Friday, May 30, 2008

Section 7201 provides in pertinent part that "Any person who willfully attempts in any manner to evade or defeat any tax imposed by this title or the payment thereof shall * * * be guilty of a felony". Section 7201 encompasses two closely related but distinct crimes: (1) An attempt to evade or defeat any tax (evasion of assessment),and (2) an attempt to evade or defeat the payment of any tax (evasion of payment). See Sansone v. United States, 380 U.S. 343, 354 (1965) (citing Lawn v. United States, 355 U.S. 339 (1958)).


Letantia Bussell and Estate of John Bussell, Deceased, Letantia Bussell, Surviving Spouse v. Commissioner.

Dkt. No. 5766-04L , 130 TC --, No. 13, May 29, 2008.

[

[Code Secs. 6330, 6331, 7201 and 7429]

Collection Due Process: Jeopardy Levy: Notice requirements: Tax Evasion: Conviction: Collateral Estoppel. --

The IRS did not abuse its discretion by determining that a married couple's unpaid tax liabilities were excepted from bankruptcy discharge because the wife had been convicted of attempted tax evasion and bankruptcy fraud. In addition, the IRS properly proceeded with collection of the unpaid taxes by serving jeopardy levies. The taxpayer was collaterally estopped from arguing that her tax liabilities (and interest and penalties thereon) were discharged by bankruptcy in a petition against a jeopardy levy because she had been properly convicted of attempted tax evasion under Code Sec. 7201. The IRS did not violate any notice requirement of Code Sec. 6331 or Code Sec. 7429 when it issued the jeopardy levy. --CCH.





Letantia Bussell, pro se; Ronald S. Chun, for respondent.



R assessed income tax deficiencies, additions to tax, penalties, and interest against PW and her husband (H) for 1983, 1984, 1986, and 1987 (Ps' unpaid tax liabilities). In 1994 R filed notices of Federal tax lien in California and Utah with regard to Ps' unpaid tax liabilities. In early 1995 PW and H filed a bankruptcy petition under ch. 7 of the Bankruptcy Code. The bankruptcy court issued a discharge order in the bankruptcy case later that year.



In 2000 PW and H were indicted and charged with various violations associated with bankruptcy fraud. In February 2002 H died, and no verdict was returned as to him. PW was convicted of, among other crimes, attempted evasion of payment of Ps' unpaid tax liabilities in violation of sec. 7201, I.R.C.



In April 2002 R determined that (1) Ps' unpaid tax liabilities were excepted from discharge in bankruptcy because PW was convicted of attempted evasion of payment of Ps' unpaid tax liabilities, and (2) collection of Ps' unpaid tax liabilities would be jeopardized by delay. R served jeopardy levies and collected amounts that were applied to Ps' unpaid tax liabilities. R subsequently issued to Ps a notice of the jeopardy levies pursuant to secs. 6330 and 7429, I.R.C. Ps requested and received an Appeals Office hearing under sec. 6330, I.R.C. In March 2004 R sent Ps a notice of determination upholding the decision to proceed with the jeopardy levies. Ps timely petitioned this Court to review R's determination.



Held: R did not abuse his discretion in determining that (1) Ps' unpaid tax liabilities were excepted from discharge in bankruptcy by reason of PW's conviction for attempted evasion of payment of Ps' unpaid tax liabilities and that (2) it was appropriate to proceed with collection by serving the jeopardy levies in dispute.



Held, further, although Ps received a discharge and were relieved of personal (in personam) liability for the penalties and related interest that R assessed for the years in issue, the liens that R filed before Ps filed for bankruptcy attached to certain of Ps' assets, survived the bankruptcy proceeding, and enabled R to collect the penalties and interest by an action against Ps in rem.



Held, further, R complied with sec. 6331(a), I.R.C., by providing Ps with notice and demand for payment of their unpaid tax liabilities for the years in issue before proceeding with collection by serving the jeopardy levies in dispute.



MARVEL, Judge: Petitioners1 invoked the Court's jurisdiction pursuant to section 6330(d)2 to review respondent's determination that it was appropriate to collect petitioners' unpaid tax liabilities for 1983, 1984, 1986, and 1987 (sometimes referred to as the years in issue) by serving jeopardy levies. As explained in detail below, we shall sustain respondent's determination.





FINDINGS OF FACT



Some of the facts have been stipulated. We incorporate the stipulated facts into our findings by this reference. Petitioner Letantia Bussell (petitioner) resided in California when the petition was filed.



Petitioner was married to John Bussell (Mr. Bussell) (collectively the Bussells) from 1972 until his death in 2002.



Petitioner is a licensed physician with a specialty in dermatology. Since 1979 she has maintained a dermatology practice in Beverly Hills, California. From 1981 through approximately 1995 petitioner conducted her medical practice through various corporations including Letantia Bussell MD Inc. Mr. Bussell was a licensed physician specializing in anesthesiology until he became disabled in September 1992.




I. Assessments for 1983, 1984, 1986, and 1987


The Bussells filed joint Forms 1040, U.S. Individual Income Tax Return, for 1983, 1984, 1986, and 1987. Respondent subsequently examined those tax returns and, pursuant to deficiency procedures and other means, entered substantial assessments of Federal income tax, additions to tax, penalties, and interest for each year. The validity of these assessments is not in issue.3




II. Notices of Balance Due and Notices of Intent To Levy


Between November 1992 and October 1993 respondent sent the Bussells multiple notices of balance due for each of the years in issue to correspond with the assessments mentioned above.



Between May and November 1993 respondent sent the Bussells a separate notice of intent to levy for each of the years in issue.




III. Balances Due for the Years in Issue


Petitioners failed to pay their taxes for the years in issue. Respondent's records, as of May 29, 2002, reflected that petitioners' unpaid balances for 1983, 1984, 1986, and 1987 totaled $44,556.55, $61,422.27, $600,789.65, and $309,085.73, respectively. These amounts do not include substantial amounts of accrued but unassessed interest for the years in issue inasmuch as respondent's Forms 4340, Certificate of Assessments, Payments, and Other Specified Matters, indicate that respondent last assessed interest for the taxable years 1983, 1984, 1986, and 1987 between June and September 1993.




IV. Notices of Federal Tax Lien for 1983, 1984, 1986, and 1987


On March 10, 1994, respondent filed a notice of Federal tax lien with the Los Angeles County Recorder's Office with respect to petitioners' unpaid tax liabilities for the years in issue. On September 6, 1994, respondent filed a notice of Federal tax lien in Coalville, Utah, with respect to petitioners' unpaid tax liabilities for the years in issue.




V. The Bussells' Bankruptcy Proceeding


On March 7, 1995, the Bussells filed a petition under chapter 7 of the Bankruptcy Code with the U.S. Bankruptcy Court for the Central District of California. The Bussells also filed with the bankruptcy court a list of assets which included a condominium unit in Utah and separate term life insurance policies issued by Connecticut Mutual Life Insurance Co. (Connecticut Mutual)4 and John Hancock Mutual Life Insurance Co. (John Hancock). The Connecticut Mutual and John Hancock life insurance policies were issued to Mr. Bussell as the insured in September 1987 and April 1990, respectively, and petitioner was named as the beneficiary under the Connecticut Mutual policy.5 Neither life insurance policy had a cash surrender value on the date the Bussells' bankruptcy petition was filed. However, under the terms of each policy, Mr. Bussell had a right to renew the policy without evidence of insurability.



The Bussells also disclosed in their list of assets that (1) Mr. Bussell was receiving monthly disability payments totaling $45,650 on four different disability insurance policies, and (2) Mr. Bussell had a pending lawsuit for a claim for unpaid disability benefits against a fifth insurance company.



The Bussells failed to include various assets in the list of assets they submitted to the bankruptcy court. One such asset was a pension plan account that petitioner maintained at Washington Mutual Bank under the name L.B. Bussell Medical Corp. As of December 31, 1994, shortly before the Bussells filed their bankruptcy petition, there was a balance of $284,040 in the pension plan account.



On April 14, 1995, the bankruptcy trustee filed a so-called no asset report with the bankruptcy court. On August 22, 1995, the bankruptcy court entered an order of discharge in the Bussells' bankruptcy case which stated in pertinent part: "The above-named debtor is released from all dischargeable debts".




VI. Criminal Proceedings


On July 5, 2000, the Federal grand jury for the Central District of California returned a 17-count indictment against the Bussells and one of their attorneys. United States v. Bussell, case No. SA CR 01-56(A)-AHS. On January 31, 2002, a superseding indictment was filed against the Bussells and their attorney.



On February 6, 2002, at the close of the criminal trial, Mr. Bussell died. Although no verdict was returned as to Mr. Bussell, petitioner was convicted of one count of violating 18 U.S.C. section 371 (conspiracy to commit an offense against or defraud the United States), two counts of violating 18 U.S.C. section 152(1) (concealment of assets in bankruptcy), two counts of violating 18 U.S.C. section 152(3) (false declaration and statement in bankruptcy), and one count of violating section 7201 (attempted evasion of payment of tax). With regard to this last count, the superseding indictment stated that beginning in June 1992 and continuing until at least August 1995 the Bussells willfully attempted to evade and defeat the payment of a total of $353,394 of the income tax they owed for 1983, 1984, 1986, and 1987 by fraudulently causing the bankruptcy court to discharge their tax debts.



Petitioner was sentenced to a term of incarceration and was initially ordered to pay restitution to various creditors, exclusive of special assessments and interest, totaling $2,393,527. Pursuant to this order, petitioner was directed to pay $1,067,621.90 to the Internal Revenue Service (IRS). Petitioner was further ordered to pay the costs of prosecution totaling $62,214.37, pursuant to section 7201.



Petitioner appealed to the Court of Appeals for the Ninth Circuit, which issued an opinion affirming petitioner's convictions and remanding the case for further proceedings. See United States v. Bussell, 414 F.3d 1048 (9th Cir. 2005). Following the remand, the Court of Appeals issued a second opinion affirming both petitioner's sentence and an order directing petitioner to pay restitution of $2,284,172.87 and prosecution costs of $55,626.09. See United States v. Bussell, 504 F.3d 956, 963-968 (9th Cir. 2007).




VII. Jeopardy Levies


On or about April 30, 2002, respondent's area director for Los Angeles, California, made a determination that collection of petitioners' unpaid income tax liabilities for 1983, 1984, 1986, and 1987 would be jeopardized by delay. On or about April 30, 2002, respondent's area director also entered a jeopardy assessment under section 6861(a) of approximately $1.25 million in respect of petitioners' tax liability for 1996.6



Revenue Officer Farrell Stevens (Revenue Officer Stevens) was assigned to collect petitioners' unpaid tax liabilities for 1983, 1984, 1986, 1987, and 1996. On April 30, 2002, Revenue Officer Stevens hand delivered three notices of levy to Washington Mutual Bank. Two of the levy notices pertained to collection of $2,128,931.70 identified as petitioners' unpaid tax liabilities for 1983, 1984, 1986, and 1987. The third levy notice was delivered with respect to collection of petitioners' unpaid tax liability for 1996. In response to the levies, Washington Mutual Bank delivered to respondent a single check for $713,496.28. Of that amount, approximately $150,000 came from three of petitioners' checking accounts, and $563,000 came from a pension plan account petitioners maintained at the bank.



Respondent subsequently served levies for 1983, 1984, 1986, 1987, and 1996 on Connecticut Mutual and John Hancock in respect of the benefits payable to petitioner on term life insurance policies issued to Mr. Bussell. Connecticut Mutual and John Hancock responded to the levies by transferring to respondent $1,043,525.66 and $1 million respectively.




VIII. Administrative and Judicial Proceedings Related to the Jeopardy Levies


On May 2, 2002, 3 days after delivering the above-described levy notices to Washington Mutual Bank, Revenue Officer Stevens mailed to petitioners by certified mail a Notice of Jeopardy evyRight of Appeal for 1983, 1984, 1986, and 1987. The notice stated that petitioners were entitled to (1) request an administrative review of the jeopardy levy determination pursuant to section 7429 and (2) request an Appeals Office hearing regarding the jeopardy levy determination pursuant to section 6330.



A. Petitioners' Request for an Appeals Office Hearing Under Section 6330



On May 13, 2002, petitioners filed with respondent pursuant to section 6330 a handwritten Form 12153, Request for a Collection Due Process Hearing, listing the years in dispute as 1983, 1984, 1986, 1987, and 1996. On or about May 30, 2002, petitioners' representative filed with respondent a second (typed) request for an administrative hearing. In both requests petitioners asserted that (1) their underlying tax liabilities were not subject to collection because they were discharged in bankruptcy and (2) petitioner was eligible for relief under section 6015.



B. Petitioners' Civil Complaint Filed Pursuant to Section 7429



On August 23, 2002, petitioners filed a complaint in the U.S. District Court for the Central District of California, Bussell v. Commissioner, case No. CV-02-6629 SVW, seeking review pursuant to section 7429(b) of the jeopardy levies (described above) and the jeopardy assessment for 1996. Shortly after the complaint was filed, the parties filed cross-motions for summary judgment. Petitioners argued that they were unable to hide or dissipate assets because of court supervision, that the Government was able to acquire petitioners' assets by other means, that other assets were available to satisfy the tax liabilities, and that all tax penalties were discharged in bankruptcy.



