Minihan v. Comm'r of Internal Revenue
| Decision Date | 11 January 2012 |
| Docket Number | 138 T.C. No. 1,Docket No. 26595-09. |
| Parties | ANN MARIE MINIHAN, Petitioner, AND JOHN J. MINIHAN, JR., Intervenor v. COMMISSIONER OF INTERNAL REVENUE, Respondent |
| Court | U.S. Tax Court |
P petitioned for review of R's denial of innocent spouse relief under I.R.C. sec. 6015(f), and R created a separate account for each spouse in order to pursue collection from I (P's former husband) while collection against P was suspended pursuant to I.R.C. sec. 6015(e)(1)(B). While P's petition was pending, R collected the entire tax liability at issue by levying on a bank account owned jointly by P and I. As a result, P now seeks a refund pursuant to I.R.C. sec. 6015(g)(1), in the amount of 50% of the funds levied from the joint account. R contends that P is not entitled to a refund of funds owned jointly by P and I and applied to I's liability.
Held: Under State law P owned a 50% share of the funds held in the joint bank account, and she is not precluded from a refund under I.R.C. sec. 6015(g)(1) of her share of levied funds.
Roger M. Ritt, for petitioner.
John J. Minihan, Jr., for himself.
Erika B. Cormier, for respondent.
GUSTAFSON, Judge: This case arises from petitioner Ann Minihan's timely request under section 6015(f)1 for "innocent spouse" relief from joint liability for tax years 2001, 2002, 2003, 2004, 2005, and 2006. The Internal Revenue Service (IRS) denied Ms. Minihan's request for relief because (it concluded) she had not shown that it would be inequitable to hold her responsible for the tax liability. On November 9, 2009, Ms. Minihan filed with this Court a timely petition appealing the IRS's denial of innocent spouse relief and asking this Court to determine the appropriate relief available to her under section 6015--in particular, a refund of her share of the funds taken by the IRS from a joint bankaccount to satisfy the separate liability of her former husband, intervenor John Minihan, for the joint income tax debt.
The IRS contends (1) that Ms. Minihan is not entitled to any relief from joint liability under section 6015 and (2) that, even if she is entitled to such relief, she is not entitled to any refund of the money levied from the joint account. On February 1, 2011, the IRS moved for summary judgment pursuant to Rule 121 on the second issue only, i.e., Ms. Minihan's non-entitlement to a refund of the levied funds. On March 21, 2011, the Court held a hearing on the IRS's motion, took that motion under advisement, and held a partial trial of the facts pertinent to the refund issue.2 The IRS's motion for summary judgment will be denied as moot (in view of the partial trial), and the refund issue will be decided in favor of Ms. Minihan.
At the time Ms. Minihan filed her petition, she resided in Massachusetts. On March 2, 2010, Mr. Minihan intervened in this action pursuant to Rule 325(b). At the time Mr. Minihan filed his notice of intervention, he also resided in Massachusetts.
The Minihans' family and finances
Mr. and Ms. Minihan were married in 1989. They have three daughters, born in 1990, 1992, and 1994. Throughout their marriage Mr. Minihan worked outside the home in various business ventures, while Ms. Minihan worked as a homemaker raising their daughters. Before their divorce, the Minihans enjoyed (in Ms. Minihan's words) an "upper-middle class lifestyle" that included living in a $1.5 million dollar home in Hingham, Massachusetts, owning a summer home on Cape Cod, and sending their daughters to private school.
Tax filings
Mr. Minihan handled the family finances. It was not until after the Minihans' financial situation deteriorated in 2007 that Ms. Minihan became aware of and involved in their finances. During the tax years in question, Mr. Minihan prepared joint Federal income tax returns for Mr. and Ms. Minihan. Both Mr. and Ms. Minihan signed the returns for these years. However, unbeknownst to Ms.Minihan, when Mr. Minihan filed the joint returns he did not remit payment of the Federal income tax balances (or additions to tax) due for 2002, 2003, 2004, 2005, or 2006.3 This resulted in the IRS's assessing the amounts due, plus additions to tax. The IRS has never determined an understatement or deficiency against Mr. or Ms. Minihan.
In 2004 the IRS started collection activity with regard to the Minihans' unpaid taxes, additions to tax, and interest for tax years 2001 and 2002. Over the course of 2004 and 2005, the IRS by levy collected $6,704.50, which the IRS applied against the Minihans' 2001 and 2002 tax liabilities. The IRS did not make any additional levies until 2010.
