PURSUANT TO
Decision will be entered for respondent.
MARVEL,
Petitioner seeks review of respondent's determination denying her relief from joint and several liability for Federal income tax for 2010 pursuant to section 6015(f).
Some of the facts have been stipulated and are so found. The stipulated facts and the facts drawn from stipulated exhibits are incorporated herein by this reference. Petitioner resided in Minnesota when she filed her petition.
Petitioner is a senior managing director at CB Richard Ellis in its global corporate services division. She has a bachelor's degree and a master's degree in business administration. In 2000 petitioner purchased a residence in Wayzata,2014 Tax Ct. Summary LEXIS 100">*101 Minnesota (Wayzata residence).
In 2008 petitioner married Peter F. Pacioni. Mr. Pacioni worked in the sales and construction industry as a manufacturer's representative and owned a business called Pacioni Sales.
During their marriage petitioner and Mr. Pacioni moved several times on account of petitioner's career. In 2008 or 2009 petitioner purchased a residence in the city of Hilton Head Island, South Carolina (Hilton Head residence), after CB Richard Ellis transferred her to Charlotte, North Carolina, as the senior strategist of its Bank of America strategy team. Petitioner acquired the Hilton Head residence using nonmarital funds, and Mr. Pacioni's name is not associated with any encumbrances against the property. Petitioner and Mr. Pacioni lived at the Hilton Head residence from September 2009 through February 2010. Petitioner did not sell the Hilton Head residence after she moved in February 2010 because she had substantial negative equity in the property and did not wish to sell it at a loss.
In or around February 2010 CB Richard Ellis transferred petitioner to Chicago, Illinois, as the alliance director of its BP North America team. Petitioner and2014 Tax Ct. Summary LEXIS 100">*102 Mr. Pacioni rented a townhouse in Oakbrook, Illinois (Chicago townhouse), in which they resided from February 2010 through April 2011. Sometime between April and September 2011 petitioner and Mr. Pacioni moved back to Minnesota.
In addition to these residences petitioner and Mr. Pacioni also maintained an apartment near Chicago between March 2009 and April 2012 which Mr. Pacioni used for his business.
Throughout their marriage petitioner was the primary income producer. Before February 2011 petitioner and Mr. Pacioni kept separate bank accounts. Mr. Pacioni maintained a bank account with U.S. Bank. Petitioner did not have access to Mr. Pacioni's U.S. Bank account and was generally unaware of his income and expenditures during this period. In February 2011 the Internal Revenue Service (IRS) levied on Mr. Pacioni's U.S. Bank account. After the levy and pursuant to Mr. Pacioni's request, petitioner opened a Wells Fargo bank account in her name for his use. Petitioner had full access to the Wells Fargo account.
Throughout the marriage petitioner was actively involved with Pacioni Sales and helped Mr. Pacioni secure clients. In 2009 petitioner2014 Tax Ct. Summary LEXIS 100">*103 traveled to Italy with Mr. Pacioni for an introductory meeting at the headquarters of Brai, a prospective client, where she gave a presentation. Petitioner was responsible for preparing a national sales agreement between Pacioni Sales and Brai and for drafting national distributor contracts pursuant to the sales agreement. In 2010 and 2011 petitioner created advertisements for Brai and helped create a Pacioni Sales/Brai Web site. In 2011 petitioner also attended national trade shows as a Pacioni Sales representative. Mr. Pacioni gave petitioner access to his business email and allowed her to prepare invoices for certain clients. Petitioner knew that Mr. Pacioni was not making estimated tax payments with respect to his income from Pacioni Sales.
Before their marriage petitioner learned that Mr. Pacioni had outstanding Federal tax liabilities for 2005 and some earlier years, totaling approximately $26,500. Petitioner paid these liabilities using her personal funds.
Petitioner and Mr. Pacioni filed joint Federal income tax returns for 2008, 2009, and 2010. For all three years Mr. Pacioni failed to make estimated tax payments. Mr. Pacioni also failed to pay2014 Tax Ct. Summary LEXIS 100">*104 his share of the 2008 joint income tax liability, resulting in a levy on petitioner's wages. Petitioner paid the outstanding 2008 tax liability.