On or about December 11, 2002, the District Court entered an order granting the Commissioner's motion for summary judgment and denying petitioners' motion for summary judgment. The District Court held that the Commissioner had satisfied his burden of proof, i.e., that his jeopardy determination was reasonable, inasmuch as petitioner's criminal history demonstrated that petitioner failed to report income and engaged in a scheme to hide assets from the Commissioner in an attempt to defeat collection of unpaid taxes. The District Court also held that petitioners failed to satisfy their burden of showing that the jeopardy assessment for 1996 pursuant to section 6861(a) was not appropriate under the circumstances.7



C. Petitioner's Payment



On or about May 19, 2003, petitioner remitted to respondent a cashier's check in the amount of $680,000. Petitioner included the following notation on the back of the check: "This check is being tendered for full payment of claimed alleged taxes, interest, and penalties by the IRS against Letantia Bussell. It is tendered with full reservation of rights and under protest." By letter to petitioner dated May 19, 2003, Revenue Officer Stevens acknowledged receipt of the check and indicated that petitioners' tax liability for 1996 was paid in full and that the IRS would release any outstanding liens and levies for 1983, 1984, 1986, 1987, and 1996. However, by letter dated September 10, 2003, Revenue Officer Stevens informed petitioners' counsel that, taking into account additional interest assessments, petitioner still owed $541,372.24 for 1983, 1984, and 1986 and that amount might be abated for lack of additional prepetition assets to provide a source for collection, but that the matter ultimately would be decided by respondent's counsel.



D. Petitioner's Refund Claim



In 2003 petitioner submitted to respondent a Form 843, Claim for Refund and Request for Abatement, for 1986 and 1987. Petitioner alleged in her petition that she did not receive a response to her claim.



E. Appeals Office Proceedings and Notice of Determination



On December 1, 2003, Appeals Officer Charlotte Edginton met with petitioner to conduct an administrative hearing pursuant to section 6330. On March 3, 2004, respondent issued to petitioners a Notice of Determination Concerning Collection Action(s) Under Section 6320 and/or 6330 (notice of determination) with respect to the collection of their tax liabilities for 1983, 1984, 1986, and 1987. The notice of determination includes the following determinations:8 (1) All legal and procedural requirements were met; (2) petitioners were sent multiple notices and demand for payment of the tax liabilities in question; (3) petitioners had ample opportunity to resolve their tax matters with the Commissioner; (4) petitioners failed to submit financial statements as required for consideration of alternative payment methods; (5) petitioners were precluded from challenging their 1983, 1984, 1986, and 1987 tax liabilities because respondent issued notices of deficiency for those years; (6) petitioners' tax liabilities for the years in issue were not discharged in bankruptcy because petitioner was convicted of attempted evasion of payment of those taxes under section 7201, among other crimes; (7) Federal tax liens attached to the Bussells' assets and survived any bankruptcy discharge; (8) petitioner was precluded from asserting a claim for relief under section 6015 because her application for section 6015 relief was unprocessable; and (9) petitioners failed to submit any evidence to establish that the jeopardy levies did not balance the need for efficient collection of taxes with the legitimate concern that any collection action be no more intrusive than necessary. The notice of determination also stated that the Appeals Office declined to consider the taxable year 1996 because petitioners were engaged in a separate collection review proceeding regarding a lien that respondent had filed for 1996.



Petitioners filed with the Court a timely petition and an amendment to petition, challenging respondent's notice of determination. Petitioners contend that (1) their tax liabilities for 1983, 1984, 1986, and 1987, and interest thereon, were discharged in bankruptcy, (2) all penalties assessed for the years in issue, and interest thereon, were discharged in bankruptcy, (3) the liens that respondent filed before petitioners filed for bankruptcy did not attach to any of the assets that respondent levied on during 2002, (4) respondent failed to provide petitioners with notice and demand for payment in advance of the jeopardy levies, and (5) respondent waived the right to challenge issues (1) and (3) above.





OPINION



Our review of respondent's determination to proceed with collection requires an understanding of the interplay between laws governing collection of Federal income taxes and laws extending protections to debtors who file for bankruptcy. Consequently, we shall preface our analysis with a brief overview of (1) the Secretary's authority to collect Federal income taxes, (2) the protections extended to taxpayers in collection matters pursuant to sections 6320 and 6330, and (3) protections afforded taxpayers under the Federal bankruptcy laws.




I. The Secretary's Authority To Assess and Collect Income Taxes


The Secretary is required to make inquiries, determinations, and assessments of all taxes imposed under the Internal Revenue Code. Sec. 6201(a). An assessment is made when the liability of the taxpayer is recorded in the Office of the Secretary. Sec. 6203.



Section 6301 authorizes the Secretary to collect taxes imposed by the internal revenue laws. As a general rule, the Secretary is obliged, within 60 days after making an assessment of tax under section 6203, to give notice to each person liable for such tax stating the amount due and demanding payment thereof. Sec. 6303(a). Such notice may be left at the person's dwelling or usual place of business or shall be sent by mail to the person's last known address. Sec. 6303(a).



A. Liens



Section 6321 provides that if any person liable to pay any tax neglects or refuses to pay the same after demand, the tax and any interest, additional amount, addition to tax, or assessable penalty shall be a lien in favor of the United States upon all property and rights to property, whether real or personal, belonging to such person. The lien imposed under section 6321 generally arises at the time the assessment is made and continues until the tax liability is satisfied or becomes unenforceable by reason of lapse of time. Sec. 6322. However, the lien imposed under section 6321 is not valid against any purchaser, holder of a security interest, mechanic's lienor, or judgment lien creditor until the Secretary files notice of the lien with the proper State or Federal authorities. Sec. 6323(a), (f).



B. Levies



Section 6331(a) provides that, if any person liable to pay any tax neglects or refuses to pay the tax within 10 days after notice and demand, the Secretary is authorized to collect such tax by levy upon all property and rights to property belonging to such person or on which there is a lien for the payment of such tax. The final sentence of section 6331(a) provides:



If the Secretary makes a finding that the collection of such tax is in jeopardy, notice and demand for immediate payment of such tax may be made by the Secretary and, upon failure or refusal to pay such tax, collection thereof by levy shall be lawful without regard to the 10-day period provided in this section.



In connection with the foregoing, section 6331(d)(1) and (2) sets forth the general rule that the Secretary must provide a taxpayer with 30 days' advance notice before proceeding with collection by levy. Nevertheless, section 6331(d)(3) provides that paragraph (1) shall not apply to a levy if the Secretary determines that collection of the tax is in jeopardy under the final sentence of section 6331(a).




II. Collection Review Proceedings Under Sections 6320 and 6330


Section 6330(a) provides the general rule that no levy may be made on any property or right to property of any taxpayer unless the Secretary has provided 30 days' advance notice to the taxpayer of the right to an administrative hearing before the levy is carried out. Section 6330(f) provides, however, that if the Secretary finds that the collection of the tax is in jeopardy, the taxpayer shall be given the opportunity for a section 6330 hearing within a reasonable time after the levy.



If the taxpayer makes a timely request for an administrative hearing, the hearing shall be conducted by the IRS Office of Appeals (Appeals Office) before an impartial officer. Sec. 6330(b)(1), (3). The parameters for the hearing are set forth in section 6330(c). First, the Appeals officer must obtain verification from the Secretary that the requirements of any applicable law or administrative procedure have been met. Sec. 6330(c)(1). Second, the taxpayer may raise at the hearing any issue relevant to the collection action, including spousal defenses, challenges to the appropriateness of the collection action, and offers of collection alternatives. Sec. 6330(c)(2)(A). Additionally, the taxpayer may contest the existence and amount of the underlying tax liability, but only if he or she did not receive a notice of deficiency or otherwise have an opportunity to dispute the tax liability. Sec. 6330(c)(2)(B). The Appeals officer must make a determination after reviewing the matters prescribed in section 6330(c)(1) and (2) and considering whether the proposed collection action balances the need for efficient collection of taxes with the legitimate concern of the taxpayer that the collection should be no more intrusive than necessary. Sec. 6330(c)(3).



After the Appeals Office makes a determination under section 6330(c), the taxpayer may petition the Tax Court for judicial review. Sec. 6330(d). If the taxpayer's underlying tax liability is properly at issue, the Court reviews any determination regarding the underlying tax liability de novo. Sego v. Commissioner, 114 T.C. 604, 610 (2000). The Court reviews any other administrative determinations regarding the proposed collection action for abuse of discretion. Id.




III. Protections Afforded Taxpayers Under the Bankruptcy Code


A debtor who files a bankruptcy petition under chapter 7 of the Bankruptcy Code shall be granted a discharge unless one of the grounds for denial of discharge enumerated in that chapter exists. 11 U.S.C. sec. 727(a). Title 11 U.S.C. section 727(b) provides in relevant part that, except as provided in 11 U.S.C. section 523, a discharge under subsection (a) of 11 U.S.C. section 727 discharges a debtor from personal liability for all debts incurred before the bankruptcy petition was filed. See United States v. Hatton, 220 F.3d 1057, 1059-1060 (9th Cir. 2000).



Title 11 U.S.C. section 523(a) sets forth several exceptions to discharge under 11 U.S.C. section 727 and provides in pertinent part:



§ 523. Exceptions to discharge



(a) A discharge under section 727 * * * of this title does not discharge an individual debtor from any debt --



(1) for a tax or a customs duty --



(A) of the kind and for the periods specified in section 507(a)(2) or 507(a)(8) of this title, whether or not a claim for such tax was filed or allowed;



(B) with respect to which a return, if required --



(i) was not filed; or



(ii) was filed after the date on which such return was last due, under applicable law or under any extension, and after two years before the date of the filing of the petition; or



(C) with respect to which the debtor made a fraudulent return or willfully attempted in any manner to evade or defeat such tax * * *



Title 11 U.S.C. section 507(a)(8) refers to certain income taxes due for specified periods before the bankruptcy petition was filed. See Washington v. Commissioner, 120 T.C. 114, 121-122 (2003). Thus, 11 U.S.C. section 523(a)(1)(C) provides that a discharge under 11 U.S.C. section 727 does not discharge an individual debtor with regard to certain Federal income taxes if the debtor willfully attempted in any manner to evade or defeat such taxes.



A discharge under 11 U.S.C. section 727 relieves the debtor of personal (or in personam) liability. See, e.g., Schott v. WyHy Fed. Credit Union, 282 Bankr. 1, 5 (B.A.P. 10th Cir. 2002). Such a discharge, however, does not protect the debtor's assets if those assets were subject to a Federal tax lien that was properly filed pursuant to section 6323 before the bankruptcy petition was filed. See 11 U.S.C. sec. 522(c)(2)(B). As the Supreme Court explained in Johnson v. Home State Bank, 501 U.S. 78, 84 (1991), a discharge of personal liability in bankruptcy "extinguishes only one mode of enforcing a claim --namely, an action against the debtor in personam --while leaving intact another --namely, an action against the debtor in rem." See Connor v. United States, 27 F.3d 365, 366 (9th Cir. 1994); Iannone v. Commissioner, 122 T.C. 287, 292-293 (2004); Woods v. Commissioner, T.C. Memo. 2006-38.




IV. Analysis


A. Jurisdiction



In the light of the relatively novel set of circumstances that preceded the filing of the petition, we feel compelled to briefly outline the scope of the Court's jurisdiction in this case. We first note that this case comes before the Court after respondent collected substantial amounts from petitioners for the years 1983, 1984, 1986, and 1987 by issuing jeopardy levies.9 There is no dispute that the Court's jurisdiction to review collection actions under section 6330(d) vests the Court with authority to review the Commissioner's determination to issue a jeopardy levy. See Dorn v. Commissioner, 119 T.C. 356, 359 (2002); see also sec. 301.6330-1(a)(2)(ii), Proced. & Admin. Regs.



We also observe that although petitioners do not dispute the specific amounts of their underlying tax liabilities for any of the years in issue,10 they do assert that some or all of their tax liabilities for the years in issue were discharged in bankruptcy. The Court's jurisdiction to review a collection action under section 6320 and/or 6330 includes the authority to determine whether a taxpayer's unpaid tax liabilities were discharged in a bankruptcy proceeding. See Swanson v. Commissioner, 121 T.C. 111, 118-119 (2003); Washington v. Commissioner, supra at 120-121. A taxpayer's assertion that his or her tax liabilities were discharged in bankruptcy amounts to a challenge to the appropriateness of the collection action under section 6330(c)(2)(A). Swanson v. Commissioner, supra at 119. Accordingly, we have jurisdiction to review respondent's determination that petitioners' tax liabilities were excepted from discharge in the bankruptcy proceeding. See Kendricks v. Commissioner, 124 T.C. 69, 75 (2005); Swanson v. Commissioner, supra at 119.



Finally, the notice of determination includes a statement that any question regarding the appropriateness of the disputed jeopardy levies is moot inasmuch as petitioners' tax liabilities for the years in issue were fully paid by application of the amounts collected through the jeopardy levies and petitioner's payment in May 2003.11 We conclude that this matter is not moot.



When the Commissioner determines that collection of tax is in jeopardy, the taxpayer is not afforded a prior opportunity for a hearing under section 6330 to challenge the appropriateness of the levy before it is issued. See sec. 6330(f)(1). In recognition of this reality, section 6330(f) provides that the taxpayer against whom a jeopardy levy is issued "shall be given the opportunity for the hearing described in [section 6330] within a reasonable time after the levy." The right to a hearing conferred by section 6330(f) is not limited to situations where some portion of the taxpayer's tax liability remains unpaid. In sum, subsections (d) and (f) of section 6330 confer upon a taxpayer against whom a jeopardy levy has been issued an unqualified right to a postlevy hearing (if timely requested) and judicial review by this Court, regardless of whether the jeopardy levy resulted in the seizure of assets sufficient to fully pay the disputed tax liabilities. See Dorn v. Commissioner, supra.



