118 T.C. No. 6



                   UNITED STATES TAX COURT



DAVID C. JONSON AND ESTATE OF BARBARA J. JONSON, DECEASED,
   DAVID C. JONSON, SUCCESSOR IN INTEREST, Petitioners v.
         COMMISSIONER OF INTERNAL REVENUE, Respondent



   Docket No. 21648-87.              Filed February 8, 2002.



        H and W filed joint Federal income tax returns for
   1981 and 1982 on which they took large deductions
   attributable to a tax shelter investment. R disallowed
   the deductions. W claimed relief from joint liability
   under sec. 6013(e), I.R.C., which was repealed and
   replaced by sec. 6015, I.R.C. W died while still
   married to and living with H. Ps concede the
   deficiencies but pursue the sec. 6015, I.R.C. claim on
   behalf of W. Ps allege that, although W was aware of
   the tax shelter investment, the anticipated tax
   savings, and the tax risks, she qualifies for relief
   under sec. 6015(b)(1), (c), and (f), I.R.C. Ps allege
   that H, as W’s personal representative, is eligible to
   elect relief under sec. 6015(c), I.R.C., because, at
   the time he filed such election, W was “no longer
   married to” H. See sec. 6015(c)(3)(A)(i), I.R.C.
                               - 2 -

          1. Held: W had reason to know of the
     understatement attributable to the disallowed
     deductions, and, therefore, W is not entitled to
     relief under sec. 6015(b)(1)(C), I.R.C.
          2. Held, further, it would not be inequitable to
     hold W liable for the deficiencies in tax, and,
     therefore, W is not entitled to relief under
     sec. 6015(b)(1)(D), I.R.C.
          3. Held, further, because W did not satisfy the
     eligibility requirements of sec. 6015(c)(3)(A)(i),
     I.R.C., prior to her death, H, as personal
     representative, is not entitled to elect relief under
     sec. 6015(c), I.R.C.
          4. Held, further, under the facts and
     circumstances, R’s denial of equitable relief under
     sec. 6015(f), I.R.C., does not constitute an abuse of
     discretion.



     Declan J. O’Donnell, for petitioners.

     Randall L. Preheim, for respondent.



     HALPERN, Judge:   By notice of deficiency dated April 14,

1987, respondent determined deficiencies in, and additions to,

the Federal income tax liabilities of David C. and Barbara J.

Jonson (separately, David or Barbara; together, the Jonsons), as

follows:1


     1
        The petition in this case was filed on July 6, 1987, on
behalf of six individuals, including David C. and Barbara J.
Jonson. Pursuant to an order of this Court dated June 12, 1990,
such individuals other than the Jonsons were severed as
petitioners in this case, and the caption of this case was
amended to read “David C. Jonson and Barbara J. Jonson,
Petitioners v. Commissioner of Internal Revenue, Respondent”.
Barbara died on Mar. 16, 1996, and, upon motion thereafter made
by respondent, “Estate of Barbara J. Johnson, Deceased, David C.
Jonson, Successor in Interest” was substituted for Barbara as a
                                                   (continued...)
                              - 3 -

          Tax Year Ending                     Sec. 6659
              Dec. 31         Deficiency       Addition
               1981            $32,998         $9,862
               1982             33,504         10,038

     On account of concessions made by the parties (which we

accept),2 the sole issue for our decision is whether Barbara is

relieved of any liability for tax pursuant to the provisions of

section 6015.3

     Unless otherwise noted, all section references are to the

Internal Revenue Code in effect for the years at issue, and Rule


     1
      (...continued)
petitioner.
     2
        Petitioners have conceded the underlying deficiencies;
respondent has conceded that there are no additions to tax; and
petitioners have conceded that the deficiencies constitute
substantial underpayments attributable to tax-motivated
transactions for purposes of computing deficiency interest under
sec. 6621(c).
     3
        By amendment to petition filed Jan. 6, 1994, the Jonsons
raised the affirmative defense that Barbara should be relieved of
liability as a so-called innocent spouse under sec. 6013(e). In
1998, sec. 6013(e) was repealed and replaced with sec. 6015.
Internal Revenue Service Restructuring and Reform Act of 1998
(RRA 1998), Pub. L. 105-206, sec. 3201, 112 Stat. 685, 734. The
RRA 1998 generally revised and expanded the relief available to
joint filers. Moreover, the RRA 1998 gave sec. 6015 retroactive
effect in that it was made applicable to any liability for tax
arising after July 22, 1998, and to any liability for tax arising
on or before such date that remained unpaid as of July 22, 1998.
RRA 1998 sec. 3201(g)(1), 112 Stat. 740; Corson v. Commissioner,

, 359 (2000). Sec. 6015 is thus the proper section
under which petitioners should be claiming relief for Barbara.
Petitioners, however, did not amend the petition to claim relief
from liability under sec. 6015 (rather than sec. 6013(e)).
Nevertheless, the trial of this case proceeded on the basis that
Barbara’s claim was for relief under sec. 6015 rather than for
relief under sec. 6013(e). We shall treat that claim as if it
had been made in the pleadings. See Rule 41(b)(1).
                                 - 4 -

references are to the Tax Court Rules of Practice and Procedure.

