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    HEADLINE: #14 2005 TNT 35-14 EX-HUSBAND FAILS IN CHALLENGE TO EX-WIFE S INNOCENT SPOUSE RELIEF.   STANLEY K. AND TOMI L. BAUMANN, Petitioners v. COMMISSIONER
    Message 1 of 1 , Feb 23, 2005
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      HEADLINE: #14 2005 TNT 35-14 EX-HUSBAND FAILS IN CHALLENGE TO EX-WIFE'S
      INNOCENT SPOUSE RELIEF.
       
      STANLEY K. AND TOMI L. BAUMANN,
      Petitioners
      v.
      COMMISSIONER OF INTERNAL REVENUE,
      Respondent
       
      Release Date: FEBRUARY 22, 2005
       
      UNITED STATES TAX COURT
       
      Filed February 22, 2005
      Frederick J. O'Laughlin, for petitioner Stanley K. Baumann.
      Tomi L. Baumann, pro se.
      William F. Castor, for respondent.
       
      MEMORANDUM FINDINGS OF FACT AND OPINION

      KROUPA, Judge: This case arises from a request for relief from joint and
      several liability under section 6015(f)/1/ in connection with
      petitioners' deficiency proceeding. Although the nonrequesting spouse,
      petitioner Stanley K. Baumann (Stanley), did not object when the
      requesting spouse, petitioner Tomi L. Baumann (Tomi), amended the
      deficiency petition to include the claim for relief under section 6015,
      Stanley now objects after respondent determined that Tomi qualifies for
      relief. Stanley objects by arguing that, despite Stanley's being allowed
      to participate in respondent's determination whether Tomi qualified for
      relief, respondent nonetheless abused his discretion in granting relief
      under section 6015(f) because respondent did not examine all the facts
      and circumstances as required under section 6015(f). The issue for
      decision is whether respondent abused his discretion in granting Tomi
      relief from joint and several liability under section 6015(f). We hold
      that he did not.

      FINDINGS OF FACT

      Background

      Petitioners, while married, timely filed their joint Federal income tax
      return for 1998.

      Respondent sent a joint notice of deficiency to petitioners on April 4,
      2001, in which respondent determined an income tax deficiency against
      petitioners of $ 11,756 for 1998 and an accuracy-related penalty of $
      2,351 under section 6662(a). The deficiency was attributable to
      respondent's disallowing gambling losses in excess of gambling income
      under section 165(d) instead of allowing Stanley to claim his gambling
      losses against income from his drywall construction business.

      Petitioners timely filed a petition contesting respondent's
      determination in the deficiency notice. At the time petitioners filed
      their joint petition, petitioners resided in Oklahoma City, Oklahoma.
      Attorney Frederick J. O'Laughlin (counsel) represented both petitioners
      in the deficiency proceeding.

      Respondent filed a motion for summary judgment (summary judgment motion)
      on May 7, 2002, involving all issues set forth in the deficiency notice.
      Respondent asserted in the summary judgment motion that petitioners were
      not entitled, as a matter of law, to deduct gambling losses in excess of
      gambling income under section 165(d). On the date petitioners were
      ordered to file a response to respondent's summary judgment motion,
      petitioners' counsel filed a motion to withdraw as counsel for Tomi,
      because petitioners had since divorced and their divorce created a
      conflict of interest. Along with the motion to withdraw, counsel filed,
      on behalf of both petitioners, a response to respondent's summary
      judgment motion. The Court granted counsel's motion for leave to
      withdraw as counsel for Tomi.