Consistent with the foregoing, the issues we are called upon to decide are (1) whether the requirements of all applicable laws and administrative procedures were met in respect of the disputed jeopardy levies, and (2) the related questions whether petitioners' tax liabilities were discharged in bankruptcy and whether respondent improperly levied on certain of petitioners' assets.12



B. Dischargeability of Unpaid Taxes



The notice of determination states the Appeals officer concluded petitioners' tax liabilities for the years in issue were excepted from discharge in bankruptcy under 11 U.S.C. section 523(a)(1)(C) and therefore respondent was free to proceed with collection. Petitioners contend that the Appeals officer erred in this determination.



Title 11 U.S.C. section 523(a)(1)(C) excepts from discharge a debtor's liability for taxes if the debtor "willfully attempted in any manner to evade or defeat such tax". Although bankruptcy courts normally make determinations regarding the dischargeability of specific debts, nonbankruptcy courts may exercise jurisdiction to determine the applicability of the exceptions to discharge enumerated in 11 U.S.C. section 523(a) (other than the exceptions contained in subsection (a)(2), (4), and (6)). See 4 Collier on Bankruptcy, par. 523.03, at 523-19 to 523-21 (March 2006). As we explained in Swanson v. Commissioner, supra, the question whether a taxpayer's debts are excepted from discharge may have a direct bearing on whether the Commissioner's determination in a collection action should be sustained.



Neither the Bankruptcy Code nor the Federal Rules of Bankruptcy Procedure impose a time limit or deadline in respect of a determination of the applicability of an exception to discharge under 11 U.S.C. section 523(a)(1)(C). See Fed. R. Bankr. P. 4007(b) (a complaint that a debt is excepted from discharge may be filed anytime during a bankruptcy case, and if the case is closed, the case may be reopened for the purpose of filing such a complaint); see also 4 Collier on Bankruptcy, par. 523.04, at 523-23 (September 2005) ("If the dischargeability issue is not raised during the bankruptcy case, it may be determined potentially in the state court or other nonbankruptcy court in an action initiated by the debtor or as an affirmative defense in an action initiated by the creditor.").13



The exception to discharge under 11 U.S.C. section 523(a)(1)(C) is applicable if the following elements are present: (1) The debtor engaged in an affirmative act or omission to evade or defeat the payment or collection of tax, and (2) the debtor acted willfully. See United States v. Jacobs, 490 F.3d 913, 921 (11th Cir. 2007) (and cases cited therein); United States v. Fegeley, 118 F.3d 979, 983-984 (3d Cir. 1997). A debtor acts willfully under 11 U.S.C. section 523(a)(1)(C) by voluntarily and intentionally violating a known legal duty. Griffith v. United States, 206 F.3d 1389, 1396 (11th Cir. 2000).



Respondent avers that petitioner is collaterally estopped from denying that her tax liabilities for the years in issue were excepted from discharge under 11 U.S.C. section 523(a)(1)(C) because petitioner was convicted of willfully attempting to evade the payment of her tax liabilities for 1983, 1984, 1986, and 1987 under section 7201.14



As explained by the Supreme Court in Montana v. United States, 440 U.S. 147, 153 (1979), the doctrine of issue preclusion, or collateral estoppel, provides that, once an issue of fact or law is "actually and necessarily determined by a court of competent jurisdiction, that determination is conclusive in subsequent suits based on a different cause of action involving a party to the prior litigation." See Parklane Hosiery Co. v. Shore, 439 U.S. 322, 329 (1979). Collateral estoppel is a judicially created equitable principle the purposes of which are to protect parties from unnecessary and redundant litigation, to conserve judicial resources, and to foster certainty in and reliance on judicial action. Montana v. United States, supra at 153-154; United States v. ITT Rayonier, Inc., 627 F.2d 996, 1000 (9th Cir. 1980).



It is well settled that bankruptcy courts may apply the doctrine of collateral estoppel in making dischargeability determinations. See Grogan v. Garner, 498 U.S. 279, 285 n.11 (1991); Simone v. United States, 252 Bankr. 302, 306-307 (Bankr. E.D. Pa. 2000). Inasmuch as this Court has undertaken to determine in the disposition of this collection review proceeding whether petitioners' tax liabilities were excepted from discharge, and with a view to furthering the policies underlying the doctrine of collateral estoppel, we conclude that the doctrine may be asserted and considered by the Court in this collection review proceeding under section 6330.



In Peck v. Commissioner, 90 T.C. 162, 166-167 (1988), affd. 904 F.2d 525 (9th Cir. 1990), the Court identified the following five conditions that must be satisfied before collateral estoppel may be applied in the context of a factual dispute: (1) The issue in the second suit must be identical in all respects with the issue decided in the first suit, (2) the issue in the first suit must have been the subject of a final judgment entered by a court of competent jurisdiction, (3) the person against whom collateral estoppel is asserted must have been a party or in privity with a party in the first suit, (4) the parties must actually have litigated the issue in the first suit and resolution of the issue must have been essential to the prior decision, and (5) the controlling facts and applicable legal principles must remain unchanged from those in the first suit. See United States IRS v. Palmer, 207 F.3d 566, 568 (9th Cir. 2000) (citing Pena v. Gardner, 976 F.2d 469, 472 (9th Cir. 1992)). We shall examine each of these conditions in turn.



Section 7201 provides in pertinent part that "Any person who willfully attempts in any manner to evade or defeat any tax imposed by this title or the payment thereof shall * * * be guilty of a felony". We note that section 7201 encompasses two closely related but distinct crimes: (1) An attempt to evade or defeat any tax (evasion of assessment),15 and (2) an attempt to evade or defeat the payment of any tax (evasion of payment). See Sansone v. United States, 380 U.S. 343, 354 (1965) (citing Lawn v. United States, 355 U.S. 339 (1958)). Petitioner was convicted of attempting to evade the payment of her taxes for the years in issue.



To prove that a taxpayer attempted to evade payment of tax, the Government must establish that the taxpayer failed to pay a tax imposed under the Internal Revenue Code,16 the taxpayer engaged in an affirmative act to evade payment, and the taxpayer acted willfully. See United States v. Schoppert, 362 F.3d 451, 454-456 (8th Cir. 2004). Like the willfulness element under 11 U.S.C. section 523(a)(1)(C), willfulness for purposes of section 7201 requires proof that the taxpayer voluntarily and intentionally violated a known legal duty. Cheek v. United States, 498 U.S. 192, 201 (1991); United States v. Pomponio, 429 U.S. 10, 12 (1976). Because the elements necessary for a conviction under section 7201 overlap with the elements necessary to establish the applicability of the exception to discharge under 11 U.S.C. section 523(a)(1)(C), we conclude the first condition for collateral estoppel is present.



Petitioner was charged in a single count of the superseding indictment with violating section 7201 by willfully attempting to evade and defeat the payment of income taxes she owed for 1983, 1984, 1986, and 1987. The superseding indictment alleged that petitioner fraudulently caused the bankruptcy court to discharge her tax debts for the years in issue. When an act of evasion of payment of taxes involves transfers of funds or concealing assets that cannot logically be assigned to a particular taxable year, section 7201 permits a unit of prosecution charging an evasion of payment of taxes owed for a group of tax years. See United States v. Pollen, 978 F.2d 78, 85-87 (3d Cir. 1992). In United States v. Shorter, 809 F.2d 54, 56-58 (D.C. Cir. 1987), the court explained that tax evasion covering several taxable years may be charged in a single count where the defendant has allegedly engaged in a course of conduct directed at evading payment of those taxes.



After a hard-fought and lengthy trial, petitioner was convicted of several crimes, including a violation of section 7201, as outlined above, and each such conviction was upheld on appeal. See United States v. Bussell, 414 F.3d at 1052. Consequently, we conclude that the second, third, and fourth conditions for the application of collateral estoppel are present. Specifically, petitioner was the defendant in the earlier criminal proceeding, the parties litigated the charge that petitioner violated section 7201, and petitioner's conviction under section 7201 was affirmed by a final judgment entered by the Court of Appeals for the Ninth Circuit.



Finally, there is no dispute that the controlling facts and legal principles remain unchanged from the time of the criminal proceeding to the present. Consistent with the foregoing, we hold that petitioner is collaterally estopped from contesting respondent's determination that her tax liabilities for the years in issue were excepted from discharge under 11 U.S.C. section 523(a)(1)(C).17 See Grothues v. IRS, 226 F.3d 334, 339 (5th Cir. 2000) (taxpayer estopped from challenging 11 U.S.C. section 523(a)(1)(C) discharge exception because taxpayer pleaded guilty to evading the payment of excise taxes under section 7201); Simone v. United States, 252 Bankr. 302 (Bankr. E.D. Pa. 2000).



Petitioner seeks to avoid the application of collateral estoppel by arguing that it is possible the jury decided that she was guilty of violating section 7201 because she attempted to evade the payment of tax for one or more (but not all) of the years in issue. To the contrary, the Government charged petitioner with a single count of violating section 7201 by engaging in a course of conduct intended to evade the payment of taxes for each of the years in issue. As previously mentioned, section 7201 permits a unit of prosecution (a single count) charging evasion of payment of taxes owed for a group of tax years in a case (such as the present case) where it is not practicable to assign to a particular taxable year the value of assets a taxpayer attempted to hide from the Commissioner. See United States v. Pollen, supra at 85-87. Moreover, the record clearly shows that, before filing for bankruptcy, petitioners failed to pay substantial amounts of their tax liabilities for each of the years in issue. There is no indication that petitioners attempted to contest that fact in the criminal case, and it is evident that any attempt to do so would have been futile. Finally, what the Government alleged and proved to the satisfaction of the jury in petitioner's criminal case was that petitioners failed to disclose all of their assets in the bankruptcy proceeding in a willful attempt to use the bankruptcy proceeding as a means to evade the payment of their tax liabilities for the years in issue. Petitioner simply cannot relitigate these facts.



Petitioner also asserts that the exception to discharge under 11 U.S.C. section 523(a)(1)(C), which uses the past tense in referring to a debtor who "willfully attempted" to evade or defeat a tax, is applicable only if the debtor attempted to defeat or evade taxes before filing for bankruptcy; i.e., prepetition. Petitioner reasons that, because the superseding indictment stated that petitioner violated section 7201 by acts committed both prepetition and postpetition,18 the possibility exists that the jury based its guilty verdict solely on petitioner's postpetition activities.



Petitioner does not cite any case in which 11 U.S.C. section 523(a)(1)(C) has been interpreted in this fashion, and we are not aware of such a case. In any event, petitioner's argument is strained and unconvincing --we see no justification for limiting the scope of the exception to discharge set forth in 11 U.S.C. section 523(a)(1)(C) to a taxpayer's prepetition activities when opportunities to deceive the Commissioner and the bankruptcy court are available throughout a bankruptcy proceeding. In sum, we reject petitioner's argument and conclude that the plain language of 11 U.S.C. section 523(a)(1)(C) is properly read as excepting from discharge any tax that petitioner attempted to defeat or evade either before or during the bankruptcy proceeding.



C. Dischargeability of Interest



Petitioners contend that the bankruptcy court's discharge order relieved them of liability for interest accrued on their unpaid tax liabilities. However, interest accrued on a tax liability excepted from discharge is also nondischargeable. See Bruning v. United States, 376 U.S. 358, 360 (1964); Ward v. Board of Equalization (In re Artisan Woodworkers), 204 F.3d 888, 891 (9th Cir. 2000). Because petitioners' 1983, 1984, 1986, and 1987 tax liabilities are excepted from discharge, they remain liable for the interest that accrued on those liabilities.



D. Dischargeability of Penalties



The parties agree that the penalties respondent assessed against petitioners for the years in issue were discharged under 11 U.S.C. section 523(a)(7)(B), which provides for the discharge of any tax penalty "imposed with respect to a transaction or event that occurred before three years before the date of the filing of the petition".19 Respondent apparently does not dispute that there is no exception to discharge for these penalties because 11 U.S.C. section 523(a)(1)(A), which refers to 11 U.S.C. section 507(a), excepts from discharge only priority tax penalties, a term defined in 11 U.S.C. section 507(a)(8)(G) as penalties "in compensation for actual pecuniary loss." Respondent acknowledges that the penalties assessed against petitioners were not "pecuniary loss" penalties. Respondent argues, however, that he was free to collect the penalties in question because the notice of Federal tax lien filed with the Los Angeles County Recorder's Office in March 1994 attached to certain of the Bussells' assets before they filed their bankruptcy petition.



A Federal tax lien that is properly filed before a debtor files for bankruptcy attaches to the debtor's property and is not extinguished by a subsequent bankruptcy discharge. See 11 U.S.C. sec. 522(c)(2)(B); Johnson v. Home State Bank, 501 U.S. at 84; Connor v. United States, 27 F.3d at 366; Iannone v. Commissioner, 122 T.C. at 292-293. On the other hand, a prepetition lien does not attach to property acquired by the debtor after a bankruptcy petition is filed. See, e.g., United States v. McGugin (In re Braund), 423 F.2d 718, 718-719 (9th Cir. 1970).



Respondent contends that the notice of Federal tax lien filed with the Los Angeles County Recorder's Office attached to the pension plan account that petitioners maintained at Washington Mutual Bank and to the Connecticut Mutual and John Hancock term life insurance policies and therefore respondent was justified in levying upon and applying the proceeds from those assets to satisfy the penalties in question.20



Petitioners do not challenge the validity of respondent's lien, nor do they dispute that the Bussells owned the pension plan account and the life insurance policies when they filed their bankruptcy petition. Petitioners argue instead that respondent failed to prove that those assets had sufficient value as of the date of the bankruptcy filing to offset all of the penalties in question. As petitioners see it, respondent must have improperly collected petitioners' postpetition assets and applied the proceeds against petitioners' penalties. Petitioners contend that they are entitled to a refund of any amounts that respondent collected in violation of the bankruptcy discharge as it pertains to tax penalties.