In late 2010 petitioner learned that Mr. Pacioni had failed to file tax returns for 2006 and 2007. In early 2011 Mr. Pacioni worked with petitioner's tax return preparer, Ryan Carruth, to file his 2006 and 2007 returns and to enter into an installment agreement with the IRS.
In August 2011 the IRS issued to petitioner and Mr. Pacioni a Notice CP-2000 proposing an increase in income tax of $8,810 for 2009 and penalties and interest of $2,359, totaling $11,169. Mr. Pacioni hid this notice from petitioner.
For 2010 Mr. Carruth prepared an analysis comparing petitioner's and Mr. Pacioni's income tax liabilities calculated using joint filing status and married filing separately filing status. In 2010 petitioner earned wages of $239,446, and Mr. Pacioni had net business income of $77,296. According to Mr. Carruth's analysis, if petitioner had filed a married filing separately return, her total Federal income tax liability would have been $57,891. After accounting for her withholdings and prior tax payments petitioner would have received a refund of2014 Tax Ct. Summary LEXIS 100">*105 $646. Mr. Pacioni's Federal income tax liability calculated using a filing status of married filing separately would have been $19,294, resulting in an unpaid income tax liability of $18,894. By filing jointly petitioner and Mr. Pacioni could reduce their total Federal income tax liability by $5,409.
At Mr. Pacioni's request petitioner and Mr. Pacioni filed a joint Federal income tax return for 2010. At that time petitioner was not aware of the proposed additional income tax liability for 2009 but was aware of Mr. Pacioni's nonfiling and nonpayment history. Petitioner signed the 2010 joint return on September 2, 2011.
On October 10, 2011, petitioner learned that Mr. Pacioni was having an extramarital affair. On October 15, 2011, petitioner was served with divorce papers from Mr. Pacioni. Petitioner believes that Mr. Pacioni had already planned to leave her when he asked her to file a joint return for 2010.
On July 12, 2012, the Hennepin County District Court entered a divorce decree dissolving petitioner and Mr. Pacioni's marriage. With respect to petitioner and Mr. Pacioni's Federal income tax liabilities for 2009 and 2010, the divorce decree provided as follows:2014 Tax Ct. Summary LEXIS 100">*106 The outstanding tax liability due for 2009 is ($11,169) as determined by the IRS and is due immediately. The outstanding tax liability due for 2010 is ($10,675) as determined by the IRS and is past due as of February 28, 2012. The parties agree to each make a $10,500 payment towards the outstanding taxes, with the 2010 liability being paid first. Wife paid $10,500 directly to the IRS for the 2010 liability and provided proof of payment to Husband.2 Husband has not yet made his $10,500 payment, which shall be applied to the 2009 tax liability. Any income taxes owed now or determined to be owed in the future by either party to the state or federal government including interest, deficiencies and penalties for the years 2008, 2009, 2010 or 2011 shall be the sole responsibility of the party to whom the tax is attributable to as determined by the IRS or State in which it was incurred.
On October 21, 2011, petitioner submitted to the IRS a Form 8857, Request for Innocent Spouse Relief, seeking relief from joint and several liability for 2008, 2009, and 2010. In her Form 8857 petitioner reported annual wages of $205,000 and an estimated discretionary bonus of nearly $100,000.4 Petitioner reported monthly mortgage expenses of $2,933, food expenses of $1,650, and car expenses of $1,411.
Petitioner's adult children live with her rent free. Petitioner also gave2014 Tax Ct. Summary LEXIS 100">*108 the children two of her cars--the 2006 Mercedes-Benz and the 2005 Lexus. Petitioner currently drives a 2009 Mercedes-Benz.
Respondent granted petitioner's request for relief for 2009.5 In a final determination dated November 21, 2012, respondent denied petitioner's request for relief for 2010. Petitioner seeks a refund of the $10,500 payment that she made toward the 2010 tax liability.
