Hopkins v. Comm'r of Internal Revenue
| Decision Date | 29 July 2003 |
| Docket Number | No. 363–01.,363–01. |
| Citation | 121 T.C. 73,121 T.C. No. 5 |
| Parties | Marianne HOPKINS, Petitioner v. COMMISSIONER OF INTERNAL REVENUE, Respondent |
| Court | U.S. Tax Court |
OPINION TEXT STARTS HERE
Following decision that taxpayer was not estopped from pursuing her claim for relief from joint and several tax liabilities, 2003 WL 21489126, taxpayer petitioned for review of IRS' denial of her request for innocent spouse relief for liabilities arising from disallowed partnership deductions and casualty loss deductions, and for reported but unpaid taxes. The Tax Court, Ruwe, J., held that: (1) taxpayer had reason to know that there were understatements attributable to her husband's partnership deductions; (2) taxpayer was entitled to relief limiting her liability for items allocable to her husband's erroneous partnership deductions, except for portion that offset her income; (3) taxpayer was liable for deficiencies attributable to erroneous casualty loss deductions attributable to her property to extent losses offset her income; (4) taxpayer was not entitled to equitable innocent spouse relief for her remaining tax liabilities; and (5) taxpayer was not entitled to relief for underpaid, but reported, taxes.
Decision for taxpayer in part, and for IRS in part. Sandra G. Scott, for petitioner.
Thomas M. Rohall, for respondent.
P and H filed joint returns for 1982, 1983, 1984, 1988, and 1989. Adjustments to partnership deductions and NOL deductions resulted in tax deficiencies for 1982, 1983, and 1984. The partnership deductions are attributable to H's partnership. The NOL deductions are attributable to P's property. P and H reported taxes due on their joint returns for 1988 and 1989; however, they failed to pay those amounts. After P and H were separated, P filed a request for relief under sec. 6015, I.R.C., with respect to her joint and several tax liabilities for 1982, 1983, 1984, 1988, and 1989.
Held: P is not entitled to relief under sec. 6015(b), I.R.C., for 1982, 1983, and 1984 because the NOL deductions are P's tax items and because she has not established that in signing the returns she had no reason to know that there were understatements attributable to H's partnership deductions.
Held, further, P is entitled to relief under sec. 6015(c), I.R.C., to the extent the deficiencies for 1982, 1983, and 1984 are allocable to H under sec. 6015(d), I.R.C. For purposes of applying sec. 6015(d), I.R.C., items are generally allocated as if P and H had filed separate returns. Thus, deficiencies resulting from H's erroneous partnership deductions are generally allocated to H, and deficiencies resulting from P's erroneous NOL deductions are generally allocable to P. See sec. 6015(d)(3)(A), I.R.C. However, pursuant to sec. 6015(d)(3)(B), I.R.C., an item otherwise allocable to an individual shall be allocated to the other individual filing the joint return to the extent the item gave rise to a tax benefit to the other individual. As a result, P is relieved of liability for deficiencies attributable to H's erroneous partnership deductions except for the portion, if any, that offsets her income. Likewise, P is liable for deficiencies attributable to her erroneous NOL deductions to the extent they offset her income, and she is relieved of liability for any remaining portion of the deficiencies attributable to the NOL that offsets H's income.
Held, further, P is not entitled to relief under sec. 6015(f), I.R.C., for the remaining portions of the deficiencies for 1982, 1983, and 1984.
Held, further, P is not entitled to relief under sec. 6015(b), (c), or (f), I.R.C., for the underpayments of tax in 1988 and 1989.
The issue for decision is whether petitioner is entitled to relief from joint and several liability under section 6015(b), (c), or (f) 1 for her 1982, 1983, 1984, 1988, and 1989 income tax liabilities. Those tax liabilities, which include deficiencies, interest, penalties, and underpayments, are as follows:
+-----------------+
¦Year¦Liability ¦
+----+------------¦
¦ ¦ ¦
+----+------------¦
¦1982¦$216,040.49 ¦
+----+------------¦
¦1983¦154,412.96 ¦
+----+------------¦
¦1984¦21,181.26 ¦
+----+------------¦
¦1988¦2,496.38 ¦
+----+------------¦
¦1989¦3,598.37 ¦
+-----------------+
FINDINGS OF FACT
Some of the facts have been stipulated and are so found. The stipulation of facts and the attached exhibits are incorporated herein by this reference. At the time of filing the petition, petitioner resided in Kentfield, California.
Petitioner was born in Germany. While in Germany, petitioner completed the equivalent of a ninth-grade education. She has never taken any business or tax classes. Her native language is not English.
