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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,
COMMISSIONER OF INTERNAL REVENUE,
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
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/
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 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
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
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
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.
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
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.
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
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.
/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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