      Administrative Request for Relief

      While the deficiency proceeding was pending, Tomi filed/2/ a Form 8857,
      Request for Innocent Spouse Relief, seeking relief from liability for
      the deficiency and accuracy-related penalty for taxable year 1998, the
      year at issue./3/ Tomi attached a Form 12150, Questionnaire for
      Requesting Spouse, on which Tomi stated that she filed the return for
      1998 relying on the advice of her return preparer (who happened to be
      petitioners' counsel) and that she was unfamiliar with the tax laws./4/

      Once Examining Officer Lori Sperle (examining officer) of respondent's
      Oklahoma City office received Tomi's innocent spouse case from
      respondent's Cincinnati Centralized Innocent Spouse Operation (CCISO),
      the examining officer sent two letters to Stanley notifying him that
      Tomi had filed a claim for relief under section 6015. One letter,
      entitled "Letter to Non-Requesting Spouse," was dated April 25, 2003,
      and another letter was dated May 16, 2003. The letters notified Stanley
      that Tomi had filed a request for relief from joint and several
      liability and notified Stanley that he could take part in the proceeding
      by providing information for respondent to consider in making a relief
      determination. The letters also requested that Stanley complete an
      enclosed Form 12508, Innocent Spouse Information Request (information
      request), to provide any information Stanley wanted respondent to
      consider in making the relief determination.

      Stanley completed the information request and submitted it to respondent
      on June 26, 2003. Stanley also submitted a sworn statement on the same
      date asserting that Tomi was not entitled to relief because she had full
      knowledge of, and she benefited from, the gambling activity.

      The examining officer sent neither Tomi nor Stanley a preliminary
      determination letter for 1998./5/

      Deficiency Hearing

      The Court held a hearing on respondent's summary judgment motion on
      September 23, 2002. At the hearing, respondent notified the Court and
      petitioners that respondent was converting the summary judgment motion
      into a motion for partial summary judgment.

      Respondent was not moving for summary judgment as to the
      accuracy-related penalty under section 6662. In addition, respondent
      notified the Court that Tomi had filed a claim for relief under section
      6015 and that the summary judgment motion did not include Tomi's request
      for relief under section 6015.

      The Court granted respondent's motion as to the $ 11,756 deficiency but
      denied the motion as to the accuracy-related penalty in an Order dated
      March 14, 2003. The Court did not specifically mention Tomi's request
      for relief under section 6015 in the Order, but the Court restored the
      case to the general docket for trial or other disposition.

      Amended Petition To Add Claim for Relief

      On May 19, 2003, Tomi filed a pleading entitled a motion for leave to
      file an amendment to the petition, which motion embodied an amendment to
      the petition in which Tomi claimed relief under section 6015. A copy of
      the motion and the proposed amendment was served on Stanley through his
      counsel and on respondent. Neither respondent nor Stanley objected to
      the motion to amend the petition.

      The Court granted the motion to amend the petition to add Tomi's claim
      under section 6015 on June 19, 2003.

      Appeals Determination

      Appeals Officer Robert Baty (Appeals Officer Baty) of respondent's
      Oklahoma City office received the administrative innocent spouse case
      file on October 17, 2003. The administrative file included the
      correspondence between petitioners and the examining officer, the record
      of the examining officer's interview with Tomi, and the examining
      officer's work papers.

      The administrative file included the information request that Stanley
      submitted and included the divorce decree ordering Stanley to pay, and
      to hold Tomi harmless from, their joint Federal income tax liabilities
      through and including 2001, which includes petitioners' joint income tax
      liability for 1998.

      The examining officer's work papers included records of the innocent
      spouse determination interview the examining officer conducted with Tomi
      on September 12, 2003. The examining officer's work papers show that the
      examining officer determined that Tomi was not entitled to relief under
      section 6015(b) or (c) because Tomi had actual knowledge of the gambling
      activity and Tomi's lack of knowing the tax consequences was no
      defense./6/ The examining officer also determined that, even though five
      factors weighed in favor of granting Tomi relief under section 6015(f),
      Tomi was not entitled to relief under section 6015(f) because Tomi had
      knowledge of the gambling activity.

      The five factors weighing in favor of section 6015(f) relief included
      petitioners' divorce, Tomi would face economic hardship if relief were
      not granted, petitioners' divorce decree stated that Stanley was
      responsible for the 1998 income tax liability, the entire deficiency was
      attributable to Stanley, and Tomi was current with all her Federal tax
      obligations while Stanley was not.

