T.C. Summary Opinion 2006-190



                     UNITED STATES TAX COURT



                DEBRA KAY FORISTER, Petitioner v.
          COMMISSIONER OF INTERNAL REVENUE, Respondent



     Docket No. 8930-04S.               Filed December 14, 2006.


     Debra Kay Forister, pro se.

     Robert V. Boeshaar, for respondent.



     COUVILLION, Special Trial Judge:   This case was heard

pursuant to section 7463 in effect when the petition was filed.1

The decision to be entered is not reviewable by any other court,

and this opinion should not be cited as authority.




     1
      Unless otherwise indicated, subsequent section references
are to the Internal Revenue Code in effect for the year at issue,
and all Rule references are to the Tax Court Rules of Practice
and Procedure.
                                - 2 -

     Respondent determined a deficiency of $3,603 in petitioner’s

Federal income tax for the taxable year 2000.   Petitioner does

not challenge the deficiency.   This case involves petitioner’s

election to seek relief from joint and several liability for

Federal income tax for the year 2000 under section 6015(b), (c),

or (f).    Respondent determined that petitioner is not entitled to

relief under any of the aforementioned subsections of section

6015.   The sole issue for decision is whether petitioner is

entitled to relief under section 6015(b), (c), or (f).

     Some of the facts were stipulated.   Those facts, with the

annexed exhibits, are so found and are made part hereof.

Petitioner’s legal residence at the time the petition was filed

was Everett, Washington.

     During the year at issue, petitioner was married to Kyle M.

Lathrop (Mr. Lathrop).   Petitioner and Mr. Lathrop were married

in 1995.   They separated sometime in July 2002, and their divorce

was finalized on September 13, 2003.    Petitioner was employed by

Payless Shoe Source during part of the year at issue, and Mr.

Lathrop received nonemployee compensation from flooring work he

performed during that time, as well as unemployment compensation.

     On a joint Federal income tax return for 2000, petitioner

and Mr. Lathrop reported a tax due of $1,386.   The tax was not

paid at the time the return was filed.    In addition, the return

did not include $3,990 of income from unemployment compensation
                               - 3 -

received by Mr. Lathrop and $9,250 of nonemployee compensation he

had earned.   On June 12, 2002, a notice of deficiency was issued

to petitioner and Mr. Lathrop in which respondent determined a

deficiency of $3,603 in Federal income tax for 2000 based on

their failure to include these items of income on the return.2

Neither petitioner nor Mr. Lathrop petitioned this Court in

response to the notice of deficiency.   Accordingly, the

deficiency was assessed.

     On December 9, 2002, respondent applied a $2,012 overpayment

of tax from petitioner’s individual return for taxable year 2001

to the unpaid tax liability for the year at issue.   Petitioner,

thereafter, filed a Form 8857, Request for Innocent Spouse

Relief, on July 7, 2003.   She alleges that Mr. Lathrop prepared

their 2000 tax return, that the omitted items of income were his

income, and that she signed the return without reviewing its

contents.   On April 14, 2004, respondent issued a Final Notice to

petitioner determining that she was not entitled to relief from

joint and several liability under section 6015(b), (c), or (f)

for taxable year 2000 because she was aware and knew that the tax

shown on the return would not be paid at the time of filing; she

had actual knowledge of the omitted income giving rise to the



     2
      The omitted income enabled petitioner and Mr. Lathrop to
qualify for an earned income credit of $406. As a result of the
inclusion of the unreported income, the earned income credit was
not allowable due to the limitation of sec. 32(a)(2).
                                - 4 -

deficiency; and, by not reviewing the return, she did not satisfy

her duty of inquiry.

     Petitioner argues in her petition that she is entitled to

relief from joint and several liability under section 6015

because Mr. Lathrop was responsible for the items of income that

gave rise to the 2000 tax liability, and she is unable to pay the

tax liability.   Pursuant to Rule 325 and King v. Commissioner,

(2000), respondent served Mr. Lathrop with notice of

this proceeding and his right to intervene.    He did not, however,

file a notice of intervention and did not appear or participate

in the trial of this case.

     A taxpayer may petition this Court for a review of the

Commissioner’s determination denying relief under section 6015.

Sec. 6015(e)(1)(A).    Respondent issued a notice of deficiency for

the year at issue.    The petition, however, was filed timely in

response to a final notice issued by respondent denying

petitioner’s request for section 6015 relief from her total

income tax liability for the taxable year 2000.    Because a

deficiency was asserted for petitioner’s 2000 taxable year, the

Court has jurisdiction to review respondent’s denial of section

6015 relief for both the underpayment of tax and the deficiency

in tax, which form the basis of petitioner’s tax liability for

the year at issue.    See Billings v. Commissioner, 

                               - 5 -

(2006); Butler v. Commissioner, 

, 288 (2000); Naftel

v. Commissioner, 

, 533 (1985).

