Innocent spouse

Joan Thomassen, et al. v. Commissioner, TC Memo 2011-88 , Code Sec(s) 6015.




JOAN THOMASSEN, DECEASED, MARK D. THOMASSEN, SPECIAL ADMINISTRATOR, Petitioner v. COMMISSIONER OF INTERNAL REVENUE, Respondent.

Case Information: Code Sec(s): 6015

Docket: Dkt. No. 21803-06.

Date Issued: 04/21/2011.

Judge: Opinion by Gale, J.

Tax Year(s): Years 1964, 1965. 1966, 1967, 1968, 1969, 1970, 1971.

Disposition: Decision for Taxpayer in part.





HEADNOTE

1. Joint returns—innocent spouse relief—eligibility—joint filing; single filing status—res judicata. Deceased taxpayer/homemaker/part-time cellist was barred, in stand-alone Code Sec. 6015(e) petition, from contesting that she didn't file joint returns and thus wasn't eligible for relief under any subsection of Code Sec. 6015 for 2 of 8 years at issue: record of prior Tax Court decisions clearly showed that Court, although not explicitly stating taxpayer's single filing status for subject 2 years, did decide same by deciding that she and since-deceased husband had different/separate amounts due for those 2 years. That was telling, especially when juxtaposed against Court's decisions that taxpayer and husband had joint amounts due for remaining years.



Reference(s): ¶ 60,155.01(5) Code Sec. 6015



2. Joint returns—innocent spouse relief—knowledge or reason to know. Deceased taxpayer/homemaker/part-time cellist was denied Code Sec. 6015(b) relief from joint liabilities for 6 of 8 years at issue for which she and since-deceased husband/surgeon filed joint, zero returns: although taxpayer met joint filing prerequisite to relief for stated years, she failed Code Sec. 6015(b)(1)(C) 's knowledge or reason to know requirement where she signed returns reporting zero liability, even though she was aware that husband's medical practice was successful and generated sufficient income to pay for mortgage, household expenses, private school education, real estate investments, and other items. [pg. 571]



Reference(s): ¶ 60,155.01(15) Code Sec. 6015



3. Joint returns—innocent spouse relief—allocation of items. Deceased taxpayer/homemaker/part-time cellist was denied Code Sec. 6015(c) relief from joint liabilities for 6 of 8 years at issue for which she and since- deceased husband/ surgeon filed joint, zero returns: although taxpayer met joint filing prerequisite to relief for stated years, she failed Code Sec. 6015(c) 's allocation requirement. She didn't show what amount of couple's income was attributable to her cellist work or prove that additional items, including dividends, interest and farming and rental income, weren't allocable to her.



Reference(s): ¶ 60,155.01(12) Code Sec. 6015



4. Joint returns—innocent spouse relief—equitable relief—attribution; knowledge or reason to know; substantial benefit; abuse. Deceased taxpayer/ homemaker/part-time cellist was granted Code Sec. 6015(f) relief from joint liabilities for 6 of 8 years at issue for which she and since-deceased husband/surgeon filed joint, zero returns: relief was warranted when considering that taxpayer satisfied all threshold requirements for Code Sec. 6015(f) relief save possibly for allocation/attribution requirement; that she qualified for abuse exception to that requirement, as shown by long record of psychological abuse husband visited on her and children throughout their lives together and particularly in times of financial or tax disputes; and that nonexclusive factors test for relief otherwise mitigated in taxpayer's favor. As to factors test, Tax Court noted among other things that while taxpayer was found to have reason to know of understatements, abuse situation “neutralized” that factor. Moreover, evidence that husband tightly controlled finances and gave taxpayer only parsimonious allowance indicated that she didn't significantly benefit from taxes' nonpayment. Court concluded that under circumstances of this case, abuse weighed “very heavily” in favor of relief because taxpayer was essentially rendered incapable of challenging husband about positions taken on their returns; that countervailing no-economic-hardship factor wasn't dispositive; and in end that it would be inequitable to hold her liable for subject deficiencies.



Reference(s): ¶ 60,155.04(3) Code Sec. 6015



Syllabus

Official Tax Court Syllabus

Counsel

Curtis W. Berner, for petitioner.

Kim-Khanh Thi Nguyen, for respondent.



GALE, Judge



MEMORANDUM OPINION

This case arises from a petition for review pursuant to section 6015(e) 1 of respondent's denial of relief under section 6015 with respect to original petitioner Joan Thomassen's income tax liabilities for 1964 through 1971. 2



Respondent determined that petitioner is not entitled to relief under section 6015(b), (c), or (f) for any of those years. We conclude that petitioner is entitled to relief under subsection (f) from the 1964, 1965, 1967, 1968, 1969, and 1970 liabilities, but that she is not entitled to any relief under section 6015 from the 1966 and 1971 liabilities, as she did not file joint returns for those years.



Background

Some of the facts have been stipulated and are so found. We incorporate by this reference the stipulations of fact and attached exhibits. At the time the petition was filed, petitioner resided in California. The special administrator currently resides in California.



I. Petitioner's Education and Family Background

A. Petitioner's Education



Petitioner received a college degree with a major in music in 1950. Petitioner took no courses in business, tax, or accounting. [pg. 572]



B. Petitioner's Marriage and Children



Petitioner and her husband, Elmer H. Thomassen (Dr. Thomassen), 3 who was deceased when petitioner sought section 6015 relief, were married in 1953 and remained so until Dr. Thomassen's death in April 2004. Dr. Thomassen was a devout Catholic who attended Mass almost daily. Petitioner converted to Catholicism in connection with her marriage. The Thomassens had 10 children, born between 1954 and 1975, 8 of whom they were raising during the years when the deficiencies at issue arose.



C. The Thomassens' Employment and Finances



During the years at issue Dr. Thomassen maintained a successful practice as an orthopedic surgeon. 4 Petitioner was a homemaker and part-time professional cellist. Petitioner was not involved in any way with her husband's medical practice. Starting in 1964 and through the years in issue, petitioner played the cello professionally, and she was compensated for her performances. In 1970 and 1971 petitioner played in a summer festival 7 nights a week for 7 weeks. Starting in 1971, petitioner played with the Disneyland Orchestra.



Dr. Thomassen controlled the family's finances. He made the decisions with respect to major purchases and investments. His office nurse paid the Thomassens' principal household bills. Dr. Thomassen gave petitioner money to pay miscellaneous household and family expenses, but the amounts he gave her were often insufficient. Rather than ask Dr. Thomassen for additional funds and risk his ire (see discussion under “Abuse” below), petitioner would borrow money from her mother or sell personal items to meet the shortfall. She also used her earnings from playing the cello for this purpose. The Thomassens had separate bank accounts. Petitioner deposited her cello earnings into her account. Petitioner had no credit cards. Dr. Thomassen never told petitioner his bank account balance or net worth.



D. The Thomassens' Standard of Living and Expenditures

In 1957 the Thomassens purchased a single-family residence in Newport Beach, California (Newport Beach property), as joint tenants. They financed the acquisition with a mortgage loan, payments on which were made from income from Dr. Thomassen's medical practice during the years in issue. The Thomassens resided at the Newport Beach property continuously until Dr. Thomassen's death, and petitioner resided there afterwards. The original structure had three bedrooms and two bathrooms. Around 1960 the Thomassens added two rooms above the garage and a third bathroom.



During the years in issue the Thomassens paid for their children to attend private Catholic schools and to participate in various extracurricular activities. Their house was furnished frugally, a sofa being the only item of furniture purchased new during the years at issue. Around 1965 the Thomassens purchased a new motorhome for vacationing. The Thomassens traveled domestically, and every 3 years they traveled overseas to attend medical conferences. Sometime during their marriage but before 1972, Dr. Thomassen acquired four other parcels of real estate as investments, using earnings from his medical practice. These parcels were titled jointly in Dr. Thomassen's and petitioner's names.



The Thomassens' expenditures were paid primarily with income from Dr. Thomassen's practice although as noted some household expenses were paid with petitioner's earnings as a cellist.



E. Abuse



During the years at issue petitioner was psychologically abused by Dr. Thomassen. Dr. Thomassen was subject to fits of rage and extremely controlling behavior, 5 which worsened as he came under increasing scrutiny from the Internal Revenue Service (IRS). 6 Dr. Thomassen experienced almost weekly outbursts. At some [pg. 573] point he was diagnosed with bipolar disorder. Petitioner tried to please her husband to avoid triggering his outbursts.



As a consequence of his difficulties with the IRS, Dr. Thomassen was often sought out by process servers. He instructed the children not to answer the telephone or the door, so as to avoid process servers. One teenaged daughter, who was eventually diagnosed with bipolar disorder, inadvertently answered the door, contrary to Dr. Thomassen's instructions, resulting in the successful service of papers on her father. Faced with the prospect of his ire, she attempted suicide.



The Thomassens' eldest daughter, Marilyn Rose Thomassen (Marilyn), once invited college friends to come home with her for the weekend. The friends were so shocked after witnessing Dr. Thomassen's behavior for a few days that they urged Marilyn to find another place for petitioner and the other children to live. One friend observed that since petitioner had been subjected to Dr. Thomassen's behavior for her entire adult life, she probably did not realize anything was wrong.



Petitioner at one point sought counseling from her priest concerning Dr. Thomassen's behavior towards her. The priest counseled petitioner that she needed to be patient.



II. Reporting, Assessment, and Collection Activities

A. Income Tax Returns Filed



The Thomassens filed delinquent joint Federal income tax returns for taxable years 1964, 1965, 1967, 1968, 1969, and 1970, all but one of which reported adjusted gross income of zero and no income tax liability for the year. 7 Dr. Thomassen either prepared the returns himself or engaged someone to do so, and he presented them to petitioner for her signature. Petitioner did not review the returns before signing them.



B. Notices of Deficiency



Respondent issued notices of deficiency to the Thomassens with respect to all of the years at issue, 1964 through 1971. Only the notices covering 1969, 1970, and 1971 are in the record. 8 The notices for 1969 and 1970 were issued to the Thomassens jointly. Separate notices were issued to petitioner and to Dr. Thomassen for 1971.



The notice of deficiency for 1969 determined a deficiency based on the disallowance of business expenses claimed on the Schedule C, Profit (or Loss) From Business or Profession, for 1969. The notice stated that the Thomassens reported gross receipts for 1969 as follows:



Wages, salaries, tips $707

Ordinary dividends 73

Capital gain dividends 206

Interest income 367

Schedule C business income 172,417

Rental income 1,493

Farm Schedule F income 7,314

-------

Total gross receipts 182,577



The notice also stated that the Thomassens claimed $222,661 in business expense deductions. The notice determined that, because there was no substantiation of the reported expenses, the Thomassens should be allowed a deduction for those expenses equal to 42 percent of total gross receipts, or $76,682.



The notice of deficiency issued jointly to the Thomassens for 1970 and the notices issued to each separately for 1971 are all dated January 25, 1974. The 1971 notices determined deficiencies and additions to tax in amounts that were different for petitioner and Dr. Thomassen for that year.