For convenience, monetary amounts have been rounded to the

nearest dollar.

                            FINDINGS OF FACT4

     Some facts are stipulated and are so found.        The stipulation

of facts, with accompanying exhibits, is incorporated herein by

this reference.




     4
         In part, Rule 151 provides as follows:

     RULE 151. BRIEFS

                  *     *    *     *      *     *   *

           (e) Form and Content:       * * *

                  *     *    *     *      *     *   *

          (3) * * * In an answering or reply brief, the party
     shall set forth any objections, together with the reasons
     therefor, to any proposed findings of any other party,
     showing the numbers of the statements to which the
     objections are directed; in addition, the party may set
     forth alternative proposed findings of fact.

     Petitioners have filed an answering brief, but petitioners
have failed therein to set forth objections to the proposed
findings of fact made by respondent. Accordingly, we must
conclude that petitioners have conceded respondent's proposed
findings of fact as correct except to the extent that
petitioners’ proposed findings of fact are clearly inconsistent
therewith. See Estate of Freeman v. Commissioner, T.C. Memo.
1996-372; Fein v. Commissioner, T.C. Memo. 1994-370; Estate of
Stimson v. Commissioner, T.C. Memo. 1992-242; Cunningham v.
Commissioner, T.C. Memo. 1989-260.
                               - 5 -

Residence

     At the time of the petition, the Jonsons resided in Golden,

Colorado.

The Joint Returns

     For 1981 and 1982 (the audit years), the Jonsons made joint

returns of income (the 1981 joint return, the 1982 joint return,

and, collectively, the joint returns).   Among the attachments to

the 1981 joint return is a Schedule K-1, Partner’s Share of

Income, Credits, Deductions, Etc. – 1981, identifying David as a

limited partner in a partnership, Vulcan Oil Technology (Vulcan),

and showing, as a “distributive share item”, a loss of $75,620.

Such loss is further reflected on a Schedule E, Supplemental

Income and Loss Schedule, attached to the 1981 joint return and

in a composite figure carried from such Schedule E to the first

page of the 1981 joint return, where such composite figure is

deducted.   The Schedule K-1 also shows that David’s interest in

Vulcan’s profits, losses, and capital is 1.415 percent.    The

facts are similar for 1982, except that the amount of the loss is

$71,078 (the losses for 1981 and 1982 being referred to,

collectively, as the Vulcan losses).

     David prepared the joint returns.   Barbara knew that the

Vulcan losses were claimed on those returns.
                               - 6 -

Respondent’s Adjustments

     Respondent’s adjustments giving rise to the deficiencies

here in question (sometimes, the deficiencies) result from

respondent’s disallowances of the Vulcan losses and a small

credit (without distinction, the Vulcan losses) claimed on the

joint returns.   In the notice, respondent explains the

disallowances as follows:

     It is determined that you incurred no deductible loss
     for the taxable years 1981 and 1982 from the Vulcan Oil
     Technology a partnership in which you own an interest.
     It has not been established that the partnership
     incurred any loss for the taxable years 1981 and 1982,
     nor has it been established that if the partnership did
     have a loss for the taxable years 1981 and 1982, that
     you are entitled to deduct any portion of that loss on
     your income tax return. Accordingly, your taxable
     income for the years 1981 and 1982 is increased by
     $75,620.00 and $71,078.00.

     After the initiation of this action, and following

respondent’s prevailing in certain test cases involving

investments similar to Vulcan (the test cases),5 petitioners

conceded the deficiencies.

The Jonsons

     Barbara was born on March 21, 1930.   She received an

associate’s degree from Colorado Women’s College in 1949, a


     5
        On brief, petitioners identify those cases as follows:
Krause v. Commissioner, 

 (1992), affd. sub nom.
Hildebrand v. Commissioner, 

 (10th Cir. 1994); and
Acierno v. Commissioner, T.C. Memo. 1997-441, affd. 

(3d Cir. 1999).
                               - 7 -

bachelor’s degree in physical education from the University of

Colorado in 1952, and a master’s degree in gifted and talented

education from the University of Denver in 1979.    She was an

elementary and high school teacher and a member of the National

Science Teachers’ Association and the Colorado Association of

Science Teachers.   She was also an instructor at the University

of Colorado.   After college, in connection with her teaching

activities, Barbara attended numerous teacher training sessions.

During the audit years, Barbara was employed as a teacher,

reporting wages therefrom of $23,602 in 1981 and $27,146 in 1982.

     During the audit years, David was a consulting geologist,

carrying on that business as a sole proprietor out of the

Jonsons’ home.   He reported earnings from such business of

$85,183 and $99,878, for 1981 and 1982, respectively.    Sometime

during the early 1990s, David incorporated his consulting

business as Johnson Management, Inc.

     For the audit years, in addition to Barbara’s wages and

David’s business income, the Jonsons reported $12,538 and $29,317

for 1981 and 1982, respectively, as interest, dividends, and

capital gains.