Generally, married taxpayers who file a joint Federal income tax return are jointly and severally liable for the tax reported or reportable on the return. Sec. 6013(d)(3);
This case does not involve an understatement of tax or a deficiency, and petitioner does not argue that she is entitled to relief under section 6015(b) or (c). We therefore address whether petitioner is entitled to relief under section 6015(f).
In determining whether a taxpayer is entitled to equitable relief under section 6015(f), we apply a de novo standard and scope of review.
The Commissioner has prescribed guidelines in
If a requesting spouse satisfies the threshold conditions of
Petitioner does not argue that she satisfies the requirements for a streamlined determination under
Under (a) (b) (c) (d) (e) (f) (g)
Several of these factors are not in dispute. First, the parties agree that petitioner is now divorced and that the first factor, marital status, weighs in favor of relief. Second, the parties agree that petitioner has been in compliance with income tax laws and that this factor also weighs in favor of relief. Third, the parties agree that petitioner has not claimed any mental or physical health problems and that this factor is neutral. Finally, the parties agree that petitioner has not alleged any abuse or financial control by the nonrequesting spouse and that this factor is also neutral.
We address each disputed factor below in turn.
For purposes of this factor, 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.
Petitioner has failed to establish that she would2014 Tax Ct. Summary LEXIS 100">*115 suffer economic hardship if relief were denied. First, petitioner seeks a refund of money that has already been paid. Thus, her current financial circumstances will not be adversely affected if relief is denied.
Petitioner has failed to prove that a failure to grant her section 6015(f) relief would cause her economic hardship. This factor is neutral.
For purposes of this factor, a legal obligation is an obligation arising from a divorce decree or2014 Tax Ct. Summary LEXIS 100">*116 other legally binding agreement.
Respondent argues that this factor weighs against relief because the divorce decree required petitioner to pay $10,500 toward the 2010 tax liability. We disagree.
The divorce decree provides that "[a]ny income taxes owed now * * * by either party * * * for the years 2008, 2009, 2010 or 2011 shall be the sole responsibility of the party to whom the tax is attributable to
For purposes of this factor, a significant benefit is2014 Tax Ct. Summary LEXIS 100">*117 any benefit in excess of normal support.
The record establishes that Mr. Pacioni alone benefited by filing a joint return for 2010. Mr. Carruth's comparative analysis showed that by filing jointly, petitioner forfeited a $646 refund, while Mr. Pacioni's share of their total tax liability was reduced by $5,409. In addition, petitioner credibly testified that she and Mr. Pacioni maintained separate bank accounts. Thus, petitioner received no benefit from Mr. Pacioni's nonpayment of the 2010 tax liability.
Respondent argues that this factor weighs against relief because petitioner lived a lavish lifestyle during the marriage. Respondent alleges that petitioner owned multiple homes2014 Tax Ct. Summary LEXIS 100">*118 and that she paid for friends and family to vacation at the Hilton Head residence.9 We disagree.
Petitioner and Mr. Pacioni had a number of residences throughout their marriage because of petitioner's work obligations and because of Mr. Pacioni's business needs. Respondent has not introduced any evidence proving a connection between the unpaid tax and these residences. Petitioner purchased the Wayzata residence using nonmarital funds many years before her marriage to Mr. Pacioni. Petitioner purchased the Hilton Head residence before 2010 using nonmarital funds. Petitioner and Mr. Pacioni terminated their Chicago townhouse lease after they returned to Minnesota. Petitioner and Mr. Pacioni kept separate bank accounts, and the record does not reveal whether or to what extent Mr. Pacioni paid any of the rent due under the Chicago townhouse lease. We also find no credible evidence in the record that petitioner paid for friends or family to vacation at the Hilton Head residence.
This factor weighs in favor of relief.
This factor examines whether2014 Tax Ct. Summary LEXIS 100">*119 the requesting spouse knew or had reason to know that the nonrequesting spouse would not or could not pay a reported but unpaid tax liability.
This factor weighs in favor of relief if the requesting spouse reasonably expected the nonrequesting spouse to pay the tax liability reported on the return and weighs against relief if the requesting spouse's belief that the nonrequesting spouse would pay was not reasonable.