C. Deficiency Proceedings[pg. 574]



The Thomassens filed three petitions in this Court with respect to the notices of deficiency for taxable years 1964 through 1971. A petition at docket No. 5098-72 covered taxable years 1964 through 1968, a petition at docket No. 5337-73 covered taxable year 1969, and a petition at docket No. 2949-74 covered taxable years 1970 and 1971. The three docketed cases were ultimately consolidated for purposes of trial. On May 12, 1975, petitioner executed a power of attorney authorizing her husband to represent her before the Court with respect to all years at issue. 9 During the proceedings Dr. Thomassen repeatedly advanced frivolous tax-protester arguments. The central dispute in the litigation concerned Dr. Thomassen's refusal to provide substantiation of claimed expenses for his medical practice and other business activities because he contended that providing financial records and information to the Government violated his constitutional rights and religious beliefs. On June 2, 1975, in the face of Dr. Thomassen's refusal to put on any evidence, the Court dismissed the cases for lack of prosecution and entered separate decisions in each of the three docketed cases sustaining the determined deficiencies and additions to tax in their entirety. 10 The decision in the case covering the years 1964 through 1968 held the Thomassens jointly liable for deficiencies and additions to tax for 1964, 1965, 1967, and 1968 and individually liable for deficiencies and additions to tax (in differing amounts) for 1966. 11 The decision in the case covering 1969 held the Thomassens jointly liable for a deficiency and additions to tax for that year. 12 The decision in the case covering 1970 and 1971 held the Thomassens jointly liable for a deficiency and addition to tax for 1970 and individually liable for deficiencies and addi[pg. 575] tions to tax (in differing amounts for each) for 1971. 13



On October 13, 1975, respondent assessed the deficiencies and additions to tax sustained by the Tax Court for 1964 through 1971. The Court's decisions were affirmed by the Court of Appeals for the Ninth Circuit on March 12, 1979. Petitioner and Dr. Thomassen filed separate petitions for certiorari with the U.S. Supreme Court for review of the decision of the Court of Appeals (covering their taxable years 1964 through 1971). Respondent filed a memorandum in opposition to the petitions for certiorari, and in a footnote respondent's counsel wrote: “Joan Thomassen is a party because she filed joint income tax returns with her husband for all years except 1966.”



D. Collection Proceedings



In 1979 the United States filed suit in U.S. District Court against the Thomassens in order to reduce to judgment the unpaid assessments for the years at issue and to foreclose tax liens on the Newport Beach property and the four other parcels of real estate they owned. The District Court held the Thomassens jointly and severally liable for a portion of the tax liability and each individually liable for two remaining portions. 14 The District Court also set aside as null and void various conveyances during 1972 and 1973 of the Newport Beach property and the Thomassens' four other parcels of real estate, thereby subjecting them to respondent's lien. The District Court further directed the sale of the Newport Beach property and the four other parcels of real estate. 15



The United States obtained renewals of the judgment against the Thomassens on July 12, 1989, and August 16, 1999. The District Court's 1999 renewal order was affirmed by the Court of Appeals for the Ninth Circuit on February 22, 2001. United States v. Thomassen, 4 Fed. Appx. 481 [87 AFTR 2d 2001-1173] (9th Cir. 2001). On April 26, 2006, the District Court issued an order directing petitioner's eviction from, and the public sale of, the Newport Beach property.



III. Request for Section 6015 Relief

A. Petitioner's Submissions



On May 10, 2006, in response to the public sale and eviction order, petitioner filed Form 8857, Request for Innocent Spouse Relief (relief request), requesting relief from her income tax liabilities for [pg. 576] 1964 through 1974. 16 Attached to the relief request were documents entitled “Supplement to Form 8857” (first supplement) and “Facts and Circumstances Supporting Innocent Spouse Request” (second supplement).



Petitioner represented on the first supplement that her husband controlled the family's finances and that her family lived frugally during the years at issue. On the second supplement petitioner elected separate liability treatment under section 6015(c).



Petitioner also submitted to respondent a Form 12510, Questionnaire for Requesting Spouse (questionnaire), dated May 26, 2006. In response to the question “Were you abused by your (ex)spouse during [the] year(s) in question?” petitioner submitted a sworn delaration of Marilyn recounting Dr. Thomassen's bipolar disorder diagnosis and the reaction of her college friends to Dr. Thomassen's behavior (described more fully in our previous findings).



B. Compliance Division Determination



On September 25, 2006, respondent's Compliance Division issued a notice of final determination denying relief for petitioner's taxable years 1964, 1965, 1967, 1968, 1969, and 1970 under section 6015(b), (c), or (f). With respect to taxable years 1966 and 1971, respondent's Appeals Office issued a determination letter one day later, on September 26, 2006, which treated petitioner's request for relief for 1966 and 1971 as a request for relief under section 66(c) and denied it. For the foregoing years other than 1966 and 1971, the Compliance Division denied relief under subsections (b) and (c) on the ground that petitioner “had actual knowledge and reason to know about the income that caused the additional tax”. Relief was denied under subsection (f) on the grounds that petitioner failed to establish either (1) that “it would be unfair to hold *** [petitioner] responsible for the amount due since *** [petitioner] received benefits from the unreported income”, or (2) that petitioner “had reason to believe *** [petitioner's] spouse would pay the tax when the return was filed.” According to the workpapers of the Compliance Division analyst who reviewed petitioner's request, located in petitioner's administrative file, the analyst found “no marital abuse”.



C. Tax Court Petition



On October 26, 2006, petitioner timely filed a petition for determination of relief from joint and several liability on a joint return, challenging respondent's denial of relief for 1964 through 1971. 17



D. Appeals Office Review



After the petition was filed, petitioner's request for section 6015 relief was transferred from the Compliance Division to respondent's Appeals Office for consideration. The Appeals Office requested and received additional information from petitioner but likewise concluded that she was not entitled to relief under section 6015(b), (c), or (f).



OPINION

I. Overview of Section 6015 Relief From Joint and Several Liability

Section 6013(d)(3) provides that taxpayers filing joint Federal income tax returns are jointly and severally liable for the taxes due. However, section 6015 provides relief from joint and several liability under certain conditions. Generally speaking, a joint filer may obtain relief where he or she did not have actual or constructive knowledge of the understatement of tax on a return, sec. 6015(b); or, if no longer married to the other joint filer, he or she may limit his or her liability to his or her allocable portion of any deficiency, sec. 6015(c); or if ineligible for relief under subsection (b) or (c), he or she may obtain relief where, in view of all the facts and circumstances, it would be inequitable to hold the joint filer liable, sec. 6015(f).



A taxpayer may seek relief from joint and several liability by raising the matter as an affirmative defense in a petition for [pg. 577] redetermination invoking this Court's deficiency jurisdiction under section 6213(a) or, as in this case, by filing a so-called stand-alone petition challenging the Commissioner's final determination denying the taxpayer's claim for such relief. See sec. 6015(e)(1); Fernandez v. Commissioner, 114 T.C. 324, 329 (2000); Butler v. Commissioner, 114 T.C. 276, 287-288 (2000). 18



Except as otherwise provided in section 6015, the taxpayer seeking relief bears the burden of proof. Rule 142(a); Alt v. Commissioner, 119 T.C. 306, 311 (2002), affd. 101 Fed. Appx. 34 [93 AFTR 2d 2004-2561] (6th Cir. 2004).



II. Scope and Standard of Review

The parties agree that the proper standard and scope of review in determining whether relief is warranted under section 6015(b) or (c) is de novo. See Porter v. Commissioner, 132 T.C. 203, 210 (2009); Alt v. Commissioner, supra at 313-315. Although the parties disagree regarding the standard and scope of review that we should apply in determining whether equitable relief is warranted under section 6015(f), this Court has concluded that a de novo standard and scope of review is likewise required when reviewing whether equitable relief should be granted pursuant to Porter v. Commissioner, supra; Porter v. section 6015(f). Commissioner, 130 T.C. 115 (2008). We shall accordingly consider both the administrative record and evidence adduced at trial in determining whether petitioner is entitled to any relief under section 6015 and make an independent, de novo determination in that regard. 19



III. Whether Petitioner Filed Joint Returns for 1966 and 1971

To be eligible for relief under section 6015(b), (c), or (f), the requesting spouse must have filed a joint Federal income tax return for the year at issue. See sec. 6015(b)(1)(A) (allowing relief if, inter alia, “a joint return has been made for a taxable year”), (c)(1) (limiting joint liability where, inter alia, “an individual who has made a joint return for any taxable year elects the application of *** [the] subsection”); see also Christensen v. Commissioner, 523 F.3d 957, 963 [101 AFTR 2d 2008-1795] (9th Cir. 2008) (equitable relief under section 6015(f) is available only if a joint return is filed), affg. T.C. Memo. 2005-299 [TC Memo 2005-299]); Alt v. Commissioner, supra at 312 (same); Raymond v. Commissioner, 119 T.C. 191 (2002) (same).



Petitioner contends that she filed joint returns for 1966 and 1971 with Dr. Thomassen. No return for either year, filed by petitioner or Dr. Thomassen, is in evidence. Petitioner contends that we should find that she filed a joint return for 1966 because it is undisputed that she filed joint returns in the years before and after 1966, creating an inference that the same thing was done in that year. With respect to 1971, petitioner points to the statement made by respondent's counsel, in a footnote to a memorandum filed in opposition to the Thomassens' petitions for certiorari in the deficiency cases covering the years at issue, to the effect that petitioner filed joint returns for all of the years at issue except 1966. Petitioner would have us construe the statement as an admission by respondent that petitioner filed a joint return for 1971. Respondent contends that the preponderance of the evidence demonstrates that petitioner did not file a joint return for 1966 or 1971, pointing to (1) respondent's 1966 account transcript for Dr. Thomassen listing his filing status as “single”; (2) respondent's 1971 account transcripts for Dr. Thomassen and petitioner listing each of their filing statuses as “single”; (3) notices of deficiency for 1971 that were issued separately and for different amounts to petitioner and Dr. Thomassen; and (4) this Court's June 2, 1975, decisions in the three docketed cases [pg. 578] covering the years at issue, which separately stated the amounts due from petitioner and Dr. Thomassen for 1966 and 1971, while stating single amounts due from both of them for all remaining years at issue.



We start with the proposition that this Court's now-final decisions covering petitioner's income tax liabilities for 1966 and 1971 necessarily established her filing status for those years. See Millsap v. Commissioner, 91 T.C. 926, 936 (1988) (“filing status *** concerns a part of a deficiency that is no less significant than the amount of the income and deductions determined in arriving at an income tax deficiency”). Under the doctrine of res judicata, petitioner is precluded from contending in this proceeding that her filing status is other than that established in this Court's decisions redetermining her income tax deficiencies for 1966 and 1971.