The Jonsons’ Marriage

     The Jonsons were married on January 7, 1956.    They lived

together as a married couple (and were not legally separated) on

March 16, 1996, the date of Barbara’s death.
                                 - 8 -

     The Jonsons had three children, all of whom were in college

during the audit years.    Aside from some unspecified amounts of

money from student loans and the children’s summer employment,

the Jonsons paid for their children’s college educations.    For at

least a portion of the audit years, they had a Guatemalan

exchange student living with them.

Barbara’s Estate

     Barbara died testate, leaving her entire estate (the estate)

to David.   The estate had a value of $365,204, and it consisted

primarily of Barbara’s retirement savings.   On December 2, 1996,

David disclaimed his interest in the estate pursuant to a

document that directed that the residual estate “be advanced to

their three children in equal shares, in [stock of] Jonson

Management Company, Inc.” and that he, David, “continue to manage

that corporation under his contract”.6

The Jonsons’ Financial Affairs

     During the audit years, the Jonsons maintained only one

checking account and one savings account, over both of which each

had signature authority.   During those years, Barbara reconciled



     6
        We note that David’s directive regarding Barbara’s
residual estate appears not to satisfy sec. 2518(b)(4), which
provides, in pertinent part, that a “qualified disclaimer” is an
“unqualified refusal by a person to accept an interest in
property”, provided that the disclaimed interest “passes without
any direction on the part of the person making the disclaimer”.
(Emphasis added.) See also sec. 2046. Because neither party has
raised any issue with respect to sec. 2518(b)(4), we do not
further discuss it.
                                - 9 -

and balanced the bank statements and wrote checks on the checking

account (the joint checking account) to pay routine household

bills.

     Barbara managed her retirement savings.    During the audit

years, she and David were both partners in a partnership,

Continental South Apartments.   In 1980, Barbara recommended to

David that they sell an apartment house they owned because

Barbara thought they were not making money on the investment.

David followed her recommendation, and they sold the apartment

house in the same year.   Neither David nor Barbara made any

attempt to deceive the other with regard to his or her respective

financial affairs.   Barbara participated in financial matters

with David, who valued her advice and participation.

Vulcan

     Vulcan was a limited partnership formed to invest in

technology for the recovery of oil and gas.    David invested in

Vulcan on October 2, 1981.   On that date, he signed the “Vulcan

Oil Technology Partners Subscription Agreement” (the subscription

agreement), and he delivered to the promoters of Vulcan a check

in the amount of $18,750 and two promissory notes in like

amounts, which notes he subsequently paid, also by check.    All

three checks were drawn on the joint checking account.    Because

she routinely balanced the checkbook, Barbara saw the checks when

they cleared.
                               - 10 -

     Although Barbara was not present when David met the

promoters of Vulcan and executed the subscription agreement and

the notes, she later reviewed the subscription agreement, and

David gave her a general explanation of the nature of the

investment, expressing the view that it would provide substantial

tax savings to them.

     The subscription agreement contained the following

representation by all those purchasing a limited partnership

interest:

     I am aware that the tax effects which may be expected
     by the Partnership are not susceptible to certain
     prediction, and new developments in rulings of the
     Internal Revenue Service, court decisions, or
     legislative changes may have an adverse effect on one
     or more of the tax consequences sought by the
     Partnership.

Request for Section 6015 Relief

     On June 13, 2000, David submitted to respondent a Form 8857,

Request for Innocent Spouse Relief (And Separation of Liability

and Equitable Relief) (the Form 8857), on behalf of the “Estate

of Barbara J. Jonson”.   David signed the Form 8857:    “David C.

Jonson (Personal Representative)”.      Among the attachments to the

Form 8857 is a document entitled “Statement of Estate of Barbara

J. Jonson * * * by David C. Jonson, Personal Representative”, in

which David states:    “Any financial benefits that resulted to the

Jonson family [from Vulcan] went into the general funds

administered by David.   It eventually contributed to their normal
                             - 11 -

middle class lifestyle and the education of 3 children and

service of credit card and other debt.”    Among the attachments to

the Form 8857 is a questionnaire answered by Barbara before her

death and containing the following question and answer pertaining

to her knowledge of the circumstances surrounding David’s

investment in Vulcan:

     Q.   Explain what you knew about the investment and how
          you learned about the investment.

     A.   This investment was recommended by a banker friend
          of my husband. My husband explained that the
          investment was entirely legal and proper,
          according to the lawyers and accountants
          associated with this tax shelter. Even the
          Attorney General for the U.S. at the time, William
          French Smith, thought it was proper (see attached
          news clipping). At the time, IRS tax rates for
          the upper brackets were very high and we had three
          kids in college. We were desperate for some tax
          relief to make ends meet. I took my husband’s
          word that it was OK.

     The referenced news article, from the May 13, 1982, edition

of the Rocky Mountain News, reported that Attorney General Smith

considered some $66,000 in deductions attributable to a $16,500

“investment in a risky energy tax shelter” to be “proper”, but it

quoted a Justice Department spokesman as stating that Mr. Smith

“will look into it to reassure himself”.   The article cited a

Washington Post report quoting “experts” as describing the

venture “as ‘one of the most aggressive and perhaps questionable

tax shelters available to wealthy Americans’”.   The report was
                               - 12 -

also quoted as saying that Attorney General Smith and other

investors “hope to beat an IRS challenge in court.”