      After reviewing the administrative file, Appeals Officer Baty had a
      conference with Tomi on December 3, 2003, during which Tomi detailed the
      abuse she allegedly suffered from Stanley. Tomi provided information and
      documents to substantiate that Stanley physically assaulted her numerous
      times, that Stanley had threatened Tomi's life with a shotgun during the
      divorce action, that he had tried to burn their house while she and her
      children were inside, that he was charged with arson, that he was taken
      to a psychiatric hospital after he attempted suicide with a shotgun, and
      that he had threatened the life of her older son (from a previous
      marriage).

      After the conference, Appeals Officer Baty obtained third-party
      information that confirmed the information Tomi provided him during the
      conference. Appeals Officer Baty verified the information by accessing
      the Oklahoma State Courts Network's (OSCN) Web site and locating
      relevant court documents. Appeals Officer Baty verified through court
      documents that Tomi filed for divorce from Stanley, that Tomi filed a
      petition for a protective order based on domestic abuse, and that a
      temporary protective order was issued. The Appeals officer also verified
      that the State of Oklahoma filed an information against Stanley for
      fourth degree felony arson and issued an arrest warrant against him
      shortly after Tomi filed for divorce. The court records also showed that
      Stanley subsequently pleaded guilty to misdemeanor arson and received a
      1-year suspended sentence.

      The administrative file also included a certified copy of an Oklahoma
      City Police Department Crime Report that described a domestic
      disturbance call made to the police from Tomi's residence reporting to
      the police that Stanley had threatened suicide with a shotgun, and that
      the police confiscated the shotgun. This police crime report was dated 1
      day before Stanley's involuntary commitment to Griffin Memorial Hospital
      in Norman, Oklahoma, for observation, which commitment caused the
      originally scheduled trial to be continued.

      Appeals Officer Baty found the same factors weighing in favor of relief
      that the examining officer had previously found, except that Appeals
      Officer Baty also found that abuse existed, and that the abuse was a
      significant and compelling factor warranting relief. Also, although the
      Appeals officer found that Tomi had knowledge of the gambling activity,
      he noted that the examining agent did not consider Rev. Proc. 2003-61,
      2003-2 C.B. 296,/7/ which revised the weight to be given to the
      knowledge factor. Rev. Proc. 2003-61, sec. 3.02, 2003-2 C.B. at 297.
      Reason to know of the item giving rise to the deficiency no longer is an
      extremely strong factor that should weigh more heavily against relief
      than other factors. Rev. Proc. 2003-61, sec. 4.03(2)(a)(iii)(B), 2003-2
      C.B. at 298. Actual knowledge is to be considered a strong factor
      weighing against relief, which may nevertheless be overcome if the
      factors in favor of equitable relief are particularly compelling. Id.
      Appeals Officer Baty determined that the knowledge factor did not
      prevent Tomi from qualifying for relief.

      Appeals Officer Baty determined that, although Tomi was not entitled to
      relief under section 6015(b) or (c) because she knew of the items giving
      rise to the deficiency, she was entitled to partial relief under section
      6015(f) to the extent her 1998 liability exceeded the amount of her
      income tax refund for 2002 of $ 2,020.

      Appeals Officer Baty notified Tomi of this determination in a Notice of
      Determination Concerning Your Request for Relief from Joint and Several
      Liability under Section 6015 (notice determination) dated December 8,
      2003. The notice determination indicated that "[e]conomic
      considerations, abuse indications, and compliance factors" were
      considered and were deemed sufficient to support the proposed
      settlement.

      The notice determination explained that Tomi could proceed to trial
      either if she disagreed with the decision or if Stanley objected. The
      notice determination also mentioned that the case was scheduled for
      trial during the week of January 12, 2004.

      Appeals Officer Baty sent the notice determination to Stanley's counsel
      as well.

      Stanley's counsel was also provided with a copy of the notice
      determination and other items in the administrative record at a
      conference on December 10, 2003, with respondent's counsel in
      preparation of trial.
      Trial on the Section 6015 Claim
      Stanley's counsel stated at trial that Stanley did not object to Tomi's
      amending the petition to seek relief from joint liability but that
      Stanley seeks to object now to respondent's determination that Tomi
      qualifies for partial relief.