While the decisions covering 1966 and 1971 do not explicitly address petitioner's filing status, the terms of the decisions indicate that the Court determined petitioner's filing status for those years was not joint. The decision in the case covering years 1964 through 1968 treats 1966 differently from all the other years at issue (and it is undisputed that joint returns were filed in these other years). Whereas the decision treats the deficiencies and additions to tax for the years other than 1966 as a group and characterizes them as “due from the Petitioners, Elmer H. Thomassen and Joan C. Thomassen”, the decision uses separate paragraphs for the 1966 deficiencies and additions to tax, characterizing one 1966 deficiency and addition to tax as “due from the Petitioner Joan C. Thomassen” and a separate 1966 deficiency and addition to tax (in amounts different from those stated in relation to Joan C. Thomassen) as “due from the Petitioner Elmer H. Thomassen”. The juxtaposition of the treatment of the 1966 liabilities with the treatment of the liabilities for the other years in the same decision leads to the inescapable conclusion that this Court decided that the liabilities other than 1966 were joint and several and the 1966 liabilities were not. It follows that the Court likewise decided that petitioner's filing status for the years at issue other than 1966 was joint, and that her filing status for 1966 was not joint. 20



The same holds for 1971. The decision in the case covering 1971, entered simultaneously with the one covering 1966, addresses the Thomassens' 1970 and 1971 taxable years. Whereas the decision characterizes the 1970 deficiency and additions to tax as “due from the Petitioners Elmer H. Thomassen and Joan M. Thomassen”, it then uses separate paragraphs to describe two different sets of deficiencies and additions to tax for 1971, one “due from the Petitioner Joan M. Thomassen” and the other “due from the Petitioner Elmer H. Thomassen”. As with 1966, the conclusion is inescapable that the Court decided petitioner's filing status for 1970 was joint and for 1971 was not joint. 21



Given the foregoing decisions of this Court, petitioner's contention that she filed a joint return in 1966 because that was her pattern cannot stand. Similarly, the notion that respondent conceded petitioner's 1971 filing status as joint by virtue of his statement to that effect in a footnote in a memorandum opposing certiorari must also fail. At most, the statement regarding filing status was an oversight and was in any event immaterial to the arguments advanced in the memorandum; namely, that the dismissal of the Thomassens' deficiency cases for lack of prosecution was appropriate in view of their repeated failures to offer any evidence or nonfrivolous arguments in the Tax Court proceedings concerning the merits of the deficiency determinations. We therefore conclude that petitioner did not file a joint return in 1966 or 1971 and for that reason hold that she is ineligible for relief under , section 6015(b), (c) or (f) for those years. [pg. 579]



IV. Section 6015 Relief From Liabilities for 1964, 1966 and 1967-70

We now address petitioner's entitlement to section 6015 relief for the remaining years at issue.



A. Section 6015(b) Relief



Petitioner first seeks relief under section 6015(b). To qualify for relief from joint and several liability under section 6015(b)(1), a taxpayer must establish that:



(A) a joint return has been made for a taxable year;

(B) on such return there is an understatement of tax attributable to erroneous items of 1 individual filing the joint return;

(C) the other individual filing the joint return establishes that in signing the return he or she did not know, and had no reason to know, that there was such understatement;

(D) taking into account all the facts and circumstances, it is inequitable to hold the other individual liable for the deficiency in tax for such taxable year attributable to such understatement; and

(E) the other individual elects (in such form as the Secretary may prescribe) the benefits of this subsection not later than the date which is 2 years after the date the Secretary has begun collection activities with respect to the individual making the election,

The foregoing requirements of section 6015(b)(1) are stated in the conjunctive. Accordingly, a failure to meet any one of them prevents a requesting spouse from qualifying for section 6015(b) relief. See Alt v. Commissioner, 119 T.C. at 313. Respondent contends that petitioner has failed to satisfy the requirements of subparagraphs (B), (C), (D), and (E). 22



We consider whether petitioner knew or had reason to know of the understatements within the meaning of subparagraph (C). 23 Under section 6015(b)(1)(C), the requesting spouse must establish that in signing the return, he or she did not know or have any reason to know of the understatement. A requesting spouse has knowledge or reason to know of an understatement if he or she actually knew of the understatement, or if a reasonably prudent taxpayer in his or her position at the time the return was signed could be expected to know that the return contained the understatement. Price v. Commissioner, 887 F.2d 959, 963-965 [64 AFTR 2d 89-5822] (9th Cir. 1989); Mora v. Commissioner, 117 T.C. 279, 287 (2001); see also sec. 1.6015-2(c), Income Tax Regs. Factors to consider in analyzing whether the requesting spouse had “reason to know” of the understatement include: (1) The spouse's level of education; (2) the spouse's involvement in the family's business and financial affairs; (3) the presence of expenditures that appear lavish or unusual when compared to the family's past levels of income, standard of living, and spending patterns; and (4) the nonrequesting spouse's evasiveness and deceit concerning the couple's finances. Price v. Commissioner, supra at 965; Mora v. Commissioner, supra at 287. Moreover, a taxpayer has reason to know of an understatement if she has a duty to inquire and fails to satisfy that duty. Price v. Commissioner, supra at 965. A requesting spouse has a duty to inquire when she “[knows] enough facts to put her on notice that such an understatement exists.” Id. We may impute the requisite knowledge to the requesting spouse unless she satisfies her [pg. 580] duty of inquiry. Porter v. Commissioner, 132 T.C. at 211-212.



As we construe her argument, petitioner contends that she did not know or have reason to know of the understatements on the joint returns at issue because she did not review them before signing and the Thomassens' expenditures and standard of living during the years at issue were not lavish or unusual when compared to their past expenditures and standard of living. We disagree.



While not involved with Dr. Thomassen's practice, petitioner knew that during the years at issue it was successful and that their mortgage payments and family's household expenses were paid primarily with income from the practice. 24 During the years at issue the Thomassens maintained the Newport Beach property, supported eight children, paid for their children to attend private Catholic schools, purchased a new motorhome, vacationed regularly, and made trips overseas. In addition, sometime during their marriage and before 1972 Dr. Thomassen acquired four parcels of real estate for investment, using earnings from his medical practice. Notwithstanding this substantial level of personal expenditures, petitioner signed returns year after year reporting no tax liability. Although petitioner was not versed in tax or financial matters, she was college educated. We believe a person in her circumstances could reasonably be expected to know that the returns contained an understatement or that further inquiry was warranted. See Price v. Commissioner, supra at 965; Butler v. Commissioner, 114 T.C. at 283. Accordingly, we find that petitioner had reason to know of the understatements on the returns. Therefore, the requirement in section 6015(b)(1)(C) is not satisfied, precluding relief under subsection (b)(1) from her income tax liabilities for the remaining years at issue (1964, 1965, 1967, 1968, 1969, and 1970). 25



B. Section 6015(c) Relief



Petitioner also seeks relief pursuant to section 6015(c) which, generally speaking, relieves electing joint filers of liability for those portions of a deficiency not allocable to them. Subject to certain limitations not pertinent here, an individual may elect relief under section 6015(c) if (1) at the time of the election he or she is no longer married to, or is legally separated from, the individual with whom he or she filed the joint return to which the election relates, or has not been a member of the same household as that person for the 12-month period preceding the election, and (2) the election is made not later than 2 years after the date on which collection activity began against the individual. Sec. 6015(c)(3)(A) and (B). If a spouse elects relief under section 6015(c), the spouse's “liability for any deficiency which is assessed with respect to the return shall not exceed the portion of such deficiency properly allocable to the individual under subsection (d).” Sec. 6015(c)(1). An electing spouse bears the burden of proving how much of any deficiency is allocable to him or her. Sec. 6015(c)(2); see Charlton v. Commissioner, 114 T.C. 333, 341 (2000).



Petitioner satisfies the threshold eligibility requirements for electing section 6015(c) relief. Her request was timely 26 and she was widowed from Dr. Thomassen when she made the election in her relief request. See H. Conf. Rept. 105-599, at 252 n.16 (1998), 1998-3 C.B. 747, 1006.



However, petitioner has not met her burden of establishing which portions of the deficiencies for the years at issue are allocable to her. Petitioner admitted at trial that during the years at issue she received income from playing the cello. However, there is no evidence of the amount of cello income petitioner earned each year 27 nor of the amount, if any, that the Thomassens reported on their joint returns. Moreover, there is evidence of other income for the years in issue that is not obviously allocable to Dr. Thomassen's medical practice. The 1969 notice of deficiency in evidence determined that the Thomassens reported [pg. 581] income in addition to the gross receipts from Dr. Thomassen's practice (e.g., dividends, interest, and rental and farming income). Petitioner has not demonstrated that none of those items is allocable in some portion to her. Moreover, the financial particulars for 1969 create a reasonable inference that the Thomassens had similar income items for the years in issue that preceded and followed 1969.



In sum, petitioner has not established the portions of the deficiencies for the years in issue that are allocable to her. While it is true that the absence of the returns and the paucity of other evidence related to these long-ago periods impose a daunting burden on petitioner to comply with section 6015(c)(2), the statute is clear that the burden falls squarely on petitioner to establish the allocation. She has not done so, and as a result her claim for relief under section 6015(c) must fail. Accordingly, petitioner is not entitled to relief under section 6015(c) from the income tax liabilities for the remaining years at issue (1964, 1965, 1967, 1968, 1969, and 1970).



C. Section 6015(f) Relief



1. In General

Petitioner also seeks relief under section 6015(f). Under that section the Commissioner may relieve a taxpayer of joint and several liability if (1) relief is not available to the individual under section 6015(b) or (c), and (2) taking into account all the facts and circumstances, it is inequitable to hold the individual liable for any unpaid tax or deficiency (or any portion of either). Sec. 6015(f). Pursuant to his authority, under section 6015(f), to prescribe “procedures” for granting equitable relief pursuant to that provision, the Commissioner has prescribed guidelines in Rev. Proc. 2003-61, 2003-2 C.B. 296, for determining whether relief should be granted under section 6015(f), effective for requests for relief filed on or after November 1, 2003. We consider those guidelines as well as any other facts and circumstances to determine the appropriate equitable relief. See , sec. 6015(e)(1)(A), (f).



2. Factors Bearing on Equitable Relief

a. Threshold Conditions

Rev. Proc. 2003-61, sec. 4.01, 2003-2 C.B. at 297-298, lists seven threshold conditions which generally must be satisfied for the Commissioner to grant relief if he determines in the light of all the facts and circumstances that it would be inequitable to hold the requesting spouse liable for the income tax liability. Those conditions are: (1) The requesting spouse filed a joint return for the taxable year for which relief is sought; (2) relief is not available to the requesting spouse under section 6015(b) or (c); (3) the requesting spouse applies for relief no later than 2 years after the date of the Commissioner's first collection activity after July 22, 1998, with respect to the taxpayer; (4) no assets were transferred between the spouses as part of a fraudulent scheme by the spouses; (5) the nonrequesting spouse (i.e., the individual with whom the requesting spouse filed the joint return) did not transfer “disqualified assets” (within the meaning of section 6015(c)(4)(B)) to the requesting spouse; (6) the requesting spouse did not file or fail to file the return with fraudulent intent; and (7) absent enumerated exceptions, the liability from which the requesting spouse seeks relief is attributable to an item of the nonrequesting spouse.



