Thursday, December 31, 2009

The IRS has issued further guidance on issues related to Code Sec. 7216. The IRS had previously issued final, temporary and proposed regulations that provide updated guidance concerning the disclosure and use of tax return information by tax return preparers under Code Sec. 7216 T.D. 9478.

Notice 2010-4

In Notice 2010-4, the IRS addressed three issues with respect to the use of taxpayer information to solicit new business from previous or existing clients.
Changes in law that could result in amended returns. A tax return preparer may use tax return information to contact taxpayers to inform them of changes in tax law that could affect the income tax liability on the taxpayers’ returns that were previously prepared or processed by this tax preparer. Code Sec. 7216 does not prohibit the use of tax return information to prepare a "tax return," and, under Reg. §301.7216-1(b)(1), a tax return includes an amended return. Accordingly, the preparer could use client tax return information to identify affected taxpayers, inform them regarding the change in tax law, advise whether it would be appropriate for them to file amended income tax returns, and assist in the preparation and filing of any amended returns.

Accountant or lawyer seeking to give compliance advice. A tax return preparer who is also an accountant may use tax return information to determine who might be affected by a prospective tax rule change in order to contact potentially affected taxpayers for whom the accountant/preparer reasonably expected to provide accounting services in the next year. The contact would notify these taxpayers of the change, explain how the change may affect them, and advise them with regard to actions they may take in response to the change. Reg. §301.7216-2(h)(1)(i) allows a preparer who is lawfully engaged in the practice of law or accountancy to use tax return information to provide other legal or accounting services to the taxpayer, and such services could include advice related to current and future income tax compliance.
Disclosure of taxpayer list to auxiliary service provider. Finally, tax return preparers may disclose their taxpayer lists kept under Reg. §301.7216-2(n) to a third party service provider holding itself out as providing services that include creation, publication, and distribution of newsletters, bulletins, or similar communications to taxpayers whose tax returns the tax return preparers have prepared or processed containing tax information and general business and economic information or analysis for educational purposes or for purposes of soliciting additional tax return preparation services for the tax return preparer. Although restrictions apply to transfers of taxpayer lists under Reg. §301.7216-2(n), a preparer is allowed under Reg. §301.7216-2(d)(1) to disclose, without taxpayer consent, tax return information to another tax return preparer located in the United States for the purpose of obtaining auxiliary services in connection with the preparation of any tax return, so long as the services provided are not substantive determinations or advice affecting the tax liability reported by taxpayers. The service provider, is prohibited from the further use or disclosure of the tax return information for purposes other than those related to the provision of the auxiliary services or as otherwise expressly permitted under Code Secs. 6713 and Code Sec. 7216.
Rev. Rul. 2010-5

In Notice 2010-5, the IRS discussed disclosure of information to tax return preparer insurance carriers. The IRS held that tax return preparers will not be liable for criminal penalties under Code Sec. 7216 and civil penalties under Code Sec. 6713 with respect to certain disclosures of tax return information made to the preparer's professional liability insurance carrier. Under Reg. §301.7216-2(a)(1), a tax return preparer may dislcose, without taxpayer consent, tax return information to another tax return preparer located in the United States in order to obtain auxillary services, not involving substantive determinations or tax advice. Disclosures, without taxpayer consent, may also be made to an attorney for the purpose of obtaining legal advice under Reg. §301.7216-2(g).
A professional liability insurance policy purchased by a return preparer is an auxiliary service provided in connection with the preparation of tax returns; thus, the insurance carrier is a tax return preparer. Accordingly, disclosures necessary for price quotes or to otherwise obtain or maintain professional liability insurance coverage will not result in penalties. This could include a list of client names and description of the services provided, Similarly, disclosures made to the insurance carrier as required for purposes of reporting and investigating claims or for the carrier's selection of an attorney to represent the return preparer will not result in penalties. This could include client names, a description of the services provided, a description of the claim or potential claim, and if necessary, copies of returns relevant to the claims. In both cases, disclosures beyond those that are necessary for the provision of the auxiliary services are prohibited. Finally, a return preparer may make disclosures to the selected attorney related to the claim or potential claim or in seeking legal advice from an attorney who is not a representative of the carrier, without taxpayer consent.

Wednesday, December 30, 2009

A married couple had unreported gambling income in an amount equal to their winnings from one day of playing a slot machine, less the money they began with and money they lost before cashing out. The couple, who were not professional gamblers, could not, however, net all wagering gains or losses they sustained throughout the year. Gambling losses incurred other than in the trade or business of gambling are allowable only as itemized deductions when calculating taxable income. Because the taxpayers elected to use the standard the deduction, they were not entitled to itemize their deductions.


George D. and Lillian M. Shollenberger v. Commissioner.
U.S. Tax Court, Dkt. No. 5504-08, TC Memo. 2009-306, December 28, 2009.

OPINION
Gross income includes all income from whatever source derived, including gambling. Sec. 61(a); McClanahan v. United States, 292 F.2d 630, 631-632 (5th Cir. 1961). In the case of a taxpayer not engaged in the trade or business of gambling, gambling losses from “wagering transactions” are allowable as an itemized deduction but “only to the extent of the gains from such transactions.” Sec. 165(d); see McClanahan v. United States, supra; Winkler v. United States, 230 F.2d 766 (1st Cir. 1956).
Respondent asserts that for purposes of applying section 165(d) to casual gamblers like petitioners, the correct analysis and methodology is set forth in Chief Counsel Advice 2008-011 (Dec. 5, 2008) (the Chief Counsel Advice), which states in part:
A key question in interpreting §165(d) is the significance of the term “transactions.” The statute refers to gains and losses in terms of wagering transactions. Some would contend that transaction means every single play in a game of chance or every wager made. Under that reading, a taxpayer would have to calculate the gain or loss on every transaction separately and treat every play or wager as a taxable event. The gambler would also have to trace and recompute the basis through all transactions to calculate the result of each play or wager. Courts considering that reading have found it unduly burdensome and unreasonable. See Green v. Commissioner, 66 T.C. 538 (1976); Szkirscak [sic] v. Commissioner, T.C. Memo. 1980-129. Moreover, the statute uses the plural term “transactions” implying that gain or loss may be calculated over a series of separate plays or wagers.
The better view is that a casual gambler, such as the taxpayer who plays the slot machines, recognizes a wagering gain or loss at the time she redeems her tokens. We think that the fluctuating wins and losses left in play are not accessions to wealth until the taxpayer redeems her tokens and can definitively calculate the amount above or below basis (the wager) realized. See Commissioner v. Glenshaw Glass Co., 348 U.S. 426 (1955). For example, a casual gambler who enters a casino with $100 and redeems his or her tokens for $300 after playing the slot machines has a wagering gain of $200 ($300-$100). This is true even though the taxpayer may have had $1,000 in winning spins and $700 in losing spins during the course of play. Likewise, a casual gambler who enters a casino with $100 and loses the entire amount after playing the slot machines has a wagering loss of $100, even though the casual gambler may have had winning spins of $1,000 and losing spins of $1,100 during the course of play. [Fn. ref. omitted.]
Applying this methodology, respondent concedes that if we find, as we have found, that on March 29, 2005, petitioners entered the casino with $500 and took home $1,600 of winnings, the amount of gambling income which petitioners should have reported on their 2005 return was $1,100 ($2,000 jackpot winnings less $500 brought to the casino for gambling and less $400 taken from the jackpot for additional gambling) rather than $2,000 as determined in the notice of deficiency.
Although petitioners have stated that they “agree with” the Chief Counsel Advice, they nevertheless maintain, contrary to the Chief Counsel Advice, that they should be allowed to offset their March 29, 2005, net winnings with $2,264 of gambling losses they claim to have incurred throughout 2005. They contend that this result is necessary to treat “regular and casual gamblers equally”. 2
The Code mandates, however, that casual gamblers be treated differently from taxpayers who are in the trade or business of gambling. In particular, gambling losses incurred in a trade or business of gambling are allowable in computing adjusted gross income pursuant to section 62(a)(1). Gambling losses incurred other than in the trade or business of gambling are allowable, if at all, as itemized deductions in calculating taxable income. See sec. 63(a), (d); Johnston v. Commissioner, 25 T.C. 106, 108 (1955); Cromley v. Commissioner, T.C. Memo. 2008-176; Heidelberg v. Commissioner, T.C. Memo. 1977-133.
Because petitioners were not engaged in the trade or business of gambling, their gambling losses are allowable only as itemized deductions. But because petitioners have elected the standard deduction, they are not entitled to itemize their deductions. 3 Sec. 63(b), (e); see Johnston v. Commissioner, supra; Heidelberg v. Commissioner, supra. We reject as without merit petitioners' contention that this statutory arrangement is unconstitutional. See Tschetschot v. Commissioner, T.C. Memo. 2007-38 (upholding constitutionality of section 165(d)); Valenti v. Commissioner, T.C. Memo. 1994-483 (same); cf. Gajewski v. Commissioner, 84 T.C. 980 (1985) (holding that for purposes of computing the minimum tax the 16th Amendment does not require that a casual gambler's gambling losses be netted against gambling gains).
Drawing an analogy to the recovery of a capital investment, this Court has held that a casual gambler's gross income from a wagering transaction should be calculated by subtracting the bets placed to produce the winnings, not as a deduction in calculating adjusted gross income or taxable income but as a preliminary computation in determining gross income. See Lutz v. Commissioner, T.C. Memo. 2002-89 (slot machine winnings); Hochman v. Commissioner, T.C. Memo. 1986-24 (horse race winnings). This Court has also recognized the practical difficulties of tracking the basis of each wager individually in a session of like play. See Green v. Commissioner, 66 T.C. 538, 548 (1976) (stating that a “tabulation of the amounts paid for chips less the amount paid to redeem chips would have served to verify the net win or loss figures”); Szkircsak v. Commissioner, T.C. Memo. 1980-129 (stating that “it is impractical to record each separate roll of the dice or spin of the wheel”). The methodology put forward by respondent is consistent with these principles.
Insofar as petitioners mean to suggest that section 165(d) permits their gross income from slot machine play to be calculated by netting all their 2005 slot machine gains and losses, we disagree. Section 165(d) does not define gross income but instead limits the deductibility of losses on wagering “transactions” to the amount of gains from wagering “transactions”. Consistent with general principles treating each wager as a separate taxable event under Federal tax law, see Abeid v. Commissioner, 122 T.C. 404, 411 (2004), section 165(d) clearly contemplates that gross income from wagering is determined in the first instance by reference to individual wagering “transactions.” To permit a casual gambler to net all wagering gains or losses throughout the year would intrude upon, if not defeat or render superfluous, the careful statutory arrangement that allows deduction of casual gambling losses, if at all, only as itemized deductions, subject to the limitations of section 165(d).
Respondent has effectively conceded that petitioners' gross income from their March 29, 2005, slot machine play was $1,100. Cf. LaPlante v. Commissioner, T.C. Memo. 2009-226 (holding that taxpayers failed to substantiate claims of net gambling gains and losses). Giving effect to this concession, we hold that petitioners had $1,100 of unreported gross income from gambling in 2005 and are entitled to no deduction for gambling losses.
To reflect the foregoing,
Decision will be entered under Rule 155.

Footnotes


1
Certain computational adjustments that follow from the resolution of this issue are not in controversy, and we do not address them.
2
By “regular” gamblers, we understand petitioners to mean gamblers who are in the trade or business of gambling.
3
A taxpayer may change an election to claim the standard deduction at any time before the period of limitations has expired. Sec. 63(e). Insofar as the record shows, petitioners have not sought to change their election to claim the standard deduction. In any event, on the record before us it would not appear advantageous for petitioners to do so.