      At the trial, Appeals Officer Baty authenticated the administrative file
      and the entire administrative file was admitted into evidence.

      Appeals Officer Baty testified and explained the factors he considered
      in deciding to grant Tomi equitable relief under section 6015(f).

      Stanley neither testified nor refuted any of Appeals Officer Baty's
      statements. Stanley only questioned the subsection under which Tomi
      requested relief because he argued, if Tomi requested relief under
      subsection (b) or (c), then he would be entitled to receive notice of,
      and have a right to participate in, the determination whether Tomi was
      entitled to relief.

      As we understand Stanley's argument,/8/ Stanley asserts that Appeals
      Officer Baty abused his discretion in granting Tomi partial relief under
      section 6015(f) for 1998 apparently because Stanley did not have an
      adequate opportunity to participate in respondent's determination.
       
      OPINION

      This case involves the participatory rights a nonrequesting spouse has
      in respondent's determination whether the requesting spouse is entitled
      to relief under section 6105. The question Stanley asks us to address is
      how much participation a nonrequesting spouse must be afforded to
      challenge the other spouse's claim for relief under section 6015 where
      both spouses are before the Court in the same deficiency proceeding.
      Before we address whether respondent abused his discretion in granting
      Tomi partial relief from joint liability under section 6015(f), we must
      first address whether we have jurisdiction and whether Stanley may
      challenge Tomi's claim for relief.

      Tax Court Has Jurisdiction

      The Tax Court is a court of limited jurisdiction and may exercise
      jurisdiction only to the extent authorized by Congress. Naftel v.
      Commissioner, 85 T.C. 527, 529 (1985). There are three jurisdictional
      bases for the Court to review a claim for relief from joint and several
      liability. Van Arsdalen v. Commissioner, 123 T.C. 135 (2004); King v.
      Commissioner, 115 T.C. 118, 121-122 (2000); Corson v. Commissioner, 114
      T.C. 354, 363-364 (2000). First, a taxpayer may seek relief from joint
      and several liability on a joint return by raising the matter as an
      affirmative defense in a petition for a redetermination of a deficiency
      filed under section 6213 (i.e., a deficiency proceeding). King v.
      Commissioner, supra at 121-122; Corson v. Commissioner, supra at 363;
      Butler v. Commissioner, 114 T.C. 276, 287-289 (2000).

      Second, a taxpayer may file a so-called "stand alone" petition seeking
      relief from joint and several liability on a joint return where the
      Commissioner has issued a final determination denying the taxpayer's
      claim for relief or the Commissioner has failed to rule on the
      taxpayer's claim within 6 months of its filing. See sec. 6015(e)(1);
      Mora v. Commissioner, 117 T.C. 279 (2001); King v. Commissioner, supra
      at 122; Corson v. Commissioner, supra at 363; Fernandez v. Commissioner,
      114 T.C. 324, 329 (2000). Section 6015(e) enables an electing spouse to
      petition for review of an administrative determination regarding relief,
      or failure to rule, as a "stand alone" matter independent of a
      deficiency proceeding. King v. Commissioner, supra at 122; Corson v.
      Commissioner, supra at 363; Fernandez v. Commissioner, supra at 329.
      Finally, a taxpayer may request relief from joint and several liability
      on a joint return in a petition for review of a lien or levy action. See
      secs. 6320(c), 6330(c)(2)(A)(i). The petition in this case was filed in
      a deficiency proceeding. We therefore have jurisdiction.

