114 T.C. 333">*334 COLVIN, JUDGE: Respondent determined that, for 1994, petitioners were liable for a $ 15,192 deficiency in income tax and a $ 1,731 accuracy-related penalty under section 6662(a).

Following2000 U.S. Tax Ct. LEXIS 29">*31 concessions, ¹ the issues for decision are:

     1. Whether all of petitioners' self-employment income from

   Medi-Task is allocated to petitioner Sarah K. Hawthorne

   (Hawthorne) for purposes of computing self-employment tax for

   1994. We hold that it is.

     2. Whether petitioners may deduct expenses relating to

   their rental cabins in 1994. We hold that they may not.

     3. Whether petitioner Fredie Lynn Charlton (Charlton) is

   entitled to relief from joint and several liability under

   section 6015(b) for the income tax deficiency arising from

   petitioners' 1994 joint return. We hold that he is not.

     4. Whether petitioner Fredie Lynn Charlton qualifies2000 U.S. Tax Ct. LEXIS 29">*32 for

   limitation of liability under section 6015(c) for the income tax

   deficiency arising from petitioners' 1994 joint return. We hold

   that he does to the extent described below.

     5. Whether we have jurisdiction to review whether relief is

   available to petitioner Sarah K. Hawthorne under section

   6015(f). We hold that we do. Thus, we will delay entry of

   decision to permit Hawthorne and respondent to report on the

   status of Hawthorne's application for relief under section

   6015(f), and if relief is denied, to file a motion as part of

   this docketed case requesting our review of the Secretary's

   denial.

Section references are to the Internal Revenue Code in effect for 1994. Rule references are to the Tax Court Rules of Practice and Procedure.

FINDINGS OF FACT

Some of the facts have been stipulated and are so found.

Petitioner Sarah K. Hawthorne (Hawthorne) lived in Burnet, Texas, when she filed her petition. Petitioner Fredie Lynn Charlton (Charlton) lived in Buchanan Dam, Texas, 114 T.C. 333">*335 when he filed his petition. Petitioners lived in Texas, a community property State, at all times2000 U.S. Tax Ct. LEXIS 29">*33 relevant to this case.

Hawthorne has a college degree in English. She completed an accounting class and a marketing class but she did not do well in them. Hawthorne did not take any income tax courses. Petitioners were married in 1989. Before they were married, Charlton hired Hawthorne to be an office manager for a large manufacturing business.

Charlton was employed full time in Houston, Texas, until September 1994. He moved his residence to Buchanan Dam, Texas, in the fall of 1994.

Medi-Task was a physician's transcription service. Hawthorne managed Medi-Task and performed most of its day-to-day operations. Medi-Task had one employee in 1994. Independent contractors did most of the transcribing for Medi-Task. Charlton did not devote much time to Medi-Task because he was employed full time until September 1994. He was not involved with Medi-Task's hiring or marketing. He did not type any reports for Medi-Task, but he assisted when there were computer problems. Hawthorne kept Medi-Task's business records in petitioners' home in a file cabinet next to Charlton's records. She deposited Medi-Task's gross receipts in Charter Bank of Houston, and Lake Buchanan State Bank.

2000 U.S. Tax Ct. LEXIS 29">*34 Charlton had access to Medi-Task's records while he prepared petitioners' 1994 return. Hawthorne prepared and gave Charlton lists that included all but $ 22,601 of Medi-Task's income and all but $ 2,050 of Medi-Task's expenses for 1994. She also gave him bank statements for Medi-Task, Forms 1099, Forms W-2, Wages and Tax Statement, and documents showing Medi-Task's expenses.

Charlton received unemployment compensation and VA disability payments in the last quarter of 1994. Medi-Task was Charlton's and Hawthorne's only other source of income during that 3- month period.

Petitioners signed a personal financial statement on April 15, 1995, which stated that Medi-Task was worth $ 110,000. Hawthorne sold Medi-Task in 1995 without Charlton's consent or participation and kept the proceeds.