This is not a case in which the levies in question were preceded by an invalid assessment, see Chocallo v. Commissioner, T.C. Memo. 2004-152, nor (as discussed below) did respondent fail to adhere to any of the statutory provisions governing jeopardy levies, see Zapara v. Commissioner, 124 T.C. 223 (2005), as supplemented 126 T.C. 215 (2006). Respondent was entitled, pursuant to the notice of Federal tax lien filed in March 1994, to levy upon prepetition assets to satisfy petitioners' tax liabilities, including the discharged penalties. Because respondent had the right to proceed in rem against petitioners' prepetition assets, respondent's decision to pursue a jeopardy levy was appropriate and was not an abuse of discretion.



Because respondent had the right to proceed in rem against prepetition assets to satisfy the discharged penalties, petitioners' contention that they are entitled to a refund to the extent respondent may have improperly applied proceeds of postpetition assets in partial satisfaction of the discharged penalties is not relevant to the issue before us --whether respondent's use of a jeopardy levy was appropriate. Petitioners' contention may be relevant in an action seeking refund of an overpayment. See sec. 6342(b). However, any ruling by this Court on that subject would amount to an advisory opinion. See, e.g., Greene-Thapedi v. Commissioner, 126 T.C. 1, 13 (2006).



For the reasons already described, we do not have to decide the value of the pension plan account21 or the value of the life insurance policies22 on the date the Bussells filed their bankruptcy petition in order to decide whether the jeopardy levy was appropriate. We conclude only that respondent was entitled to levy on all of these assets and apply the proceeds against petitioners' unpaid tax liabilities, interest thereon, and the penalties in question.



E. Satisfaction of Notice Requirements for Collection



Petitioners contend that the Appeals officer erroneously concluded that petitioners received proper notice before the jeopardy levies were served on Washington Mutual Bank. Specifically, petitioners contend that respondent failed to provide them with notice and demand for immediate payment and, as a result, they were denied the opportunity to fail or refuse to pay their tax liabilities before respondent served the jeopardy levies. As explained below, petitioners simply misconstrue the applicable statutory provisions.



The first sentence of section 6331(a) provides that, if any person liable to pay any tax neglects or refuses to pay the tax within 10 days after notice and demand, the Secretary is authorized to collect such tax by levy upon all property and rights to property belonging to such person or on which there is a lien for the payment of such tax. The final sentence of section 6331(a) provides that if the collection of tax is in jeopardy and the Commissioner finds it necessary to expedite collection, the normal 10 days' advance notice requirement may be set aside and the Commissioner may instead serve the taxpayer with a notice and demand for immediate payment. Petitioners assert that respondent was obliged under the last sentence of section 6331(a) to provide them with notice and demand for immediate payment before proceeding with the jeopardy levies in dispute. We disagree.



The record shows that respondent complied with the first sentence of section 6331(a) by sending the Bussells multiple notices of balance due with regard to their unpaid taxes for the years in issue during 1992 and 1993. In addition, respondent sent them notices of intent to levy for each of the years in issue during 1993, and respondent filed Federal tax liens for the years in issue during 1994. All of these collection notices were issued well in advance of the jeopardy levies which were served in 2002. It is well settled that a notice of balance due constitutes a notice and demand for payment within the meaning of section 6303(a). See Hughes v. United States, 953 F.2d 531, 536 (9th Cir. 1992); see also Hansen v. United States, 7 F.3d 137, 138 (9th Cir. 1993); Craig v. Commissioner, 119 T.C. 252, 262-263 (2002).



Considering that respondent fully complied with the first sentence of section 6331(a) and petitioners repeatedly failed to pay their taxes for the years in issue, respondent was under no obligation to provide petitioners with any additional notice and demand for payment before serving the jeopardy levies in question. Requiring a notice and demand for immediate payment in all jeopardy situations, as petitioners suggest, is inconsistent with both section 6331(d)(3), which provides that the Commissioner is not required to give a taxpayer any notice of his intent to levy if collection is in jeopardy, and section 7429(a)(1)(B), which provides that the Commissioner has 5 days from the date of a jeopardy levy to give the taxpayer written notice of the information upon which he relied in determining that collection was in jeopardy. Simply put, by the time respondent determined that collection of petitioners' tax liabilities was in jeopardy, he had already complied with the 30 days' advance notice requirement, and therefore he was free to serve the jeopardy levies in dispute.23



Petitioners received each collection notice that they were entitled to under the law. In addition to providing petitioners with notice and demand for payment, respondent complied with sections 6330(f) and 7429(a)(1)(B) by providing petitioners with notice of the jeopardy levies and of their rights to administrative and judicial review of the levies 3 days after the levies were served. Petitioners took full advantage of both avenues of review.




V. Conclusion


We conclude that respondent did not abuse his discretion in determining that it was appropriate to proceed with collection by jeopardy levy. The Appeals officer determined that all procedural requirements were met, addressed petitioners' arguments raised at the Appeals Office hearing, and balanced the need for efficient collection of taxes against petitioners' concern that the collection method was overly intrusive. Petitioners' unpaid tax liabilities and the interest accrued thereon were not discharged in bankruptcy, and respondent held a lien on petitioners' property that survived bankruptcy and provided an avenue for respondent to collect some, if not all, of the penalties petitioners owed.



We have considered the remaining arguments of both parties for results contrary to those discussed herein, and to the extent not discussed above, conclude those arguments are irrelevant, moot, or without merit.



To reflect the foregoing,



Decision will be entered for respondent.


1 References to petitioners are to Letantia Bussell and the Estate of John Bussell.

2 Unless indicated otherwise, all section references are to the Internal Revenue Code in effect at all relevant times, and all Rule references are to the Tax Court Rules of Practice and Procedure. References to sections and chapters of the Bankruptcy Code are to tit. 11 of the United States Code after the effective date of amendments made thereto by the Bankruptcy Reform Act of 1994, Pub. L. 103-394, 108 Stat. 4106, that were effective for bankruptcies filed on and after Oct. 22, 1994. Id. sec. 702, 108 Stat. 4150.

3 Although the validity of the assessments is not in issue, the Court has discovered an anomaly with regard to certain assessments for 1986 and 1987. In particular, the Bussells filed a petition with the Court at docket No. 6156-92 contesting a notice of deficiency for 1986 and 1987. On June 25, 1993, the Court entered an agreed decision at docket No. 6156-92 in which the parties agreed in pertinent part that the Bussells were liable for income tax deficiencies of $186,679 and $97,071.15 for 1986 and 1987, respectively. The agreed decision included a stipulation below the signature of the Judge who entered the decision that respondent claimed increased deficiencies of $12,973 and $12,360.15 for 1986 and 1987, respectively. An examination of the notice of deficiency for 1986 and 1987 suggests that these increased deficiencies were reflected in the $186,679 and $97,071.15 deficiency amounts listed in the Court's decision. However, in September 1993 respondent entered assessments for additional tax for 1986 and 1987 of $199,652 and $109,431.30, respectively. Assuming the increased deficiencies were already reflected in the deficiency amounts listed in the Court's decision, the $199,652 amount assessed for 1986 is inflated by $12,973, and the $109,431.30 amount assessed for 1987 is inflated by $12,360.15.

4 Connecticut Mutual Life Insurance Co. is now known as Massachusetts Mutual Life Insurance Co., but we shall refer to the company as Connecticut Mutual.

5 We assume, as petitioner asserts, that she was also the beneficiary under the John Hancock policy, but the record does not clearly establish this.

6 After entering the jeopardy assessment for 1996, respondent issued a notice of deficiency to petitioners for 1996. Sec. 6861(b). Petitioner filed a petition with the Court at docket No. 15462-02 for redetermination of the deficiency.

Respondent also issued a notice of Federal tax lien dated May 3, 2003, with regard to petitioners' unpaid tax liability for 1996. Petitioners requested and received an administrative hearing with regard to the lien pursuant to sec. 6320. On Mar. 3, 2004, respondent issued to petitioners a notice of determination sustaining the filing of the lien for 1996 but noting that the lien had been released because petitioners had fully paid their tax liability for 1996. Petitioners did not file a petition with the Court challenging the notice of determination for 1996.

In Bussell v. Commissioner, T.C. Memo. 2005-77, affd. without published opinion 101 AFTR 2d 2008-313, 2008-1 USTC par. 50,107 (9th Cir. 2007), the Court sustained respondent's determination that petitioner was liable for a substantial deficiency for 1996, as well as a fraud penalty under sec. 6663(a). The Court also denied petitioner's claim for relief under sec. 6015.

7 The District Court declined to address petitioners' assertion that penalties assessed for 1983, 1984, 1986, and 1987 were discharged in bankruptcy. The District Court noted that the penalties had been assessed years earlier and were not the subject of the disputed jeopardy assessment for 1996. See Bussell v. Commissioner, case No. CV-02-6629 SVW (C.D. Cal. 2002). The District Court suggested that the question whether the penalties were discharged in bankruptcy could be raised in the Tax Court or in a refund action.

8 The notice of determination admitted as Exhibit 22-J is not a complete copy of the notice of determination issued for 1983, 1984, 1986, 1987. A copy of the notice of determination, however, was attached to petitioner's petition, and we rely on it for these findings.

9 Although the parties stipulated that respondent issued jeopardy levies with regard to petitioners' unpaid taxes for 1983, 1984, 1986, 1987, and 1996, and respondent applied amounts that he collected to each of those years, petitioners did not challenge the notice of determination for 1996 that respondent issued to them on Mar. 3, 2004, nor did they attempt to place the taxable year 1996 at issue. Thus, our review is limited to respondent's determination to proceed with collection for 1983, 1984, 1986, and 1987.

10 Petitioner likewise did not challenge the statement in the notice of determination that her claim for relief under sec. 6015 was "unprocessable" and not part of the administrative hearing. Under the circumstances, petitioner is deemed to have conceded this issue. See Rule 331(b)(4).

11 Respondent did not assert that this matter is moot in his pleadings or at trial. Respondent made a passing reference to mootness in a footnote in his opening brief, but he did not offer any meaningful discussion with regard to the issue.

12 In connection with the argument that some or all of their taxes for the years in issue were discharged in bankruptcy, petitioners erroneously maintain that (1) they are entitled to a determination that they overpaid their taxes, and (2) the Court has the authority under sec. 6512(b) to order respondent to process a refund. To the contrary, we recently held in Greene-Thapedi v. Commissioner, 126 T.C. 1, 8-13 (2006), that sec. 6330 does not provide this Court with jurisdiction to determine an overpayment or to order a refund or credit of taxes paid. On the other hand, we also noted in Greene-Thapedi v. Commissioner, supra at 9 n.13, that the Court has inherent equitable powers to order the Commissioner to return to a taxpayer property that was improperly levied upon.

13 We reject petitioners' contention that respondent was obliged to bring an action in the bankruptcy court to revoke petitioners' discharge under 11 U.S.C. sec. 727(d) and (e) (revocation of discharge obtained through debtor's fraud). An action under 11 U.S.C. sec. 727(e)(1) to revoke a discharge extends to all of the debtor's debts and constitutes an action that is distinct from the two-party dispute contemplated in an action to determine whether a particular tax debt is excepted from discharge under 11 U.S.C. sec. 523(a). See Menk v. Lapaglia, 241 Bankr. 896, 906-907, 911 (B.A.P. 9th Cir. 1999) (recognizing the distinctions between the two actions); see also 6 Collier on Bankruptcy, par. 727.01[1], at 727-8 (June 2006) ("The concept of nondischargeability of a particular debt under section 523 is not to be confused with denial of discharge for all debts under section 727.").

14 Petitioners contend that respondent did not properly plead collateral estoppel in his answer. We disagree. The notice of determination includes a statement that petitioner's tax liabilities were not dischargeable, as a result of petitioner's criminal conviction under sec. 7201, and petitioners specifically challenged this point in their petition. Moreover, respondent addressed the matter in his answer by admitting that collateral estoppel would not be applicable if petitioner's convictions were overturned on appeal. In short, both parties understood that application of the doctrine of collateral estoppel was a disputed issue.

15 To prove that a taxpayer attempted to evade assessment of tax, the Government normally must establish three elements: willfulness, the existence of a tax deficiency, and an affirmative act constituting an evasion or attempted evasion of tax. See Sansone v. United States, 380 U.S. 343, 351 (1965); United States v. Wilkins, 385 F.2d 465, 472 (4th Cir. 1967).

16 In an evasion of payment case, the Government normally is not required to show that a tax deficiency exists because the underlying tax liability has been assessed but remains unpaid. See United States v. Conley, 826 F.2d 551, 557 (7th Cir. 1987) (taxpayer filed timely and accurate returns reporting tax due but concealed his assets to evade payment); United States v. Hook, 781 F.2d 1166, 1168-1169 (6th Cir. 1986) (same).

