tax years in issue and prepared substitutes for returns

relating to 2002, 2003, and 2004. In 2008, petitioner and Mr. Marzullo untimely

filed joint Federal income tax returns relating to 2002, 2003, 2004, 2005, 2006,

and 2007. Petitioner and Mr. Marzullo failed to pay the full amounts of their

Federal income tax liabilities reported on these returns.

      On September 3, 2009, the Georgia Department of Revenue seized Marto

Drug’s assets to satisfy more than $700,000 of outstanding employment tax

liabilities. On September 4, 2009, Mr. Marzullo died, leaving petitioner as the

sole beneficiary and the executor of his estate. She became Marto Drug’s CEO

and received the family home, Mr. Marzullo’s 100% interest in Marto Drug, and a

50% interest in a real estate partnership. In addition, Marto Drug received

$1,300,000 of life insurance proceeds.

      On December 1, 2009, respondent received petitioner’s Forms 8857,

Request for Innocent Spouse Relief, in which, pursuant to section 6015, she

requested relief relating to the years in issue. In her requests, petitioner asserted

that the IRA funds were withdrawn to pay Marto Drug’s business expenses and

that Mr. Marzullo had assured her that the Federal income tax liabilities would be

paid with a portion of the IRA distributions. Respondent denied petitioner’s

requests for relief.
                                          -4-

[*4] On February 14, 2011, petitioner, while residing in Georgia, filed her

petition with the Court. In 2011, she untimely filed her 2008 and 2009 Federal

income tax returns and untimely paid her 2009 Federal income tax liability.

                                      OPINION

      Married taxpayers may elect to file a joint Federal income tax return. Sec.

6013(a). Each spouse filing a return is jointly and severally liable for the accuracy

of the return and for the entire tax due. Sec. 6013(d)(3). Petitioner underpaid tax

reported on joint returns relating to the years in issue and thus is not eligible for

relief pursuant to section 6015(b) or (c). See Hopkins v. Commissioner, 121 T.C.

73, 88 (2003). She may, however, be eligible for relief, pursuant to section

6015(f) if it is inequitable to hold her liable for the unpaid Federal income tax

liabilities. See Rev. Proc. 2003-61, sec. 4.03, 2003-2 C.B. 296, 298-299. We

review respondent’s determination de novo, and petitioner bears the burden of

proof. See Rule 142(a); Porter v. Commissioner, 132 T.C. 203, 210 (2009).

      For the following reasons, petitioner is not eligible for relief. First,

petitioner received a significant benefit (i.e., a benefit in excess of normal support)

relating to the unpaid tax liabilities. See Terzian v. Commissioner, 72 T.C. 1164,

1172 (1979); sec. 1.6015-2(d), Income Tax Regs.; Rev. Proc. 2003-61, sec.

4.03(2)(a)(v), 2003-2 C.B. at 299. Petitioner and Mr. Marzullo failed to pay their
                                         -5-

[*5] Federal income tax liabilities and instead used all of their funds to pay living

and business expenses. After Mr. Marzullo’s death, Marto Drug received

$1,300,000 of life insurance proceeds and petitioner received a 100% interest in

the business. See sec. 1.6015-2(d), Income Tax Regs. (“[I]f a requesting spouse

receives property (including life insurance proceeds) from the nonrequesting

spouse that is beyond normal support and traceable to items omitted from gross

income that are attributable to the nonrequesting spouse, the requesting spouse

will be considered to have received a significant benefit from those items.”).

Second, petitioner did not make a good-faith effort to comply with Federal income

tax laws. See Rev. Proc. 2003-61, sec. 4.03(2)(a)(vi), 2003-2 C.B. at 299. She

untimely filed her 2008 and 2009 Federal income tax returns and untimely paid

her 2009 Federal income tax liability. Third, petitioner will not suffer economic

hardship if denied relief. See id. sec. 4.03(2)(a)(ii), 2003-2 C.B. at 298. Finally,

petitioner had reason to know that Mr. Marzullo would not pay the 2003, 2004,

and 2005 Federal income tax liabilities. See id. sec. 4.03(2)(a)(iii).

      Petitioner contends that she believed Mr. Marzullo would use a portion of

the IRA distributions to pay the 2003, 2004, and 2005 Federal income tax

liabilities. Her testimony in support of this contention was inconsistent,

unreliable, and unconvincing. During their 37-year marriage, petitioner and Mr.
                                         -6-

[*6] Marzullo shared responsibility for business and personal affairs. Petitioner,

Marto Drug’s CFO, worked at Marto Drug in a number of capacities, regularly

wrote checks on both the business and personal accounts, was aware of Marto

Drug’s financial difficulties, and withdrew funds from her IRA to support the

business. See id. sec. 4.03, 2003-2 C.B. at 298-299. Accordingly, respondent’s

determinations relating to 2003, 2004, and 2005 are sustained.

      A taxpayer is ineligible for section 6015(f) relief if the liability relates to an

item of the requesting spouse’s income. See id. sec. 4.01(7), 2003-2 C.B. at 297.

The 2006 liability is attributable to petitioner’s IRA withdrawal. Relying on Rev.

Proc. 2003-61, sec. 4.01(7)(c), petitioner contends that she is nevertheless entitled

to relief because Mr. Marzullo misappropriated the funds designated for payment

of the Federal income tax liability. Petitioner’s testimony in support of this

contention was not credible. Accordingly, respondent’s determination relating to

2006 is sustained.

      Contentions we have not addressed are irrelevant, moot, or meritless.

      To reflect the foregoing,


                                               Decision will be entered for

                                        respondent.