The parties do not dispute that conditions (1), (4), (5), and (6) have been satisfied with respect to petitioner's taxable years 1964, 1965, 1967, 1968, 1969, and 1970. We have held herein that relief is unavailable to petitioner under section 6015(b) or (c) for those years, satisfying condition (2). We reject respondent's contention that petitioner's request for relief under section 6015(f) was untimely. 28



That leaves condition (7)—that the liability from which relief is sought be attributable to items of the nonrequesting spouse. Respondent argues that condition (7) is not satisfied. We have held herein that petitioner is ineligible for relief under section 6015(c) because she could not establish which portions of the deficiencies for the years at issue were allocable to her. [pg. 582] We reached this conclusion in view of the fact that petitioner earned income during the years at issue as a professional cellist and that the Thomassens reported investment, rental, and farming income in 1969 that had not been shown to be solely allocable to Dr. Thomassen. For these same reasons, petitioner might not satisfy condition (7) with respect to all liabilities at issue.



However, one of the exceptions to condition (7) enumerated in Rev. Proc. 2003-61, supra, is that where the requesting spouse establishes that he or she was a victim of abuse, equitable relief may be granted notwithstanding that the deficiency may be attributable in part or in full to an item of the requesting spouse. Rev. Proc. 2003-61, sec. 4.01(7)(d), states:



Abuse not amounting to duress. If the requesting spouse establishes that he or she was the victim of abuse prior to the time the return was signed, and that, as a result of the prior abuse, the requesting spouse did not challenge the treatment of any items on the return for fear of the nonrequesting spouse's retaliation, the Service will consider granting equitable relief although the deficiency or underpayment may be attributable in part or in full to an item of the requesting spouse.

The caselaw construing what constitutes abuse not amounting to duress 29 requires a case-by-case analysis of whether there was enough abuse to make it reasonable to conclude that the requesting spouse was impeded from acquitting his or her obligations under the Internal Revenue Code. See Nihiser v. Commissioner, T.C. Memo. 2008-135 [TC Memo 2008-135] (and cases cited therein). Abuse for this purpose may be physical or solely psychological. Id. There must be substantiation, or at least specificity, regarding the claimed abuse; generalized claims of physical or emotional abuse are insufficient. See id.



As our findings reflect, petitioner adduced specific evidence concerning Dr. Thomassen's propensity to inflict psychological abuse. There was credible testimony that his tirades drove one of his children with a fragile psyche to attempt suicide. Another daughter's college friends were so appalled after witnessing a weekend's worth of Dr. Thomassen's behavior that they urged petitioner to find shelter for herself and the younger children elsewhere. Petitioner consulted her priest regarding her husband's behavior, though he counseled perseverance—perhaps mindful of Dr. Thomassen's role as a devout parishioner who attended daily Mass. The evidence also demonstrates that Dr. Thomassen's anxiety and rage were quite susceptible of being triggered by matters relating to disputes with the IRS. He conducted years-long litigation with the IRS in which he pursued tax-protester positions to the effect that the Government lacked authority to investigate his finances or to impose an income tax. We are fully persuaded that petitioner endured circumstances which made her reluctant to challenge the treatment of any items on the joint returns in issue for fear of Dr. Thomassen's psychological abuse. Consequently, the fact that some of the deficiencies at issue may be attributable to items of petitioner does not cause her to fail to satisfy condition (7). See Rev. Proc. 2003-61, sec. 4.01(7)(d). She therefore satisfies all seven threshold conditions in Rev. Proc. 2003-61, sec. 4.01, for relief under section 6015(f).



b. Listed Factors

For requesting spouses who have satisfied the threshold requirements, Rev. Proc. 2003-61, sec. 4.03(2), 2003-2 C.B. at 298-299, then lists eight nonexclusive factors to consider in determining whether it would be inequitable to hold the requesting spouse liable for all or part of a deficiency.



These nonexclusive factors include whether: (1) The requesting spouse is separated or divorced from the nonrequesting spouse; (2) the requesting spouse will suffer economic hardship without relief; (3) the requesting spouse did not know or have reason to know of the item giving rise to the deficiency; (4) the nonrequesting spouse had a legal obligation to pay the outstanding liability pursuant to a divorce decree or agreement; (5) the request[pg. 583] ing spouse received a significant benefit (beyond normal support) from the unpaid income tax liability or item giving rise to the deficiency; (6) the requesting spouse has made a good faith effort to comply with income tax laws in subsequent years; (7) the requesting spouse was abused by the nonrequesting spouse; and (8) the requesting spouse was in poor mental or physical health when signing the return or requesting relief. The first five of the foregoing factors are relevant to the determination of whether withholding relief is inequitable; the last two factors weigh in favor of relief if present, but do not weigh against relief if not present. Id. The revenue procedure further provides that no single factor will be determinative; all relevant factors will be considered and weighed appropriately, including those not listed. Id.



i. Marital Status

Petitioner was widowed when she sought relief. For purposes of section 6015(f), petitioner's status of being a widow is “tantamount to her being separated or divorced.” Rosenthal v. Commissioner, T.C. Memo. 2004-89 [TC Memo 2004-89]. This factor favors relief.



ii. Economic Hardship

Because petitioner is now deceased, there can be no economic hardship to her personally if equitable relief is denied. Jonson v. Commissioner, 118 T.C. 106, 126 (2002), affd. 353 F.3d 1181 [93 AFTR 2d 2004-323] (10th Cir. 2003). Accordingly, this factor weighs against relief.



iii. Knowledge or Reason To Know

We concluded herein for purposes of section 6015(b) relief that petitioner had reason to know of the items giving rise to the deficiencies in the joint return years at issue—a factor that, standing alone, weighs against equitable relief under Rev. Proc. 2003-61, supra. However, Rev. Proc. 2003-61, sec. 4.03(2)(b)(i), provides that “A history of abuse by the nonrequesting spouse may mitigate a requesting spouse's knowledge or reason to know.” As discussed, we are persuaded that petitioner endured years of psychological abuse from Dr. Thomassen, at the time the returns at issue were filed and thereafter. There is reason to believe the abuse may have been exacerbated in the case of dealings with the IRS. In these circumstances, petitioner was effectively precluded from meeting ordinary duties of investigation and challenge concerning the return positions taken during the years at issue. In line with the revenue procedure, we conclude that petitioner's reason to know is neutralized as a factor weighing against equitable relief.



iv. Nonrequesting Spouse's Legal Obligation

The Thomassens remained married until Dr. Thomassen's death. As this factor concerns obligations arising pursuant to a divorce decree or agreement, it is inapplicable here. See Magee v. Commissioner, T.C. Memo. 2005-263 [TC Memo 2005-263]; Ogonoski v. Commissioner, T.C. Memo. 2004-52 [TC Memo 2004-52].



v. Significant Benefit

Rev. Proc. 2003-61, sec. 4.03(2)(a)(v), cites section 1.6015-2(d), Income Tax Regs., as a guide for interpreting significant benefit as a factor in determining whether it is inequitable to hold a requesting spouse liable for a deficiency. Section 1.6015-2(d), Income Tax Regs., provides that “A significant benefit is any benefit in excess of normal support.” See also Terzian v. Commissioner, 72 T.C. 1164, 1172 (1979). Moreover, because the language of section 6015(f)(1) containing the equity test is virtually identical to the language of former section 6013(e)(1)(D), caselaw construing former section 6013(e)(1)(D) remains helpful in construing section 6015(f)(1). See Mitchell v. Commissioner, 292 F.3d 800, 806 [89 AFTR 2d 2002-2961] (D.C. Cir. 2002), affg. T.C. Memo. 2000-332 [TC Memo 2000-332]; Cheshire v. Commissioner, 282 F.3d 326, 338 [89 AFTR 2d 2002-900] n.29 (5th Cir. 2002), affg. 115 T.C. 183 (2000); Jonson v. Commissioner, supra at 119; Levy v. Commissioner, T.C. Memo. 2005-92 [TC Memo 2005-92].



Normal support is to be measured by the circumstances of the taxpayers. See Sanders v. United States, 509 F.2d 162, 168 [35 [pg. 584] AFTR 2d 75-935] (5th Cir. 1975); Estate of Krock v. Commissioner, 93 T.C. 672, 678-679 (1989); Flynn v. Commissioner, 93 T.C. 355, 367 (1989); Foley v. Commissioner, T.C. Memo. 1995-16 [1995 RIA TC Memo ¶95,016].



Respondent contends that petitioner received a significant benefit from the unpaid tax for the joint return years at issue, citing the payment of private Catholic school tuition for as many as eight of petitioner's children during those years, the acquisition of a residence and four other parcels of real estate, and the acquisition of a new motorhome.



While the failure to pay any Federal income tax for the 6 joint return years at issue undoubtedly increased Dr. Thomassen's disposable income, 30 the question remains whether petitioner significantly benefited as a result. For the reasons discussed below, we conclude that she did not.



First, Dr. Thomassen controlled the family's finances and allowed petitioner very little access to his earnings. See Flynn v. Commissioner, supra at 367. Dr. Thomassen paid many household expenses directly from his office, presumably those which generated a monthly or other periodic bill, such as utilities, mortgage, and private Catholic school tuition. He gave petitioner an allowance for other household expenses, but he was so parsimonious that petitioner, after using her cello earnings for that purpose, had to borrow from her mother or sell personal items to meet such expenses. The Thomassens' house was furnished frugally. There is no evidence that petitioner received anything lavish for her personal consumption as a result of the unpaid tax for the joint return years at issue. We conclude that Dr. Thomassen's payment of household expenses did not extend beyond normal support and therefore was not a significant benefit to petitioner within the meaning of section 1.6015-2(d), Income Tax Regs.



Second, some of Dr. Thomassen's additional disposable income arising from the unpaid tax may well have enabled him to purchase the four parcels of real estate he acquired for investment purposes. Although these properties were titled in Dr. Thomassen's and petitioner's names, the properties were sold in 1979 to satisfy the Thomassens' tax liabilities for the years at issue. Consequently, the properties did not provide a significant benefit to petitioner.



Third, respondent emphasizes that petitioner significantly benefited by virtue of the payment of private Catholic school tuition for as many as eight children during and after the joint return years at issue, citing Jonson v. Commissioner, 118 T.C. at 119-120, where this Court found that payment of a couple's children's college expenses significantly benefited the requesting spouse. However, Jonson, involving college expenses, is distinguishable from the instant case, which involves private elementary and secondary school tuition. While this Court has generally held that the payment of children's college or graduate school expenses constitutes a significant benefit to a requesting spouse, see Jonson v. Commissioner, supra at 126 (college expenses for three children); Levy v. Commissioner, supra (same); Weiss v. Commissioner, T.C. Memo. 1995-70 [1995 RIA TC Memo ¶95,070] (college and graduate school expenses for three children), the payment of private elementary or secondary school expenses of the requesting spouse's children generally has not been held to constitute a significant benefit, see Marzullo v. Commissioner, T.C. Memo. 1997-261 [1997 RIA TC Memo ¶97,261] (private school tuition for four children); Friedman v. Commissioner, T.C. Memo. 1995-576 [1995 RIA TC Memo ¶95,576] (private secondary school and college expenses of two children); Foley v. Commissioner, supra (private school expenses for two children).