Tuesday, December 29, 2009

Payments made by an individual to his former wife were not deductible as alimony under Code Sec. 215. The payments were not required by the couple's divorce agreement, which specifically stated that neither party was obligated to pay maintenance to the other party. An untitled single-page document that ordered the taxpayer to pay his ex-wife amounts related to his pension plan was incomplete and not explained at trial; therefore, the document was not probative. The Tax Court did, however, comment that its holding only referred to the year at issue, and that the taxpayer could ask a local court for a qualified domestic relations order (QDRO) with respect to the monthly payments of a portion of his pension.

Friday, December 25, 2009

Tax Extenders Act of 2009 JCX-60-09

http://www.jct.gov/publications.html?func=startdown&id=3640

Thursday, December 24, 2009

The IRS denied innocent spouse relief to a wife for a tax deficiency arising from the married couple's failure to report on their joint income tax return income derived from the couple's business. The wife was not entitled to relief under Code Sec. 6015(b)(1)(B) or Code Sec. 6015(b)(1)(C) because she did not prove that the income was her husband's alone, and she did not offer any evidence of how the revenue could be allocated between the two spouses. Furthermore, testimony showed that the wife had reason to know that the return she signed understated the couple's income. The wife was also not entitled to relief under Code Sec. 6015(c) because the couple was married in the year in issue and continue to be married. Additionally, the wife did not prove that it was inequitable to hold her jointly liable under Code Sec. 6015(b)(1)(D) and Code Sec. 6015(f) because she did not satisfy several factors considered for equitable relief as set forth in Rev. Proc. 2003-61, 2003-2 C.B. 296.


Callie Sue Olson v. Commissioner., U.S. Tax Court, CCH Dec. 58,031(M), T.C. Memo. 2009-294, (Dec. 21, 2009)
Callie Sue Olson v. Commissioner.
U.S. Tax Court, Dkt. No. 20384-07, TC Memo. 2009-294, December 21, 2009.

MEMORANDUM FINDINGS OF FACT AND OPINION
GUSTAFSON, Judge: This case arises from petitioner Callie Sue Olson's request for “innocent spouse” relief from joint liability under section 6015 1 for 2003 taxes—i.e., an income tax deficiency of $13,600, an addition to tax of $3,400 under section 6651(a)(1) for failure to file the return on time, and an accuracy-related penalty of $2,720 under section 6662. In a statutory notice of deficiency issued to Ms. Olson and her husband on June 12, 2007, 2 the Internal Revenue Service (IRS) denied Ms. Olson's request for relief from joint liability; and in response, Ms. Olson timely filed a petition with the Court on September 10, 2007. The issue for decision is whether Ms. Olson is entitled under section 6015 to relief from joint liability. We find that Ms. Olson is not entitled to such relief.
ed.
OPINION
I. Standard and Scope of Review
When determining whether a taxpayer is entitled to relief under section 6015 (whether under subsection (b), (c), or (f)), we conduct a trial de novo, in which we may consider evidence introduced at trial which was not included in the administrative record. Porter v. Commissioner, 130 T.C. 115, 117 (2008). For all claims under section 6015 (including claims for equitable relief under section 6015(f)), we do not review for abuse of discretion but instead employ a de novo standard of review. Porter v. Commissioner, 132 T.C. ___ (2009). Respondent contends, however, that when the Court reviews a denial of relief under section 6015 (f), it must apply an abuse-of-discretion standard of review and must limit the scope of its review to the administrative record. We have held otherwise in the two Porter opinions cited above, and we do not repeat in this opinion the reasons for those holdings.
An appeal in this case would lie to the U.S. Court of Appeals for the Eighth Circuit. That court held in Robinette v. Commissioner, 439 F.3d 455, 460 (8th Cir. 2006), revg. 123 T.C. 85 (2004), that the Tax Court's scope of review in a collection due process (CDP) proceeding under sections 6320 and 6330 should be limited to the administrative record. 4 However, the CDP provisions of sections 6320 and 6330 are different from the “innocent spouse” provisions of section 6015, and those differences include the following:
The CDP petitioner's agency-level remedies are described at some length in section 6330(a), (b), and (c), and section 6330(d)(2) requires the CDP petitioner to “exhaust[] all administrative remedies”; but section 6015 makes no explicit provision of agency-level remedies for “innocent spouse” relief and says nothing about exhausting them. The agency's CDP action is repeatedly characterized in section 6330 as a “hearing”, but no agency hearing is explicitly provided for the “innocent spouse” in section 6015. 5 The taxpayer's CDP submission to the Tax Court under section 6330(d) is called an “appeal” and is not referred to as a “petition” anywhere in the statute, while section 6015(e) provides that the innocent spouse files a “petition” that is nowhere called an “appeal”. The Tax Court “determine[s]” innocent spouse relief, sec. 6015(e)(1)(A), but has “jurisdiction with respect to such matter” in the case of an appeal from the agency's CDP determination, sec. 6330(d)(1). 6
All these differences in statutory vocabulary suggest that even if a CDP case under sections 6320 and 6330 is held to be governed by a “record rule”, as the Court of Appeals for the Eighth Circuit holds, the same rule is not warranted for an “innocent spouse” case under section 6015. We therefore follow our Porter decisions and apply a de novo standard of review and scope of review in deciding this case under section 6015.
II. Joint and Several Liability and Section 6015 Relief
Section 6013(d)(3) provides that if a joint return is filed, the tax is computed on the taxpayers' aggregate income, and liability for the resulting tax is joint and several. See also sec. 1.6013-4(b), Income Tax Regs. (26 C.F.R.). That is, each spouse is responsible for the entire joint tax liability. However, section 6015 provides for relief from joint liability for spouses who meet the conditions of subsection (b) and for divorced and separated persons under subsection (c), and provides equitable relief in subsection (f) when the relief provided in subsections (b) and (c) is not available. Except as otherwise provided in section 6015, the taxpayer bears the burden of proof. See sec. 6015(c)(2); Rule 142(a); Alt v. Commissioner, 119 T.C. 306, 311 (2002), affd. 101 Fed. Appx. 34 (6th Cir. 2004). Because Ms. Olson generally requests relief under section 6015, we analyze her eligibility under all three subsections.
A. Subsection (b) Relief
Section 6015 provides as follows in subsections (a) and (b)(1):
SEC. 6015. RELIEF FROM JOINT AND SEVERAL LIABILITY ON JOINT RETURN.
(a) In General.—Notwithstanding section 6013(d)(3)—
(1) an individual who has made a joint return may elect to seek relief under the procedures prescribed under subsection (b); and
(2) if such individual is eligible to elect the application of subsection (c), such individual may, in addition to any election under paragraph (1), elect to limit such individual's liability for any deficiency with respect to such joint return in the manner prescribed under subsection (c).
Any determination under this section shall be made without regard to community property laws.
(b) Procedures for Relief from Liability Applicable to All Joint Filers.—
(1) In general.—Under procedures prescribed by the Secretary, if—
(A) a joint return has been made for a taxable year;
(B) on such return there is an understatement of tax attributable to erroneous items of one individual filing the joint return;
(C) the other individual filing the joint return establishes that in signing the return he or she did not know, and had no reason to know, that there was such understatement;
(D) taking into account all the facts and circumstances, it is inequitable to hold the other individual liable for the deficiency in tax for such taxable year attributable to such understatement; and
(E) the other individual elects (in such form as the Secretary may prescribe) the benefits of this subsection not later than the date which is 2 years after the date the Secretary has begun collection activities with respect to the individual making the election,
then the other individual shall be relieved of liability for tax (including interest, penalties, and other amounts) for such taxable year to the extent such liability is attributable to such understatement.
Section 6015(b)(1) thus authorizes “innocent spouse” relief if a taxpayer satisfies all five of the requirements set out in subparagraphs (A) through (E). Respondent does not dispute that Ms. Olson meets the requirements of subparagraphs (A) (joint return) and (E) (timely election), but he denies that she meets the other three requirements in subparagraphs (B), (C), and (D). We therefore discuss those three.
1. Erroneous Item of Non-requesting Spouse ( Section 6015(b)(1)(B)
Ms. Olson has the burden to prove that the understatement of tax on the joint return was attributable to erroneous items of Mr. Olson and not of Ms. Olson. See Jonson v. Commissioner, 118 T.C. 106, 113 (2002), affd. 353 F.3d 1181 (10th Cir. 2003). However, the erroneous item on the return was the business income of Fun Stuff Rental, 7 which was the family business. The business is identified on the company checks as “Greg & Callie's” (emphasis added), and Ms. Olson was active in the business—answering the phone, sending out mail, paying the help, handling the equipment, and working some of the jobs. Mr. and Ms. Olson's work was collaborative and mutual. Ms. Olson did not prove that the Fun Stuff Rental income was an item of Mr. Olson alone, and she did not offer any evidence of how the revenue could be allocated between the two spouses. See Ishizaki v. Commissioner, T.C. Memo. 2001-318, 82 T.C.M. (CCH) 995, 1000-1001 (2001) (income is not an item of one spouse when the other “actively and substantially participated”). We hold that Ms. Olson did not prove that she meets the requirement of section 6015(b)(1)(B).
2. Requesting Spouse's Knowledge ( Section 6015(b)(1)(C))
As for the requirement of section 6015(b)(1)(C), Ms. Olson did make a credible showing that “in signing the return * * * she did not know * * * that there was such understatement”, but she did not prove that she “had no reason to know”. 8 On the contrary, her testimony showed that she did have reason to know that the return she signed understated the liability. She had quit her hospital job the prior year, so that in 2003 the family's only income source was Fun Stuff Rental; she saw that family expenses were being paid from the revenues of the business; she had access to all the records of the business; yet she signed a joint return on which Fun Stuff Rental reported a loss of $10,376. From the facts immediately available to her, she had reason to know that Fun Stuff Rental had not really experienced a loss of $10,376.
The loss reported on the return that Ms. Olson signed simply cannot be reconciled with her knowledge of the business and the family activities. If she did not know that the return she signed understated the income of Fun Stuff Rental, it is because she chose to pay no attention to the matter. But as the Court of Appeals for the Eighth Circuit has observed:
a taxpayer cannot satisfy the lack of knowledge requirement by claiming that he or she failed to review the joint return before signing it. “ Section 6013(e) is designed to protect the innocent, not the intentionally ignorant.” Cohen v. Commissioner, T.C. Memo. 1987-537 (Oct. 20, 1987). * * *
Erdahl v. Commissioner, 930 F.2d 585, 589 (8th Cir. 1991), revg. T.C. Memo. 1990-101. We hold that Ms. Olson did not prove that she had no reason to know that the loss reported on the joint return that she signed was erroneous. Rather, she could and should have known that the reported loss was erroneous.
3. Inequitable To Hold Liable ( Section 6015(b)(1)(D))
As for the requirement of section 6015(b)(1)(D), Ms. Olson did not show that “it is inequitable to hold * * * [her] liable for the deficiency in tax”. The statute provides that this judgment on the equities is to be made “taking into account all the facts and circumstances”. 9 Since this “inequitable” requirement under section 6015(b)(1)(D) is equivalent to the “inequitable” requirement under section 6015(f)(1), which is discussed below in part II.C, we relegate our analysis to that part of this opinion. In sum, Ms. Olson did not prove that it is inequitable to hold her jointly liable.
Thus, Ms. Olson fails to satisfy the requirements of subparagraphs (B), (C), and (D) of section 6015(b)(1) and does not qualify for relief under section 6015(b).
B. Subsection (c) Relief.
Section 6015(c) is entitled “Procedures to Limit Liability for Taxpayers No Longer Married or Taxpayers Legally Separated or Not Living Together.” Because Mr. and Ms. Olson were married in the year in issue and continue to be married, Ms. Olson is not entitled to relief under subsection (c).
C. Equitable Relief Under Subsection (f)
1. Standards Applicable Under Section 6015(f)
Subsection (f) of section 6015 provides as follows:
SEC. 6015(f). Equitable Relief.—Under procedures prescribed by the Secretary, if—
(1) taking into account all the facts and circumstances, it is inequitable to hold the individual liable for any unpaid tax or any deficiency (or any portion of either); and
(2) relief is not available to such individual under subsection (b) or (c),
the Secretary may relieve such individual of such liability.
Thus, a taxpayer may be relieved from joint and several liability under section 6015(f) if, taking into account all the facts and circumstances, it is inequitable to hold the taxpayer liable.
In accord with the statutory provision that section 6015(f) relief is to be granted “[u]nder procedures prescribed by the Secretary,” the Commissioner has issued revenue procedures to guide IRS employees in determining whether a requesting spouse is entitled to relief from joint and several liability. See Rev. Proc. 2003-61, supra, 2003-2 C.B. 296, modifying and superseding Rev. Proc. 2000-15, 2000-1 C.B. 447. Revenue Procedure 2003-61 provides a three-step analysis for IRS employees to use in deciding whether to grant relief: Section 4.01 (discussed below) lists seven threshold conditions that must be met for any relief to be granted; section 4.02, not applicable here, lists circumstances in which relief will ordinarily be granted as to liabilities (unlike those at issue here) that were reported on a return; and section 4.03 (discussed below) sets out eight non exclusive factors to be considered in determining whether equitable relief should be granted.
The Tax Court has been given express authority to review the IRS's denial of equitable relief under section 6015(f). Section 6015(e)(1) provides:
[I]n the case of an individual who requests equitable relief under subsection (f) * * * [i]n addition to any other remedy provided by law, the individual may petition the Tax Court (and the Tax Court shall have jurisdiction) to determine the appropriate relief available to the individual under this section * * *.
In “determin[ing] the appropriate relief”, the Court reviews the IRS's three-step analysis prescribed in its revenue procedure, see Washington v. Commissioner, 120 T.C. 137, 147-152 (2003), but our review is not circumscribed by that matrix. Rather, we consider “all the facts and circumstances” in determining whether the taxpayer is entitled to “innocent spouse” relief. Sec.6015(f)(1); see Porter v. Commissioner, 132 T.C. at ___ (slip op. at 12-13); Lantz v. Commissioner, 132 T.C. ___ (2009).
2. Evaluation of Ms. Olson's Entitlement to Relief Under Section 6015(f)
As we now show, the IRS correctly employed the analysis prescribed in Revenue Procedure 2003-61, supra, to determine that Ms. Olson is not entitled to equitable relief under section 6015(f). We find that that the IRS's analysis did not exclude any relevant fact or circumstance that ought to be taken into account, and that relief from joint liability is not appropriate in this case.
a. Threshold Eligibility Under Rev. Proc. 2003-61, Sec. 4.01
Revenue Procedure 2003-61 sets out, in section 4.01, seven threshold conditions that all requesting spouses must meet in order for the IRS to grant relief pursuant to section 6015(f). 10 In his pretrial memorandum respondent asserts generally that Ms. Olson “fails to meet the threshold eligibility requirements” but does not specify which one or ones she fails to meet. It appears that she satisfies the first six but that she fails to satisfy the seventh—i.e., “The income tax liability from which the requesting spouse seeks relief is attributable to an item of the individual with whom the requesting spouse filed the joint return”. As we explained above in part II.A.1, Ms. Olson failed to show that the underreported income of Fun Stuff Rental was an item attributable to Mr. Olson alone. Rather, Ms. Olson was also active in the business, so that its income is properly attributable not only to Mr. Olson but also to her. Ms. Olson therefore fails to meet the threshold conditions for the IRS to grant equitable relief.
We nonetheless proceed to consider “[i]n the alternative”, see O'Meara v. Commissioner, T.C. Memo. 2009-71, whether there are any additional facts and circumstances that would justify relief for Ms. Olson. We find that there are not.
b. Facts-and-Circumstances Test of Rev. Proc. 2003-61, Sec. 4.03
Where the requesting spouse satisfies the threshold conditions of section 4.01 of Revenue Procedure 2003-61 (not the case here), the IRS may grant relief under the facts-and-circumstances test of section 4.03. Under that test the IRS considers a “nonexclusive list of factors” in section 4.03(2)(a) to determine whether “taking into account all the facts and circumstances, it is inequitable to hold the requesting spouse liable”: (i) whether the requesting spouse is separated or divorced from the nonrequesting spouse; (ii) whether the requesting spouse would suffer economic hardship if not granted relief; (iii) whether the requesting spouse knew or had reason to know that the other spouse would not pay the liability; (iv) whether the nonrequesting spouse has a legal obligation to pay the outstanding tax liability pursuant to a divorce decree or agreement; (v) whether the requesting spouse received a significant benefit from the item giving rise to the deficiency; and (vi) whether the requesting spouse has made a good faith effort to comply with the tax laws for the taxable years following the taxable year to which the request for such relief relates. Other factors that the IRS considers under section 4.03(2)(b) are (i) whether the nonrequesting spouse abused the requesting spouse and (ii) whether the requesting spouse was in poor mental or physical health at the time he or she signed the tax return or at the time he or she requested relief.
We consider these factors and any other relevant facts and circumstances in determining whether the taxpayer is entitled to “innocent spouse” relief. No single factor is determinative, and all factors are to be considered and weighted appropriately. Haigh v. Commissioner, T.C. Memo. 2009-140. In this case the IRS's factors provide a sufficient basis for evaluating Ms. Olson's claim for equitable relief, and the record suggests no additional facts and circumstances that should be considered. We therefore address the factors listed in section 4.03 of Revenue Procedure 2003-61.
i. Marital Status
Ms. Olson was not divorced, separated, or living apart from Mr. Olson when she filed her request for “innocent spouse” relief. This factor weighs against granting relief. See McKnight v. Commissioner, T.C. Memo. 2006-155.
ii. Economic Hardship
Generally, economic hardship exists if collection of the tax liability will cause the taxpayer to be unable to pay reasonable basic living expenses. Butner v. Commissioner, T.C. Memo. 2007-136. Ms. Olson made no showing of economic hardship, so this factor weighs against granting relief.
iii. Knowledge or Reason To Know
As is discussed above in part II.A.2, Ms. Olson has failed to establish that she did not have reason to know of the item giving rise to the deficiency (i.e., the income of Fun Stuff Rental). This factor weighs against granting relief. See Beatty v. Commissioner, T.C. Memo. 2007-167.
iv. Nonrequesting Spouse's Legal Obligation
Where a divorce decree or other court order gives the nonrequesting spouse a legal obligation to pay the liability, this fact can weigh in favor of granting relief to the requesting spouse. No divorce decree or separation order imposes such a liability on Mr. Olson, and this factor therefore weighs against granting relief to Ms. Olson.
v. Significant Benefit
While Ms. Olson did share in the benefit of the Fun Stuff Rental income in 2003 and did share with Mr. Olson the benefit of the money that they did not use to pay their tax liability, there is nothing in the record that indicates that Ms. Olson “received significant benefit (beyond normal support) from the unpaid income tax liability or item giving rise to the liability”, and respondent does not contend that she did. Therefore, this factor weighs moderately in favor of relief. See Magee v. Commissioner, T.C. Memo. 2005-263.
vi. Compliance With Federal Tax Laws
As of the time the IRS issued the notice of deficiency that denied Ms. Olson's request for relief for 2003, the Olsons had not filed returns for 2004 and 2005, so respondent contends that Ms. Olson had not (for purposes of Rev. Proc. 2003-61, sec. 4.03(2)(a)(vi)) “made a good faith effort to comply with income tax laws in the taxable years following the taxable year or years to which the request for relief relates.” We have found that in 2003 the income of Fun Stuff Rental was an item of both Mr. and Ms. Olson. However, the record is not clear on this point as to 2004 and 2005; and when the IRS determined deficiencies for 2004 and 2005, it issued the notice of deficiency to Mr. Olson only. Since this factor, even if found in Ms. Olson's favor, would not sufficiently tip the scales to justify relief, we do not decide this issue and instead assume arguendo that this factor weighs in favor of relief. See Fox v. Commissioner, T.C. Memo. 2006-22.
vii. Abuse
There is no evidence or allegation of abuse by Mr. Olson. Therefore, this factor is neutral. See Magee v. Commissioner, supra.
viii. Mental or Physical Health
Ms. Olson has not alleged, nor does the record show, that her mental or physical health was poor at the relevant times. Therefore, this factor is neutral. See id.
When we weigh the facts and circumstances implicated in these eight factors, we find that Ms. Olson is not entitled to relief. Two factors are neutral, no more than two factors weigh in favor of relief, and at least four factors weigh against relief. We find that the two favorable factors (subsequent compliance and lack of significant benefit) are easily outweighed by the four unfavorable factors: Ms. Olson lived with and continues to live with Mr. Olson; she showed no economic hardship that would result if relief were not granted; she should have known of the understatement reflected on the return; and Mr. Olson is not under any order or decree to pay the liability. As a result, when the facts and circumstances are weighed, Ms. Olson is not entitled to “innocent spouse” relief under section 6015(f) with respect to the Olsons' joint Federal income tax liability for 2003.
In sum, we find that Ms. Olson is not entitled to relief from joint liability under section 6015(b), (c), or (f).
To reflect the foregoing,
Decision will be entered for respondent.