17 Petitioners make the point that Mr. Bussell was not convicted of tax evasion or any other crime, and therefore, the doctrine of collateral estoppel does not apply to the Estate of John Bussell. As discussed in detail in this Opinion, however, we conclude that petitioner is collaterally estopped from contesting respondent's determination that her tax liabilities for the years in issue were excepted from discharge under 11 U.S.C. sec. 523(a)(1)(C). Further, we observe that petitioner resides in California, a community property State, and there has been no showing that respondent levied upon anything other than the Bussells' "community property" under California law. See, e.g., Ordlock v. Commissioner, 126 T.C. 47, 58 (2006) (citing McIntyre v. United States, 222 F.3d 655 (9th Cir. 2000), for the proposition that under California law the Commissioner may collect one spouse's separate tax liability out of community assets). Consequently, absent any indication that respondent levied on separate property of the Estate of John Bussell, the nonapplicability of collateral estoppel as to the Estate of John Bussell is simply irrelevant to the question concerning the appropriateness of the disputed collection action.

18 The superseding indictment referred to petitioner's course of conduct between June 1992 through at least Aug. 22, 1995 --the latter being the date the bankruptcy court issued its discharge order.

19 The Bussells filed their bankruptcy petition on Mar. 7, 1995, and their unpaid income tax liabilities for 1983, 1984, 1986, and 1987 arose more than 3 years before that date.

20 We reject petitioners' assertion that respondent "waived" the right to make this argument. To the contrary, although the issue was discussed in the notice of determination, petitioners did not address it in their petition. Nevertheless, because the parties stipulated matters related to this issue and developed the issue through testimony at trial, we conclude the issue was tried by consent of the parties and is properly before the Court. See Rule 41(b).

21 The record shows that the Bussells' pension plan account had substantial value on the date the bankruptcy petition was filed. Revenue Officer Stevens testified that the prepetition value of the pension plan was $284,040 and that he determined the value from account statements and other documents sent to him by the plan administrator and by petitioners' representative at that time.

22 A term life insurance policy may have value to the extent (1) the insured has the right to renew the policy at the end of the term regardless of his or her medical condition, and (2) the beneficiary of the policy has the right to receive death benefits if the insured dies during the period the policy is in effect. See Minnesota Mut. Life Ins. Co. v. Ensley, 174 F.3d 977, 984 n.3 (9th Cir. 1999); Elfmont v. Elfmont, 891 P.2d 136, 141-142 (Cal. 1995) (citing Pritchard v. Logan (Estate of Logan), 236 Cal. Rptr. 368, 371 (Ct. App. 1987)).

23 We also note that the last sentence of sec. 6331(a) is permissive in that it states that the Secretary may issue a notice and demand for immediate payment. Compare sec. 6861(a), which provides that in a case of jeopardy the Secretary shall immediately assess such deficiency and notice and demand shall be made for the payment.

Thursday, May 29, 2008

IRS Levy - section 6331(a)- Upon service of a notice of levy, the Service steps into the shoes of the taxpayer and acquires whatever rights to the property the taxpayer had possessed prior to the notice of levy. Nat'l Bank of Commerce, 472 U.S. at 725. However, the levy only reaches the taxpayer's rights "as it finds them." United States v. Sullivan, 333 F.2d 100, 110 (3 rd Cir. 1964) [ 64-1 USTC ¶9392].

Symbol: CC:PA:BR:3-GL-147605-07


Uniform Issue List No. 6331.00-00

[ Code Sec. 6331]






Levy and distraint.



DATE: January 9, 2008



TO: Associate Area Counsel (Indianapolis) (Small Business/Self-Employed)



FROM: Mitchel S. Hyman, Senior Technician Reviewer (Procedure & Administration)



SUBJECT: Levy on State Retirement Fund



This Chief Counsel Advice responds to your request for assistance. In accordance with I.R.C. § 6110(k)(3), this Chief Counsel Advice should not be cited as precedent.





ISSUE



After serving a notice oflevy on a state retirement fund, can the Service exercise the taxpayer's right to suspend membership in the fund in order to obtain an immediate distribution of the taxpayer's assets in the fund when the taxpayer has not yet reached retirement age?





CONCLUSION



No, the Service may not exercise the taxpayer's right to suspend membership in the fund in order to obtain an immediate distribution of the taxpayer's assets in the fund when the taxpayer has not yet reached retirement age. The Service may levy upon a retirement plan even if a participant has no immediate right to receive benefits. However, the fund is not obligated to turn over any assets pursuant to the Service's levy until the taxpayer reaches the age in which she is eligible for retirement benefits under the plan or the taxpayer voluntarily suspends her membership in the plan.





FACTS



Married taxpayers have an unpaid joint income tax liability. One spouse has an account with a state retirement fund. She is fifty years old and not currently receiving benefits from the fund. Although the taxpayer no longer works for the state, she has obtained other employment and is not retired. According to the terms of the retirement fund the taxpayer may elect to suspend membership in the fund and receive a distribution of all assets in her account. If she does not make such an election, when the taxpayer reaches retirement age, she will be eligible to receive her retirement benefits from the account.



The Service served a notice of levy on the state retirement fund in order to collect the taxpayer's assets in the fund. The fund will not distribute the assets unless the taxpayer elects to suspend membership in the fund. The revenue officer asks whether the Service can "elect" to suspend membership in the fund on the taxpayer's behalf.





LAW AND ANALYSIS



For the reasons stated below, the Service cannot elect the suspension of membership in the state retirement fund on behalf of the taxpayer.



Pursuant to I.R.C. § 6321, a lien arises upon "all property or rights to property" of the taxpayer. Additionally, I.R.C. § 6331(a) authorizes the Service to levy upon "all property and rights to property" of a taxpayer or on which there is a federal tax lien in order to collect delinquent taxes. Congress broadly defined "property" in section 6331(a) to reach every interest a taxpayer might have in property. See United States v. Nat'l Bank of Commerce, 472 U.S. 713, 719-720 (1985) [ 85-2 USTC ¶9482]. Only property that is specifically enumerated in I.R.C. 6334(a) is exempt from levy. Because the Code does not specifically exempt funds in a state retirement fund from levy, the Service's levy attaches to the taxpayers' interest in the state retirement fund. See Shanbaum v. United States , 32 F.3d 180 (5 th Cir. 1994) [ 94-2 USTC ¶50,512].



Generally, a levy extends only to property rights and obligations that exist at the time of the levy. Treas. Reg. § 301.6331-1(a). Obligations exist for purposes of a levy when the liability of the obligor is fixed and determinable, although the right to receive payment is deferred until a later date. Id. See also Tull v. United States, 69 F.3d 394 (9 th Cir. 1995) [ 95-2 USTC ¶50,602]. Accordingly, even if the taxpayer is not currently receiving benefits from the retirement fund, if a present right to a future payment exists, the levy reaches that present right. See Rev. Rul. 55-210, 1955-1 C.B. 544 (lien attaches to entire unqualified right to receive future benefits; only one notice of levy needs to be served to effectively reach benefits subsequently payable.)



Upon service of a notice of levy, the Service steps into the shoes of the taxpayer and acquires whatever rights to the property the taxpayer had possessed prior to the notice of levy. Nat'l Bank of Commerce, 472 U.S. at 725. However, the levy only reaches the taxpayer's rights "as it finds them." United States v. Sullivan, 333 F.2d 100, 110 (3 rd Cir. 1964) [ 64-1 USTC ¶9392]. Accordingly, the levy only reaches property rights that exist at the time of the levy. Thus, for example, in Sullivan, the Service levied on the taxpayer's insurance policy. The insurance policy had a cash surrender value. The court held that the Service's levy did not require the insurance company to turn over the cash surrender value of the policy. The court reasoned that the levy reached only the taxpayer's basic right under the policy to receive benefits upon the policy's maturation. The Service had no authority, through its levy, to exercise the taxpayer's right to cancel the policy. Id. at 108-119. 1



In this case, we similarly conclude that although the Service's levy reaches the taxpayer's future right to retirement benefits when the taxpayer reaches retirement age 2 , it does not entitle the Service to compel suspension of the taxpayer's membership in the fund. Accordingly, the Service is not entitled to a distribution of the assets in the account before the taxpayer is eligible to receive benefits.



However, the Service may bring a lien foreclosure suit pursuant to I.R.C. § 7403. A lien foreclosure suit is appropriate here because the administrative levy in this situation will not immediately entitle the Service to any assets.



This writing may contain privileged information. Any unauthorized disclosure of this writing may undermine our ability to protect the privileged information. If disclosure is determined to be necessary, please contact this office for our views.



Please call ***** if you have any further questions.



By: Mitchel S. Hyman, Senior Technician Reviewer (Procedure & Administration).


1 Congress subsequently enacted I.R.C. §6332(b) which created a special procedure by which the Service can levy upon the cash surrender value of an insurance policy.

2 Levying on the present right to future payment would not require immediate distribution by the retirement fund. Honoring the levy would only be required when the benefits become payable to the taxpayer under the terms of the retirement fund. See IRM 5.11.6.1(3).
Innocent Spouse - IRS abused its discretition - section 6015

The IRS abused its discretion in denying a request for equitable innocent spouse relief under Code Sec. 6015(f). The requesting spouse was not employed when the tax liability arose and relied totally upon the income of her husband, an attorney who was abusing drugs. The Tax Court had jurisdiction to review the denial of innocent spouse relief under Code Sec. 6015(e)(1) and could use evidence outside of the administrative record in determining whether the IRS abused its discretion. With regard to the factors set out in Rev. Proc. 2000-15, 2000-1 CB 448, the IRS abused its discretion in failing to consider whether the couple was still married, whether there was abuse or if a finding of liability would impose economic hardship on the wife. Although the couple was not divorced at the time of the request and they were living in the same home, they were using separate bedrooms, so the marital status factor was deemed to favor the wife. Evidence of abuse and economic hardship was present, but the IRS failed to follow up on the evidence. Relief was proper because the only factor that ultimately weighed against the wife was her knowledge of the underpayment.


Chrystina Nihiser v. Commissioner.

Dkt. No. 19315-04 , TC Memo. 2008-135, May 20, 2008.








MEMORANDUM FINDINGS OF FACT AND OPINION



HOLMES, Judge: Chrystina Nihiser was a stay-at-home mom. With only a small income from her own part-time work, she relied on her husband's law practice to support their family. But his practice was only intermittently successful and, when financial troubles arrived, he stopped paying the taxes they owed.



She applied for innocent-spouse relief at a time when her life was becoming increasingly worse. Her husband, it turned out, was using drugs and stealing from his clients --eventually leading to his arrest and imprisonment. She now seeks relief from joint liability for a 1996-2001 tax debt of nearly a quarter-million dollars. Her case raises tricky questions of what evidence we can consider and how we should weigh it.





FINDINGS OF FACT



Nihiser married Kevin Connolly in 1980. Connolly was a plaintiff's lawyer with a small practice, and Nihiser was a schoolteacher until 1988, when she gave birth to their daughter. During their marriage, Connolly controlled the family finances. He kept most of his income hidden from Nihiser by using a checking account in his law practice's name, and paid most of the family's expenses from this account. When Nihiser needed money, Connolly would give her a check from his account and she would deposit it in their joint checking account. Connolly himself never deposited money directly into the joint account.



He also kept Nihiser away from their tax returns, letting her see them only when he presented them to her for her signature. This was Nihiser's one chance each year to learn about Connolly's income. But Connolly lowered the odds of her noticing anything by showing them to her only on their due date. (The one return not signed on its due date was signed on April 14.) Connolly's accountants likewise signed the returns on or just days before their due date.



In 1993, Connolly began filing returns without paying the amounts due. Nihiser would see that they owed taxes, and she did ask Connolly how he planned on paying them. But Connolly would complain that his law practice's expenses were just too great, and promised her that one of his cases would settle, or a new business venture would pay off, and provide the needed funds. Nihiser believed him, but was naturally left uneasy by his answers. When she followed up, Connolly would berate her. And he never did pay the taxes due.



In 1997, Connolly tried to solve their financial difficulties by filing for bankruptcy. It was the couple's second trip to the bankruptcy courthouse. Their first --in 1993 --had already cost them their house. The 1997 bankruptcy discharged their 1993-95 tax liabilities, but the strains on their marriage only grew worse.



The problem was drugs. Nihiser had suspected that Connolly was using from about the time she gave birth to their daughter, and claimed --credibly, but without corroborating evidence --that the family doctor finally confirmed her suspicions when he told her that Connolly's blood tested positive for cocaine. Connolly finally admitted to drug use, during counseling as their marriage careened to its end. But he refused help and became enraged when she brought it up.



In 1998 Connolly and Nihiser filed their 1997 tax return, but Connolly again failed to pay the taxes shown as due. Nihiser intensified her efforts to get Connolly to satisfy their tax liability, but Connolly kept making the same empty promises. He also told her that she should continue to sign the returns because California's being a community-property state meant there was no way she could get out of being liable for half of the taxes anyway. Nothing changed with their 1998 tax return, and their unpaid tax liability continued to grow.



In July 1999, part of the routine did change: Connolly filled out divorce papers and gave them to her. Although he never filed the papers with a court, Nihiser thought (and we specifically find her testimony credible on this point) that they were legally separated. Only they did not literally separate. For the next five years, Connolly and Nihiser lived in separate rooms of the same apartment. During this time, Connolly continued to control their finances and pay the rent. The new living arrangement did not change their tax habits. In 1999 and 2000, Connolly and Nihiser again filed joint tax returns showing taxes owed.



In July 2001, Connolly felt that filing for bankruptcy a third time was the answer and convinced Nihiser to sign the petition. Then, in October 2002, Nihiser signed their 2001 tax return. It was to be their last return filed jointly. Nihiser learned that Connolly had let their health insurance lapse, and for her this was the last straw. The next month she began looking for her own answer to their tax problems and learned about innocent-spouse relief. She filed a Form 8857, Request for Innocent Spouse Relief, and Form 12510, Questionnaire for Requesting Spouse, with the Commissioner to be relieved of liability for the unpaid taxes from 1996-2001.1 She included with the two forms a letter describing her situation. Unbeknownst to Nihiser, Connolly had about this same time attracted the attention of the California State Bar, which began disciplinary proceedings against him for stealing money from his clients.