     Generally, married taxpayers may elect to file a Federal

income tax return jointly.   Sec. 6013(a).    Each spouse filing a

joint return is jointly and severally liable for the accuracy of

the return and the entire tax due.     Sec. 6013(d)(3).   Under

certain circumstances, however, section 6015 provides relief from

joint liability.   Section 6015 applies to any liability for tax

arising after July 22, 1998, and to any liability for tax arising

on or before July 22, 1998, remaining unpaid as of such date.

Internal Revenue Service Restructuring and Reform Act of 1998,

Pub. L. 105-206, sec. 3201(g), 112 Stat. 740.

     In general terms, there are three avenues of relief under

section 6015:   Section 6015(b) provides relief with respect to

certain erroneous items on the return, section 6015(c) provides

for a separation of liability for separated taxpayers, and

section 6015(f) more broadly confers on the Secretary discretion

to grant equitable relief for taxpayers who otherwise do not

qualify for relief under either subsection (b) or (c).

     A prerequisite for relief under section 6015(b) or (c) is

the existence of an “understatement of tax” or a tax deficiency.

Sec. 6015(b)(1)(B), (c)(1); Block v. Commissioner, 

,
                                 - 6 -

65-66 (2003).3   Under section 6015(b), the Court may grant a

taxpayer full or apportioned relief from joint and several

liability for an understatement of tax on a joint return if,

among other requirements,4 the taxpayer establishes that she “did

not know and had no reason to know” that the other spouse

understated that spouse’s tax liability on the return.    Sec.

6015(b)(1)(C), (2).    Except as otherwise provided in section

6015, the requesting spouse bears the burden of proving that she

satisfies each requirement of section 6015(b)(1).    See Rule

142(a); Alt v. Commissioner, 

, 311 (2002), affd. 

(6th Cir. 2004).

     In the instant case, the Court finds that petitioner knew or

had reason to know of the understatement of tax at the time she

signed the return.    The Court is satisfied that petitioner was

aware that Mr. Lathrop received both unemployment compensation

and nonemployee compensation during the year at issue.

Petitioner admitted in her testimony that she knew of these

sources of income because she discussed them with her former



     3
      The requirement that a proposed or assessed deficiency be
present precludes petitioner from seeking relief under sec.
6015(b) or (c) for the underpayment of income tax reported on the
joint return.
     4
      Neither respondent nor petitioner disputes that, in this
case, the requirements of subpars. (A), (B), and (E) of sec.
6015(b)(1) have been satisfied. The dispute is solely as to
whether petitioner meets the requirements of subpars. (C) and (D)
of sec. 6015(b)(1).
                                - 7 -

spouse, and she knew that he deposited the income received from

these sources into their joint bank account.    Moreover,

petitioner admitted in her Form 12510, Questionnaire for

Requesting Spouse, that she reviewed their monthly bank

statements and paid household expenses out of the very account

into which Mr. Lathrop deposited all income he received during

the year at issue.    Petitioner’s testimony establishes actual

knowledge on her part that Mr. Lathrop received both unemployment

compensation and nonemployee compensation during the year at

issue.    Her basis for requesting relief was that, as she had not

reviewed the return, she was unaware that Mr. Lathrop had not

included the entirety of these items of income on their return

for the year at issue.

       Section 6015 relief was not intended to provide relief to

spouses who simply did not look at the amount of income reported

on the return, unless it is clearly established that the spouse

was forced under duress to sign the return without reviewing it.

Frederick v. Commissioner, T.C. Memo. 1981-602.    The record does

not support a finding that petitioner was forced to sign the

return under duress.    A spouse requesting relief under section

6015 has a duty of inquiry.    Butler v. Commissioner, supra at

284.    A requesting spouse has reason to know of an understatement

if a “reasonably prudent person with knowledge of the facts

possessed by the person claiming * * * [relief] should have been
                                 - 8 -

alerted to the possibility of a substantial understatement.”

Flynn v. Commissioner, 

, 365 (1989).

     Petitioner’s educational and business backgrounds were not

made part of the record; nonetheless, the Court is not convinced

that her failure to inquire was reasonable.     She and her former

spouse signed the return, and Mr. Lathrop’s unreported items of

income were more than one-half of the taxable income they

received that year.5    Even a cursory review of the return would

have revealed that Mr. Lathrop completely omitted the nonemployee

compensation he received, causing a substantial portion of their

taxable income to be unreported.     For the reasons discussed

above, petitioner is not entitled to relief under section

6015(b).