                               OPINION

I.   Introduction

      The Jonsons made joint returns of income for the audit

years, and respondent determined deficiencies in the taxes shown

on those returns, which deficiencies petitioners concede.

Normally, therefore, on account of section 6013(d)(3), Barbara

would be jointly and severally liable for the payment of the

deficiencies (along with interest).      Section 6013(d)(3) provides:

“if a joint return is made, the tax shall be computed on the

aggregate income and the liability with respect to the tax shall

be joint and several.”    In certain situations, however, a joint

return filer can avoid such joint and several liability.     In

pertinent part, section 6015(a) provides:

      SEC. 6015(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).
                                  - 13 -

Section 6015(f) provides a joint filer an additional alternative

for relief from joint and several liability, at the discretion of

the Secretary.

      Petitioners ask the Court to find that Barbara is entitled

to section 6015 relief with respect to the deficiencies (and

interest), alternatively, under subsection (b) (relief applicable

to all joint filers), (c) (limited liability for taxpayers no

longer married, legally separated, or living apart), or (f)

(discretionary relief) of section 6015.      Respondent denies that

Barbara is entitled to relief under any provision of section

6015.

      Except as otherwise provided in section 6015, petitioners

bear the burden of proof.      See Rule 142(a).

II.   Relief Under Section 6015(b)(1)

        A.   Statutory Language

        Section 6015(b)(1) provides:

        SEC. 6015(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
              1 individual filing the joint return;

                (C) the other individual filing the joint return
              establishes that in signing the return he or she
                                - 14 -

          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.

     B.   Application to Barbara

           1.    In General

     Respondent does not dispute that Barbara satisfies the

requirements of subparagraphs (A), (B), and (E) of section

6015(b)(1).     The parties disagree as to whether Barbara satisfies

the requirements of subparagraphs (C) and (D); viz, whether

(1) Barbara had actual or constructive knowledge of the

understatements of tax (here, equal to the deficiencies (the

understatements)) attributable to the losses and (2) is entitled

to equitable relief.
                                 - 15 -



            2.    Section 6015(b)(1)(C)

            a.    Introduction

            (1)    Similarity to Section 6013(e)

     The no-knowledge-of-the-understatement requirement of

section 6015(b)(1)(C) is similar to the corresponding requirement

in former section 6013(e)(1)(C).      Cheshire v. Commissioner, 

, 192 (2000).     Both provisions require the relief-seeking

spouse to establish that “in signing the return, he or she did

not know, and had no reason to know” of the understatement.

Because of the similarity between the two provisions, we have

held that “cases interpreting old section 6013(e) remain

instructive as to our analysis of whether a taxpayer ‘knew or had

reason to know’ of an understatement pursuant to new section

6015(b).”    Butler v. Commissioner, 

, 283 (2000).

            (2)   Application of Knowledge Requirement in Deduction
                  Cases

     The relief-seeking spouse knows of an understatement of tax

if she knows of the transaction that gave rise to the

understatement.     E.g., Purcell v. Commissioner, 

,

473-474 (6th Cir. 1987), affg. 

 (1986); see also Smith

v. Commissioner, 

, 672 (1978).      She has reason to know

of the understatement if she has reason to know of the

transaction that gave rise to the understatement.     See, e.g.,

Bokum v. Commissioner, 

, 146 (1990), affd. 

 (11th Cir. 1993).     While courts consistently apply this
                              - 16 -

approach to omission of income cases, certain of the Courts of

Appeals, beginning with the Court of Appeals for the Ninth

Circuit, have adopted what may be a more lenient approach to

deduction cases, which requires "a spouse seeking relief to

establish that she did not know and did not have reason to know

that the deduction would give rise to a substantial

understatement."7   See Price v. Commissioner, 

, 963

(9th Cir. 1989), revg. an Oral Opinion of this Court; see also

Reser v. Commissioner, 

 (5th Cir. 1997), affg. in

part and revg. in part T.C. Memo. 1995-572; Resser v.

Commissioner, 

 (7th Cir. 1996), revg. and remanding

T.C. Memo. 1994-241; Kistner v. Commissioner, 

 (11th

Cir. 1994), revg. and remanding T.C. Memo. 1991-463; Hayman v.

Commissioner, 

, 1261 (2d Cir. 1993), affg. T.C.

Memo. 1992-228; Erdahl v. Commissioner, 

, 589 (8th

Cir. 1991), revg. and remanding T.C. Memo. 1990-101.    In Bokum v.

Commissioner, supra at 153, however, we declined to apply the

Price approach to deduction cases.8




     7
        The Internal Revenue Service Restructuring and Reform Act
of 1998, Pub. L. 105-206, sec. 1301, 112 Stat. 685, 734,
eliminated the requirement of former sec. 6013(e)(1)(C) that the
understatement be “substantial”.
     8
        Of course, under the rule established in Golsen v.
Commissioner, 

 (1970), affd. 