Petitioners bought real property in the spring of 1993 at Charlton Pointe on Lake Buchanan in Llano County, Texas. There were some rental cabins on the property which were built in the 1950's and were rented until 1988 or 1989.

Petitioners began to rehabilitate the cabins in the fall of 1994. Charlton spent time in 1994 working on the cabins and other aspects of the Charlton Pointe2000 U.S. Tax Ct. LEXIS 29">*35 property. Petitioners incurred expenses for travel to Charlton Pointe and expenses to rehabilitate the cabins. However, petitioners rented no cabins at Charlton Pointe in 1994. Charlton began renting the cabins in 1998.

Charlton used tax return preparation software to prepare returns for petitioners for 5 years, including 1994.

Petitioners filed a joint income tax return for 1994. On it, they reported profits and losses on Schedules C, Profit or Loss From Business, for Medi-Task and the cabins. Charlton used the gross revenue amounts from the lists Hawthorne prepared to prepare the return. He did not review the bank statements. He also used the lists that Hawthorne prepared to report Medi-Task's expenses. He decided how to report the expenses on part II of Schedule C for Medi-Task; e.g., as advertising, legal and professional services, travel and meals, utilities, wages, and other expenses.

Petitioners reported that the Medi-Task income was divided equally between themselves for self-employment tax purposes.

Petitioners reported that Charlton had $ 62,135 in wages for 1994. They reported that Medi-Task had gross receipts and gross income of $ 147,782, 2000 U.S. Tax Ct. LEXIS 29">*36 total expenses of $ 117,588, and net profit of $ 30,194. Petitioners underreported 1994 gross receipts for Medi-Task by $ 22,601 and did not deduct $ 2,050 of Medi-Task expenses. They reported that they had no income from the cabins and $ 27,724 in expenses. Hawthorne examined parts of the 1994 return, such as the children's names and Social Security numbers and child care credits, but otherwise accepted the return that Charlton prepared.

Petitioners separated in 1995, after they filed their 1994 return, and were divorced in 1996. Under the divorce settlement, Charlton received the rental cabin property and Hawthorne received Medi-Task. As required by the divorce settlement, Charlton deposited petitioners' 1994 refund check for $ 4,453 in a joint bank account at Texas Bank in Burnet, Texas, on June 2, 1995. Charlton used some of the 1994 refund to pay his personal expenses.

OPINION

A. WHETHER ALL MEDI-TASK INCOME IS ATTRIBUTABLE TO HAWTHORNE FOR

  SELF-EMPLOYMENT TAX PURPOSES

Charlton contends that the Medi-Task income should be divided equally between him and Hawthorne for self-employment tax purposes. Respondent and Hawthorne contend that all of2000 U.S. Tax Ct. LEXIS 29">*37 the Medi-Task income is attributable to Hawthorne and that the self-employment tax reported by petitioners for 1994 should be increased by $ 6,962.

Self-employment tax for a husband and wife filing a joint return is the sum of the taxes computed on the self-employment income of each spouse. See sec. 6017. All of the gross income and deductions from a trade or business over which one spouse exercises substantially all of the management and control are attributable to that spouse. See sec. 1402(a)(5)(A). For these purposes, "management and control" means actual management and control even if management and control is imputed to the other spouse under community property laws. Sec. 1.1402(a)-8(a), Income Tax Regs.

Charlton contends that he and Hawthorne jointly operated Medi-Task and that Medi-Task was a partnership or should be treated as one. We disagree. Hawthorne managed Medi-Task and performed most of its day-to-day operations. Charlton had a full-time job until September 1994, and he also renovated cabins in 1994. He did not devote much time to Medi-Task. We conclude that all of the Medi-Task income in 1994 is attributable to Hawthorne for self-employment2000 U.S. Tax Ct. LEXIS 29">*38 tax purposes.

114 T.C. 333">*338 B. WHETHER PETITIONERS' 1994 EXPENSES FOR THE CABINS WERE

  PREOPERATIONAL STARTUP EXPENSES

Charlton contends that petitioners may deduct $ 27,724 for supplies, taxes, travel, utilities, legal and professional services, and car and truck expenses for their cabin rental activity for 1994 under section 162. We disagree.