Footnotes


1
Unless otherwise indicated, all citations of sections refer to the Internal Revenue Code of 1986 (26 U.S.C.), as amended, and all citations of Rules refer to the Tax Court Rules of Practice and Procedure.
2
The 2003 deficiency itself was disputed in Gregory John Olson v. Commissioner, docket No. 20383-07, in which case Ms. Olson was not a petitioner. Mr. Olson conceded the case, and decision was entered on November 17, 2009, sustaining against him the IRS's deficiency determination.
3
In the “Filing Status” block on the first page of the return, neither the block for “Married filing jointly” nor any other block is checked. However, the names of both Mr. and Ms. Olson appear on the appropriate lines (with Ms. Olson's name on the line marked “If a joint return, spouse's first name and initial”); and Ms. Olson signed in the signature block on the second page, under “Spouse's signature. If a joint return, both must sign.” The IRS treated the return as a joint return, and Ms. Olson's request for innocent spouse relief characterized the return as a joint return.
4
This Court held to the contrary in Robinette v. Commissioner, 123 T.C. 85 (2004), revd. 439 F.3d 455, 460 (8th Cir. 2006), and in CDP cases we generally do not follow the record rule. However, in cases appealable to Courts of Appeals that follow the record rule, we do follow those precedents pursuant to our “ Golsen rule”. See Golsen v. Commissioner, 54 T.C. 742, 757 (1970), affd. 445 F.2d 985 (10th Cir. 1971). However, as we noted in Porter v. Commissioner, 130 T.C. 115, 120 (2008), the Court of Appeals' decision in Robinette interpreting section 6330 does not govern the interpretation of section 6015.