 (10th Cir.
1971), we are bound to defer to the decision of a Court of
Appeals squarely on point, where that Court of Appeals is the
likely venue for appeal.
                                 - 17 -

     The Court of Appeals for the Tenth Circuit is the likely

venue for any appeal of this case.        We have found no published

authority of the Court of Appeals for the Tenth Circuit adopting

the Price approach.   In an unpublished order and judgment,

however, the Court of Appeals for the Tenth Circuit recently

quoted Price, as follows:     “A spouse has ‘reason to know’ of the

substantial understatement if a reasonably prudent taxpayer in

her position at the time she signed the return could be expected

to know that the return contained the substantial

understatement.”    Estate of Sympson v. Commissioner, 79 AFTR 2d

97-2942, at 97-2944, 97-1 USTC par. 50,484, at 88,288 (10th Cir.

1997).

     Because we believe that Barbara had reason to know of the

understatements under the more lenient approach followed by the

Court of Appeals for the Ninth Circuit in Price v. Commissioner,

supra, any disparity between our interpretation of section

6015(b)(1)(C) and that of a court following Price is immaterial

to our disposition of this case.

          b.    Reason to Know

          (1)    Introduction

     In Price v. Commissioner, supra at 965, the Court of Appeals

for the Ninth Circuit said:

          A spouse has "reason to know" of the substantial
     understatement if a reasonably prudent taxpayer in her
     position at the time she signed the return could be
     expected to know that the return contained the
                              - 18 -

     substantial understatement. Factors to consider in
     analyzing whether the alleged innocent spouse had
     "reason to know" of the substantial understatement
     include: (1) the spouse's level of education; (2) the
     spouse's involvement in the family's business and
     financial affairs; (3) the presence of expenditures
     that appear lavish or unusual when compared to the
     family's past levels of income, standard of living, and
     spending patterns; and (4) the culpable spouse's
     evasiveness and deceit concerning the couple's
     finances. [Citations omitted.]

          (2)   Discussion

          (a)   Education

     Barbara was highly educated, with a master’s degree relating

to education, her chosen professional field.

          (b)   Involvement in Financial Affairs

     Barbara was peripherally involved in David’s consulting

business; she kept him advised of collections and reminded him to

pursue delinquent accounts.   She had full responsibility for

writing the checks for household bills, reviewing the bank

statements, and balancing the family checkbook.    She controlled

the investment of her own retirement savings.    She was a

coinvestor with David in a real estate limited partnership, and

she was a coowner with him of an apartment building, which

building they sold, at least in part, on the basis of her advice

to David that the investment was unprofitable.     She was shown the

documents relating to the investment in Vulcan and understood

that it would result in substantial tax savings.    She was also

aware of the large deductions taken on the returns for the audit
                                - 19 -

years that were attributable to the Vulcan investment, and she

was made aware of the tax risks by the Vulcan subscription

agreement, with its reference to tax risks, and (for 1982) by the

May 13, 1982, newspaper article confirming Vulcan’s status as an

“aggressive” and “questionable” tax shelter subject to potential

IRS attack.    For all of those reasons, it is clear that Barbara

had significant involvement in the family’s financial affairs.

In particular, she had reason to know of the tax benefits and

potential tax risks associated with the investment in Vulcan.

            (c)   Expenditure Levels, Standard of Living, Etc.

     There is no evidence that the tax savings generated by the

investment in Vulcan resulted in lavish or unusual expenditures

benefiting Barbara when compared to prior years’ spending

patterns.     That factor is not determinative, however, as to

whether Barbara benefited from such tax savings.     See Hayman v.

Commissioner, supra at 1263.     In this case, it is clear that the

tax savings were immensely beneficial to both David and Barbara.

For each of the audit years, the losses sheltered in excess of 80

percent of David’s income.     The losses, thus, reduced the

Jonsons’ taxes and contributed to their ability to pay for their

children’s college educations and still maintain their normal

standard of living.     As Barbara freely admitted in filling out

the innocent spouse questionnaire sent to her by petitioners’

counsel, “IRS tax rates for the upper brackets were very high and
                                - 20 -

we had three kids in college.    We were desperate for some tax

relief to make ends meet.”

          (d)   Other Spouse’s Evasiveness and Deceit Regarding
                Finances

     David made clear during his trial testimony that Barbara was

aware of his investments, she had access to all of his files and

to his office, and he made no effort to deceive her with respect

to his financial affairs.

          (3)   Conclusion

     All the foregoing factors support a finding that Barbara had

reason to know of the understatements.    It is significant that

Barbara knew (1) of the investment in Vulcan, (2) that it was

designed to generate large deductions that, in turn, would result

in substantial tax savings, (3) that those deductions were taken

on the joint returns for the audit years, and (4) that there was

a risk that the deductions might be attacked by respondent and

disallowed on audit.   “Tax returns setting forth large

deductions, such as tax shelter losses offsetting income from

other sources and substantially reducing * * * the couple’s tax

liability, generally put a taxpayer on notice that there may be

an understatement of tax liability.”     Hayman v. Commissioner, 992

F.2d at 1262. See also Price v. Commissioner, 887 F.2d at 964,

where the Court of Appeals stated:

     [I]f a spouse knows virtually all of the facts
     pertaining to the transaction which underlies the
     substantial understatement, her defense in essence is
                              - 21 -

     premised solely on ignorance of law. * * * In such a
     scenario, regardless of whether the spouse possesses
     knowledge of the tax consequences of the item at issue,
     she is considered as a matter of law to have reason to
     know of the * * * understatement * * *.