Generally, a taxpayer may not deduct startup expenses. See sec. 195(a). A startup expenditure is any amount:

   (A) paid or incurred in connection with --

     (i) investigating the creation or acquisition of an active

     trade or business, or

     (ii) creating an active trade or business, or

     (iii) any activity engaged in for profit and for the

     production of income before the day on which the active

     trade or business begins, in anticipation of such activity

     becoming an active trade or business, and

   (B) which, if paid or incurred in connection with the operation

   of an existing active trade or business (in the same field as

   the trade or business referred to in subparagraph (A)), would be

   allowable2000 U.S. Tax Ct. LEXIS 29">*39 as a deduction for the taxable year in which paid or

   incurred. [Sec. 195(c).]

Petitioners incurred these expenses before the cabin rental activity became an active trade or business. Charlton renovated the cabins in 1994 but did not rent them or offer them for rent until 1998. The cabin rental activity was not an active trade or business in 1994. Thus, we conclude that the claimed expenses were nondeductible startup expenses.

1. PROCEDURAL STATUS OF INNOCENT SPOUSE ISSUES

Petitioners each asserted in their petitions that they qualify for relief as an innocent spouse. The statutory provision providing relief for innocent spouses in effect when the petitions were filed, section 6013(e), was repealed and replaced before trial by section 6015. See Internal Revenue Service Restructuring and Reform Act of 1998, Pub. L. 105-206, sec. 3201, 112 Stat. 685, 734. As a result, neither petitioner referred to section 6015 in the petitions filed in these cases.

At trial, the parties consented to treating the petitions as elections by Charlton and Hawthorne for relief under section 6015(b)(1)(E) (procedures for relief from joint liability 114 T.C. 333">*339 applicable to all2000 U.S. Tax Ct. LEXIS 29">*40 joint filers) and section 6015(c)(1) (procedures to limit liability for divorced and separated taxpayers).

Respondent contends that we lack jurisdiction to decide whether Hawthorne is entitled to equitable relief under section 6015(f). ² We deem petitioners to have amended their petitions to claim relief under section 6015(b) and (c), and we treat Hawthorne's request for relief under section 6015(f) as an amendment to her petition, seeking our review of her entitlement to relief under that subsection.

   2. WHETHER CHARLTON IS ENTITLED TO RELIEF FROM JOINT AND SEVERAL

    LIABILITY FOR INCOME TAX FOR 1994 UNDER SECTION 6015(b)

Charlton contends that he is entitled to relief from joint and several liability for income tax for 1994 under section 6015(b).

Section 6015(b)(1) provides that if:

     (A) a joint2000 U.S. Tax Ct. LEXIS 29">*41 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, and2000 U.S. Tax Ct. LEXIS 29">*42 other amounts) for such

   taxable year to the extent such liability is attributable to

   such understatement.

Respondent concedes that Charlton qualifies under section 6015(b)(1)(A) because he filed a joint Federal income tax return for 1994, and section 6015(b)(1)(E) because he elected to seek relief not later than 2 years after collection activities began.

Section 6015(b)(1)(C) requires that in signing the return the individual seeking relief did not know and had no reason 114 T.C. 333">*340 to know of the understatement. Charlton contends that he did not know and had no reason to know of the understatement attributable to Medi-Task because he had no control over Medi-Task's finances and was busy with his other business interests. We disagree.

Under prior law (former section 6013(e)(1)(C)), in a case of omitted income, a spouse seeking relief was not permitted to turn a blind eye to facts that were available to him or her to avoid liability as an innocent spouse. See McCoy v. Commissioner, 57 T.C. 732">57 T.C. 732, 57 T.C. 732">734 (1972). Similarly, a taxpayer who prepares a return is not relieved of the duty to prepare an accurate return if the taxpayer relies on summarized information provided2000 U.S. Tax Ct. LEXIS 29">*43 by the taxpayer's spouse when information upon which the summary is based is available to the taxpayer.