5
See Porter v. Commissioner, supra, 130 T.C. at 135 (Thornton, J., concurring); Friday v. Commissioner, 124 T.C. 220, 222 (2005) (“There is in section 6015 no analog to section 6330 granting the Court jurisdiction after a hearing at the Commissioner's Appeals Office”).
6
See Porter v. Commissioner, supra at 120; id. at 134-135 (Thornton, J., concurring).
7
Ms. Olson did not argue that the understatement was attributable to the erroneous exclusion of one or more specific revenue items of which she could not have been aware or that it was attributable to the erroneous deduction of one or more specific items of expense whose legitimacy she could not have known. Since she did not show what particular items contributing to the income of Fun Stuff Rental gave rise to the understatement, and since in any event the bank statements and other records were all accessible to her, this argument could not have prevailed.
8
See also sec. 6015-2(c), Income Tax Regs. (26 C.F.R.) (“A requesting spouse has * * * reason to know of an understatement * * * if a reasonable person in similar circumstances would have known of the understatement. * * * All of the facts and circumstances are considered in determining whether a requesting spouse had reason to know of an understatement. The facts and circumstances that are considered include, but are not limited to, the nature of the erroneous item and the amount of the erroneous item relative to other items; the couple's financial situation; the requesting spouse's educational background and business experience; the extent of the requesting spouse's participation in the activity that resulted in the erroneous item; whether the requesting spouse failed to inquire, at or before the time the return was signed, about items on the return or omitted from the return that a reasonable person would question; and whether the erroneous item represented a departure from a recurring pattern reflected in prior years' returns (e.g., omitted income from an investment regularly reported on prior years' returns)”).
9
See also sec. 1.6015-2(d), Income Tax Regs. (26 C.F.R.) (“All of the facts and circumstances are considered in determining whether it is inequitable to hold a requesting spouse jointly and severally liable for an understatement. One relevant factor for this purpose is whether the requesting spouse significantly benefitted, directly or indirectly, from the understatement. A significant benefit is any benefit in excess of normal support. Evidence of direct or indirect benefit may consist of transfers of property or rights to property, including transfers that may be received several years after the year of the understatement. Thus, for example, if a requesting spouse receives property (including life insurance proceeds) from the nonrequesting spouse that is beyond normal support and traceable to items omitted from gross income that are attributable to the nonrequesting spouse, the requesting spouse will be considered to have received significant benefit from those items. Other factors that may also be taken into account, if the situation warrants, include the fact that the requesting spouse has been deserted by the nonrequesting spouse, the fact that the spouses have been divorced or separated, or that the requesting spouse received benefit on the return from the understatement. For guidance concerning the criteria to be used in determining whether it is inequitable to hold a requesting spouse jointly and severally liable under this section, see Rev. Proc. 2000-15 (2000-1 C.B. 447), or other guidance published by the Treasury and IRS (see § 601.601(d)(2) of this chapter)”). The revenue procedure cited in the regulation has been superseded by Revenue Procedure 2003-61, 2003-2 C.B. 296.

10
See Rev. Proc. 2003-61, sec. 4.01, 2003-2 C.B. at 297 (all requesting spouses must meet seven threshold conditions: (i) The requesting spouse filed a joint return for the taxable year for which he or she seeks relief; (ii) relief is not available to the requesting spouse under section 6015(b) or (c); (iii) the requesting spouse applies for relief no later than 2 years after the date of the Service's first collection activity after July 22, 1998, with respect to the requesting spouse; (iv) no assets were transferred between the spouses as part of a fraudulent scheme by the spouses; (v) the nonrequesting spouse did not transfer disqualified assets to the requesting spouse; (vi) the requesting spouse did not file or fail to file the return with fraudulent intent; and (vii) absent enumerated exceptions, the income tax liability from which the requesting spouse seeks relief is attributable to an item of the individual with whom the requesting spouse filed the joint return). As to requirement (iii) above, we have held that the two-year rule is invalid. See Lantz v. Commissioner, 132 T.C. ___ (2009).

Wednesday, December 23, 2009

Save this case. The Tax Court has finally been able to hold the IRS to a strict reading of the levy prohibition in section 6343. I take my hat off to Judge Dawson who knows how to read a statute.
The IRS's determination to proceed with a levy was an abuse of discretion. Although the settlement officer determined that a levy on the taxpayer's car and wages would create an economic hardship, the officer determined to proceed with the levy because the taxpayer was not in compliance with filing and payment requirements. However, neither case law nor the Internal Revenue Code or regulations under Code Sec. 6343 condition the release of a levy upon compliance with filing and payment requirements when there is an economic hardship. Rather, the regulations require the release of a levy that creates an economic hardship; therefore, the settlement officer's determination to proceed with the levy was contrary to law and an abuse of discretion.—