While the bar probe got under way, the Commissioner's Centralized Cincinnati Innocent Spouse Operations (CCISO) was reviewing Nihiser's claim for relief. In a March 2003 letter, CCISO denied her relief because she did not have reason to believe that Connolly would ever pay their taxes, given the years of unpaid balances --balances that kept on growing --and the couple's return trips to bankruptcy court. The letter also explained that the verbal abuse she suffered was not enough "of a factor to overcome continuing to file joint returns with balances due without taking corrective action." The CCISO workpapers, which were introduced at trial, gave more insight into the Commissioner's reasoning. They listed the various factors considered, but not always consistently. Few of the factors listed in those workpapers were even mentioned in the form letter that Nihiser received.



Nihiser then sent a "statement of disagreement" to the IRS's Appeals Office. She explained that Connolly had assured her that he would pay the taxes and that she had taken him on his word since he denied her access to their financial records. She also explained that, though she had returned to full-time teaching in January 2003, raising a child on her salary would be a hardship if she also had to pay the now very substantial back taxes. Near the end of her statement, Nihiser informed the Commissioner that when the IRS contacted Connolly about her request he got "extremely angry" and threatened to tell them that she had spent all their money.



Connolly may well have been upset for another reason --in November 2003, the ongoing state investigation triggered his resignation from the bar. He again kept Nihiser in the dark. In any event, she pressed forward by meeting that same month with the Appeals officer who was assigned to her case. He told her that IRS policy required him to contact Connolly about her request. He also asked her to supply more complete information about the couple's income and expenses. Nihiser credibly testified at trial that she did not provide the Appeals officer with more information because she was afraid to ask Connolly about his finances.



In July 2004, the Appeals officer sent Nihiser a notice of determination denying her request for relief. The denial was based largely on his conclusion that she should have known when she signed returns the taxes were not going to be paid when she signed the returns. He found her stated belief that Connolly would pay the taxes unreasonable because of the couple's history of not paying taxes, the size of the underpayment, and their serial bankruptcies. (He also seemed to find that Nihiser failed to fulfill her duty to inquire about the amount of the couple's tax liability. This is odd, given that she always claimed that she knew the amount of the liabilities when she signed the returns and reported the exact amounts for each liability in her request for relief.)



The Appeals officer also found that paying the tax would not cause her economic hardship because she was still living with Connolly, commingling income and sharing expenses. He supported his conclusion by writing that when he asked Nihiser to provide more financial information, she decided to drop the issue. He recognized that the income on which the taxes were due was overwhelmingly Connolly's, but did not make any findings on any of the other factors the IRS routinely weighs in innocent-spouse cases. Nihiser, then as now a resident of California, responded by filing a petition with our Court. By the time of trial, state police had arrested Connolly. He was later convicted of grand theft, and remains imprisoned. We held a trial, though the Commissioner objected to the introduction of all evidence not contained in the administrative record.2





OPINION



Section 6013(a)3 lets married couples file their federal tax return jointly but, if they do, both spouses are then responsible for the return's accuracy and both are generally liable for the entire tax due. Sec. 6013(d)(3); Butler v. Commissioner [Dec. 53,869] 114 T.C. 276, 282 (2000). In some cases, however, section 6015 can relieve a spouse from this joint liability. Relief comes in three varieties: Relief under section 6015(b) or (c) requires either an "understatement" or a "deficiency;" whereas relief under section 6015(f) requires only that the requesting spouse be "liable for any unpaid tax or any deficiency." Therefore, if the liability is neither an "understatement" nor a "deficiency", the only possible relief is under subsection (f). See Hopkins v. Commissioner [Dec. 55,243] 121 T.C. 73, 87-88 (2003).



The Commissioner never asserted a deficiency against Nihiser, so hers is a case where relief is possible only under section 6015(f). This turns out to be important in considering three preliminary questions:



! jurisdiction;



! standard of review; and



! scope of review.




I. Jurisdiction to Hear Cases Under Section 6015(f)


Our jurisdiction in this case is affected by its being not only a nondeficiency case, but a stand-alone nondeficiency case. A "stand-alone" case is one where the requesting spouse's claim for innocent-spouse relief was made under section 6015 on her own initiative, and not as part of a deficiency action or in response to the Commissioner instituting a lien or levy to try and collect the tax debt. This distinction made Nihiser's one of a large number of cases affected first by the Ninth Circuit's opinion in Commissioner v. Ewing [2006-1 USTC ¶50,191] 439 F.3d 1009 (9th Cir. 2006), revg. [Dec. 54,766] 118 T.C. 494 (2002), and vacating [Dec. 55,519] 122 T.C. 32 (2004), and then by this Court's opinion in Billings v. Commissioner [Dec. 56,572] 127 T.C. 7 (2006). Both these cases held that the Tax Court has no jurisdiction to review the Commissioner's determinations in stand-alone nondeficiency cases. It seemed reasonably likely that Congress would treat Ewing and Billings as having identified a glitch in the Code and would respond by amending section 6015, so we did not dismiss this case after deciding Billings, but waited to see what would happen. Congress did respond by amending section 6015(e), giving us jurisdiction to review innocent-spouse determinations in either "the case of an individual against whom a deficiency has been asserted * * *, or in the case of an individual who requests equitable relief under subsection (f)." Tax Relief and Health Care Act of 2006, Pub. L. 109-432, div. C, sec. 408(a), 120 Stat. 3061. This amendment was effective for liabilities remaining unpaid on December 20, 2006. Id. sec. 408(c), 120 Stat. 3062. After it became law, the parties stipulated that Nihiser's tax liability for the years in question remained unpaid on December 20, 2006. We therefore have jurisdiction to review the Commissioner's determination.




II. Standard of Review


That Nihiser's is a stand-alone nondeficiency case is also important in deciding what standard of review to use. We review section 6015(b) and (c) stand-alone cases under a de novo standard, since in those cases we are determining the existence or amount of a tax liability. See Haltom v. Commissioner [Dec. 56,133(M)] T.C. Memo. 2005-209; McClelland v. Commissioner [Dec. 56,036(M)] T.C. Memo. 2005-121.



In contrast, our standard of review in section 6015(f)

stand-alone cases is for abuse of discretion, e.g., Cheshire v. Commissioner [Dec. 54,028] 115 T.C. 183, 198 (2000), affd. [2002-1 USTC ¶50,222] 282 F.3d 326 (5th Cir. 2002), and it's Nihiser's burden to prove that the Commissioner committed one, see Alt v. Commissioner [Dec. 54,961] 119 T.C. 306, 311 (2002), affd. [2004-1 USTC ¶50,279] 101 Fed. Appx. 34 (6th Cir. 2004).4


Courts generally hold that a decisionmaker abuses his discretion when it "`makes an error of law * * * or rests its determination on a clearly erroneous finding of fact * * * [or] applies the correct law to facts which are not clearly erroneous but rules in an irrational manner.'" Indus. Investors v. Commissioner [Dec. 56,904(M)] T.C. Memo. 2007-93 (quoting United States v. Sherburne, 249 F.3d 1121, 1125-26 (9th Cir. 2001)); see also Cooter & Gell v. Hartmarx Corp., 496 U.S. 384, 402-03 (1990) (same).




III. Scope of Review


Our scope of review --i.e., what evidence we look at to decide whether the Commissioner abused his discretion --is likewise affected by this being a 6015(f) case. The Commissioner argues that we should look only at the administrative record compiled when Nihiser applied for relief from the IRS, met with IRS employees, and filled out (or didn't fill out) the relevant IRS forms. For reasons discussed below, we need not further address the Commissioner's point.5



The scope of review is an even bigger problem in innocent-spouse cases when we find that the Commissioner abused his discretion. Although rarely employed by district courts in reviewing administrative agency action, a trial de novo typically consists of independent factfinding and legal analysis unmarked by deference to the original factfinder. See, e.g., Morris v. Rumsfeld, 420 F.3d 287, 292, 294 (3d Cir. 2005) (defining "trial de novo" as involving judicial review "without deferring to any prior administrative adjudication" and "entirely independent of the administrative proceedings"); Timmons v. White, 314 F.3d 1229, 1233-34 (10th Cir. 2003) (same); see also Wright & Koch, 33 Federal Practice and Procedure: Judicial Review of Administrative Action, sec. 8332, at 161-62 (2006). In section 6015(f) innocent-spouse cases, however, precedent constrains us to combine the independent factfinding of a trial de novo with an abuse-of-discretion standard of review.



Another difference between our practice and district court review of administrative-agency action for abuse of discretion is that district courts generally are able to remand a case to the agency for reconsideration if the court holds that the agency's factfinding or legal analysis went awry. Fla. Power Light Co. v. Lorion, 470 U.S. 729, 744 (1985) ("If the record before the agency does not support the agency action, if the agency has not considered all relevant factors, or if the reviewing court simply cannot evaluate the challenged agency action on the basis of the record before it, the proper course, except in rare circumstances, is to remand to the agency for additional investigation or explanation."); Virk v. INS, 295 F.3d 1055, 1060-61 (9th Cir. 2002) (remanding a denial by the INS of a motion to reopen proceedings where the INS failed to consider all relevant factors); see also Yale-New Haven Hosp. v. Leavitt, 470 F.3d 71, 87 (2d Cir. 2006) (remanding an administrative decision to the Department of Health and Human Services after finding it was adopted in an arbitrary and capricious manner); Stuttering Found. of Am. v. Springer, 498 F.Supp.2d 203, 213-14 (D.D.C. 2007) (finding the Office of Personnel Management misapplied Federal tax law when classifying a charitable organization and remanding the issue to the agency for a new factual determination under correct standards). When this happens, the agency is able to compile a new (or at least supplemental) administrative record, and judicial review on remand can be done using an abuse-of-discretion standard applied against that record.6



Remand is not an option in innocent-spouse cases under current law. In Friday v. Commissioner [Dec. 56,019] 124 T.C. 220, 222 (2005), we held that "whether relief is appropriate under section 6015 is generally not a `review' of the Commissioner's determination in a hearing but is instead an action begun in this Court." Friday is a division opinion. We must follow it. See Sec. State Bank v. Commissioner [Dec. 52,859] 111 T.C. 210, 213 (1998), affd. [2000-2 USTC ¶50,549] 214 F.3d 1254 (10th Cir. 2000); Hesselink v. Commissioner [Dec. 47,499] 97 T.C. 94, 99-100 (1991).




IV. Equitable Relief Under Section 6015(f)


Having unpacked this preliminary baggage, we turn to the case before us. Section 6015(f) allows relief to a requesting spouse "if taking into account all the facts and circumstances, it is inequitable to hold the individual liable." The Commissioner exercises his discretion using Revenue Procedure 2000-15, 2000-1 C.B. at 447, a framework guiding the exercise of his discretion when determining whether or not to grant equitable relief. We also follow that revenue procedure in reviewing his determination and deciding what relief is appropriate.7 See, e.g., Washington v. Commissioner [Dec. 55,120] 120 T.C. 137, 147-52 (2003); Jonson v. Commissioner [Dec. 54,641] 118 T.C. 106, 125-26 (2002), affd. [2004-1 USTC ¶50,122] 353 F.3d 1181 (10th Cir. 2003).



Rev. Proc. 2000-15, sec. 4.01, 2000-1 C.B. at 448, has seven general requirements that all requesting spouses must meet for relief under section 6015(f). The Commissioner concedes that Nihiser meets all seven conditions.



The procedure also has a safe harbor. This safe harbor grants relief to a requesting spouse if she meets three conditions. Rev. Proc. 2000-15, sec. 4.02, 2000-1 C.B. at 448. The first requires that:



At the time relief is requested, the requesting spouse is no longer married to, or is legally separated from, the nonrequesting spouse, or has not been a member of the same household as the nonrequesting spouse at any time during the 12-month period ending on the date relief was requested;



id. sec. 4.02(1)(a). The parties agree that Nihiser was married when she requested relief, but she argues that her de facto separation qualifies as a legal separation. Nihiser offers no authority for her position, however. We don't need to consider this condition because Nihiser fails the second condition in this safe harbor test. As discussed below in section IV.D., Nihiser knew at the time she signed them, the tax shown on the joint returns would not be paid. So Nihiser does not qualify for the safe harbor.



This leaves an eight-factor balancing test to consider before deciding if relief would be "equitable." Rev. Proc. 2000-15, sec. 4.03, 2000-1 C.B. 448-49. The Commissioner may consider other factors, but this is where he starts. Ewing, 122 T.C. at 47-48; Rev. Proc. 2000-15, sec. 4.03. We can summarize the eight factors in a table (those factors not in dispute are in italics):





________________________________________________________________________
Weighs for Relief Neutral Weighs against Relief

________________________________________________________________________
Separated or divorced Still married N/A

________________________________________________________________________
Abuse present No abuse present N/A

________________________________________________________________________
Significant benefit No significant N/A
benefit

________________________________________________________________________
N/A Later compliance with Lack of later
Federal tax laws compliance with Federal
tax laws

________________________________________________________________________
No knowledge or N/A No economic hardship
reason to know

________________________________________________________________________
Tax liability N/A Liability
attributable to attributable to
non-requesting spouse petitioner

________________________________________________________________________
Non-requesting spouse No divorce decree Petitioner
responsible for paying responsible for paying
tax under divorce tax under divorce
decree decree

________________________________________________________________________




The Commissioner conceded that the attribution factor weighs in Nihiser's favor, and that the significant-benefit, noncompliance-with-tax-laws, and nonrequesting-spouse's-legal obligation-to-pay-the-tax factors are neutral. We treat the parties' agreement that Nihiser received no significant benefit from the underpayment as weighing in her favor.8 That leaves Nihiser disputing only the Commissioner's determination concerning the marital-status, knowledge, abuse, and hardship factors.