     Section 6015(c) affords proportionate relief to the

requesting spouse through allocation of the tax items to the

responsible party.     Generally, this avenue of relief allows a

spouse to elect to be treated as if a separate return had been

filed.   Rowe v. Commissioner, T.C. Memo. 2001-325.    To be

eligible for relief under section 6015(c), the requesting spouse

must be no longer married to, be legally separated from, or have

lived at least 12 months apart from the individual with whom the


     5
      Petitioner and Mr. Lathrop reported $11,949 of taxable
income for 2000. They should have reported $24,544 of taxable
income ($3,999 of unemployment compensation plus $9,250 of
nonemployee compensation less a $654 self-employment tax
deduction).
                               - 9 -

tax return was filed.   Sec. 6015(c)(3)(A)(i).   Relief under

section 6015(c) is not available, however, to a taxpayer if it is

shown that the taxpayer had actual knowledge when signing the

return of any “item” giving rise to a deficiency.    Sec.

6015(c)(3)(C).

     As previously discussed, petitioner is divorced from Mr.

Lathrop, and the divorce was finalized before she requested

relief from joint and several liability.

     However, as noted above, petitioner not only had reason to

know of the understatement at the time the return was signed, but

she also had actual knowledge of the items giving rise to the

deficiency.   Because petitioner had actual knowledge of these

items of income, she is precluded from claiming relief under

section 6015(c).

     Petitioner may be considered for relief under section

6015(f) where there is an unpaid tax or deficiency for which she

is not eligible for relief under section 6015(b) or (c).    Sec.

6015(f)(2).   Section 6015(f)(1) provides that a taxpayer may be

relieved from joint and several liability if it is determined,

after considering all the facts and circumstances, that it is

inequitable to hold the taxpayer liable for the unpaid tax or

deficiency.   This Court reviews the Commissioner’s denial of

relief pursuant to section 6015(f) under an abuse of discretion

standard.   Butler v. Commissioner, 

.    The
                              - 10 -

Court defers to respondent’s determination unless it is

arbitrary, capricious, or without sound basis in fact.     Jonson v.

Commissioner, 

, 125 (2002), affd. 

(10th

Cir. 2003).   Petitioner bears the burden of proving that there

was an abuse of discretion.   Abelein v. Commissioner, T.C. Memo.

2004-274.

     The Commissioner has prescribed guidelines that are

considered in determining whether it is inequitable to hold a

requesting spouse liable for all or part of the liability for any

unpaid tax or deficiency.   Rev. Proc. 2000-15,6 sec. 4.01, 2000-1

C.B. 447, 448, sets forth seven threshold conditions that the

requesting spouse must satisfy before the Commissioner will

consider a request for relief under section 6015(f).    Respondent

agrees that petitioner has satisfied those threshold conditions.

     Where, as here, the requesting spouse satisfies the

threshold conditions, Rev. Proc. 2000-15, sec. 4.02, 2000-1 C.B.

447, 448, lists factors to be considered in determining whether

to grant equitable relief for underpayments of tax.    Equitable

relief under section 6015(f) for an underpayment of tax on a


     6
      Rev. Proc. 2003-61, 2003-2 C.B. 296, which supersedes Rev.
Proc. 2000-15, 2000-1 C.B. 447, is effective for requests for
relief filed on or after Nov. 1, 2003, or requests for relief
pending on Nov. 1, 2003, for which no preliminary determination
letter has been issued as of that date. Petitioner’s request for
relief was submitted on July 7, 2003, and a preliminary
determination letter was issued on Oct. 3, 2003. Accordingly,
the guidelines found in Rev. Proc. 

, are applicable
in this case.
                               - 11 -

joint return will ordinarily be granted by the Commissioner if

all three of the following criteria are met:   (1) The requesting

spouse is divorced, is legally separated, or has been physically

separated for 1 year from the nonrequesting spouse at the time

relief is requested; (2) the requesting spouse did not know or

have reason to know that the income tax liability would not be

paid at the time the joint return was signed; and (3) the

requesting spouse will, absent relief, suffer economic hardship.

     Although she was divorced from her husband at the time

relief was requested, petitioner was aware that the income tax

liability for taxable year 2000 would not be paid at the time she

signed the return.   Petitioner admitted at trial that, even had

she reviewed the return and discovered the underpayment, she and

her former spouse did not have the funds to pay the tax

liability.   Additionally, in her Form 12510, petitioner indicated

that there were no funds available to pay the tax at the time of

filing because she and her former spouse were having financial

problems at that time and had difficulty paying monthly living

expenses.    Because petitioner knew that the income tax liability

would not be paid at the time the return was signed, there was no

abuse of discretion in denying her relief from the underpayment

pursuant to Rev. Proc. 2000-15, sec. 4.02.