Therefore, applying the approach of Price v. Commissioner, supra,

we find that Barbara had reason to know of the understatements.

          3.   Section 6015(b)(1)(D)

          a.   Introduction

     Because the requirements of section 6015(b)(1) are stated in

the conjunctive, Barbara’s failure to satisfy the lack of

knowledge requirement of section 6015(b)(1)(C) is a sufficient

condition for us to find that she does not qualify for relief

under section 6015(b).   Nevertheless, since, in light of the

facts and circumstances of this case, we believe that it would

not be inequitable to hold her liable for the deficiencies, we

discuss the application of section 6015(b)(1)(D).

          b.   Discussion

     The requirement, in section 6015(b)(1)(D), that it be

inequitable to hold the requesting spouse liable for an

understatement on a joint return, is virtually identical to the

same requirement of former section 6013(e)(1)(C).   Therefore, as

in the case of the no-knowledge-of-the-understatement requirement

of section 6015(b)(1)(C), cases interpreting former section

6013(e) remain instructive as to our analysis.   See Butler v.

Commissioner, 114 T.C. at 283.
                               - 22 -

     Whether it is inequitable to hold a spouse liable for a

deficiency is determined “taking into account all the facts and

circumstances”.    Sec. 6015(b)(1)(D).   Most often cited as

material factors to be considered are (1) whether there has been

a significant benefit to the spouse claiming relief, and

(2) whether the failure to report the correct tax liability on

the joint return results from concealment, overreaching, or any

other wrongdoing on the part of the other spouse.     See, e.g.,

Hayman v. Commissioner, 992 F.2d at 1262.     Normal support is not

considered a significant benefit.    Id.

     As noted in connection with our discussion of the

application, to Barbara, of the lack of knowledge requirement of

section 6015(b)(1)(C), it is clear that the tax savings were

immensely beneficial to both David and Barbara, in that the

savings contributed to their ability to pay for their children’s

college educations and still maintain their standard of living.

In Barbara’s own words, the tax savings enabled her and David “to

make ends meet”.    Without the tax savings generated by the Vulcan

investment, David and Barbara would not have had a sufficient

cashflow to cover their family expenditures, including their

children’s educations.

     It is also clear that there was no “concealment” on David’s

part.   As noted supra p. 20, Barbara had access to David’s files

and to his office, and he never tried to deceive her with respect
                                      - 23 -

to his financial affairs.          Barbara was fully aware of the Vulcan

investment, of the tax benefits to be derived, and of the risk

that those benefits might be challenged by the IRS on audit.

       Under the foregoing circumstances, we find that it would not

be inequitable to hold Barbara liable for the deficiencies

arising out of the Vulcan investment.

       C.   Conclusion

       Barbara has failed to satisfy the requirements of either

section 6015(b)(1)(C) or (D).

III.    Relief Under Section 6015(c)

       A.   Statutory Language

       Section 6015(c) provides in pertinent part:

         SEC. 6015(c). Procedures To Limit Liability for
       Taxpayers No Longer Married or Taxpayers Legally
       Separated or Not Living Together.--

               (1) In general.--Except as provided in this
             subsection, if an individual who has made a joint
             return for any taxable year elects the application
             of this subsection, the individual’s liability for
             any deficiency which is assessed with respect to
             the return shall not exceed the portion of such
             deficiency properly allocable to the individual
             under subsection (d).

                       *     *    *    *       *   *   *

               (3)   Election.--

                 (A)       Individuals eligible to make election.--

                  (i) In general.--An individual shall
             only be eligible to elect the application of
             this subsection if--
                               - 24 -

               (I) at the time such election is filed, such
          individual is no longer married to, or is legally
          separated from, the individual with whom such
          individual filed the joint return to which the
          election relates; or

               (II) such individual was not a member of the
          same household as the individual with whom such
          joint return was filed at any time during the 12-
          month period ending on the date such election is
          filed.

                  *   *    *     *      *   *   *

             (C) Election not valid with respect to certain
     deficiencies.–-If the Secretary demonstrates that an
     individual making an election under this subsection had
     actual knowledge, at the time such individual signed
     the return, of any item giving rise to a deficiency (or
     portion thereof) which is not allocable to such
     individual under subsection (d), such election shall
     not apply to such deficiency (or portion). This
     subparagraph shall not apply where the individual with
     actual knowledge establishes that such individual
     signed the return under duress.

     Section 6015(d) specifies how an individual’s separate

liability under section 6015(c) is to be determined.