And here we meet the Commissioner's first abuse of discretion in this case --he simply failed to consider all the factors listed in Revenue Procedure 2000-15 when making his determination. See Walter Trans. Inc. v. United States, 432 F. Supp. 2d 955, 959 (W.D. Mo. 2006) (citing Sukhov v. Gonzales, 403 F.3d 568, 570 (8th Cir. 2005) (stating that an abuse of discretion may be found where the Appeals officer fails to consider all factors presented); Gall v. United States, 552 U.S. ___, 128 S. Ct. 586, 607 (2007) (Alito, J., dissenting) (citing cases analyzing several areas of law that require consideration of all factors to avoid an abuse of discretion). The Appeals officer made no findings on either the marital-status or abuse factors, and both these factors are at issue. As we also find below, the Commissioner's determination on the economic-hardship factor was erroneous in failing to consider reasonably all the facts in the administrative record. We therefore find that the Commissioner has abused his discretion, and examine the disputed factors with an eye to determining the appropriate relief available to Nihiser under section 6015.



This course of action follows from our holding in Friday. If we find an abuse of discretion, it is up to us --in the words of section 6015(e) --"to determine the appropriate relief available to the individual under this section" rather than remand the case to the IRS for a reopening of the administrative record and a consideration for the first time of evidence we received during the trial. And so we next ask not just whether the Commissioner abused his discretion in denying Nihiser relief, but, if he did, what is "the appropriate relief available?"



A. Marital Status



The IRS's finding on the marital status factor is confusing. The CCISO's workpapers show that the initial IRS reviewer regarded Nihiser's situation as weighing in favor of relief, though leaving it unmentioned in the March 2003 letter to her. The subsequent notice of determination doesn't mention the factor at all, except summarily as one of "several factors * * * considered," so we have no idea how it was weighed in the end.



The revenue procedure itself is not a model of clarity on how the IRS should go about analyzing this factor. In the section discussing qualification for the safe harbor, marital status is important, and we're told when to look and what to look for. See supra p. 16.



But we have to look at the description of this factor in a different part of the Procedure, section 4.03(1)(a)'s description of when the marital-status factor weighs in favor of granting relief when applying the eight-factor balancing test. This description is different --it says that marital status weighs in favor of relief when the "requesting spouse is separated (whether legally separated or living apart) or divorced from the nonrequesting spouse." Rev. Proc. 2000-15, sec. 4.03(1)(a), (emphasis added). We infer from the absence of any reference to separate "households" in this description of the marital-status factor (in contrast to the safe harbor condition discussed supra) that spouses can be "living apart" even in the same household.



This is actually a good description of how Nihiser and Connolly were living when she requested relief in late 2002. Nihiser's intent, buttressed by her actions, shows that her relationship with Connolly was drastically changed on July 9, 1999, when he flourished divorce papers at her. From then on, they no longer shared a bedroom, and she reasonably thought that her husband had filed for legal separation --even reporting that day as the start of their legal separation on her forms requesting innocent-spouse relief. She explained on these forms that they remained under the same roof only because of their financial situation. We believe her, and find that she was "living apart" from her husband both when she requested relief and when the Commissioner made his determination. We thus agree with the apparent conclusion reached by the CCISO in its initial consideration of her request that this factor weighs in favor of relief. The Appeals officer making the Commissioner's final determination abused his discretion by not discussing and weighing this factor.



We are not certain that this is where our analysis of this factor should end. As is often the case in the sort of troubled marriages that spawn requests for innocent-spouse relief, alienation became separation and finally divorce. By the time of trial, Nihiser had without any doubt been living in a separate household --remember that by then her husband was an inmate --and filed for divorce as well. So, if we are to follow Friday's command that we judge the merits of a request for innocent-spouse relief without remanding for additional factfinding, we would find on the basis of the trial record as well as the administrative record that this factor weighs in Nihiser's favor.9



B. Abuse



The next contested factor is spousal abuse. The revenue procedure doesn't actually define "abuse,"10 but does say that proof that the "requesting spouse was abused by the nonrequesting spouse, but such abuse did not amount to duress," weighs in favor of relief. Rev. Proc. 2000-15, sec. 4.03(1)(c), 2000-1 C.B. at 449. And this obviously lets us infer that "abuse" is at least sometimes somehow lesser than "duress."



Duress is a concept we've had a lot to say about. Courts have long considered duress to be a reason to relieve a taxpayer from joint liability where her spouse coerces her to sign a tax return. See Furnish v. Commissioner [59-1 USTC ¶9189] 262 F.2d 727, 733 (9th Cir. 1958); affg. in part and remanding in part Funk v. Commissioner [Dec. 22,664] 29 T.C. 279 (1957); Stanley v. Commissioner [Dec. 40,487] 81 T.C. 634 (1983); Brown v. Commissioner [Dec. 29,199] 51 T.C. 116, 119-120 (1968); Stanley v. Commissioner [Dec. 27,878] 45 T.C. 555, 565 (1966). Duress is a subjective analysis, where the "focus is on the mind of the individual at the relevant time in question, rather than on the means by which the given state of mind was induced." In re Hinkley, 256 B.R. 814, 825 (Bankr. M.D. Fla. 2000); see also Stanley, 45 T.C. at 561. An extreme case is "Sign the return or I pull the trigger." But in tax law duress means any constraint of will so strong that it makes a person reasonably unable to resist demands to sign a return. When that happens, innocent-spouse relief is unavailable even if she applies for it, because duress means the return isn't treated as joint. See Raymond v. Commissioner [Dec. 54,915] 119 T.C. 191, 195-96 (2002); Brown, 51 T.C. at 120-21.



And there are also a good number of cases analyzing abuse-not-amounting-to-duress in considering whether one spouse knew or should have known about the other's wrongdoing. E.g., Kistner v. Commissioner [94-1 USTC ¶50,059] 18 F.3d 1521, 1526 (11th Cir. 1994), revg. T.C. Memo. [Dec. 47,633(M)] 1991-463; Estate of Brown v. Commissioner [Dec. 44,882(M)] T.C. Memo. 1988-297. A classic instance is when abuse helps explain a spouse's failure to inquire about noncompliance with tax law. E.g., Aude v. Commissioner [Dec. 52,315(M)] T.C. Memo. 1997-478 (finding that threats and intimidation explained why a requesting spouse didn't review or inquire about the joint returns); Makalintal v. Commissioner [Dec. 51,111(M)] T.C. Memo. 1996-9 (determining that, "in light of the frequent physical abuse" by the nonrequesting spouse and his "general refusal to discuss his business and financial affairs with petitioner, * * * petitioner's inquiry was reasonable and sufficient to satisfy her duty of inquiry").11



But it's abuse as a factor by itself, not just as a relevant bit of evidence about one spouse's state of knowledge, that we're looking for in this case. This is an important point because it liberates us from focusing on the moment the return is signed --the relevant abuse precedes that moment, but there's no suggestion in the Procedure or any other source of relevant law that limits our consideration of whether a spouse was abused only to abuse that causes a particular instance of noncompliance with the tax law.



This leads to the heart of our inquiry: What is abuse for purposes of innocent-spouse relief? Verifiable physical harm is likely sufficient. See, e.g., McKnight v. Commissioner [Dec. 56,576(M)] T.C. Memo. 2006-155 (finding abuse where alcoholic nonrequesting spouse physically shoved, hit, cut, and beat the requesting spouse on multiple occasions, one of which left her on crutches). But can psychological mistreatment in the absence of physical harm be "abuse"? We think the answer to that question is "yes". Being a xanthippe is not by itself enough, but we have recognized that a nonrequesting spouse can engage in mental, emotional, and verbal abuse sufficiently severe to incapacitate a requesting spouse in the same manner as a physically abusive spouse. Compare Grubich v. Commissioner [Dec. 49,020(M)] T.C. Memo. 1993-194 (abuse found in extreme belittling and constant disparaging of the requesting spouse's contribution to the family business).



We are aware of the danger that requesting spouses, in trying to escape financial liability, may easily exaggerate the level of nonphysical abuse. Innocent-spouse cases often spring from the dissolution of troubled marriages, and there is an obvious incentive to vilify the nonrequesting spouse. Our cases therefore require substantiation, or at least specificity, in allegations of abuse. See, e.g., Fox v. Commissioner [Dec. 56,428(M)] T.C. Memo. 2006-22 (weighing abuse as a positive factor where a police report corroborated the requesting spouse's claim of assault); Knorr v. Commissioner [Dec. 55,752(M)] T.C. Memo. 2004-212 (finding no abuse where requesting spouse provided only generalized claims of physical and emotional abuse); Collier v. Commissioner [Dec. 54,776(M)] T.C. Memo. 2002-144 (finding no abuse in absence of specific details).



We have also hesitated to find abuse when marital conflict is understandably distressing but doesn't significantly alter a requesting spouse's behavior. See, e.g., Krasner v. Commissioner [Dec. 56,437(M)] T.C. Memo. 2006-31 (spouse didn't hesitate to leave her children with nonrequesting spouse, and police reports reflected little evidence of unwanted physical contact or mental abuse); Ogonoski v. Commissioner [Dec. 55,561(M)] T.C. Memo. 2004-52 (lack of abuse in the anxiety caused by uncertainty as to whether nonrequesting spouse would pay taxes); Ewell v. Commissioner [Dec. 44,844(M)] T.C. Memo. 1988-265 (no abuse where there was domineering but no physical abuse or mental intimidation).



This is not a terribly well-developed corner of tax law, and it is not one in which we can really get much help by looking at detailed regulations or the ordinary canons of construction. So we think it at least helpful to look at those factors widely recognized as psychologically abusive where law has confronted domestic violence. Scholars have identified a number of factors that are common features of domestic abuse in domestic-relations law and the subfield of criminal law arising from domestic violence. In these fields, a psychologically abusive spouse is one who may: (1) isolate the victim; (2) encourage exhaustion by, for example, intentionally limiting food or interrupting sleep; (3) behave in an obsessive or possessive manner; (4) threaten to commit suicide, to murder the requesting spouse, or to cause the death of family or friends; (5) use degrading language including humiliation, denial of victim's talents and abilities, and name calling; (6) abuse drugs or alcohol, including administering substances to the victim; (7) undermine the victim's ability to reason independently; or (8) occasionally indulge in positive behavior in order to keep hope alive that the abuse will cease.12



Although we're certainly not prepared to make these factors an exclusive list of what to look for --human perversity being unimaginably creative --they at least give us some objective indications that abuse, and not just a deviation from the ideal of marital harmony, is what we're seeing. We think these factors indicate a relationship in which there is enough abuse to make it reasonable to conclude that the spouse seeking relief was less likely to do what the Tax Code requires --making it more equitable to relieve her from joint liability. We again stress, though, that our consideration in such an underdeveloped area has to be case by case. See, e.g., Sjodin v. Commissioner [Dec. 55,743(M)] T.C. Memo. 2004-205, vacated and remanded on another issue [2006-1 USTC ¶50,357] 174 Fed. Appx. 359 (8th Cir. 2006) (finding no mental abuse where nonrequesting spouse was merely controlling and secretive).



In this case, the administrative record provides the following account of psychological abuse: On the Form 8857, Nihiser checked the box indicating that she had "been a victim of domestic abuse and [feared] that filing a claim for innocent-spouse relief [would] result in retaliation." She repeated her claim that she was the victim of abuse on her questionnaire and in her letter, writing that her husband verbally abused her. She also stated that he had a drug problem and she offered to provide copies of positive urine test results from his counselor. She also said that she filed a police report after he told her he had a gun and made a suicide threat. Neither CCISO nor the Appeals officer asked Nihiser for any such specific allegations --she supplied them sua sponte. The administrative record tells us that Nihiser feared her husband, and she stated in her paperwork that she blamed his abusive behavior on cocaine. On her request for relief, she offered to provide the Commissioner with a statement from her neighbor attesting to the abuse, but neither CCISO nor the Appeals officer followed up. She claimed that he threatened to leave her and stick her with their tax bill. CCISO agreed that Nihiser suffered verbal abuse, but conclusorily dismissed it as not "enough of a factor to overcome continuing to file joint returns with a balance due without taking corrective action." And, as with the marital-status factor, the Appeals officer who actually issued the notice of determination didn't discuss the factor at all.



The trial record reinforced the abuse allegations Nihiser made during the administrative process. She credibly testified to her husband's hot temper, describing a situation in which he used foul language while upbraiding Nihiser in front of their daughter. She said she was intimidated by his controlling behavior to the point that she was in fear of her safety and the wellbeing of their daughter. Considering the factors suggestive of psychological abuse that we listed above --the threat of suicide, the reasonable fear in someone economically dependent on her spouse of being left without support, and the always lurking explosive potential of someone abusing illegal drugs --we find that Nihiser has shown, both in the administrative record and the record assembled at trial, that the abuse factor should weigh in her favor.