Ms. Minihan first learned about the Federal income tax delinquencies when she saw IRS correspondence in July 2007 regarding their unpaid taxes. After learning this information, Ms. Minihan resubmitted their joint returns at her accountant's suggestion (for reasons not clear in our record), but she did not remit payments for the tax or additions to tax due on those returns.Divorce, sale of house, and innocent spouse petition
The Minihans' marriage rapidly deteriorated in the summer of 2007, and Ms. Minihan filed for divorce in the Probate and Family Court of Massachusetts on September 21, 2007. The divorce, which was not finalized until January 2011, was contentious and difficult for the Minihans. In 2008 the Minihans sold their family house in Hingham, Massachusetts--which the two of them had owned jointly—and deposited the net proceeds from the sale into a joint Bank of America certificate of deposit account, which likewise the two of them owned jointly.4 It was their mutual intention that Mr. and Ms. Minihan would be co-owners of the Bank of America account, that they would each be entitled to an equal amount of the account, and that they would "keep the money [in the account] so neither one could run off with it", since the money in the account was to be used to fund their children's education. When the divorce was finalized in January 2011, the finaldivorce decree provided that all of the funds remaining in the Bank of America account--about $26,000 after the IRS levies discussed below--would be used to pay their children's education expenses. Since the remainder of the funds would be consumed with the children's education expenses, the divorce decree did not address any further asset division with respect to this account.
On June 23, 2008, the IRS received Ms. Minihan's Form 8857, Request for Innocent Spouse Relief, requesting relief from joint and several liability for the tax due for tax years 2001 through 2006. In accordance with IRS procedure, upon the filing of Ms. Minihan's request for section 6015 relief, the IRS moved Mr. and Ms. Minihan's joint assessment accounts to separate mirrored accounts for each of the tax years.5 Thereafter, the IRS had a separate account for each spouse, reflecting for each the same liabilities derived from their joint filings.
In August 2009, in the midst of the divorce proceedings, Mr. Minihan sent a letter to the IRS informing it about the joint Bank of America account that held theproceeds from the sale of their Hingham house. The bank account balance at the time of the letter was about $230,000. Shortly after receiving Mr. Minihan's letter, the IRS issued to Ms. Minihan a Final Appeals Determination denying her claim for innocent spouse relief. In response, Ms. Minihan filed a timely petition with this Court on November 9, 2009.
Collection of Mr. Minihan's separate liability
By February 2010 the balance in the joint account was about $170,000, since money in the account had been used to pay for their children's education expenses, legal fees associated with the Minihans' divorce, and unspecified State taxes. In February 2010 the IRS issued two notices of levy to Bank of America, attaching Mr. Minihan's interest in the Bank of America account. One levy was to satisfy his income tax liabilities for the taxable years 2001 and 2002, and the other was to satisfy his liabilities for the taxable years 2000, 2003, 2004, 2005, and 2006.
On March 2, 2010, the IRS received a levy payment of $20,584.93 from Bank of America, which was applied to Mr. Minihan's income tax liabilities for the taxable years 2001 and 2002 in the amounts of $226.87 and $20,358.06 and which satisfied the remaining liability for those years. On March 11, 2010, the IRS received a levy payment of $63,257.42 from Bank of America, which wasapplied to Mr. Minihan's income tax liabilities for the taxable years 2000, 2003, 2004, 2005, and 2006 in the amounts of $10,496.28, $13,353.26, $11,949.34, $11,336.89, and $16,121.65 and which satisfied the remaining liability for those years.
The IRS's motion for summary judgment and trial
On February 1, 2011, the IRS moved for summary judgment with regard to Ms. Minihan's petition for relief under section 6015(f). The IRS argued that, since the entire joint and several liability had been fully paid (by application of the levied funds to Mr. Minihan's tax account), collection activity would cease, and the only relief that Ms. Minihan might thereafter seek would be a refund. The IRS contends that, as a matter of law, Ms. Minihan is not entitled to a refund because the liability was paid not with Ms. Minihan's separate funds, but with joint funds.
After hearing the parties' arguments on the motion, the Court took under advisement the IRS's motion for summary judgment and proceeded with a partial trial on the issue in the IRS's motion. Pro bono counsel entered an appearance on Ms. Minihan's behalf for trial. At trial Ms. Minihan contended that the IRS had levied upon property that Mr. Minihan could not acquire unilaterally and that a share of the money levied constituted separate payments by Ms. Minihan, of which she could be entitled to a refund.
After trial Ms. Minihan moved to reopen the record in order to submit additional documentary evidence from Bank of America regarding the ownership and nature of the joint account. The proffered evidence included a ...
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