Kathleen A. Vinatieri v. Commissioner.
U.S. Tax Court, Dkt. No. 15895-08L, 133 TC —, No. 16, December 22, 2009.
.
R issued P a notice of intent to levy to collect P's unpaid Federal income taxes for 2002..P timely requested a hearing under sec. 6330, I.R.C.
P submitted to the settlement officer Form 433-A, Collection Information Statement for Wage Earners and Self-Employed Individuals, indicating she had monthly income of *800 and expenses of *800, had *14 cash on hand, and owned a 1996 Toyota Corolla four-door sedan with 243,000 miles and a value of *300..If P's wages are levied on she will be unable to pay her reasonable basic living expenses..If her car is levied on, she will be unable to work.
The settlement officer stated in her log that P meets the criteria to have her account reported as currently not collectible because of hardship in accordance with the Internal Revenue Manual (IRM). However, R's Appeals Office issued a notice of determination to proceed with levy, stating that P was not entitled to collection alternatives because she had not filed her 2005 and 2007 Federal income tax returns. P timely petitioned for review of that determination under sec. 6330(d), I.R.C..R filed a motion for summary judgment..P, proceeding pro se, did not file a cross-motion for summary judgment.
Under regulations prescribed by the Secretary, the Secretary must release a levy upon all, or part of, a taxpayer's property or rights to property if, inter alia, the Secretary has determined that the levy is creating an economic hardship due to the financial condition of the taxpayer.. Sec. 6343(a)(1)(D), I.R.C. The regulations provide that a levy is creating an economic hardship due to the financial condition of an individual taxpayer and must be released “if satisfaction of the levy in whole or in part will cause an individual taxpayer to be unable to pay his or her reasonable basic living expenses.”.Sec. 301.6343-1(b)(4), Proced. & Admin. Regs.
1. Held:. Sec. 6343(a)(1)(D), I.R.C., and sec. 301.6343-1(b)(4), Proced. & Admin. Regs., require release of a levy that creates an economic hardship regardless of the taxpayer's noncompliance with filing required returns.
2. Held, further, a levy on P's wages or car would cause P to be unable to pay her reasonable basic living expenses, creating an economic hardship that would require release of the levy pursuant to sec. 6343(a)(1)(D), I.R.C., and sec. 301.6343-1(b)(4), Proced. & Admin. Regs.
3. Held, further, R's motion for summary judgment is denied because R's determination to proceed with the levy was wrong as a matter of law and, therefore, was an abuse of discretion.
OPINION
DAWSON, Judge:.This matter is before the Court on respondent's motion for summary judgment filed pursuant to Rule 121. 1 Petitioner timely filed a petition pursuant to section 6330(d) appealing respondent's determination to proceed with collection by levy of petitioner's 2002 income tax liability. The issue to be decided is whether respondent's determination was an abuse of discretion.
Background
Petitioner resided in Tennessee when she filed the petition. Her residence is an apartment that she rents for *600 per month.
On September 13, 2007, respondent sent petitioner a Final Notice of Intent to Levy and Notice of Your Right to a Hearing (levy notice)..The underlying tax liability was attributable to unpaid self-assessed tax reported on her 2002 return..Petitioner timely requested a hearing on September 24, 2007, and the hearing was conducted through correspondence and by telephone with the settlement officer.
Petitioner first learned of the collection activity when her employer notified her about the proposed levy on her wages. When the settlement officer asked petitioner whether she wanted to enter into an installment agreement, petitioner said “she has nothing.” 2 Petitioner told the settlement officer that she has pulmonary fibrosis and is dying..Because of her health she can only find part-time employment.
The settlement officer could not find a record that petitioner had filed a return for 2005..Petitioner explained to the settlement officer that the payroll company responsible for completing her 2005 Form W-2, Wage and Tax Statement, was no longer in business..She had attempted to get the tax information from the Internal Revenue Service (IRS), but the IRS had no information regarding her income for 2005.
The settlement officer told petitioner that she might be able to have her account placed in currently not collectible status..The settlement officer asked petitioner to submit a Form 433-A, Collection Information Statement for Wage Earners and Self-Employed Individuals, and a diagnosis regarding her current health condition.
Petitioner sent a completed Form 433-A, indicating she had monthly income of *800 and expenses of *800, had *14 cash on hand, and owned a 1996 Toyota Corolla four-door sedan with 243,000 miles and a value of *300..The Form 433-A reported that petitioner did not own any other assets..Verification received by the settlement officer was consistent with the information petitioner provided in the Form 433-A..Petitioner was unable to obtain a written diagnosis of her medical condition from her physician because her physician would provide a diagnosis only ina claim for worker's compensation.
The settlement officer's log entry dated May 15, 2008, states:
TP [petitioner] meets the criteria to have account placed in CNC [currently not collectible] status per IRM 5.16.[1.]2.9 Hardship..The balance due is less than 10K and the TP has stated she has a terminal illness..CIS verification is not required..The TP has stated she has nothing and is not able to full pay or make payments..However, the TP is not in compliance. The TP has not filed a 2005 return and there is no record of the 2007 tax return being filed..The TP stated she does not have income information for 2005 and company that did payroll is no longer in business. TP stated she contacted IRS and they advised her they have no income information..There is no information per IRTRL..S/O [the settlement officer] contacted TP regarding filing of the 2007 return..The TP stated the return was filed late..The S/O requested the TP fax a copy of the return with the W-2..TP to fax information by 5-19-08..S/O asked TP if she obtained health diagnosis and the TP stated the doctor would only give her something if she is applying for diability..S/O requested income information for 2005 per IRPTRE.
The settlement officer's log entry dated May 20, 2008, states:
TP did not provide a copy of 2007 return and there is no record that the return has been filed per IDRS research..The TP was employed in 2007 and is currently employed..The 2005 return has not been filed..Since the TP is not in compliance, collection alternative cannot be considered..S/O will issue determination letter..If the 2005 income information is received, the S/O will forward it to the TP.
Respondent issued petitioner a Notice of Determination Concerning Collection Action(s) Under Section 6320 and/or 6330 (notice of determination) dated June 2, 2008, sustaining the proposed levy action and stating that, because petitioner was not in compliance with filing the required tax returns, a collection alternative could not be considered..The notice of determination was reviewed and signed by the Appeals team manager..The attachment to the notice of determination stated:
The settlement officer inquired about a collection alternative and you stated you could not make payments. You stated you had pulmonary fibrosis and can only work part-time hours due to your heath condition..The Settlement officer [who] advised you of the collection alternative however explained a collection alternative could not be considered because you were not in compliance with filing required tax returns. * * *
The attachment explained the balancing of efficient tax collection with concern regarding intrusiveness as follows:
Appeals has verified, or received verification, that applicable laws and administrative procedures have been met; has considered the issues raised; and has balanced the proposed collection with the legitimate concern that such action be no more intrusive than necessary by IRC Section 6330(c)(3).
Collection alternatives include full payment, installment agreement, offer in compromise and currently-not-collectible..However, since unfiled tax returns exist, the only alternative at present is to take enforced action by levying your assets..It is Appeals decision that the proposed levy action is appropriate..The proposed levy action balances the need for the efficient collection of the taxes with the legitimate concern that any collection action be no more intrusive than necessary.
Neither the notice of determination nor the attachment reflect any consideration of the fact that the levy would create an economic hardship as stated by the settlement officer in her.daily log and supported by the Form 433-A petitioner submitted.
Petitioner timely filed a petition in this Court challenging respondent's determination..Respondent filed the motion for summary judgment, and the Court ordered petitioner to file a response. 3 Petitioner filed a response to respondent's motion for summary judgment but did not file a cross-motion for summaryjudgment. 4 In her response petitioner describes her situation as follows:
To Whom It May Concern,
I don't know what you want to know cause I don't understand all the legal stuff you sent me..I can't afford a lawyer..And the closest legal aid is in Knoxville 30 miles away..My poor car will not go that far..So I will start at the beginning of my story and see if you can help me.
I was in an unhealthy relationship for many years. During a great deal of that time my husband was doing alcohol and drugs..I had 2 children plus his 3 to take care of..I had been doing janitorial work at a strip mall * * *..It was the only place that I could work that I could take my [then] 3 year old daughter with me..I could not support my family and pay day care. * * * My husband took care of bills and such cause he demanded that I turn over my money..We even got a divorce during that time cause I was not obeying him. * * *
Now I am not looking for sympathy just understanding..Do you know how hard it is to be a single parent?.* * * I have a high school education and nothing else.
It was nearly five years before I was notified of a problem by the I.R.S..Danny [petitioner's former spouse] was suppose to be doing taxes..He even made me sign a form that because he made more money he could claim my kids on his taxes cause we were no longer legally married.
I got all the W-2's from the I.R.S. except 2005 that they still have not sent me..That is why they are not done..I did all those taxes and forfeited the refunds..I do not remember what that total came to. But it was enough to pay I would say most of back taxes..The 2007 taxes were late and I don't know why they didn't arrive..I sent a second copy in as soon as my son gave me my copy..He had my copy for college financial aid and he lost them for a bit of time.
I am not a rich person..I work in a job so I can be home with my daughter..I left my husband in July after he threatened to beat my daughter with a baseball bat..Beating me is one thing but I could not have him beating my girl..So I am a single parent again..Right now we have not had much work in nearly a year..I have rent of 600 a mo..Utilities of 150 and get food stamps or I wouldn't eat..I make about 700-800 [per] month. There are no better jobs in our town..My daughter is only 11 so its not like I can leave her alone at night or on weekends..D.H.S. says it's not even legal..She is too young..There is no child care and I have no family here..I have pulmonary fibrosis that makes me sick all the time and the diagnosis says I have about 10 yrs to live..Right now I can work thank God.
I did my taxes this year [for 2008] and you are getting a little over *4,700..I'm not asking for much just a break..You can have my tax returns [refunds ?] I don't care..Well I do that is a tremendous loss but oh well..I don't have any money to send you on a monthly basis..Can we stop all the penalties..They are killing me..I will never be able to pay it off. * * * I let a relationship screw me up..I am truly sorry for that and am begging for a lifeline here..You can come to my home and see for yourself..I don't have fancy t.v.'s or even cable except for internet..I can't afford a phone..My clothes have holes in them. I even cut my own hair..If I could pay this off faster I would just to stop the nightmares it gives me.
Discussion
A. Summary Judgment
Summary judgment is used to expedite litigation and avoid unnecessary and expensive trials..The Court will render a decision on a motion for summary judgment if the pleadings, answers to interrogatories, depositions, admissions, and other acceptable materials, together with the affidavits, if any, show that there is no genuine issue as to any material fact and that a decision may be rendered as a matter of law..Rule 121(b). Because the effect of granting a motion for summary judgment is to decide the case against a party without allowing that party an opportunity for a trial, the Court should grant the motion only after a careful consideration of the case.. Associated Press v. United States, 326 U.S. 1, 6 (1945); Kroh v. Commissioner, 98 T.C. 383, 390 (1992).
For purposes of respondent's motion for summary judgment, respondent has the burden of showing the absence of a genuine issue as to any material fact..Petitioner is afforded the benefit of all reasonable doubt, and the material submitted by both sides is viewed in the light most favorable to petitioner. See, e.g., Adickes v. S.H. Kress & Co., 398 U.S. 144, 157 (1970); Kroh v. Commissioner, supra at 390.
Respondent moves the Court for summary judgment on the ground that the settlement officer did not abuse her discretion in rejecting collection alternatives and determining to proceed with levy because petitioner was not in compliance with the filing requirements..Petitioner asks that the levy not be sustained because, if her wages are taken, she will be unable to pay her basic living expenses; and, if her car is taken, she will not be able to work.
B. Collection of Federal Taxes by Levy
If a taxpayer liable for Federal taxes fails to pay the taxes within 10 days after notice and demand, section 6331 authorizes the Secretary to collect the tax by levy upon all property and rights to property (except any property that is exempt under section 6334) belonging to the taxpayer or on which there is a lien for the payment of the tax.
Section 6343(a)(1) provides that, under regulations prescribed by the Secretary, if the Secretary has determined that the levy is creating an economic hardship due to the financial condition of the taxpayer, the Secretary must release a levy upon all, or part of, a taxpayer's property or rights to property. 5 Sec. 6343(a)(1)(D)..The regulations provide that a levy is creating an economic hardship due to the financial condition of an individual taxpayer and must be released “if satisfaction of the levy in whole or in part will cause an individual taxpayer to be unable to pay his or her reasonable basic living expenses.” Sec. 301.6343-1(b)(4), Proced. & Admin. Regs.
A taxpayer alleging that collection of the liability would create undue hardship must submit complete and current financial data to enable the Commissioner to evaluate the taxpayer's qualification for collection alternatives or other relief. Picchiottino v. Commissioner, T.C. Memo. 2004-231..The regulations provide that, for purposes of determining the taxpayer's reasonable amount of living expenses, any information that is provided by the taxpayer is to be considered, including the following:
(A) The taxpayer's age, employment status and history, ability to earn, number of dependents, and status as a dependent of someone else;
(B) The amount reasonably necessary for food, clothing, housing * * *, medical expenses * * *, transportation, current tax payments * * *, alimony, child support, or other court-ordered payments, and expenses necessary to the taxpayer's production of income * * *;
(C) The cost of living in the geographic area in which the taxpayer resides;
(D) The amount of property exempt from levy which is available to pay the taxpayer's expenses;
(E) Any extraordinary circumstances such as special education expenses, a medical catastrophe, or natural disaster; and
(F) Any other factor that the taxpayer claims bears on economic hardship and brings to the attention of the director.
Sec. 301.6343-1(b)(4)(ii), Proced. & Admin. Regs.
C. Section 6330 Procedures
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' notice to the taxpayer of the right to an administrative hearing before the levy is carried out..If the taxpayer makes a timely request for an administrative hearing, the hearing is conducted by the IRS Office of Appeals (Appeals Office) before an impartial officer. Sec. 6330(b)(1), (3).
The taxpayer may raise any relevant issue during the hearing, including appropriate spousal defenses and challenges to “the appropriateness of collection actions”, and may make “offers of collection alternatives, which may include the posting of a bond, the substitution of other assets, an installment agreement, or an offer-in-compromise.”. Sec. 6330(c)(2)(A)..The taxpayer also may raise challenges to the existence or amount of the underlying tax liability if he/she did not receive a notice of deficiency for that liability or did not otherwise have an opportunity to dispute it.. Sec. 6330(c)(2)(B).
During the hearing the Appeals officer must verify that the requirements of applicable law and administrative procedure have been met, consider issues properly raised by the taxpayer, and consider whether any proposed collection action balances the need for the efficient collection of taxes with the taxpayer's legitimate concern that any collection action be no more intrusive than necessary.. Sec. 6330(c)(3)..The Appeals Office then issues a notice of determination indicating whether the proposed levy may proceed.
Under section 6330(d)(1) the taxpayer may petition this Court to review the determination made by the Appeals Office. See sec. 301.6330-1(f)(1), Proced. & Admin. Regs..Where, as in this case, the underlying tax liability is not at issue, we review the Appeals Office's determinations regarding the collection action for abuse of discretion.. Goza v. Commissioner, 114 T.C. 176 (2000)..An abuse of discretion occurs if the Appeals Office exercises its discretion “arbitrarily, capriciously, or without sound basis in fact or law.”. Woodral v. Commissioner, 112 T.C. 19, 23 (1999).
When a taxpayer establishes in a pre-levy collection hearing under section 6330 that the proposed levy would create an economic hardship, it is unreasonable for the settlement officer to determine to proceed with the levy which section 6343(a)(1)(D) would require the IRS to immediately release..Rather than proceed with the levy, the settlement officer should consider alternatives to the levy.
Respondent argues under the holdings of Rodriguez v. Commissioner, T.C. Memo. 2003-153, and McCorkle v. Commissioner, T.C. Memo. 2003-34, that there is no abuse of discretion if a settlement officer rejects collection alternatives because the taxpayer was not in compliance with the filing requirements for all required tax returns. 6
Generally, we have found the Commissioner's policy requiring individuals seeking collection alternatives to be current with filing their returns to be reasonable. 7 However, taxpayers in those cases have had sufficient income to meet basic living expenses..See, e.g., Speltz v. Commissioner, 124 T.C. 165, 178 (2005) (taxpayers claimed hardship because the tax liability was disproportionate to the value that they received from initial stock offerings and because they had already been forced to change their lifestyle), affd. 454 F.3d 782 (8th Cir. 2006); Peterson v. Commissioner, T.C. Memo. 2009-46 (the Court upheld rejection of taxpayers' offer of *20,000 to compromise *70,000 liability where, although they had minimal income from Social Security retirement and disability payments, they had reasonable collection potential of *68,000 from two parcels of real property valued at *80,000); Fangonilo v. Commissioner, T.C. Memo. 2008-75 (Commissioner's refusal to treat taxpayer's tax liability as currently not collectible was not an abuse of discretion where although taxpayer's income was not sufficient to meet his stated monthly living expenses, he had a liquid asset worth more than his tax liability); Willis v. Commissioner, T.C. Memo. 2003-302 (taxpayers' ability to make some payments toward their cumulative liability made them ineligible to have the cumulative liability classified as currently not collectible); Rodriguez v. Commissioner, T.C. Memo. 2003-153 (taxpayer had not filed returns for 12 years and did not submit all of the financial information supporting her offer-in-compromise that the settlement officer requested); Ashley v. Commissioner, T.C. Memo. 2002-286 (taxpayer had income in excess of expenses and sufficient equity in his real property to pay his tax liability in full).
We have found no cases addressing the requirement that the taxpayer be current with filing returns in a levy case involving economic hardship under section 6343(a)(1)(D) and section 301.6343-1(b)(4), Proced. & Admin. Regs..Neither section 6343 nor the regulations condition a release of a levy that is creating an economic hardship on the taxpayer's compliance with filing and payment requirements..The purpose of section 6330 is to “afford taxpayers adequate notice of collection activity and a meaningful hearing before the IRS deprives them of their property.”.S. Rept. 105-174, at 67 (1998), 1998-3 C.B. 537, 603 (emphasis added)..A determination in a hardship case to proceed with a levy that must immediately be released is unreasonable and undermines public confidence that tax laws are being administered fairly..In a section 6330 pre-levy hearing, if the taxpayer has provided information that establishes the proposed levy will create an economic hardship, the settlement officer cannot go forward with the levy and must consider an alternative.
D. Appeals Office's Determination To Proceed With Levy of Petitioner's Assets
The financial information petitioner submitted on the Form 433-A, which was consistent with other information the settlement officer obtained, showed that if petitioner's wages are levied on, she will be unable to pay her basic living expenses; and, if her car is levied on, she will not be able to work..After analyzing petitioner's financial information, the settlement officer concluded that the levy would create an economic hardship and so stated in her log..However, the settlement officer determined collection alternatives to the levy, including an installment agreement, an offer-in-compromise, and reporting the account as currently not collectible, were not available because petitioner had not filed her 2005 and 2007 returns..The settlement officer's determination to proceed with the levy was reviewed and approved by the Appeals team manager who signed the notice of determination..Although the attachment to the notice of determination shows that the Appeals team manager was aware of petitioner's financial situation and health problems, the Appeals team manager signed the notice of determination to proceed with the levy because petitioner had not filed her 2005 and 2007 returns..Proceeding with the levy would be unreasonable because section 6343 would require its immediate release, and the determination to do so was arbitrary..The determination to proceed with the levy was wrong as a matter of law and, therefore, was an abuse of discretion..Respondent is not entitled to summary judgment, and respondent's motion will be denied.
An order denying respondent's motion will be issued.