Charlton was generally familiar with Medi-Task. Hawthorne gave him the bank statements respondent later used in determining Medi-Task's income for 1994, Forms 1099 and W-2, and a computer- generated expense list. Charlton had unfettered access to Medi-Task's financial records. We conclude that Charlton had reason to know of Medi-Task's understatement of income. Thus, Charlton does not qualify for relief as an innocent spouse under section 6015(b)(1).

D. WHETHER CHARLTON QUALIFIES FOR LIMITATION OF HIS LIABILITY FOR

  PETITIONERS' 1994 INCOME TAX UNDER SECTION 6015(c)

Charlton contends that he qualifies for limitation of liability for petitioners' 1994 income tax under section 6015(c)³ for 114 T.C. 333">*341 the portion of the deficiency relating to Medi-Task. Respondent and Hawthorne contend that he does not. Hawthorne makes no arguments that substantially differ from respondent's on this point. We agree with Charlton.

2000 U.S. Tax Ct. LEXIS 29">*44

To be eligible for relief under section 6015(c), the individual seeking relief must no longer be married to, or must be legally separated from, the individual with whom he or she filed the joint return and must have elected the applicability of section 6015(c) not later than 2 years after the date on which collection activity began. See sec. 6015(c)(3).

An electing spouse bears the burden of proving how much of any deficiency is allocable to him or her. See sec. 6015(c)(2). An election is not valid if respondent shows that the individual making the election had actual knowledge when signing the return of any "item" giving rise to a deficiency (or portion thereof) which is not allocable to the electing individual. See sec. 6015(c)(3)(C). The only Medi-Task item causing a deficiency in this case is omitted income.

We have concluded that Charlton should have known of the omitted income because he knew of and had access to correct information about Medi-Task. See par. C-2, above. However, that does not mean that he actually knew of the Medi-Task omitted income. Charlton did not check Medi-Task's bank records against the lists of Medi-Task revenue that Hawthorne prepared and gave him. 2000 U.S. Tax Ct. LEXIS 29">*45 The lists Hawthorne gave Charlton are not in the record. Charlton testified that he did not know of the omitted income. We have no reason not to believe him. We conclude that respondent has not shown that Charlton had actual knowledge of the item causing the deficiency, and that Charlton qualifies for relief under section 6015(c). Thus, the procedures in section 114 T.C. 333">*342 6015(d) to allocate items between Hawthorne and Charlton apply. ⁴

2000 U.S. Tax Ct. LEXIS 29">*46

For purposes of section 6015(c), an item giving rise to a deficiency on a joint return is generally allocated as if the individuals had filed separate returns. See sec. 6015(d)(3)(A).

Respondent contends that the parties should perform the computations under section 6015(d) as part of the Rule 155 computations. Neither Charlton nor Hawthorne objects to using that procedure. We agree with respondent, and we will so order.

E. WHETHER THE TAX COURT HAS JURISDICTION TO REVIEW A TAXPAYER'S

  REQUEST FOR EQUITABLE RELIEF UNDER SECTION 6015(f)

Respondent contends that we lack jurisdiction to decide whether the Commissioner properly denied relief to a taxpayer under section 6015(f). We disagree, for reasons stated in Butler v. Commissioner, 114 T.C. 276">114 T.C. 276, 114 T.C. No. 19">114 T.C. No. 19,     (2000) (slip op. at 18-26).

Hawthorne and respondent have apparently suspended any activity relating to Hawthorne's claim under section 6015(f) while this case is pending. If the Secretary denies her application for relief under section 6015(f), Hawthorne may 114 T.C. 333">*343 file a motion as part of this docketed case to seek our review of the Secretary's denial within a time period to be provided by order of this Court. We will delay entry2000 U.S. Tax Ct. LEXIS 29">*47 of decision until Hawthorne and respondent report the status of the Secretary's action under section 6015(f).

To reflect the foregoing,

Appropriate orders will be issued.