Respondent argues that this factor weighs against relief because petitioner was aware of Mr. Pacioni's long history of noncompliance with tax laws when she signed the 2010 return. Petitioner argues that had she known about Mr. Pacioni's affair and his alleged plan to divorce her, she would never have agreed to expose herself to the tax liability arising from his business no matter how great the tax savings. We agree with respondent.
Even if we were to credit petitioner's assertion that she would not have filed a joint return for 2010 had she known of the affair and Mr. Pacioni's alleged divorce plans, the knowledge factor focuses on the requesting spouse's expectation of
Petitioner is a highly educated individual and an experienced business professional. In addition, she was the primary income producer of the household and had significant influence on household financial matters. Moreover, petitioner was actively involved with Pacioni Sales and knew from her involvement that Mr. Pacioni had not made any estimated tax payments for 2010 as well as for 2008 and 2009. In the light of the above facts and circumstances, we find petitioner's claimed belief that Mr. Pacioni would pay the 2010 tax liability, even if credible, was not reasonable. This factor weighs heavily against relief.
In summary, three of the eight factors weigh in favor of relief, one factor weighs against relief, and the remaining factors are neutral. In section 6015(f) cases, however, we do not simply count factors. We evaluate all of the relevant facts and circumstances to reach a conclusion.
Some of the most compelling facts in our analysis are the findings that: (1) petitioner knew of Mr. Pacioni's long history of tax noncompliance dating back to 2005 and earlier when she agreed to file jointly for 2010;2014 Tax Ct. Summary LEXIS 100">*122 (2) petitioner was actively involved with Mr. Pacioni's business activities, which generated the unpaid income tax liability; (3) petitioner knew that Mr. Pacioni had failed to make estimated tax payments for 2010 and prior years; (4) petitioner exercised considerable control over the household finances and decisionmaking; and (5) petitioner would not suffer economic hardship if relief were denied.
Taking into account the foregoing, and considering all the facts and circumstances, we find that petitioner has failed to persuade us that the equities weigh in her favor. Accordingly, we conclude that petitioner is not entitled to relief from joint and several liability under section 6015(f) for 2010.
We have considered the parties' remaining arguments for results contrary to those discussed herein, and to the extent not discussed above, we conclude those arguments are irrelevant, moot, or without merit.
To reflect the foregoing,
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 Court Rules of Practice and Procedure.↩
2. Petitioner made the $10,500 payment toward the 2010 tax liability on March 12, 2012.↩
3. In 2008 Mr. Pacioni gave petitioner the 2006 Mercedes-Benz in return for her payment of his 2005 tax liability.↩
4. In the divorce proceedings before the Hennepin County District Court petitioner submitted an affidavit dated January 6, 2012, representing: that her base salary at CB Richard Ellis is $199,999; that her average discretionary bonus for the past four years had been $44,617.50; that she had received a one-time additional bonus of $138,983 in 2011; and that she had received commissions totaling $291,315 for 2008, 2009, and 2010.↩
5. The record does not establish whether or how petitioner's request for relief for 2008 was resolved.↩
6. The elements required for making a streamlined determination are: (1) on the date of the request for relief, the requesting spouse is no longer married to, or is legally separated from, the nonrequesting spouse; (2) on the date the return was filed or the date the requesting spouse reasonably believed the return was filed, the requesting spouse did not know, and had no reason to know, that the nonrequesting spouse would not pay the tax liability; and (3) the requesting spouse will suffer economic hardship if the Commissioner does not grant relief.
7. Although both parties agreed in their pretrial memoranda that the economic hardship factor was neutral, petitioner claimed economic hardship at trial. We therefore consider this factor to be in dispute and address it accordingly.
8. On her Form 8857 petitioner estimated that her 2011 salary and bonus would total over $300,000. In her affidavit filed with the Hennepin County District Court, petitioner disclosed that she earned nearly $340,000 in salary and bonuses for 2011. Moreover, nothing in the record suggests that petitioner's earning potential has declined since then.↩
9. The record is devoid of any evidence that petitioner paid for friends or family to vacation at the Hilton Head residence.↩