Footnotes


1
All Rule references are to the Tax Court Rules of Practice and Procedure, and all section references are to the Internal Revenue Code.
2
Petitioner explained to the settlement officer that she had previously agreed to pay in installments and that she was told she would be sent envelopes for each payment, but she never received the envelopes or monthly bills.
3
In the order we observed that our preliminary review of the record indicated that the proposed levy action involved a hardship situation and that petitioner needed the assistance of an attorney..We urged petitioner to contact the legal aid society or the local bar association pro bono services and provided their addresses and phone numbers.
4
After petitioner filed her response to respondent's motion for summary judgment, respondent filed a motion to continue the case wherein respondent stated that petitioner was in the process of submitting a collection alternative to the IRS and that, if the alternative is accepted by the IRS, a trial in this case would not be necessary..The Court granted respondent's motion and directed the parties to file a status report on or before July 27, 2009..In a status report filed on July 17, 2009, respondent reported that respondent has not received any communication from petitioner and requested the Court to grant respondent's motion for summary judgment.
5
The regulations provide a method whereby a taxpayer may inform the Secretary that a levy is creating an economic hardship and request that the levy be released..See sec. 301.6343-1(c), Proced. & Admin. Regs..“A taxpayer who wishes to obtain a release of a levy must submit a request for release in writing or by telephone to the district director for the Internal Revenue district in which the levy was made.”. Id..However, service center directors and compliance center directors (to whom requests by taxpayers are not made) who have determined that a levy is creating an economic hardship must also release the levy and promptly notify the taxpayer of the release pursuant to sec. 301.6343-1(a), Proced. & Admin. Regs.
6
Generally, the IRS will not grant an installment agreement, accept an offer-in-compromise, or report an account as currently not collectible if any tax return for which the taxpayer has a filing requirement has not been filed..See Internal Revenue Manual pts. 5.14.1.4.1(4)-(6) (Sept. 26, 2008) (installment agreements); 5.8.3.13(1), (2), (4) (Sept. 23, 2008) (offers-in-compromise); 5.16.1.1(5) and (6), 5.16.1.2.9(8) (May 5, 2009) (currently not collectible), 5.1.11.2.3 (June 2, 2004) (general collection procedures).
7
In Estate of Atkinson v. Commissioner, T.C. Memo. 2007-89, we found reasonable requirements that an entity seeking collection alternatives to full payment, including reporting an account as currently not collectible, filing any outstanding tax returns and submitting a full financial statement and verification information for analysis..Mandatory release of levy creating an economic hardship applies only to individuals..Sec. 301.6343-1(b)(4), Proced. & Admin. Regs.

Tuesday, December 22, 2009

USTC Cases, United States of America v. Kenneth A. Evans, Appellant., U.S. Court of Appeals, Third Circuit, 2010-1 U.S.T.C. ¶50,118, (Dec. 15, 2009)

United States of America v. Kenneth A. Evans, Appellant.
U.S. Court of Appeals, 3rd Circuit; 08-2528, December 15, 2009.

Before: Ambro, Garth and Roth, Circuit Judges.
OPINION
Ambro, Circuit Judge: Kenneth A. Evans (“Evans”) was convicted in the Eastern District of Pennsylvania of three counts of filing false tax returns (in violation of 26 U.S.C. § 7206(1)) and two counts of tax evasion (in violation of 26 U.S.C. § 7201). The District Court sentenced him to 36 months' imprisonment. He now challenges his conviction and sentence. 1 We affirm both.
I. Background
Because we write solely for the parties, we will recite only those facts necessary to our disposition. Evans, a sales representative, stopped filing tax returns in 1999. In January 2001, he filed a civil suit in federal court against the Government requesting a full refund of his 1999 federal income tax. Evans claimed that no legal authority required him to pay income tax on his wages, the filing of a tax return would violate his Fifth Amendment right against self-incrimination, and the Sixteenth Amendment does not grant the Government authority to tax directly his wages without apportionment. In June 2001, the District Court found in the Government's favor on summary judgment. The Court, noting that these types of tax protest claims were appearing with some frequency, rejected in detail Evans' claims. Evans appealed, and we affirmed the District Court, noting the clear precedent that explicitly rejects Evans' arguments. See Evans v. United States, No. 01-3161, 32 F. App'x 31 (3d Cir. Mar. 26, 2002) (unpublished). We ordered Evans to pay $4,000 as a sanction for filing a frivolous appeal. The United States Supreme Court denied Evans' request for a writ of certiorari.

In August 2001, the IRS sent Evans a report regarding Evans' failure to file his 1999 return. At a meeting requested by Evans, IRS agents Vastardis and Burton informed Evans that his earnings were taxable income and Evans was required to file a return to obtain a refund for 1999. The meeting was recorded at Evans' request.
After this meeting, Evans filed a late tax return for the year 2000. He listed his income as zero, yet the Form W-2 wage and tax statement submitted by his employer showed he was paid over $55,000 in wages in 2000. Evans again reported zero income in his 2001 tax return. The corresponding W-2 showed he earned over $77,000 in 2001. In his 2000 and 2001 tax returns, Evans sought a refund of all taxes that had been withheld from his paychecks. The IRS denied these refund claims.
In January 2002, Evans submitted an IRS Form W-4 to his employer claiming he was exempt from withholding because he had no tax liability. His employer complied with this request and did not withhold federal taxes from 2002 through 2004. Evans did not file a tax return for the years 2002 and 2003.
In March 2003, Evans filed a second civil suit against the Government for a refund of federal income tax he paid in the 2000 and 2001 tax years. The District Court held a hearing and allowed Evans to argue his position. In granting judgment for the Government and rejecting Evans' arguments, the District Court noted that, instead of paying the sanctions imposed by our Court, Evans chose to burden the federal courts with yet another frivolous suit. The District Court imposed an additional $1,000 sanction.
In November 2004, the IRS wrote to Evans regarding his failure to file returns, and Evans met with IRS Agents Michael Taibi and Susan Hough. This meeting also was recorded at Evans' request. Evans argued that he was not required to file returns because he had no taxable income. Agent Taibi communicated with Evans' employer to request they begin withholding federal income tax. Taibi then referred the matter for criminal investigation.
In January 2005, Evans submitted to his employer a form “W-4E,” captioned “Exemption from Withholding,” in which he claimed he was exempt from withholding. The company did not honor the exemption request, as the “form” was not Governmentissued. Evans filed a tax return for 2004 stating that he had no income, as he had done in his 2000 and 2001 returns.
A grand jury indicted Evans for filing false tax returns in the years 2000, 2001, and 2004, and tax evasion for the years 2002 and 2003. At trial, the Government presented testimony of several IRS agents regarding Evans' filing history. The agents testified about the meetings with Evans in 2001 and 2004, and a recording was played of a December 2005 interview between Evans and an IRS agent with the criminal investigation division. Evans' Forms W-4 and Forms W-2 were introduced, and representatives of his employer described his withholding and wage history. Evidence was presented of the rejection of Evans' position by two District Court judges and the imposition of sanctions by this Court for filing a frivolous appeal. The Government also introduced evidence of Evans' tax-protestor status and activities, including postings from Evans' website regarding his tax beliefs and e-mails between Evans and other tax protestors.
Evans testified at length on his own behalf. He presented his interpretation of the case law, Tax Code, and IRS regulations. Evans claimed that Agent Vastardis told him at the 2001 meeting that a filer must declare that he had no income in order to claim a refund, and that filing a return was voluntary and not mandatory. Evans played selected portions of the tape of this meeting, and introduced numerous exhibits, including attachments to his W-4s.
The jury convicted Evans on all counts, and this appeal followed his sentencing.
II. Discussion
Evans makes four arguments on appeal: (1) the District Court erred by not admitting attachments to Evans' Form W-4s contemporaneously under Federal Rule of Evidence 106; (2) the evidence presented at trial was insufficient to establish Evans willfully failed to file tax returns and filed false tax returns; (3) the District Court erred in its jury charge; and 4) it relied on an impermissible factor in varying upward from the advisory Guidelines range.
A. Evidentiary Challenge
The prosecution introduced into evidence the “Employee's Withholding Allowance Certificate,” IRS Form W-4, completed by Evans in the years 2002, 2003, and 2004. The District Court denied Evans' motion in limine to admit letters and a videotape Evans attached to his W-4s, including letters to his employer explaining his view that he had no income tax liability and instructing his employer not to withhold any taxes. The District Court's decision to admit or exclude evidence is reviewed for abuse of discretion. United States v. Mathis, 264 F.3d 321, 326-27 (3d Cir. 2001).
Evans claims that the District Court's denial of his motion was an abuse of discretion under Federal Rule of Evidence 106, which provides that
[w]hen a writing or recorded statement or part thereof is introduced by a party, an adverse party may require the introduction at that time of any other part or any other writing or recorded statement which ought in fairness to be considered contemporaneously with it.
This codification of the doctrine of completeness guards against the potential for evidence to be misleading when presented out of context. Admission of additional evidence is compelled “if it is necessary to (1) explain the admitted portion, (2) place the admitted portion in context, (3) avoid misleading the trier of fact, or (4) insure a fair and impartial understanding.” United States v. Soures, 736 F.2d 87, 91 (3d Cir. 1984). Evans asserts that failure to include his writings and the video with the Form W-4s gave the jury a distorted and misleading view, as Evans incorporated them specifically to provide his reasoning for completing the forms in the manner he did.
The District Court found that a Form W-4 is a distinct and complete Government issued document, and the mere fact that Evans appended writings or videos did not render these additional submissions part of the Form W-4. The District Court also concluded that the Form W-4 alone was not so misleading or unfairly prejudicial as to warrant application of Rule 106.
Even were we to assume this was an abuse of discretion, any conceivable error was harmless. Under our traditional harmless error standard, a non-constitutional error is harmless when it is “ highly probable that the error did not contribute to the judgment.” United States v. Gambone, 314 F.3d 163, 177 (3d Cir. 2003) (internal quotation marks and citation omitted) (emphasis in original). “High probability requires that the court possess a sure conviction that the error did not prejudice the defendant.” Id. (internal quotation marks and citation omitted).
Here, one of the letters attached to a Form W-4 was discussed in detail during cross-examination of Evans' employer's corporate counsel. ( See Gov't App. 170-74.) Moreover, Evans testified about various letters he wrote to the IRS containing largely the same arguments he made in letters attached to the Form W-4s. Evans opined at length at trial about his reasons for completing the Form W-4s as he did. Therefore, any error was harmless.
B. Sufficiency of the Evidence
Evans argues that the trial evidence was insufficient to show that he willfully failed to file tax returns and willfully filed false tax returns. 2 In support of this contention, Evans contends that the Government did not prove willfulness, an element of the five counts in the indictment. We are unpersuaded.
“Willfulness requires the voluntary, intentional violation of a known legal duty as a condition precedent to criminal liability.” United States v. McKee, 506 F.3d 225, 236 (3d Cir. 2007) ( citing Cheek v. United States, 498 U.S. 192 (1991)). This element “protects the average citizen from criminal prosecution for innocent mistakes in filing tax forms that may result from nothing more than negligence or the complexity of the tax laws.” Id. Willfulness is negated by a defendant's good faith belief that he is not violating any laws. Cheek, 498 U.S. at 202. Once raised as a defense, the burden is on the Government to prove the defendant did not have a good faith belief. Id.
Viewing the evidence in the light most favorable to the Government, the element of willfulness is satisfied here by the judgments of two District Courts and our Court in the civil cases brought by Evans, communications to Evans by IRS agents, Evans' failure to file, evidence of his tax protest activities, and his knowledge of the conviction and sentencing of another tax protestor. Numerous authorities, including our Court, informed Evans of his duty to file a return and treat his wages as income. This is not a case of a good faith misunderstanding of a tax law provision. This is a case where the defendant knew and understood the law. Someone who knows the law and disagrees with it is not someone who in good faith believes the law does not apply to him.
C. Jury Instructions
Evans next challenges several of the District Court's jury instructions. When a party timely objects to jury instructions, “[w]e exercise plenary review to determine whether jury instructions misstated the applicable law, but in the absence of a misstatement we review for abuse of discretion.” Cooper Distrib. Co. v. Amana Refrigeration, Inc., 180 F.3d 542, 549 (3d Cir. 1999). However, where a party claiming error in a jury instruction “did not make a timely objection, we review for plain error.” Id. We will reverse if that error was “fundamental and highly prejudicial, such that the instructions failed to provide the jury with adequate guidance and our refusal to consider the issue would result in a miscarriage of justice.” Id. (internal quotation marks and citations omitted). 3
Where a district court denies a requested jury instruction, we will reverse “only when the requested instruction was correct, not substantially covered by the instructions given, and was so consequential that the refusal to give the instruction was prejudicial to the defendant.” United States v. Phillips, 959 F.2d 1187, 1191 (3d Cir. 1992). Jury instructions are to be read as a whole. United States v. Flores, 454 F.3d 149, 157 (3d Cir. 2006). “It is well-settled that the trial judge retains discretion to determine the language of the jury charge … [s]o long as the court conveys the required meaning,” and the court is under no obligation to use language proffered by the defendant. Id. at 161.
First, Evans challenges the District Court's use of the word “genuine” when it instructed the jury that a defendant's disagreement with a legal duty, even if genuine, does not provide a good faith defense. Read in context, the District Court accurately instructed the jury on the issue of good faith in accordance with Supreme Court and Third Circuit precedent.
Relatedly, Evans argues that the District Court erred in refusing to give his proposed good faith and willfulness instructions and a theory-of-the-defense instruction. However, the Court's explanation of willfulness in the jury charge substantially covered the relevant points and allowed Evans to argue his theory of the case. Therefore, the Court's refusal to include specific language or instruct on particular legal arguments requested by Evans was not an abuse of discretion.
Evans also claims that the District Court erroneously informed the jury that willfulness does not require that Evans knew his conduct was in violation of the law. Although Evans is correct in noting that the Court misspoke on one occasion while giving the jury instructions, the mistake was corrected when the Court accurately stated repeatedly that willfulness required proof that Evans knew his conduct violated the law, and on numerous occasions informed the jury that willfulness required violation of a “known legal duty.” Given the instructions in their entirety, this one misstatement could not have confused the jury. Therefore, the jury was properly charged on the willfulness element.
Evans' remaining challenges to the jury charge, which include a challenge to the state-of-mind instruction and a reference to income under the Tax Code, are without merit. Viewing the jury instructions in their entirety and in context, the District Court did not abuse its discretion.
D. Sentencing
Finally, Evans argues that the District Court improperly relied on the two civil tax suits filed by Evans against the United States in its consideration of the 18 U.S.C. § 3553(a) factors. This is Evans' only complaint regarding his sentencing; he does not challenge the calculation of the Guidelines range or the Court's consideration of the § 3553(a) factors in general.
We review the District Court's sentence for reasonableness under an abuse of discretion standard. United States v. Tomko, 562 F.3d 558, 564, 567 (3d Cir. 2009) (en banc). “Where, as here, a district court decides to vary from the Guidelines' recommendations, we ‘must give due deference to the district court's decision that the § 3553(a) factors, on a whole, justify the extent of the variance.’” Id. at 561 ( quoting Gall v. United States, 128 S.Ct. 586, 597 (2007)).
The Guidelines range was 15 to 21 months. The District Court imposed an above-Guidelines sentence of 36 months. It discussed at length the factors set forth at 18 U.S.C. § 3553(a). We do not think it was improper for the Court, in evaluating those factors (including the nature and circumstances of the offense), to consider that, despite several courts' unequivocal rejection of Evans' claims that his income was not subject to taxation, Evans continued to violate the law. 4 The Court noted Evans' disrespect for the court process, his disdainful interactions with IRS agents, the need for him genuinely to appreciate the authority of the law, and the need to deter the public. We have no hesitancy in concluding that it rationally and meaningfully considered the § 3553(a) factors, and the sentence of 36 months was reasonable in this case.
* * * * *
For these reasons, we affirm both Evans' conviction and sentence.