Given Dr. Thomassen's controlling behavior, his penurious approach to household expenditures, and his devout Catholicism (a religion to which petitioner converted in connection with her marriage), one can easily infer that the decision to expend funds for the Thomassen children to attend Catholic rather than pub[pg. 585] lic schools reflected Dr. Thomassen's priorities rather than petitioner's. In the particular circumstances of this case, we conclude that petitioner did not significantly benefit by virtue of the expenditures for private Catholic school tuition for the Thomassen children.



That leaves the residence, the purchase of a new motorhome and perhaps the domestic and foreign travel (although respondent has not cited the travel as a significant benefit). We are not persuaded that these expenditures exceeded normal support as measured by the circumstances of the Thomassens. See Flynn v. Commissioner, supra at 366-367 (vacations, installation of backyard swimming pool, and gift of mink coat to nonrequesting spouse did not exceed normal support as measured by taxpayers' circumstances). As petitioner did not significantly benefit from the unpaid tax at issue, this factor favors relief.



vi. Income Tax Compliance

There is no evidence concerning whether petitioner complied or made an effort to comply with income tax laws in the taxable years following the years for which relief is sought. We assume that respondent would have had ready access to evidence of any significant noncompliance by petitioner in these years, and he has produced none. In this circumstances, this factor is at most neutral and does not weigh against equitable relief.



vii. Abuse

As previously discussed, we are persuaded by the evidence that petitioner was subject to substantial psychological abuse from Dr. Thomassen during the period in which the returns at issue were filed and thereafter. Because Dr. Thomassen's behavior worsened as his disputes with the IRS mushroomed, and his abusive behaviour could be triggered by matters related to his dealings with the IRS, we believe that petitioner acquiesced in filing the joint returns as proposed by Dr. Thomassen to keep the peace and avoid his rage. Thus we conclude that petitioner's actions with respect to filing the returns at issue, including challenging any of the positions taken thereon, were significantly affected by her fear of retaliatory psychological abuse. Consequently, spousal abuse weighs very heavily as a factor favoring equitable relief. 31



viii. Mental or Physical Health

There is no evidence that petitioner suffered significant mental or physical health problems at the time she signed the joint returns at issue (other than the psychological abuse discussed). Petitioner testified that she had cancer at the time she requested relief, and she died after the trial. The absence of a health problem at the time the returns were signed does not weigh against relief. See Rev. Proc. 2003-61, sec. 4.03(b). Because a requesting spouse's health at the time of the request for relief implicates considerations similar to those that arise in the case of the economic hardship factor, we conclude that petitioner's death makes her health at the time she requested relief irrelevant. Cf. Jonson v. Commissioner, supra at 126 (no economic hardship where requesting spouse is deceased). This factor is therefore neutral.



3. Conclusion

Petitioners satisfies all the threshold eligibility requirements for equitable relief listed in Rev. Proc. 2003-61, supra . Among the revenue procedure's listed factors, petitioner's marital status, absence of significant benefit, and history of abuse favor equitable relief. In the circumstances of this case, abuse by the nonrequesting spouse weighs very heavily in favor of relief, since we are persuaded that the abuse rendered petitioner essentially incapable of challenging her spouse regarding the positions taken on the joint returns. Weighing against relief is the absence of economic hardship. All remaining listed factors are neutral or inapplicable. On balance, pursuant to section 6015(f), taking into account [pg. 586] all the facts and circumstances, we conclude that it would be inequitable to hold petitioner liable for the deficiencies for taxable years 1964, 1965, 1967, 1968, 1969, and 1970. We therefore hold that petitioner is entitled to relief under section 6015(f) with respect to the deficiencies for those years.



We have considered all of the contentions and arguments of the parties that are not discussed herein, and we conclude that they are without merit, irrelevant, or moot.



To reflect the foregoing,



An appropriate decision will be entered.

1





Unless otherwise noted, all section references are to the Internal Revenue Code of 1986 as amended, and all Rule references are to the Tax Court Rules of Practice and Procedure. All dollar amounts have been rounded to the nearest dollar.

2



The petition in this case was filed by Joan Thomassen. Mrs. Thomassen died on Apr. 23, 2010, after trial and the filing of briefs. Mark D. Thomassen was thereafter appointed special administrator of the Estate of Joan Thomassen and substituted as petitioner for the purpose of maintaining this proceeding. For convenience, we shall hereinafter refer to Mrs. Thomassen as petitioner.

3



We will hereinafter refer to petitioner and her husband together as the Thomassens.

4



In one of her submissions petitioner characterized Dr. Thomassen as making “good money” from his practice during the years in issue.

5



Dr. Thomassen would require his eldest son, while in private Catholic school, to arise every morning at 4 a.m. to perform various tasks, such as car repair. When Dr. Thomassen found any white bread or any product containing sugar in the household, he would discard it.

6



Respondent began examining the Thomassens' income tax returns in 1959, and all of their returns for 1964 through 1971 were examined.

7



None of the returns are in the record. The parties have stipulated the filing of and filing dates for joint returns for all taxable years in issue except 1966 and 1971. For all such years, the record also contains certified copies of Forms 4340, Certificate of Assessments, Payments, and Other Specified Matters. After reserving objections in the stipulations to the admissibility of the Forms 4340, petitioner withdrew the objections at trial.



Account transcripts covering all years in issue except petitioner's 1966 taxable year are in the administrative record compiled in connection with petitioner's request for sec. 6015 relief. The reported adjusted gross income for each year is recorded in the account transcript for that year and it corresponds to each Form 4340 in the record.

8



The 1969 notice is complete, but the record contains only the first page of each of the 1970 and 1971 notices. Petitioner initially reserved an objection to the admissability of the 1969 notice of deficiency but withdrew the objection at trial.

9



Petitioner attended the trial but allowed Dr. Thomassen to represent her pursuant to the power of attorney. Respondent does not contend, nor do we find, that petitioner “participated meaningfully” in these prior deficiency proceedings within the meaning of sec. 6015(g)(2) so as to preclude her claim for sec. 6015 relief in this case.

10



Copies of the three decisions are in the record. Petitioner reserved objections to the admissability of these documents in the parties' stipulations but withdrew the objections at trial.

11



The decision in the case at docket No. 5098-72 states in part:

ORDERED, that Respondent's motion is granted and this case is dismissed for lack of prosecution. It is further

ORDERED and DECIDED: That there are deficiencies in income tax, together with additions to the tax due from the Petitioners, Elmer H. Thomassen and Joan C. Thomassen, for the taxable years ended December 31, 1964, 1965, 1967, and 1968, as follows:

ADDITIONS TO THE TAX I.R.C. of 1954

-----------------------------------



Year Income Tax Section 6653(a)

---- ---------- ---------------

1964 $19,553.39 $977.67

1965 $29,614.49 $1,480.72

1967 $28,342.24 $1,417.11

1968 $37,089.00 $1,854.00

Further, that there is a deficiency in income tax, together with additions to the tax due from the petitioner Joan C. Thomassen for the taxable year ended December 31, 1966, as follows:

ADDITIONS TO THE TAX I.R.C. OF 1954

-----------------------------------



Year Income Tax Section 6651(a) Section 6653(a)

---- ---------- --------------- ---------------

1966 $12,453.10 $3,113.27 $622.65

Further, that there are deficiencies in income tax together with additions to the tax due from the Petitioner Elmer H. Thomassen for the taxable year ended December 31, 1966, as follows:

ADDITIONS TO THE TAX I.R.C. OF 1954

-----------------------------------



Year Income Tax Section 6651(a) Section 6653(a)

---- ---------- --------------- ---------------

1966 $12,859.00 $3,214.75 $642.95



12



The decision in the case at docket No. 5337-73 states in part:

ORDERED, that Respondent's motion is granted and this case is dismissed for lack of prosecution. It is further

ORDERED and DECIDED: That there are deficiencies in income tax, together with additions to the tax, due from Petitioners Elmer H. Thomassen and Joan C. Thomassen for the taxable year ended December 31, 1969 as follows:

ADDITIONS TO THE TAX I.R.C. OF 1954

-----------------------------------



Year Income Tax Section 6653(a)

---- ---------- ---------------

1969 $49,484.00 $2,474.00



13



The decision in the case at docket No. 2949-74 states in part:

ORDERED, that Respondent's motion is granted and this case is dismissed for lack of prosecution. It is further

ORDERED and DECIDED: That there are deficiencies in income tax, together with additions to the tax due from the Petitioners Elmer H. Thomassen and Joan M. Thomassen for the taxable year ended December 31, 1970 as follows:

ADDITIONS TO THE TAX I.R.C. OF 1954

-----------------------------------



Year Income Tax Section 6653(a)

---- ---------- --------------

1970 $56.970.00 $2,849.49

Further, that there is a deficiency in income tax, together with additions to the tax, due from the Petitioner Joan M. Thomassen, for the taxable year ended December 31, 1971, as follows:

ADDITIONS TO THE TAX I.R.C. OF 1954

-----------------------------------



Year Income Tax Section 6651(a) Section 6653(a) Section 6654

---- ---------- --------------- --------------- ------------

1971 $19,255.80 $4,813.95 $962.79 $616.19

Further, that there is a deficiency in income tax, together with additions to the tax, due from Petitioner Elmer H. Thomassen for the taxable year ended December 31, 1971 as follows:

ADDITIONS TO THE TAX I.R.C. OF 1954

-----------------------------------



Year Income Tax Section 6651(a) Section 6653(a) Section 6654

---- ---------- --------------- --------------- ------------

1971 $19.841.00 $4,960.00 $992.05 $634.91



14



The District Court also set aside as null and void various conveyances by the Thomassens of the Newport Beach property and their four other parcels of real estate, thereby subjecting the properties to the Government's tax liens and foreclosure.

15



For reasons not disclosed in the record, the Newport Beach property was not sold at that time.

16



Although the relief request seeks relief for taxable years 1964 through 1974, there is no mention of 1972, 1973, or 1974 in petitioner's supporting materials, respondent's determination, or the petition. We accordingly lack jurisdiction over any claim for relief covering the 1972 through 1974 taxable years.

17



Although petitioner's claims for relief for taxable years 1966 and 1971 were initially dismissed from the case for lack of jurisdiction, petitioner's motion to amend the petition to restore 1966 and 1971 was subsequently granted after additional evidence bearing on petitioner's filing status for those years was brought forth.