          B.   Application to Barbara

          1.   Introduction:   Eligibility; Validity

     Prior to Barbara’s death on March 16, 1996, she did not

satisfy the eligibility requirements of section 6015(c)(3)(A)(i)

(sometimes, the eligibility requirements), because she was

married to, not legally separated from, and a member of the same

household as David.   On June 13, 2000, David, as “Personal

Representative”, submitted to respondent the Form 8857, by which,

petitioners argue, David elected separate liability treatment for
                                - 25 -

Barbara under section 6015(c).    Respondent does not challenge

David’s authority, as personal representative, to make such

election.    Respondent challenges petitioners’ claim that Barbara

satisfies the eligibility requirements.    Petitioners claim that,

on June 13, 2000, Barbara (having died more than 4 years earlier)

was not married to David and had not been part of his household

for more than 1 year, thereby satisfying two of the three

alternative eligibility requirements of section 6015(c)(3)(A)(i).

Respondent further argues that, even if we were to decide that

Barbara satisfies the eligibility requirements, David cannot make

a valid election with respect to the understatements because

respondent has demonstrated that, at the time Barbara signed the

joint returns, she had actual knowledge of the items giving rise

to the understatements (i.e. the Vulcan transaction).    See sec.

6015(c)(3)(C).    Because we agree with respondent that Barbara did

not satisfy the eligibility requirements, we need not determine

whether David’s election was invalid solely on account of section

6015(c)(3)(C).

            2.   Eligibility

            a.   Introduction

     Section 6015(a)(2) provides that an individual who has made

a joint return (and who is eligible to elect the application of

section 6015(c)) may elect to limit his or her joint return

liability in the manner prescribed in section 6015(c).    Nowhere
                                - 26 -

is it provided that anyone other than the joint return filer can

elect to limit the joint return filer’s liability.     Therefore, we

assume that David was acting in a representative capacity (for

Barbara) in attempting to elect the application of section

6015(c).    See sec. 6903(a); Natl. Taxpayers Union, Inc. v. United

States, 

, 1436 (D.C. Cir. 1995) (“A person, such as

an executor, acting in a representative capacity, assumes ‘the

powers, rights, duties, and privileges’ of the principal under

the Internal Revenue Code.”); Estate of Jayne v. Commissioner,

, 750 (1974) (in carrying forward the wishes of a

deceased taxpayer, an executor “acts in a representative

capacity” (citing Miller Music Corp. v. Daniels, Inc., 

 (1960)); Fox Film Corp. v. Knowles, 

 (1923)).       In

a representative capacity, an executor “merely stands in the

shoes of the deceased.”     Estate of Jayne v. Commissioner, supra.

In Estate of Jayne, the question was whether the acquisition of

property by a surviving spouse replaced property sold under

threat of condemnation by the deceased spouse so as to defer the

recognition of gain on such sale pursuant to section 1033.     We

stated that the right to use the nonrecognition provisions of

section 1033 does not terminate per se on the death of a

taxpayer.     Estate of Jayne v. Commissioner, supra at 750.   We

added:     “A person found to be acting on behalf of the deceased
                               - 27 -

taxpayer is given the same rights * * * under section 1033 as the

taxpayer possessed prior to his death.”     Id.

     On the face of it, then, because, prior to her death,

Barbara did not satisfy the eligibility requirements, David,

acting in her stead, is ineligible to elect to limit her joint

return liability.   We do, nevertheless, consider whether Congress

intended a spouse’s eligibility to arise on account of her death.

           b.   Legislative History

     Both petitioners and respondent refer to the history of

section 6015(c) in support of their opposing claims with respect

to Barbara and the eligibility requirements.      We have examined

that history and find nothing therein to controvert the rule that

David, as personal representative, possessed rights no greater

than those Barbara possessed immediately prior to her death.

     Section 6015 was added to the Internal Revenue Code by

section 3201 of the Internal Revenue Service Restructuring and

Reform Act of 1998 (RRA 1998), Pub. L. 105-206, sec. 3201, 112

Stat. 734, which enacted H.R. 2676, 105th Cong. (1997) (H.R.

2676).   Section 3201 of RRA 1998 generally revised and expanded

the relief previously available to joint filers under section

6013(e).   The provisions of section 6015(c) originated as a

Senate amendment to H.R. 2676 (the Senate amendment).      With

certain restrictions, the Senate amendment allowed any spouse to

elect separate liability treatment.     The eligibility requirements
                              - 28 -

were added by the conference agreement reconciling the differing

versions of H.R. 2676 passed by the House of Representatives and

the Senate, respectively.   See H. Conf. Rept. 105-599, at 251

(1998), 1998-3 C.B. 747, 1005.   The reasons for the change with

respect to the Senate amendment are described in pertinent part

as follows in the report of the Committee on Finance that

accompanied H.R. 2676, S. Rept. 105-174, at 55 (1998), 1998-3

C.B. 537, 591:

                        Reasons for Change

          The Committee is concerned that the innocent
     spouse provisions of present law are inadequate. The
     Committee believes that a system based on separate
     liabilities will provide better protection for innocent
     spouses than the current system. The Committee
     generally believes that an electing spouse’s liability
     should be satisfied by the payment of the tax
     attributable to that spouse’s income and that an
     election to limit a spouse’s liability to that amount
     is appropriate.

     The conferees did not explain their addition of the

eligibility requirements.   See H. Conf. Rept. 105-559, supra at

251, 1998-3 C.B. at 1005.   They did however state that, for

purposes of the eligibility requirements, a taxpayer is no longer

married if he or she is widowed.   Id. at 252 n.16, 1998-3 C.B. at

1006.   Statements on the floor of the Senate, in support of the

Senate amendment, indicate the speakers’ concerns for a wife

whose husband had left town or who had otherwise left her with

the full joint and several liability imposed by section 6013(d).