Footnotes


1
The District Court had jurisdiction under 18 U.S.C. § 3231. We have jurisdiction under 28 U.S.C. § 1291 and 18 U.S.C. § 3742.
2
"‘We apply a particularly deferential standard of review when deciding whether a jury verdict rests on legally sufficient evidence.’" United States v. Soto, 539 F.3d 191, 193-94 (3d Cir. 2008) ( quoting United States v. Dent, 149 F.3d 180, 187 (3d Cir. 1998)). We will sustain the verdict if, viewing the evidence in the light most favorable to the Government, "‘any rational trier of fact could have found the essential elements of the crime beyond a reasonable doubt.’" Id. at 194 ( quoting Dent, 149 F.3d at 187).
3
Evans objected to the Court's instructions on willfulness and the Court's refusal to give certain of Evans' proposed instructions. Therefore, these instructions are subject to harmless error review. Evans did not preserve his objection to his proposed theory of the defense instruction, and he concedes this issue is reviewed for plain error.
4
Evans' allegation that this violated his First Amendment rights is meritless.

Monday, December 21, 2009

The IRS has issued guidance regarding the reporting requirements of widely held fixed investment trusts (WHFITs). The new guidance provides interim rules on transition payments for trustees and "middlemen" with respect to WHFITs and trust interest holders (TIHs) and also limited penalty relief for trustees and middlemen. A middleman for this purpose is a person who hold interests in a WHFIT, but is not the ultimate beneficial owner of such interest. The guidance also provides rules for: inclusion of summary totals of WHFIT interest, dividend and miscellaneous income on Form 1099; the format of the written tax information statement required to be provided to TIHs; and the obligations of trustees and middlemen for information reporting with respect to certain nonmortgage WHFITs (NMWHFITs).



Notice 2010-4, I.R.B. 2010-2, December 18, 2009.

[ Code Sec. 671]\
Information reporting: Widely held fixed investment trusts.–



SECTION I: PURPOSE
This notice provides guidance to trustees, middlemen and trust interest holders (TIHs) of widely held fixed investment trusts (WHFITs) regarding the WHFIT reporting rules in § 1.671-5 of the Income Tax Regulations. Specifically, this notice provides (1) guidance on transition payments (as defined in Section III below) and limited penalty relief for trustees and middlemen required to file Forms 1099 and furnish written tax information statements under the widely held mortgage trust (WHMT) safe harbor in § 1.671-5(g); (2) guidance regarding the TIHs' treatment of the transition payments; (3) guidance regarding the inclusion of WHFIT interest, dividend, and miscellaneous income in the summary totals on Forms 1099; (4) guidance regarding the format of the written tax information statement provided to TIHs under § 1.671-5(e); and (5) guidance regarding the obligations of trustees and middlemen with respect to reporting under the WHFIT rules for certain non-mortgage WHFITs (NMWHFITs).

SECTION II: BACKGROUND
Section 1.671-5 provides the WHFIT reporting rules. A WHFIT is an arrangement classified as a trust under § 301.7701-4(c), provided that: (i) the trust is a United States person under § 7701(a)(30)(E); (ii) the beneficial owners of the trust are treated as owners under subpart E, part I, subchapter J, chapter 1 of the Code; and (iii) at least one interest in the trust is held by a middleman. See § 1.671-5(b)(22). A WHMT is a WHFIT, the assets of which consist only of mortgages, regular interests in a REMIC, interests in another WHMT, reasonably required reserve funds, amounts received with respect to these assets, and during a brief initial funding period, cash and short-term contracts to purchase these assets. See § 1.671-5(b)(23).

Trustees of fixed investment trusts frequently do not know the identities of the beneficial owners of the trust interests because the trust interests are often held in the name of a middleman. Thus, trustees are unable to communicate tax information directly to the beneficial owners of the trust interests. The WHFIT reporting rules in § 1.671-5 provide rules that specifically require the sharing of tax information among trustees, middlemen, and beneficial owners of the trust interests. To accomplish this, § 1.671-5 generally requires trustees to make trust tax information available to middlemen. Sections 1.671-5(d) and (e) require middlemen, and in some cases, trustees, to file a Form 1099 with the IRS and to furnish a written tax information statement to a TIH for the trust interests that the trustee or middleman holds on behalf of, or for the account of, the TIH.

Section 1.671-5(n) provides that the WHFIT reporting rules are applicable January 1, 2007. The preamble to the final regulations under § 1.671-5 ( T.D. 9308, 2007-8 I.R.B. 523 [71 FR 78351] (December 29, 2006)) informed trustees and middlemen that the IRS would not impose any penalties that would otherwise apply as a result of a failure to comply with the WHFIT reporting rules with respect to the 2007 calendar year in cases where the trustee or middleman was unable to change its information reporting systems to comply with the WHFIT reporting rules. In September of 2008, the IRS and the Treasury Department issued Notice 2008-77, 2008-40 I.R.B. 814, which informed trustees and middlemen of WHFITs that the IRS would not assert penalties as a result of a failure to comply with the WHFIT reporting rules with respect to calendar year 2008.

Except as provided in Section III below, trustees and middlemen must comply with the WHFIT reporting rules for calendar year 2009.

SECTION III: TRANSITION PAYMENTS AND LIMITED PENALTY RELIEF FOR TRUSTEES AND MIDDLEMEN REPORTING UNDER THE WHMT SAFE HARBOR
The WHMT safe harbor in § 1.671-5(g) provides safe harbor reporting rules for trustees of certain WHMTs. If a trustee reports WHMT items in accordance with the safe harbor, the information provided by a middleman or trustee with respect to WHMT items on the Forms 1099 required to be filed with the IRS and on the written tax information statement furnished to the TIH must be determined as provided in § 1.671-5(g)(2). For the purpose of determining the timing of when an item of trust income that is attributable to a TIH is included on the Form 1099 filed for that TIH, the WHMT safe harbor looks to the record date for the payment rather than the actual payment date. See § 1.671-5(g)(2)(ii). Further, the regulations require that a TIH be provided with information regarding the amount of the gross income and separately provided with information regarding the amount of the expenses of a WHMT that are attributable to the TIH. See § 1.671-5(g)(1)(iii)(C).

Prior to the effective date of the WHFIT reporting rules, many trustees and middlemen reported income from a WHMT to a beneficial owner based on payment dates and amounts rather than based on record dates and amounts as required under the WHMT safe harbor. As a result, when a trustee or middleman transitions to the new reporting rules, some income might not be reported to the IRS on Forms 1099 and some income and expense information may not be furnished to TIHs. These omissions could occur where the record date for a payment falls in a year prior to the first year of reporting under the WHMT safe harbor and the payment date falls in the first year of reporting under the safe harbor. For example, income received by many WHMTs for December 2008 and payable to record holders as of December 31, 2008, was paid on January 15, 2009. The income and expenses which relate to the December 31 st record date and January 15 th payment date were not included on the Form 1099 or written tax information statement for 2008 under the reporting method used by the trustees and middlemen for 2008 if the trustees and middlemen were reporting based on the payment date, which occurred in 2009. If the trustees or middlemen transition to the WHMT safe harbor for 2009, absent the rules contained in this Section III, the income and expenses also would not be included by trustees and middlemen in calculating trust income for 2009 under the safe harbor because they would be reporting based on the record date, which occurred in 2008.