C. Economic Hardship



The next contested factor is whether forcing Nihiser to pay the tax debt would cause her economic hardship. This factor weighs in a requesting spouse's favor when satisfaction of the tax liability will cause her to be unable to pay her "reasonable basic living expenses." Sec. 301.6343-1(b)(4), Proced. & Admin. Regs.13 In determining a reasonable amount for basic living expenses, the Commissioner looks at any information provided by the requesting spouse. See sec. 301.6343-1(b)(4)(ii), Proced. & Admin. Regs.



And Nihiser did at least partially fill out the relevant section of the form. When CCISO looked at it, an IRS employee tapped into IRS records and confirmed the bankruptcy filings and absence of income reported from third parties. In considering the safe-harbor factors, this seems to have been enough to cause CCISO to conclude that "the requesting spouse will suffer economic hardship." But then, on the same page of the workpaper, the employee listed lack of economic hardship as a factor weighing against relief:



she is saying yes but her statement shows no income at all, she has been separated from him since 1999 and still is paying 2,000 per month for rent or mortgage, her expenses are very high like $200 month for clothings.



How this weighed in the IRS's first round of consideration is unclear, since economic hardship isn't even mentioned in the March 2003 letter. The IRS's decision at the Appeals level is easier to understand. The Appeals officer determined that Nihiser would not suffer economic hardship because her and her husband's combined salaries were greater than their reasonable basic living expenses. This was almost certainly due to Nihiser's having left part of the "average monthly household income and expenses" section of the questionnaire blank because she didn't know of Connolly's income.14 Nihiser told him that she was scared to press Connolly on the question, and so would drop the issue.



Here we again run into the problem of what time we should be looking at to judge which way this factor weighs. When she applied for relief, Nihiser's own income was a meager couple thousand dollars a year from part-time teaching. By the time that the Appeals officer met with her in November 2003, she'd returned to full-time teaching at a salary of about $68,000 and she remained employed full time at the time of trial. However, by the time of trial her wages were being garnished to pay a substantial state-tax debt left over from her marriage.



The Appeals officer quite understandably didn't spend too much time pondering such subtleties. And a refusal to supply information is ordinarily, of course, more than enough reason for the IRS to consider an issue conceded. See McCoy Enters, Inc. v. Commissioner [95-2 USTC ¶50,332] 58 F.3d 557, 563 (10th Cir. 1995) (can't exercise discretion if there is no information about a factor), affg. [Dec. 48,672(M)] T.C. Memo. 1992-693; Chimblo v. Commissioner [Dec. 52,379(M)] T.C. Memo. 1997-535 (same), affd. [99-1 USTC ¶50,540] 177 F.3d 119 (2d Cir. 1999). But Nihiser credibly testified that when she met with the Appeals officer to further explain her situation, she was deterred from presenting more complete financial information by the Appeals officer's statement that he would need to contact her husband again, and that she would need to ask him about his finances. We find these statements are highly likely to have kept some of this information off the record. In a case like this, where a petitioner credibly cites fear as a reason for not seeking relevant information, we find that the Appeals officer abused his discretion by not probing further. The regulation does, after all, tell him to consider all available information when making economic hardship determinations. See sec. 301.6343-1(b)(4), Proced. & Admin. Regs.



We need not consider evidence outside the administrative record to conclude that the Appeals officer clearly erred in finding that Nihiser wouldn't suffer economic hardship. She was, when the case was before him, a schoolteacher in her mid-50s living in Orange County with no asset other than an 18-year-old car. She was also supporting a teenage daughter. The CCISO had checked the IRS's own records and found the history of bankruptcy filings and lack of any third-party payments to Nihiser and Connolly. It thus should have been screamingly obvious that she would not be able to meet her basic living expenses if she had to pay a tax liability of more than $200,000. We also do not need the evidence presented at trial to determine that Connolly's financial contributions would soon end. The two had serious marital problems, he had a substance-abuse problem, and they had declared bankruptcy three times.



There is yet another possibly difficult question hidden here: When do we take the snapshot of a spouse's finances to decide if paying the overdue taxes would wreak a financial hardship? The Appeals officer was understandably looking at her situation at the time of his conference with her. But under Ewing and Friday, we do not have to confine ourselves to the administrative record. We think this means that, in gauging how to weigh the economic-hardship factor, we should (at least once we've found there to have been an abuse of discretion, and so have to determine what relief should be available under section 6015) look at the evidence presented at trial, and the state of her finances at that time. These only support her request --by the time of trial, Connolly was in prison and thus was in no position to contribute to her support. She had resumed teaching, but her salary was about $5700 a month. On her request for relief, she reported $3415 in basic living expenses. These are reasonable expenses for a mother and daughter living in Orange County, California. At trial she also credibly testified that she has two additional reasonable monthly expenses: $480 tuition for her daughter and $500 to pay the Franchise Tax Board for her and her husband's California tax debt. After subtracting state taxes, federal income taxes, and Social Security and Medicare taxes, we find that Nihiser's current expenses use up most of her income. But we must also consider Nihiser's future ability to earn her current salary and pay her basic living expenses. She restarted her career late in life, and does not have a home or other assets to rely on after she retires. We find that if she is required to pay over $200,000 in taxes she will not be able to pay her basic living expenses. We find that the economic-hardship factor weighs in favor of relief.



D. Knowledge



The last contested factor is Nihiser's knowledge of the underpayment. This factor weighs against relief if she "knew or had reason to know * * * the reported liability would be unpaid at the time the return was signed." Rev. Proc. 2000-15, sec. 4.03(2)(b), 2001-1 C.B. at 449. We agree with the Commissioner that this factor does weigh against Nihiser. At the time she signed the returns she did have reason to know the taxes would not be paid. She and Connolly had filed for bankruptcy once when she signed the 1996 return, twice when she signed the 1997-2000 returns, and three times when she signed the 2001 return, and they had not made any other effort to pay their taxes. She also suspected that her husband's continuing drug habit was contributing to their financial problems. We find no error in the Commissioner's finding on this point, and so find that he did not abuse his discretion in concluding that this factor weighs against relief. We find likewise on the basis of the trial record. The knowledge factor therefore weighs against granting relief.





Conclusion



After analyzing these contested factors, whether looking only at the administrative record by itself or as supplemented by the trial record, we find that the table should now look like this:





________________________________________________________________________
Weighs for Relief Neutral Weighs against Relief

________________________________________________________________________
Marital Status

________________________________________________________________________
Abuse

________________________________________________________________________
No significant
benefit

________________________________________________________________________
Later compliance with
Federal tax laws

________________________________________________________________________
Knowledge

________________________________________________________________________
Economic hardship

________________________________________________________________________
Attribution

________________________________________________________________________
No divorce decree

________________________________________________________________________




Thus, Nihiser has five factors weighing in favor of relief and only one weighing against. But the factor weighing against relief is knowledge, and the revenue procedure tells us that knowledge is an "extremely strong factor weighing against relief." Rev. Proc. 2000-15, sec. 4.03(2)(b), 2000-1 C.B. 449.



The Commissioner's own procedure nevertheless anticipates at least some cases where knowledge or reason to know will not be enough to deny relief: "Nonetheless, when the factors in favor of equitable relief are unusually strong, it may be appropriate to grant relief under § 6015(f) in limited situations where a requesting spouse knew or had reason to know that the liability would not be paid." Id. A case like this one, where the only factor weighing against relief is knowledge of underpayment and all the other factors are neutral or in her favor, is logically the most likely to be one of these "limited situations" where relief is appropriate.



As in any multifactor balancing test, we must have something in mind as the appropriate fulcrum when there are factors weighing down both sides of the lever. And here we think that an appropriate fulcrum is the extent to which the economic unity of the household filing a joint return has been broken down by the actions of the nonrequesting spouse in a way that didn't allow the requesting spouse a reasonable exit. As the Third Circuit once wrote, the innocence we look for "within the meaning of this statute is innocent vis-a-vis a guilty spouse whose income is concealed from the innocent and spent outside the family." Bliss v. Commissioner [95-2 USTC ¶50,370] 59 F.3d 374, 380 n.3 (2d Cir. 1995) (discussing former section 6013), affg. [Dec. 49,242(M)] T.C. Memo. 1993-390. The knowledge factor's unique importance is, seen in this way, entirely appropriate because in the ordinary course of events knowing her husband is mishandling their joint return would allow a wife to begin to pull away from the entanglement of joint liability. We therefore find on the peculiar facts of this case that Nihiser's knowledge of her husband's underpayment of their taxes is outweighed by the abuse she suffered and her utter lack of any benefit from the money. He kept her from seeing the broader state of the family's finances and spent the money on himself. And since she began filing on her own, she has consistently followed the tax law and paid her current taxes as they became due. Her ability to act in response to her knowledge as her marriage was dissolving was thus so reduced as to make relieving her from the joint tax liability for the years in question the appropriate relief under section 6015.



Decision will be entered for petitioner.


1 Her application included taxes for 1993 through 1995, but she evidently didn't realize that these had already been discharged in bankruptcy.

2 The Commissioner continued his objection to the admission of nonrecord evidence in his post-trial brief. The findings of fact in this background section reflect our consideration of evidence presented at trial, and are not limited to the stipulation and administrative record. In the later sections of this opinion, which analyze the individual factors considered in deciding whether to grant relief, we will make separate findings based on the administrative record and the record at trial.

3 Unless otherwise indicated, all section references are to the Internal Revenue Code in effect for the years in issue.

4 At least when, as here, the IRS has considered a request and rejected it. We leave to another day the question of whether the amendment to section 6015(e) will cause a different standard of review to apply to stand-alone nondeficiency petitions filed with us after six months of IRS inaction. See sec. 6015(e)(1)(A)(i)(II).

5 In the somewhat similar context of reviewing of notices of determination that the Commissioner issues in collection due process (CDP) cases under sections 6320 and 6330, we also engage in de novo review for abuse of discretion. Robinette v. Commissioner [Dec. 55,698] 123 T.C. 85 (2004), revd. [2006-1 USTC ¶50,213] 439 F.3d 455 (8th Cir. 2006). As a reviewed opinion, it remains good law for our Court unless a case is to be appealed to the Eighth Circuit. We have, however, since deciding Murphy v. Commissioner [Dec. 56,232] 125 T.C. 301 (2005), affd. [2007-1 USTC ¶50,115] 469 F.3d 27 (1st Cir. 2006), declined to consider evidence that a taxpayer might have presented (but chose not to) at a CDP hearing because "an appeals officer does not abuse her discretion when she fails to take into account information that she requested and that was not provided in a reasonable time." Id. at 315. Similarly, in Giamelli v. Commissioner [Dec. 57,155] 129 T.C. 107, 113 (2007), we found that "if an issue is never raised at [a hearing with the Appeals officer], it cannot be part of the Appeals officer's determination."

6 As is always the case in administrative law, general principles yield to any specific governing statute. See, e.g. Nguyen v. Shalala, 43 F.3d 1400, 1403 (10th Cir. 1994) (outlining specific statutory remedies available to a court reviewing denial of Social Security disability claims).

7 Nihiser filed Form 8857 in November 2002, and received a preliminary determination letter in March 2003. The procedure in effect when she filed her request for relief was Revenue Procedure 2000-15, 2000-1 C.B. at 447. It has been superseded by Revenue Procedure 2003-61, 2003-2 C.B. at 296, but the new revenue procedure applies only to requests for relief filed on or after November 1, 2003, or those pending on November 1, 2003, for which no preliminary determination letter has been issued as of that date. Id., sec. 7, 2003-2 C.B. at 299. We therefore apply Revenue Procedure 2000-15 to this case.

8 Rev. Proc. 2000-15, sec. 4.03, does not state that the absence of a significant benefit will weigh in a petitioner's favor, but only that receiving a significant benefit will weigh against her. Nonetheless, we decided in Ferrarese v. Commissioner [Dec. 54,894(M)] T.C. Memo. 2002-249 (and other cases cited), that the absence of a significant benefit should be a positive factor for petitioners.

9 Compare this analysis to the law governing judicial review in Social Security benefit cases cited supra note 6. In those kind of cases, a court may remand a case to the Social Security Administration when new evidence arises that is material and where there is good cause for the late submission. 42 U.S.C. sec. 405(g) (2006). There is no requirement that the new evidence existed when the agency first made its decision, though the new evidence must relate to the petitioner's condition on or before the date of that decision. See Williams v. Barnhart, 178 Fed. Appx. 785, 792 (10th Cir. 2006).

10 Black's Law Dictionary defines abuse as "physical or mental maltreatment, often resulting in mental, emotional, sexual, or physical injury." Black's Law Dictionary 10 (8th ed. 2004).

11 Rev. Proc. 2003-61, sec. 4.03(2)(b)(i), 2003-2 C.B. at 299, although not the revenue procedure that applies here, likewise states that a history of abuse by the nonrequesting spouse may mitigate a requesting spouse's knowledge or reason to know.

12 See Mary Ann Douglas (Dutton), "The Battered Woman Syndrome," in Domestic Violence on Trial: Psychological and Legal Dimensions of Family Violence 39 (Daniel Jay Sonkin ed., 1987) (citing L. Walker, The Battered Woman Syndrome (1984)).

13 In order to determine whether a requesting spouse will suffer economic hardship, the revenue procedure directs us to the test in section 301.6343-1(b)(4), Proced. & Admin. Regs. See Rev. Proc. 2000-15, secs. 4.02(1)(c), 4.03(1)(b), (2)(d), 2000-1 C.B at 448-49.

14 Nihiser listed her monthly expenses as:



Rent $2,000
Food 500
Utilities 300
Telephone 65
Auto insurance 100
Auto - gas and repairs 250
Clothing 200
Total living expenses $3,415