See statements of Senators Graham and Abraham, reported at 144
                              - 29 -

Cong. Rec. S4473-4474 and S4493 (daily ed. May 7, 1998),

respectively.   Such concerns square with the restrictions added

by the eligibility requirements and are consistent with treating

a widow or widower as no longer married. Such concerns are not

ignored by treating a spouse such as Barbara, who, the record

indicates, was happily married to her husband at the time she

died, as failing to meet the eligibility requirements.

Petitioners’ claim to section 6015(c) relief turns the statute on

its head, in that David became a widower; Barbara was never

widowed.   We are not convinced by the relevant legislative

history that Congress’s purpose in allowing separate liability

treatment to eligible spouses would be furthered by allowing

David to elect such treatment on behalf of Barbara.9

           c.   Conclusion

     At the time of her death, Barbara did not satisfy the

eligibility requirements.




     9
        In fact, separate liability treatment would be
particularly inappropriate in this case. Barbara left her entire
estate to David. Although David disclaimed his inheritance in
favor of the children, the disclaimer provided for the investment
of the assets (in exchange for stock issued to the children) in
Jonson Management Co., Inc., David’s geological consulting
corporation (formed after the audit years). The conclusion is
inescapable that David, the nonrequesting spouse, stands to
benefit as much as anyone should the assets of Barbara’s estate
be immune from the collection of deficiencies for which both
David and Barbara normally would be jointly liable.
                                - 30 -

           C.    Conclusion

      Because, at the time of her death, Barbara did not satisfy

the eligibility requirements, David, as her personal

representative, cannot elect to limit Barbara’s joint return

liability in the manner prescribed in section 6015(c).

IV.   Relief Under Section 6015(f)

      A.   Statutory Language

      Section 6015(f) provides:

              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.

      B.   Application to Barbara

            1.   Introduction

      Respondent has denied Barbara relief under section 6015(f).

We have jurisdiction to review such denial of relief.      Butler v.

Commissioner, 114 T.C. at 292.      We review such denial of relief

to determine whether respondent abused his discretion by acting

arbitrarily, capriciously, or without sound basis in fact.     See

id.; Pac. First Fed. Sav. Bank v. Commissioner, 

, 121

(1993).    Petitioners have failed to make that showing.
                                - 31 -

          2.     Discussion

     As directed by section 6015(f), respondent has prescribed

procedures to use in determining whether a relief-seeking spouse

qualifies for relief under section 6015(f).    Those procedures are

found in Rev. Proc. 2000-15 (the revenue procedure), 2000-5

I.R.B. 447, modifying and superseding Notice 98-61, 1998-51

I.R.B. 13.     Section 7 of the revenue procedure states that it is

effective on January 18, 2000, which precedes David’s submission

to respondent of the Form 8857 on June 13, 2000.    Section 4.03 of

the revenue procedure, applicable to a relief-seeking spouse in

Barbara’s situation, provides:    “The Secretary may grant

equitable relief under § 6015(f) * * *    if, taking into account

all the facts and circumstances, it is inequitable to hold the

requesting spouse liable for all or part of the unpaid liability

or deficiency.”    The revenue procedure includes a partial list of

positive and negative factors that will be taken into account in

determining whether to grant full or partial relief and cautions

that no single factor will be determinative of whether equitable

relief will or will not be granted in any particular case.    It

states:   “Rather, all factors will be considered and weighed

appropriately.”

     Petitioners have failed to introduce any evidence showing

the basis for respondent’s rejection of their claim for equitable

relief for Barbara.    Nevertheless, the revenue procedure

establishes as factors weighing against equitable relief whether
                              - 32 -

the relief-seeking spouse (1) had knowledge or reason to know of

the items giving rise to the deficiency, (2) has significantly

benefited (beyond normal support) from those items, and (3) will

not experience economic hardship if relief from the liability is

not granted.   Barbara was aware of the Vulcan investment, of the

resulting reported losses, and of the risk of an IRS challenge to

the tax reductions claimed to result from those reported losses.

Clearly, then, she had reason to know of the items giving rise to

the deficiencies.   She benefited from the items in that the

losses, among other things, reduced the Jonsons’ taxes and

contributed to their ability to pay for their children’s college

educations, which Barbara admitted was important to her.   Because

Barbara is deceased, there can be no economic hardship to her

personally if equitable relief is denied.   We cannot conclude

that respondent acted arbitrarily, capriciously, or without sound

basis in fact in denying Barbara equitable relief.

          3.   Conclusion

     Under the facts and circumstances of this case, we hold that

respondent did not abuse his discretion in denying equitable

relief to Barbara under section 6015(f).
                              - 33 -

V.   Conclusion

      Barbara is not entitled to any relief under section 6015.


                                          An appropriate decision

                                    will be entered for respondent

                                    with respect to the

                               deficiencies and for

                          petitioners with respect to

                          the additions to tax under

                          section 6659.