To address this problem, trustees and middlemen must report as provided in this Section III in the first year that the trustee or middleman transitions from reporting based on payment dates to reporting based on record dates under the WHMT safe harbor. For purposes of this Notice, a Transition Payment is any payment (gross income less applicable expenses) that has (1) a payment date in the first year that the trustee or middleman transitions to reporting under § 1.671-5(g)(2) of the WHMT safe harbor (“transition year”); and (2) a record date in a year prior to the transition year. Trustees and middlemen that are transitioning to reporting under the WHMT safe harbor must include information with respect to Transition Payments on Forms 1099 filed with the IRS for the transition year, if information for these payments has not previously been included on a Form 1099 for a prior year. Additionally, the trustee or middleman must include information with respect to Transition Payments in the written tax information statement furnished to the TIH for the transition year. Although § 1.671-5(g)(1)(iii)(C) requires middlemen and trustees reporting under the WHMT safe harbor to provide TIHs with information regarding gross income and separately provide information regarding the expenses of the WHMT attributable to the TIH, trustees and middlemen may report net amounts with respect to Transition Payments. The trustee or middleman need not separately identify the information with respect to the Transition Payments on the Form 1099 or on the written tax information statement.

Trustees and middlemen also must provide the TIH with a statement that explains that (i) the WHFIT is transitioning from reporting based on payment dates to reporting based on record dates to comply with the newly applicable WHFIT reporting rules; (ii) to effect this transition, the information reported on the statement and to the IRS includes information with respect to Transition Payments and that a Transition Payment is a payment that had a record date in a prior year and payment date in the current year, which was not previously included on a prior Form 1099; and (iii) the TIH must include the Transition Payment in computing its taxable income for the transition year as a § 481(a) adjustment to prevent omission of income caused by the reporting transition (see Section IV below).

The IRS and the Treasury Department recognize that trustees and middlemen may not have adequate time to modify their reporting systems to report Transition Payments that span the 2008 and 2009 calendar years as required under this Section III. Accordingly, the IRS will not impose any penalties on trustees and middlemen for 2009 for a failure to comply with §§ 1.671-5(d), (e), and (g)(2) with respect to TIHs in a WHMT. However, trustees and middlemen must continue to comply with §§ 6041 through 6050W to the extent applicable, and this Notice does not provide penalty relief with respect to a failure to comply with those reporting sections. In addition, a trustee or middleman must report Transition Payments as required under this Section III in the first year that the trustee or middleman transitions to reporting under the WHMT safe harbor, regardless of whether the trustee transitions for 2009 or 2010.

SECTION IV: TREATMENT OF TRANSITION PAYMENTS BY THE TIHs
A change from recognizing trust income in the year of the payment date to the year of the record date in accordance with the transition to record date reporting under the WHMT safe harbor is a change in method of accounting under § 446(e) and § 1.446-1(e)(2)(ii)(a). A taxpayer generally must secure the consent of the Commissioner before changing a method of accounting for federal income tax purposes. Section 446(e) and § 1.446-1(e)(2)(i). Section 1.446-1(e)(3)(ii) authorizes the Commissioner to prescribe administrative procedures setting forth the limitations, terms, and conditions deemed necessary to permit a taxpayer to obtain consent to change a method of accounting. Section 481(a) requires those adjustments necessary to prevent amounts from being duplicated or omitted when the taxpayer's taxable income is computed under a method of accounting different from the method used to compute taxable income for the preceding taxable year.

In accordance with § 1.446-1(e)(3)(ii), the Commissioner hereby grants consent to a cash method TIH who included income on its individual income tax return consistent with the amount reported on a Form 1099 for the year prior to the transition year, to change its method of accounting for trust income from recognizing the income based on the payment date to recognizing the income based on the record date in accordance with the transition to record date reporting under the WHMT safe harbor. The Transition Payment reported on a TIH's Form 1099 and written tax information statement for the transition year is an adjustment required under § 481(a). The entire amount of the § 481(a) adjustment (i.e., the Transition Payment) must be taken into account in computing a TIH's taxable income for the transition year. A TIH who changes its method of accounting for the trust income in accordance with this section does not need to file a Form 3115, Application for Change in Accounting Method.

SECTION V: WHFIT INTEREST AND DIVIDEND INCOME MAY BE INCLUDED IN THE SUMMARY TOTALS PROVIDED TO THE IRS ON FORMS 1099
Middlemen and trustees have also indicated that they provide the IRS with a summary total for interest, dividends and miscellaneous payments made to a TIH during the calendar year on the relevant Form 1099. These middlemen and trustees have questioned whether including WHFIT items of income in these summary totals is permissible under § 1.671-5(d) or whether a separate Form 1099 must be filed to report WHFIT income to the IRS. This notice informs middlemen and trustees that WHFIT income that is appropriately reported on a Form 1099-INT, a Form 1099-DIV, or a Form 1099-MISC under § 1.671-5(d) may be included in the summary total on the Form 1099 filed with the IRS.

SECTION VI: PROCEDURES FOR FURNISHING THE WRITTEN TAX INFORMATION STATEMENT TO BENEFICIAL OWNERS UNDER REGULATION
§ 1.671-5
(a) Electronic statements.

Section 1.671-5(k) provides that the information reporting sections in subpart B, part III, subchapter A, chapter 61, of the Code ( §§ 6041 through 6050W) and the regulations thereunder are incorporated into the WHFIT rules to the extent those provisions are not inconsistent with the WHFIT reporting rules.

Effective March 9, 2002, § 401 of the Job Creation and Worker Assistance Act of 2002, an off-Code provision, removed the paper delivery impediment by authorizing all payee statements required by §§ 6041 through 6050W to be furnished electronically. Additionally, § 4.5.1 of Rev. Proc. 2008-36, 2008-33 I.R.B. 340, provides that if a person is required to furnish a written statement (Copy B or acceptable substitute) to a recipient, then the statement may be furnished electronically instead of on paper. Provided that the trustee or middleman has followed the rules and procedures outlined in § 4.5.1 of Rev. Proc. 2008-36, a trustee or middleman may provide electronically the written tax information statement required to be furnished to a beneficial owner under § 1.671-5(e).

(b) Composite statements.

Section 4.2.1 of Rev. Proc. 2008-36 indicates that a composite recipient statement may be used for certain Forms 1099 and provides the rules for providing such a composite statement. Composite statements that meet the requirements of § 4.2.1 of Rev. Proc. 2008-36 may be used to provide the WHFIT information required to be furnished to beneficial owners under the WHFIT reporting rules, provided that the information required to be provided to the beneficial owner that is not required to be reported to the IRS on Forms 1099 also is included in an accompanying statement.

(c) Summary totals.

As noted above, it is permissible for middlemen and trustees to include income from a WHFIT in the summary totals on Forms 1099-INT, Forms 1099-DIV, and Forms 1099-MISC, when these forms are provided to the IRS. Middlemen and trustees may also include income from a WHFIT in a summary total provided to a beneficial owner, but only if the summary total is accompanied by sufficient information to enable the beneficial owner to properly report its items of income, deduction and credits from the WHFIT on its federal income tax return and such information satisfies the requirements of § 1.671-5(e) as modified by the reporting safe harbors in §§ 1.671-5(f) and (g) and for the transition year, satisfies Section III of this Notice.

However, the deadline for furnishing WHFIT information to a TIH may differ from that for furnishing information with respect to other securities that the middleman may hold for the TIH. Where WHFIT information is included in a summary total with information regarding securities that are required to be reported at an earlier date, the inclusion of WHFIT information on the statement does not alter the earlier deadline. Additionally, if the amount of WHFIT income is determined to be different than what was reported on the earlier date, a corrected Form 1099 must be sent to the TIH.

SECTION VII: FURNISHING TAX INFORMATION PACKAGES FOR CERTAIN NMWHFITS
There are a number of royalty trusts and commodity trusts that meet the definition of a WHFIT. The IRS and the Treasury Department have been asked to clarify the application of the WHFIT rules with respect to furnishing TIHs in a royalty trust or a commodity trust with information necessary to properly report the tax consequences of their ownership interest in the trust. Under the structure of the WHFIT reporting rules, trustees are to make trust information available to middlemen. See § 1.671-5(c). The middlemen are then required to provide Forms 1099 to the IRS and to furnish written tax information statements to TIHs on whose behalf or account the middleman holds an interest in the WHFIT or acts as an intermediary. See §§ 1.671-5(d) and (e).

TIHs in royalty and commodity trusts need certain information (e.g., cost depletion schedules) in order for them to properly report the tax consequences of ownership of a trust interest. Historically, some royalty trusts have distributed annual tax packages or booklets to TIHs that included this information. In some cases, the trustee of a royalty trust makes this information available on an Internet website.

Middlemen are concerned that the WHFIT rules now require them to publish and mail this information, which was formerly provided by the trustees of these trusts. Middlemen have inquired whether they can provide this additional information by providing a TIH with the address of an Internet website where the information can be found. Until further guidance is issued, the IRS and the Treasury Department have determined that providing the TIH of a royalty or commodity trust with the address of an Internet website where the information can be found is sufficient to meet the requirements of § 1.671-5(e) if the trustee or middleman also informs the TIH that a written tax information package will be provided if requested and the middleman or trustee does in fact furnish a written package if requested. This does not, however, relieve trustees and middlemen of any requirement to provide the IRS and TIHs with individualized calculation of the items of income that are required to be reported to the IRS on a Form 1099.

It has been suggested that the IRS and the Treasury Department clarify the application of the WHFIT reporting rules to royalty and commodity trusts. One suggested clarification is to limit the burden on middlemen to providing the IRS with appropriate Forms 1099 and providing TIHs with statements regarding the information provided on the Form 1099, and to require trustees to maintain an Internet website capable of providing investor-specific information for other items that are required to be provided to the TIH under § 1.671-5(e) but are not required to be included on the Form 1099. The IRS and the Treasury Department request comments regarding this suggestion and also welcome any alternative suggestions on how trustees and middlemen should share the reporting burden. The IRS and the Treasury Department also request comments on whether there are other types of NMWHFITs from which TIHs need significant information to report the tax consequences of ownership of an interest in the NMWHFIT on their individual tax returns and suggestions on how this information could best be provided.

Comments should include a reference to Notice 2010-4. Send submissions to CC:PA:LPD:RU ( Notice 2010-4), Room 5203, Internal Revenue Service, P.O. Box 7604, Ben Franklin Station, Washington, DC 20044. Submissions may be hand-delivered Monday through Friday between the hours of 8:00 a.m. and 4:00 p.m. to CC:PA:LPD:RU ( Notice 2010-4), Courier's Desk, Internal Revenue Service, 1111 Constitution Avenue, NW, Washington, DC 20224, or sent electronically via the following email address: Comments@ irscounsel.treas.gov. Please include the notice number 2010-4 in the subject line of any electronic communication. All materials submitted will be available for public inspection and copying.

SECTION VIII: EFFECTIVE DATE
This notice is effective on December 17, 2009.

SECTION IX: DRAFTING INFORMATION
The principal author of this notice is Michala P. Irons of the Office of Associate Chief Counsel (Passthroughs & Special Industries). For further information regarding this notice contact Michala P. Irons at (202) 622-3050 (not a toll-free call).