      We next address whether Stanley may contest Tomi's claim for relief. We
      have previously held that one spouse can challenge the other spouse's
      claim for relief in a deficiency case. Corson v. Commissioner, supra. We
      determined that we could consider the wife's claim based on the Court's
      traditional deficiency jurisdiction. Id. at 363-364. When the
      Commissioner negotiated a settlement with the wife concerning relief
      under section 6015, the husband refused to agree to the negotiated
      settlement. The Court denied the motion by respondent for entry of
      decision holding that the husband must be allowed to be heard on the
      question whether the wife is entitled to relief. Corson v. Commissioner,
      supra at 365. Here, Stanley had an opportunity to be heard. Stanley was
      a party to the proceeding. Stanley received the notice required. Stanley
      received notice of Tomi's claim for relief when she filed Form 8857.
      Stanley also received notice that Tomi was amending the deficiency
      petition to add her claim for relief to the petition, and Stanley did
      not object to Tomi's amending the petition.
      In addition, Stanley was permitted to submit information to respondent
      relative to Tomi's claim for relief. Stanley submitted a completed
      information request on Form 12057 and submitted a sworn statement to
      respondent.

      The information Stanley submitted is part of the administrative file
      Appeals Officer Baty reviewed in making a final determination that Tomi
      qualifies for partial relief under section 6015(f).

      We further note that Stanley's opportunity to participate did not end
      with respondent's administrative determination. Stanley, as a party to
      this proceeding, had an opportunity to object to respondent's
      determination during the trial on the section 6015 claim. Instead of
      providing testimony or facts to refute respondent's determination,
      however, Stanley argued that he did not have adequate participation in
      respondent's determination. Stanley argued that his only participation
      was completing the information request and submitting the sworn
      statement. It is this level of participation with which Stanley remains
      dissatisfied. We find that simply because Stanley dislikes the result
      does not mean he was deprived of his right to participate in
      respondent's determination whether Tomi qualified for relief.

      We now address whether respondent abused his discretion in determining
      that Tomi is entitled to partial relief.

      Relief From Joint and Several Liability Under Section 6015

      Married taxpayers may generally elect to file a joint Federal income tax
      return. Sec. 6013(a). After making the election, each spouse is jointly
      and severally liable for the entire tax due. Sec. 6013(d)(3). A spouse
      may seek relief from joint and several liability under section 6015. A
      spouse may qualify for relief from liability under section 6015(b), or,
      if eligible, may allocate liability under section 6015(c). In addition,
      a spouse may seek equitable relief under section 6015(f) if relief is
      not available under section 6015(b) or (c). Fernandez v. Commissioner,
      supra at 329-331; Butler v. Commissioner, supra at 287-292. Under
      section 6015(f), the Commissioner has the discretion to relieve a spouse
      (or former spouse) of joint liability if, taking into account all the
      facts and circumstances, it is inequitable to hold that spouse liable
      for any deficiency or unpaid tax (or any portion of either) and that
      spouse is not eligible for relief under section 6015(b) or (c). Sec.
      6015(f).

      Respondent found that Tomi was not entitled to relief under either
      section 6015(b) or (c) because she had actual knowledge of the gambling
      activity. Furthermore, Tomi agrees that she was not eligible for relief
      under either section 6015(b) or (c), and that she was entitled to
      partial relief under section 6015(f) as respondent determined.

      Typically, a spouse seeking equitable relief from joint and several
      liability under section 6015(f) must prove that the Commissioner's
      determination regarding relief was an abuse of discretion./9/ Rule
      142(a); Washington v. Commissioner, 120 T.C. 137, 146 (2003); Jonson v.
      Commissioner, 118 T.C. 106, 125 (2002), affd. 353 F.3d 1181 (10th Cir.
      2003); Cheshire v. Commissioner, 115 T.C. 183, 198 (2000), affd. 282
      F.3d 326 (5th Cir. 2002); Butler v. Commissioner, 114 T.C. at 291-292.
      The Commissioner's exercise of discretion is entitled to due deference;
      in order to prevail, the taxpayer must demonstrate that the Commissioner
      exercised his discretion arbitrarily, capriciously, or without sound
      basis in fact or law. Jonson v. Commissioner, supra at 125. Here, the
      nonrequesting spouse, Stanley, must demonstrate that respondent
      exercised his discretion arbitrarily, capriciously, or without sound
      basis in fact or law. See id.; Woodral v. Commissioner, 112 T.C. 19, 23
      (1999).