18



A taxpayer may also seek such relief in a petition for review of a collection action, see secs. 6320(c), 6330(c)(2)(A)(i), or as an affirmative defense in a matter properly before this Court under sec. 6404 (relating to the Commissioner's determination not to abate interest), Estate of Wenner v. Commissioner, 116 T.C. 284, 288 (2001).

19



On brief, both respondent and petitioner frame their arguments as if the determination under review is that of the Appeals Office. However, the “final” determination denying sec. 6015 relief was issued on Sept. 25, 2006, by respondent's Compliance Division. That determination is the basis of the Court's jurisdiction. See sec. 6015(e)(1)(A)(i)(I). However, given that the standard and scope of review is de novo, any differences in the reasoning or evidence relied on in the positions taken by respondent's Compliance and Appeals personnel need not concern us.

20



The transcript of account for Dr. Thomassen's 1966 taxable year, contained in the administrative record and relied on by the Appeals Office, corroborates this reading of the Tax Court's decision. The transcript is for Dr. Thomassen alone, and records his filing status as “single”.

21



Several items of evidence corroborate this reading of the Tax Court's decision. Notices of deficiency for 1971 issued separately to petitioner and Dr. Thomassen determined different deficiencies and additions to tax for each, whereas a notice of deficiency for 1970, mailed on the same day, was issued to the Thomassens jointly. The transcripts of account for petitioner's and Dr. Thomassen's 1971 taxable year, contained in the administrative record and relied on by the Appeals Office, are separate documents that record each individual's filing status as “single”.

22



Respondent contends on brief that petitioner's request for relief was untimely under sec. 6015(b)(1)(E) even though respondent expressly conceded its timeliness in his pretrial memorandum, explaining that the Aug. 16, 1999, renewal of the 1979 judgment against petitioner had not satisfied the notification requirement of the Internal Revenue Service Restructuring and Reform Act of 1998, Pub. L. 105-206, sec. 3501(b), 112 Stat. 770. See McGee v. Commissioner, 123 T.C. 314 (2004). Allowing respondent to pursue this issue on brief after having conceded it before trial would be highly prejudicial to petitioner. In any event, respondent had it right the first time. There is no evidence that respondent notified petitioner of her right to sec. 6015 relief in connection with the Aug. 16, 1999, judgment renewal. Consequently, respondent's contention on brief that petitioner's request for relief under sec. 6015(b) was untimely because not brought within 2 years after Aug. 16, 1999, is meritless. See id. Insofar as the record discloses, the next collection action against petitioner was the Apr. 26, 2006, order directing her eviction from and the sale of the Newport Beach property. Her May 10, 2006, relief request was therefore timely under sec. 6015(b)(1)(E).

23



This “knowledge” requirement in sec. 6015(b)(1)(C) is virtually identical to the requirement of former sec. 6013(e)(1)(C); therefore, cases interpreting former sec. 6013(e) remain instructive to our analysis. Jonson v. Commissioner, 118 T.C. 106, 115 (2002), affd. 353 F.3d 1181 [93 AFTR 2d 2004-323] (10th Cir. 2003); Butler v. Commissioner, 114 T.C. 276, 283 (2000); see also Doyel v. Commissioner, T.C. Memo. 2004-35 [TC Memo 2004-35].

24



As noted, petitioner paid some personal and family expenditures with income from her cello performances.

25



Because petitioner does not satisfy subpar. (C), we need not consider whether she satisfies the requirements of subpars. (B) and (D) of sec. 6015(b)(1). See Alt v. Commissioner, 119 T.C. 306, 313 (2002), affd. 101 Fed. Appx. 34 [93 AFTR 2d 2004-2561] (6th Cir. 2004).

26



See supra note 22.

27



The only estimate petitioner provided at trial was that she earned approximately $18,000 from playing the cello in 1974, a year not in issue. However, that estimate suggests that her earnings were not de minimis for the years at issue.

28



See supra note 22.

29



If duress were shown, sec. 6015 relief would be unavailable, as a return signed under duress is not a joint return. See Brown v. Commissioner, 51 T.C. 116, 120-121 (1968).

30



The deficiencies for those years, which ranged from $20,000 to $57,000, may exaggerate the Thomassens' taxable income for those years, in that the central dispute in each year concerned Dr. Thomassen's refusal, on constitutional and religious grounds, to provide any financial information to substantiate his Schedule C deductions. Thus the deficiencies may reflect the taxation of gross receipts to some extent (although the record suggests that at least for 1969 respondent allowed certain Schedule C expenses).

31



Respondent contends that an additional factor, beyond those enumerated in Rev. Proc. 2003-61, 2003-2 C.B. 296, also weighs against relief; namely, petitioner has “unclean hands” because she participated in the scheme to fraudulently convey the Thomassens' real property so that it would not be available to satisfy their income tax obligations. We conclude instead that to the extent petitioner may have executed documents to effect the fraudulent conveyances, she did so as a result of the same psychological abuse that resulted in her joining in the joint returns at issue.



© 2011 Thomson Reuters/RIA. All rights reserved.

Kathleen Haag v. Commissioner, TC Memo 2011-87 , Code Sec(s) 6015.




KATHLEEN HAAG, Petitioner v. COMMISSIONER OF INTERNAL REVENUE, Respondent.

Case Information: Code Sec(s): 6015

Docket: Dkt. No. 8915-10.

Date Issued: 04/19/2011.

Judge: Opinion by Gustafson, J.

Tax Year(s): Years 1985, 1986, 1987, 1988, 1989, 1990, 1991, 1993.

Disposition: Decision for Commissioner.





HEADNOTE

1. Joint returns—innocent spouse relief—equitable relief—res judicata. Wife wasn't entitled to Code Sec. 6015(f) relief from her and husband's joint liability for stated years: res judicata barred taxpayer's relitigation of her claim for years that were subject of prior district court collection suit which involved same parties and grew out of same nucleus of operative facts/same innocent spouse claim; and any challenge to district court's competency to enter judgment on that claim had already been resolved against her. Also, intervening Tax Court case that struck down Reg § 1.6015-5(b)(1) as invalid interpretation of Code Sec. 6015(f) didn't change claim-preclusive effect of district court judgment. And while argument that she never had opportunity to establish her claim for relief was correct insofar as reg's 2-year time bar prevented her from doing so, her attempt to invoke Code Sec. 6015(g)(2) 's exception to res judicata failed where her innocent spouse claim was explicitly at issue in district court proceeding and where she participated meaningfully therein.



Reference(s): ¶ 60,155.04(3) Code Sec. 6015



Syllabus

Official Tax Court Syllabus



P and H filed joint returns and failed to pay tax for 8 years (1985-91 and 1993). R served a notice of proposed levy in September 1999. In 2002 R authorized a collection suit to be brought against P and H in District Court; and P raised as an affirmative defense the claim that she was entitled to relief under I.R.C. sec. 6015(b) and (f). The parties cross-moved for summary judgment on the I.R.C. sec. 6015 issue, and the District Court held in favor of R on the grounds that P's assertion of the claim was untimely under I.R.C. sec. 6015(b)(1)(E) and 26 C.F.R. sec. 1.6015-5(b)(1), Income Tax Regs. The court entered judgment in favor of the Government and against P and H. P and H appealed, not raising the I.R.C. sec. 6015 issue, and the Court of Appeals for the First Circuit affirmed in April 2007. In October 2007 P filed suit in District Court claiming an entitlement to I.R.C. sec. 6015 relief for the same 8 years, but the District Court dismissed the suit on grounds of res judicata. In April 2009 this Court held in Lantz v. Commissioner, 132 T.C. 131 (2009), revd. 607 F.3d 479 [105 AFTR 2d 2010-2780] (7th Cir. 2010), that the 2-year deadline in sec. 1.6015-5(b)(1), Income Tax Regs., is invalid when applied to innocent spouse claims under I.R.C. sec. 6015(f). In July 2009 P filed new requests for relief under I.R.C. sec. 6015(f), citing Lantz. R denied P's requests, and P filed a petition in this Court. R moved for summary judgment on grounds of res judicata.

Held: Res judicata precludes P's attempted relitigation of her I.R.C. sec. 6015(f) claim for the years that were the subject of the prior District Court collection suit.

Counsel

Timothy J. Burke, for petitioner.

Patrick F. Gallagher, for respondent.



GUSTAFSON, Judge



MEMORANDUM OPINION

Petitioner Kathleen Haag seeks this Court's review, pursuant to section 6015(e), 1 of the denial by the Internal Revenue Service (IRS) of her requests for relief from her liability for income taxes for eight taxable years, for which she filed joint returns with her husband. The case is currently before the Court on respondent's motion for summary judgment filed under Rule 121. We will grant that motion and [pg. 565] sustain the IRS's determination on grounds of res judicata.



Background

At the time she filed her petition, Mrs. Haag resided in Massachusetts.



IRS collection of the Haags' unpaid taxes

For the eight years 1985 through 1991 and 1993, Mrs. Haag filed joint tax returns with her husband, Robert F. Haag. The IRS examined their returns and assessed deficiencies, additions to tax, and interest. The Haags did not fully pay those liabilities. The IRS filed notices of Federal tax lien against the Haags: in July 1992 for tax years 1985, 1986, and 1987; in October 1994 for tax years 1988, 1989, 1990, and 1992; and in May 1995 for tax year 1993. On September 14, 1999, the IRS issued to each of the Haags a Final Notice, Notice of Intent to Levy and Notice of Your Right to a Hearing for their joint liabilities for each of those eight tax years. 2



Haag I

In December 2002 the Government filed suit against Mr. and Mrs. Haag in the U.S. District Court for the District of Massachusetts (the District Court) in order to reduce their unpaid assessed taxes, interest, and additions to tax to United States v. Haag (Haag I), 94 AFTR 2d 2004-6665 [94 AFTR 2d 2004-6665], judgment. 2005-1 USTC par. 50,131 (D. Mass. 2004), affd. 485 F.3d 1 [99 AFTR 2d 2007-1986] (1st Cir. 2007). The years at issue in Haag I were the eight years that were the subject of the notice of levy (i.e., 1985-1991 and 1993) and the year 2001 (later dismissed as moot), 3 and the Haags' total unpaid balance for those nine years as of December 23, 2002, was over $1.6 million.



The IRS refiled notices of Federal tax lien against the Haags in November 2003; and in November 2004, while the Haag I collection suit remained pending, the Haags filed suit against the Government in the District Court, Haag v. IRS, No. 04-12344 (D. Mass. filed Nov. 4, 2004), alleging that the IRS deprived them of their collection due process (CDP) rights by failing to notify them of their right to a CDP hearing when it refiled the notices of Federal tax lien in 2003. The Haags sought civil damages for unauthorized collection actions under section 7433, injunctive relief mandating a CDP hearing, declaratory relief, attorney's fees, and costs. The District Court consolidated the Haags' suit with the Haag I collection suit.