     Rev. Proc. 2000-15, sec 4.03, 2000-1 C.B. at 448, provides

factors to be evaluated for requests for relief under section
                              - 12 -

6015 for requesting spouses who filed a joint return and do not

qualify for relief under Rev. Proc. 2000-15, sec. 4.02.   Rev.

Proc. 2000-15, sec. 4.03(a), offers a partial list of positive

factors to be considered, including:   (1) Marital status; (2)

economic hardship; (3) abuse; (4) no knowledge or reason to know

that the reported liability would not be paid or of the items

giving rise to the deficiency; (5) whether the nonrequesting

spouse had a legal obligation to pay the liability; and (6)

whether the liability for which relief is sought is solely

attributable to the nonrequesting spouse.   Negative factors

weighing against granting equitable relief are found in Rev.

Proc. 2000-15, sec. 4.03(2), 2000-1 C.B. at 449, and they

include:   (1) The unpaid liability or item giving rise to the

deficiency is attributable to the requesting spouse; (2) the

requesting spouse knew or had reason to know that the reported

liability would be unpaid at the time of signing or knew or had

reason to know of the item giving rise to the deficiency; (3) the

requesting spouse benefited significantly from the unpaid

liability or items giving rise to the deficiency; (4) the

requesting spouse will not experience economic hardship if relief

is not granted; (5) the requesting spouse has not made a good

faith attempt to comply with the tax laws in subsequent years;

and (6) the requesting spouse has a legal obligation to pay the

deficiency.   The Court considers these factors in determining
                               - 13 -

whether respondent abused his discretion in denying equitable

relief under section 6015(f) for the underpayment or the

deficiency.    Although petitioner’s marital status and the fact

that the liability for which relief is sought is attributable to

Mr. Lathrop’s items of income weigh in favor of granting relief,

the Court is unconvinced that it would be inequitable to deny

petitioner relief under section 6015(f).

       For a taxpayer who seeks relief from an underpayment of

income tax due, Rev. Proc. 2000-15, sec. 4.03(2)(b), questions

whether the requesting spouse knew or had reason to know that the

income tax liability would not be paid by the nonrequesting

spouse.    As previously noted, petitioner admitted at trial and on

her Form 12510 that she and her former spouse were experiencing

financial difficulties and knew that they were unable to pay the

reported tax liability at the time the return was signed.

Petitioner’s knowledge that the reported liability would not be

paid when the return was signed weighs heavily against granting

her relief.    Rev. Proc. 2000-15, sec. 4.03(2)(b), 2000-1 C.B.

449.

       In the case of an income tax liability that arises from a

deficiency, a finding that the requesting spouse knew or had

reason to know of the item giving rise to the deficiency is an

extremely strong factor weighing against relief.

establish that she did not know and had no reason
                              - 14 -

to know about Mr. Lathrop’s unemployment compensation or

nonemployee compensation for the year at issue.

     As discussed earlier, petitioner had actual knowledge of Mr.

Lathrop’s unemployment and nonemployee compensation.

Petitioner’s actual knowledge is a strong factor weighing against

relief, which can be overcome only if the factors in favor of

equitable relief are particularly compelling.

     Petitioner contends in her petition to this Court that she

would experience economic hardship if she were forced to pay the

tax liability for the year at issue.    A taxpayer might experience

economic hardship if he or she were unable to pay basic

reasonable living expenses.   Sec. 301.6343-1(b)(4)(i), Proced. &

Admin. Regs.   It is the taxpayer’s burden to show both that the

expenses qualify and that they are reasonable.     Monsour v.

Commissioner, T.C. Memo. 2004-190.     Despite her assertion that

paying the tax liability would cause her to experience economic

hardship, petitioner provided no evidence at trial that she would

be unable to pay basic living expenses if she were held liable

for the deficiency.   The Court fails to see, and petitioner has

not established, that she would suffer economic hardship if her

request for relief from joint liability were denied.    This factor

weighs against granting petitioner relief.

     On the basis of the facts and circumstances in this case,

including the factors set forth in Rev. Proc. 

, the
                             - 15 -

Court concludes that there was no abuse of discretion by

respondent in denying petitioner’s request for equitable relief

under section 6015(f) for the underpayment or the deficiency.     To

the extent not addressed herein, other considerations are without

merit or unnecessary to reach.   The Court, therefore, sustains

respondent’s determination that petitioner is not entitled to

relief from joint and several liability pursuant to section

6015(b), (c), or (f).

     Reviewed and adopted as the report of the Small Tax Case

Division.



                                         Decision will be entered

                                    for respondent.