      The Commissioner has prescribed procedures as directed by section
      6015(f) for determining whether a spouse qualifies for relief under
      subsection (f). These procedures are set forth in Rev. Proc. 2003-61,
      2003-2 C.B. 296. Rev. Proc. 2003-61, supra, which applies here, has a
      nonexhaustive list of factors weighing in favor of relief and factors
      weighing against relief.

      Stanley has failed to present any evidence that would suggest with
      regard to these factors that Tomi did not qualify for equitable relief
      as respondent determined.

      Accordingly, we conclude that respondent did not abuse his discretion by
      acting arbitrarily, capriciously, or without sound basis in fact in
      granting Tomi equitable relief under section 6015(f).

      We have considered all arguments the parties made in reaching our
      holdings, and, to the extent not mentioned, we find them to be
      irrelevant or without merit.

      To reflect the foregoing,

      An appropriate decision will be entered.

      FOOTNOTES

      /1/ All section references are to the Internal Revenue Code in effect
      for 1998, and all Rule references are to the Tax Court Rules of Practice
      and Procedure, unless otherwise indicated.

      /2/ The record does not reflect the exact date Tomi filed her request
      for relief. The record reflects that respondent's Cincinnati Centralized
      Innocent Spouse Operation (CCISO) received the Form 8857 on Jan. 8,
      2003, and that the form was dated Sept. 6, 2002.

      /3/ Tomi's request for relief also sought relief for unpaid taxes for
      1999. The deficiency notice did not involve 1999, however, and so 1999
      is not before us.

      /4/ Tomi did not disclose on this questionnaire that she was abused.

      /5/ Although respondent sent a preliminary determination letter to Tomi
      on Oct. 17, 2003, informing Tomi that she did not qualify for relief for
      1999, which year is not before us, see supra note 3, respondent did not
      send a preliminary determination letter for 1998, the year at issue.
      Whether a preliminary determination letter had been issued for 1998 is
      relevant for purposes of deciding whether Rev. Proc. 2003-61, 2003-2
      C.B. 296, or Rev. Proc. 2000-15, 2000-1 C.B. 447, applies.

      /6/ Ignorance of the law is not a defense for a taxpayer seeking relief
      under sec. 6015. Mitchell v. Commissioner, 292 F.3d 800, 803-806 (D.C.
      Cir. 2002), affg. T.C. Memo. 2000-332; Cheshire v. Commissioner, 282
      F.3d 326, 333-335 (5th Cir. 2002), affg. 115 T.C. 183 (2000); Price v.
      Commissioner, 887 F.2d 959, 964 (9th Cir. 1989).

      /7/ Rev. Proc. 2003-61, 2003-2 C.B. 296, superseded Rev. Proc. 2000-15,
      2000-1 C.B. 447. Rev. Proc. 2003-61, supra, is effective for requests
      for relief pending on Nov. 1, 2003, for which no preliminary
      determination letter has been issued as of Nov. 1, 2003. Rev. Proc.
      2003-61, sec. 7, 2003-2 C.B. at 299. Because no preliminary
      determination letter had been issued as of Nov. 1, 2003, Rev. Proc.
      2003-61, supra, applies to this case.

      /8/ Contrary to counsel's remarks at trial, this case is not a "stand
      alone" proceeding commenced under sec. 6015(e). As discussed infra, sec.
      6015(e) enables an electing spouse to petition for review of an
      administrative determination regarding relief, or failure to rule, as a
      "stand alone" matter independent of a deficiency proceeding. Although
      this is not a so- called "stand alone" case, sec. 6015(e) provides that
      the Court shall establish rules providing a nonrequesting spouse with
      adequate notice and an opportunity to become a party. Sec. 6015(e)(4).
      Rule 325 requires the Commissioner to notify the nonrequesting spouse
      and allows the nonrequesting spouse to intervene in a "stand alone"
      case. See King v. Commissioner, 115 T.C. 118 (2000).
      /9/ The taxpayer bears the burden of proof except as otherwise provided
      in sec. 6015. Rule 142(a); Alt v. Commissioner, 119 T.C. 306, 311
      (2002), affd. 101 Fed. Appx. 34 (6th Cir. 2004).

      END OF FOOTNOTES
                     
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