In the answer she filed in Haag I, Mrs. Haag raised innocent spouse relief under section 6015(b)(1) and (2) and (f) as an affirmative defense. For purposes of the IRS's motion for summary judgment in this case, we will assume arguendo that Mrs. Haag's section 6015(f) defense was meritorious and should have been upheld. But when Mrs. Haag moved in Haag I for summary judgment on her claim for innocent spouse relief, the Government cross-moved for partial summary judgment on that claim, asserting that Mrs. Haag did not qualify for relief because she failed to request relief within two years after the IRS began its collection activities 4 —as required by statute for an election under section 6015(b) or (c), see sec. 6015(b)(1)(E), (c)(3)(B), and as required by regulation for a request for equitable relief under section 6015(f). 26 C.F.R. section 1.6015-5(b)(1), Income Tax Regs., provides:



to request equitable relief under § 1.6015-4, a requesting spouse must file Form 8857 or other similar statement with the Internal Revenue Service no later than two years from the date of the [pg. 566] first collection activity against the requesting spouse after July 22, 1998, with respect to the joint tax liability.



However, in Mrs. Haag's instance the IRS's collection activity began no later than September 1999 (when it issued the notice of proposed levy), but she did not make any request or election for innocent spouse relief within two years. Rather, more than three years elapsed with no election and no request before the IRS commenced Haag I (and Mrs. Haag raised her affirmative defense).



In September 2004 the District Court denied Mrs. Haag's motion for summary judgment because it held, as to the eight years still at issue (after the dismissal of 2001 as moot), that she failed to timely seek relief for the remaining years within the two-year period allowed by the statute and the regulation. The court granted the Government's motion for partial summary judgment on the innocent spouse claim, holding that Mrs. Haag could not meet the legal requirements for seeking innocent spouse relief for the remaining years because she had failed to timely raise the innocent spouse issue. 5 See Haag I.



The Government proved that in November 2003 the IRS had sent the notice of lien required by section 6320(a) (by producing reprints of the 2003 lien notices and certified mail records showing that Mr. Haag signed for the 2003 lien notices), and in January 2006 the District Court granted the Government's motion for summary judgment on the Haags' notice claim and dismissed the Haags' action.



The Haags appealed Haag I, specifically challenging (1) the dismissal of their claim for damages for the IRS's alleged failure to provide them with collection notices and notices of their right to a CDP hearing; (2) the denial of their motion to enforce a supposed settlement agreement; and (3) the denial of their motion to disqualify the Department of Justice from representing the Government in Haag I. The Haags did not assert any error in the District Court's innocent spouse ruling, which had denied Mrs. Haag summary judgment on that issue and had granted partial summary judgment to the Government. 6 In April 2007 the Court of Appeals for the First Circuit affirmed the judgment of the District Court. Haag v. United States, 485 F.3d 1 [99 AFTR 2d 2007-1986] (1st Cir. 2007).



Haag III 7

Mrs. Haag submitted to the IRS a Form 8857, Request for Innocent Spouse Relief, in April 2005 (i.e., after the District Court's September 2004 order denying her innocent spouse claims, but before the Court of Appeals affirmed the District Court). In a Decision Letter Concerning Equivalent Hearing Under Section 6320 dated August 31, 2006, the IRS stated that Mrs. Haag was not entitled to relief under either section 6015(b) or (f) because her April 2005 request was not timely pursuant to 26 C.F.R. section 1.6015-5(b)(1), Income Tax Regs. 8



In October 2007 (after the Court of Appeals for the First Circuit denied her appeal of Haag I), Mrs. Haag filed suit against the IRS in the District Court, on the basis of her April 2005 request. Haag v. IRS (Haag III), No. 07-12007 (D. Mass. filed Oct. 22, 2007), affd. sub nom. Haag v. United States, 589 F.3d 43 [104 AFTR 2d 2009-7722] (1st Cir. 2009). She again alleged that she met the criteria for relief under section 6015; she claimed she had a right to innocent spouse relief; and she al[pg. 567] leged that the IRS had violated its regulations in failing to hear and grant her claim. She sought damages under section 7433 and attorney's fees.



The Government moved to dismiss the suit, arguing that the claim in Haag III was barred by res judicata. In a memorandum and order, the District Court held that Haag I was a final judgment on the merits of Mrs. Haag's innocent spouse claim; that the parties in Haag I and Haag III are identical; and that Haag I and Haag III arose from the same common nucleus of operative facts, i.e., that the innocent spouse claims in both suits were the same. In January 2008 the District Court held that Mrs. Haag's claim in Haag III was barred by claim preclusion, and it granted the Government's motion to dismiss. Haag v. IRS, No. 07-12007, slip op. at 3 (D. Mass. Jan. 15, 2008).



Mrs. Haag appealed the judgment in Haag III, specifically challenging the holding that res judicata barred her from relitigating the innocent spouse claim. Mrs. Haag then filed with the District Court a motion for relief from the judgment in Haag III; the District Court denied her motion; and Mrs. Haag appealed that denial. In December 2009 the Court of Appeals for the First Circuit again affirmed the District Court, concluding that neither of her appeals had merit and stating that “both Kathleen Haag's innocent spouse defense and the contours of her right, if any, to a hearing were fully adjudicated in Haag I and resulted in a final judgment on the merits against her.” Haag v. United States, 589 F.3d at 46. The Court of Appeals concluded that because her complaint in Haag III concerned the same nucleus of operative facts as Haag I, her innocent spouse claim in Haag III is barred by res judicata. Id. The Court of Appeals also affirmed the dismissal of Haag II as barred by the res judicata effect of Haag I. Id.



Post-Lantz requests for relief

In April 2009—i.e., eight months before the Court of Appeals for the First Circuit affirmed Haag III—this Court decided, in Lantz v. Commissioner, 132 T.C. 131 (2009), revd. 607 F.3d 479 [105 AFTR 2d 2010-2780] (7th Cir. 2010), that 26 C.F.R. section 1.6015-5(b)(1), Income Tax Regs., was invalid in imposing the two-year deadline for claims for equitable relief under section 6015(f). Mrs. Haag therefore sought innocent spouse relief under section 6015(f) for a third time, submitting new Forms 8857 dated July 7, 2009, for tax years 1985 through 1991 and 1993. In an attachment to her 2009 requests for relief, Mrs. Haag argued that because Lantz v. Commissioner, supra, had held that regulation invalid, the IRS must consider her claim and grant her relief.



The IRS issued final determinations dated March 23, 2010, denying Mrs. Haag's requests for relief under section 6015(f) for each of 1985-1991 and 1993. The workpapers of the IRS's examiner who considered Mrs. Haag's 2009 requests indicate that the IRS denied relief because of the res judicata effect of court proceedings that determined she was not eligible for innocent spouse relief for the years in issue.



Mrs. Haag petitioned this Court on April 15, 2010, seeking review of the IRS's March 2010 denials of innocent spouse relief. The IRS moved for summary judgment on the basis of res judicata; and Mrs. Haag opposed the IRS's motion.



Discussion

I. Relief from joint liability

Section 6013(d)(3) provides that when married taxpayers file a joint return, the tax is computed on their aggregate income, and their liability to pay the tax shown on the return or found to be owing is joint and several. See also 26 C.F.R. sec. 1.6013-4(b), Income Tax Regs. That is, each spouse is liable for the entire joint tax liability. However, section 6015 provides several means for a taxpayer to seek relief from joint liability; and if the IRS determines not to grant such relief to a taxpayer, section 6015(e) gives this Court jurisdiction to review that determination.



II. Res judicata arising from Haag I

Mrs. Haag's non-entitlement to relief under section 6015 for the eight years at issue has already been decided, and the [pg. 568] doctrine of res judicata (Latin for “a thing adjudicated”) requires us to follow that prior decision. Res judicata has the “purpose of protecting litigants from the burden of relitigating an identical issue and of promoting judicial economy by preventing unnecessary or redundant litigation.” Meier v. Commissioner, 91 T.C. 273, 282 (1988). Res judicata (also called “claim preclusion”) was developed by the courts to bar repetitious suits on the same cause of action and is applicable to tax litigation. 9 As the Supreme Court explained:



[W]hen a court of competent jurisdiction has entered a final judgment on the merits of a cause of action, the parties to the suit and their privies are thereafter bound “not only as to every matter which was offered and received to sustain or defeat the claim or demand, but as to any other admissible matter which might have been offered for that purpose.” ***



Commissioner v. Sunnen, 333 U.S. 591, 597-598 [36 AFTR 611] (1948) (quoting Cromwell v. County of Sac, 94 U.S. 351, 352 (1877)). Simply stated,



Under res judicata, a final judgment on the merits of an action precludes the parties or their privies from relitigating issues that were or could have been raised in that action.



Allen v. McCurry, 449 U.S. 90, 94 (1980).



Under the Supreme Court's explication of res judicata in Commissioner v. Sunnen, supra, four conditions must be met to preclude relitigation of a claim: (1) The parties in each action must be identical (or at least be in privity); (2) a court of competent jurisdiction must have rendered the first judgment; (3) the prior action must result in a final judgment on the merits; and (4) the same cause of action or claim must be involved in both suits. See United States v. Shanbaum, 10 F.3d 305, 310 (5th Cir. 1994). Once these conditions are met, each party is prohibited from raising any claim or defense that was or could have been raised as part of the litigation over the cause of action in the prior case. Id. Those four conditions are met here:



1. In Haag I, Mrs. Haag was the defendant, and the United States Government was the plaintiff. In this case, Mrs. Haag is the petitioner, and the respondent is the Commissioner of the IRS—an agency of the United States Government. A “judgment in a suit between a party and a representative of the United States is res judicata in relitigation of the same issue between that party and another officer of the government” because officers of the same government are in privity. Sunshine Anthracite Coal Co. v. Adkins, 310 U.S. 381, 402-403 [24 AFTR 956] (1940). Privity exists when the United States is a party in the District Court and the Commissioner of Internal Revenue is the respondent here. Gammill v. Commissioner, 62 T.C. 607, 614 (1974). Thus, the parties are sufficiently identical.



2. The Government sued Mrs. Haag in Haag I to reduce unpaid assessments to judgment, and the District Court had jurisdiction over that action under sections 7401 and 7402(a) and 28 U.S.C. sections 1340 and 1345. Mrs. Haag pleaded her innocent spouse claim in her answer, and the District Court entertained that claim as an affirmative defense to the Government's collection claim. The Court of Appeals for the First Circuit affirmed that judgment in Haag I; and when Mrs. Haag tried to resist the application of res judicata in Haag III, the same Court of Appeals (and the court to which an appeal from the instant case would lie) held against her again. Any challenge to the competency of the District Court to enter judgment on that claim has been resolved against Mrs. Haag. 10



3. The District Court's judgment considered Mrs. Haag's innocent spouse claim: Mrs. Haag sought summary judgment and the Government sought partial summary [pg. 569] judgment on the innocent spouse defense, and the District Court granted the Government's motion because it held that Mrs. Haag failed to satisfy the statutory and regulatory requirement that she timely request relief. The District Court's judgment was a final judgment on the merits of this claim.