In February 1967, petitioner married Donald K. Hopkins. Petitioner and Mr. Hopkins were separated on February 1, 1989, and subsequently divorced. Mr. Hopkins was an airline pilot during the relevant periods, and he earned a substantial salary. Petitioner did not work outside her home during her marriage.
Petitioner has resided in a house located at 111 Diablo Drive, Kentfield, California, since 1967. Petitioner was the sole owner of the house during the tax years at issue.2
Petitioner filed joint income tax returns with Mr. Hopkins from 1978 to 1997. 3 They reported Mr. Hopkins's wages of $141,683, $166,906, and $162,654 as income on their joint returns for 1982, 1983, and 1984, respectively. They reported income from a State tax refund of $5,039 on their joint return for 1982. The refund matches the amount of State income taxes withheld from Mr. Hopkins's wages for 1981. They reported interest income of $8,148, $5,192, and $2,107 on their joint returns for 1982, 1983, and 1984, respectively. The evidence does not show who owned the principal that generated the interest. Petitioner and Mr. Hopkins reported ordinary income of $68,452 from San Sierra Investment # 11 on their joint return for 1983. The evidence does not show who owned the partnership interest. They reported ordinary income of $2,751 from ECC Leveraged Drilling on their joint return for 1984. The evidence does not show who owned the interest in this entity. They reported a $951 section 1231 gain from Shelter Associates III on their joint return for 1984.4
Petitioner and Mr. Hopkins's reported income for 1980 through 1984 was significantly offset by partnership losses,5 a casualty loss, and net operating loss (NOL) carrybacks and carryforwards that they claimed as deductions.
Petitioner and Mr. Hopkins claimed deductions on their joint returns for 1982 and 1983 which related to Far West Drilling partnership.6 The Far West Drilling partnership deductions were attributable to Mr. Hopkins's investment in that partnership. The deductions related to the Far West Drilling partnership were erroneous. Petitioner and Mr. Hopkins signed a closing agreement under section 7121 in which they agreed to adjustments to the Far West Drilling partnership deductions. In a separate opinion, Hopkins v. Commissioner, 120 T.C. ––––, (2003), we held that petitioner is not precluded by the closing agreement, which was entered into before the enactment of section 6015, or the doctrines of res judicata and collateral estoppel from claiming relief under section 6015 with respect to the tax liabilities attributable to the disallowance of deductions related to the Far West Drilling partnership.
Petitioner and Mr. Hopkins reported a casualty loss of $280,661 on their joint return for 1981. The casualty loss was attributable to a mudslide that destroyed petitioner's house. Petitioner and Mr. Hopkins erroneously claimed NOL carryforward deductions for 1982 and 1984 which were attributable to the casualty loss. Petitioner agrees that the erroneous 1982 and 1984 NOL carryforward deductions are her items.
Respondent assessed deficiencies in petitioner and Mr. Hopkins's taxes for 1982, 1983, and 1984. Those deficiencies were attributable to the disallowance of the Far West Drilling partnership deductions and the disallowance of the NOL carryforward deductions that petitioner and Mr. Hopkins claimed on their joint returns for 1982, 1983, and 1984.7
Petitioner and Mr. Hopkins reported, but did not pay, taxes due of $1,571 and $3,326 on their joint income tax returns for 1988 and 1989, respectively. Respondent assessed those amounts.
On May 24, 1999, petitioner filed with respondent a Form 8857, Request for Innocent Spouse Relief, with respect to her 1982, 1983, 1984, 1988, and 1989 joint tax liabilities. On January 8, 2001, petitioner filed a petition for relief from joint and several liability with this Court. At the time the petition was filed, respondent had not made a determination with respect to petitioner's request.8
OPINIONPetitioner claims that she is entitled to relief from joint and several liability under section 6015(b), (c), or (f) for the tax liabilities attributable to the disallowance of the Far West Drilling partnership deductions and the disallowance of the NOL carryforward deductions for 1982, 1983, and 1984.
To qualify for relief under section 6015(b)(1), the electing spouse must establish, inter alia, that: (A) A joint return has been made for a taxable year; (B) there is an understatement of tax on the return which is attributable to the erroneous items of the nonelecting spouse; (C) in signing the return, the electing spouse did not know, and had no reason to know, that there was such an understatement; and (D) taking into account all the facts and circumstances, it is inequitable to hold the electing spouse liable for the deficiency in tax for the taxable year attributable to the understatement. See Alt v. Commissioner, 119 T.C. 306, 313, 2002 WL 31828632 (2002).
Petitioner is not entitled to relief under section 6015(b) with respect to the understatements attributable to the disallowed NOL carryforward deductions. Those items are attributable to the residence at 111 Diablo Drive,...
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