4. Finally, in this case Mrs. Haag seeks innocent spouse relief for tax years 1985-1991 and 1993. Identity between claims raised in an earlier and a later suit depends on whether the claims derive from a common nucleus of operative facts—the transactional approach. Gonzales v. Banco Cent. Corp., 27 F.3d 751, 755 (1st Cir. 1994). The District Court entered a judgment of approximately $1.85 million against Mrs. Haag and her husband for tax years 1985-1991 and 1993, and the District Court decided Mrs. Haag was not eligible to seek innocent spouse relief for those same years. Thus, the innocent spouse claim that she attempts to raise in this case (for tax years 1985-1991 and 1993) derives from the same nucleus of operative facts as the innocent spouse claim that she already litigated (for the same tax years) in Haag I.



Where the four conditions for claim preclusion are thus present, relitigation of a claim is barred by res judicata.



III. The non-effect of Lantz v. Commissioner

A legal development important to Mrs. Haag occurred after Haag I held that her assertion of section 6015 was untimely: This Court struck down section 1.6015-5(b)(1), Income Tax Regs., as an invalid interpretation of section 6015(f) in Lantz v. Commissioner, 132 T.C. 131 (2009), revd. 607 F.3d. 479 [105 AFTR 2d 2010-2780] (7th Cir. 2010). 11 Thus, if Mrs. Haag were seeking innocent spouse relief in this Court in the first instance, then—apart from any effect of Haag I— her delay in requesting that relief would not necessarily disqualify her. She implicitly argues that this Court's intervening decision in Lantz should forestall the application of res judicata arising from Haag I. This argument cannot avail.



The doctrine of res judicata (unlike the doctrine of collateral estoppel) 12 admits no exception for changes in the law. Res judicata prohibits the relitigating of a claim or cause of action, absent fraud or some other factor that invalidates the original judgment. Commissioner v. Sunnen, 333 U.S. at 597. Thus, even where the law has changed after a first judgment on the merits, a given claim may be relitigated only if the first judgment is voided in the original court or reversed on appeal. 13 Therefore, a change in the law after a matter has been litigated does not change the claim-preclusive effect of the earlier decision. Id. at 598-599.



In Haag I Mrs. Haag litigated her innocent spouse claim for the very years that are at issue here, and under res judicata the judgment in Haag I precludes her raising in this Court a repetitive claim for those same years. She is therefore precluded from “relitigating issues that were or could have been raised in that action”, Allen v. McCurry, 449 U.S. at 94 (emphasis added), including the issue of the validity of 26 C.F.R. section 1.6015-5(b)(1), Income Tax Regs. Our invalidating the regulation does not render invalid the District Court's judgment (affirmed on appeal) in Haag I and cannot deprive that judgment of res judicata effect. [pg. 570]



IV. The inapplicability of section 6015(g)(2)

Mrs. Haag insists that she has never had the opportunity to establish that she is entitled to innocent spouse relief, and in a sense that is correct; i.e., the two-year time bar of the regulation has prevented her attempts to prove that she is entitled to relief. She invokes section 6015(g)(2), which provides:



(2) Res judicata.—In the case of any election under subsection (b) or (c) or of any request for equitable relief under subsection (f), if a decision of a court in any prior proceeding for the same taxable year has become final, such decision shall be conclusive except with respect to the qualification of the individual for relief which was not an issue in such proceeding. The exception contained in the preceding sentence shall not apply if the court determines that the individual participated meaningfully in such prior proceeding. [Emphasis added.]



That is, to escape the effect of res judicata from prior litigation, the requesting spouse must show (1) that her innocent spouse claim “was not an issue” in the prior proceeding and (2) that she did not “participate[] meaningfully” in the prior proceeding. Mrs. Haag meets neither of those conditions.



First, her innocent spouse claim was explicitly at issue in Haag I and was presented to the court by the parties' cross-motions for summary judgment on that very issue, and the District Court explicitly denied her claim for innocent spouse relief.



Second, her allegation that she did not meaningfully participate in Haag I falls far short. Mrs. Haag was a party in Haag I; she had a lawyer; and he pressed her innocent spouse claim. It cannot be said that she did not participate meaningfully in Haag I. Section 6015(g)(2) therefore does not alter the operation of res judicata in this instance.



Because res judicata bars Mrs. Haag's relitigating the innocent spouse claims she already litigated in Haag I, we will grant respondent's motion for summary judgment and affirm the IRS's denial of innocent spouse relief to Mrs. Haag.



To reflect the foregoing,



An appropriate order and decision will be entered.

1





Unless otherwise indicated, all section references are to the Internal Revenue Code of 1986 (26 U.S.C.), as amended, and all Rule references are to the Tax Court Rules of Practice and Procedure.

2



In her statement of facts in dispute, submitted in United States v. Haag (Haag I), 94 AFTR 2d 2004-6665, 2005-1 [94 AFTR 2d 2004-6665] USTC par. 50,131 (D. Mass. 2004), affd. 485 F.3d 1 [99 AFTR 2d 2007-1986] (1st Cir. 2007), discussed below, Mrs. Haag admits that the IRS issued the levy notices in September 1999. Pursuant to Fed. R. Evid. 201, we take judicial notice of the record of Haag I and the other District Court cases discussed herein. Mrs. Haag now appears to deny the fact, but under Rule 121 she cannot rely on her mere denial when opposing the IRS's motion for summary judgment, but rather she must submit evidence to raise a genuine issue of material fact. She has not submitted an affidavit or other evidence to do so, and we take the fact as admitted in Haag I.

3



The District Court found that the issue of the Haags' tax liability for 2001 was moot because the liability had been paid. We will therefore not further discuss the 2001 year, since it has no bearing on the outcome of this case.

4



With its summary judgment motions, first in the District Court and later in this Court, the Government submitted transcripts of account for the Haags for the tax years in question. Although those account transcripts show notices of Federal tax lien filed against the Haags in 1992, 1994, and 1995, the Government's motions measure the timeliness of Mrs. Haag's innocent spouse requests relative to the 1999 levy notice. Obviously, if Mrs. Haag's requests were untimely as to the later levy action, they were even more untimely as to the earlier lien filings.

5



The statutory bars of section 6015(b)(1)(E) and (c)(3)(B) were unassailable in the District Court action, and the record contains no indication of any direct challenge to the validity of 26 C.F.R. section 1.6015-5(b)(1), Income Tax Regs., in any of Mrs. Haag's District Court cases. It is not clear whether Mrs. Haag sought relief under section 6015(c), and there is nothing in the record to suggest that she was divorced, separated, or living apart from Mr. Haag, as section 6015(c)(3)(A)(i) would have required.

6



The Haags also did not appeal the District Court's reducing to judgment, in favor of the Government, the $1.85 million of Federal tax assessments against the Haags. Haag v. United States, 485 F.3d 1, 4 [99 AFTR 2d 2007-1986] (1st Cir. 2007).

7



Between Haag I and Haag III the Haags had filed an additional suit, which we refer to as Haag II. In August 2006 they sued the Government in the District Court for damages under section 7433 for the IRS's alleged failure to send proper collection notices to the Haags' attorney in connection with refiling the liens in 2003. Among other claims, the Haags alleged that Mrs. Haag satisfied the requirements of section 6015 and therefore qualified for innocent spouse relief. After Mr. Haag filed a bankruptcy petition in November 2006, the District Court closed Haag II with the following docket entry: “In View of Mr. Haag's Bankruptcy, This Case Is Ordered Administratively Closed.” Haag v. IRS (Haag II), No. 06-cv-11551 (D. Mass. Nov. 28, 2006) (order closing case), affd. sub nom. Haag v. United States, 589 F.3d 43 [104 AFTR 2d 2009-7722] (1st Cir. 2009). In Haag II the District Court denied several motions to reopen the case, on the ground that Haag I barred the action on the grounds of res judicata, and the Court of Appeals affirmed the dismissal and the conclusion that the question of whether the IRS provided proper notice of the collection action had been decided in Haag I. Haag v. United States, 589 F.3d at 45-46. Consequently, the Haag II suit has no effect on this case, and we do not discuss it further.

8



The IRS considered Mrs. Haag's April 15, 2005, innocent spouse claim as part of an equivalent hearing triggered by a request for a CDP hearing that the Haags also submitted on April 15, 2005.

9



The related doctrine of collateral estoppel (or “issue preclusion”) prevents the relitigation of an identical issue, even in connection with a different claim or cause of action. The rule of collateral estoppel provides, “When an issue of fact or law is actually litigated and determined by a valid and final judgment, and the determination is essential to the judgment, the determination is conclusive in a subsequent action between the parties, whether on the same or a different claim.” 1 Restatement, Judgments 2d, sec. 27 (1982); see also Allen v. McCurry, 449 U.S. 90, 94 (1980) (”Under collateral estoppel, once a court has decided an issue of fact or law necessary to its judgment, that decision may preclude relitigation of the issue in a suit on a different cause of action”); Montana v. United States, 440 U.S. 147, 153-154 (1979).

10



Whether a District Court has jurisdiction to decide an innocent spouse claim in a collection suit (such as Haag I) can be disputed. See Pollock v. Commissioner, 132 T.C. 21, 25 n.11 (2009). However, Mrs. Haag's challenge to the res judicata effect of Haag I was resolved against her in Haag III, so that she is collaterally estopped (see note 9 above) from challenging the res judicata effect of Haag I.

11



After the Court of Appeals for the Seventh Circuit reversed Lantz, we reconsidered the matter but did not change our position. See Hall v. Commissioner, 135 T.C. 374 (2010), on appeal (6th Cir., Dec. 7, 2010). The Court of Appeals for the Third Circuit has recently held the two-year deadline to be valid. See Mannella v. Commissioner, 631 F.3d 115 [107 AFTR 2d 2011-519] (3d Cir. 2011), revg. 132 T.C. 196 (2009).

12



Collateral estoppel may not lie where the controlling facts or applicable legal rules have changed. See Commissioner v. Sunnen, 333 U.S. 591, 599-600 [36 AFTR 611] (1948). Where the legal or factual situation in the second case is different, the prior determination on that issue may no longer be conclusive. For example, “a judicial declaration intervening between the two proceedings may so change the legal atmosphere as to render the rule of collateral estoppel inapplicable.” Id. at 600. However, even assuming that our decision in Lantz is such a “judicial declaration”, we note that it was issued in April 2009, eight months before the Court of Appeals for the First Circuit affirmed Haag III in December 2009. It is therefore not strictly correct that Lantz “interven[ed] between” Haag III and this case.

13



Accordingly, any relief for Mrs. Haag would lie not in this Court, where res judicata bars her relitigating the innocent spouse claim, but in the Federal courts in Massachusetts, where the original decisions might be voided or reversed. Of course, having already lost this issue in those courts at trial and several times on appeal, Mrs. Haag may have no practical remedy for her failure to timely request relief, but that does not confer on this Court any power to undo their decisions.