T.C. Memo. 2007-102



                      UNITED STATES TAX COURT



          JEFFREY CHOU AND CINDY CHOU, Petitioners v.
          COMMISSIONER OF INTERNAL REVENUE, Respondent



     Docket No. 19015-05L.                 Filed April 25, 2007.



     Robert L. Sommers, for petitioners.

     Alvah Lavar Taylor, for petitioner Cindy Chou.

     Jonathan A. Neumann and Shannon Edelstone, for respondent.



             MEMORANDUM FINDINGS OF FACT AND OPINION


     COHEN, Judge:   This action was commenced in response to

Notices of Determination Concerning Collection Action(s) Under

Section 6320 and/or 6330.    The issues for decision are

(1) whether the Court should determine petitioners’ tax liability

for 2001 after that liability has been conceded by respondent and
                               - 2 -

respondent has abated an assessment based on petitioners’ amended

return for 2001 and (2) whether petitioner Cindy Chou (Mrs. Chou)

qualifies for relief under section 6015(f).   Unless otherwise

indicated, all section references are to the Internal Revenue

Code.

     These issues arise in the context of a frequently occurring

factual situation involving the alternative minimum tax (AMT) on

incentive stock options (ISOs) exercised in 2000, followed by a

drop in the value of the shares, a claim by the taxpayer that the

taxable event occurred in a later year when the value of the

shares was lower, and attempts to avoid or compromise the

outstanding AMT liability.

                         FINDINGS OF FACT

     Some of the facts have been stipulated, and the stipulated

facts are incorporated in our findings by this reference.

Petitioners resided in California at the time that their petition

was filed.

     Petitioners have been married at all times since 1996.    They

have two children, the older of whom was born on August 1, 2000.

Mrs. Chou graduated from the University of Texas with a degree in

radio, television, and film and studied interior decorating after

college.   Mrs. Chou has a small interior design business, but she

is mainly a stay-at-home mother for petitioners’ two children.
                                 - 3 -

Petitioner Jeffrey Chou (Mr. Chou) has never abused Mrs. Chou at

any time.

     In 1996, Mr. Chou began employment as a hardware engineer

for Granite Systems (Granite).    As part of his employment

package, Mr. Chou received 80,000 ISOs with an exercise price of

$0.05 per share.    The ISOs vested over a 4-year period.   Several

weeks after Mr. Chou began his employment, Granite merged with

Cisco Systems (Cisco).    Cisco converted Mr. Chou’s Granite ISOs

into Cisco ISOs, and, through stock splits, Mr. Chou’s ISOs grew

to approximately 153,000 over the next several years.     Mr. Chou

received the Cisco ISOs in connection with his status as a Cisco

employee.

     In 2000, Mr. Chou exercised 106,560 of his Cisco ISOs when

the fair market value of the Cisco stock had an average price of

$64.69 per share.    Mr. Chou did not sell any of the Cisco shares

acquired by him through the exercise of the ISOs during 2000.      By

the end of 2000, the price per share of Cisco stock was

approximately $40.

     In March 2001, petitioners had their tax return prepared and

were told that they owed $1,962,365 in tentative AMT because of

the exercise of Mr. Chou’s stock options.     By April 2001, the

price per share of Cisco stock was $17.64.

     Petitioners filed a joint Form 1040, U.S. Individual Income

Tax Return, for 2000 in April 2001.      On the line for “amount you
                                - 4 -

owe”, the sum of $1,928,732 was reported.    Mrs. Chou’s signature

on the return appeared approximately 1-1/2 inches below the line

for “amount you owe”.    Her occupation was shown as interior

designer.

     On November 19, 2001, petitioners filed an offer-in-

compromise (OIC) on “Doubt as to Liability” for 2000, citing

pending Federal legislation.    On December 6, 2001, while their

OIC was pending, the Internal Revenue Service sent them a notice

of intent to levy for 2000.    They ultimately withdrew their OIC

for 2000 based on “Doubt as to Liability”, and, on February 4,

2002, submitted an OIC based on “Effective Tax Administration”

or, in the alternative, “Doubt as to Liability with Special

Circumstances”.   Their OIC was rejected on August 26, 2002, and

petitioners sought review by the Appeals Office.    On March 20,

2003, the Appeals Office sustained rejection of the OIC for 2000.

Petitioners sought judicial review of that rejection more than

30 days after the offer was rejected.

     Petitioners’ Federal income tax return for 2001 was timely

filed in April 2002.    On or about July 20, 2003, petitioners

filed joint amended returns for 2000 and 2001, claiming that the

transaction involving the Cisco shares originally reported on

their 2000 tax return should have been reported in 2001.

Petitioners explained their position as follows:

          Taxpayers amend their 2001 personal income tax
     return to report their * * * [AMT] preference in tax
                                 - 5 -

     year 2001 instead of tax year 2000. Taxpayers received
     stock pursuant to IRC Sec. 422 through the exercise of
     an * * * [ISO] in tax year 2000, and initially treated
     the stock as an AMT preference item in tax year 2000.
     However, the stock contained a substantial restriction
     of forfeiture under IRC Sec. 83(c)(1); therefore, the
     stock vested for AMT preference purposes when the
     restriction lapsed in tax year 2001. Taxpayers have
     filed an amended return for 2000 reflecting this
     change.

                   *    *    *    *      *   *    *

          In taxpayers’ case, they exercised an ISO under
     IRC Sec. 422. To qualify for the capital gain benefits
     provided by the statute, taxpayers were required to
     hold the stock for at least 12 months. This 12-month
     restriction constitutes a substantial risk of
     forfeiture since rights in property were conditioned
     upon the occurrence of a specified event (the 12-month
     holding period) related to the transfer, and the
     failure to hold the stock for 12 months causes a
     substantial forfeiture (the loss of capital gain
     benefits under IRC Sec. 422).

          When stock is subject to a substantial risk of
     forfeiture as defined in IRC Sec. 83, the date for the
     calculation of the AMT preference and for inclusion
     thereof in AMT is the date the restrictions lapse. The
     12-month restriction lapsed in 2001 and the value of
     the stock on the date the restriction lapsed will be
     used for AMT purposes.

     The liability shown on petitioners’ 2000 return filed in

April 2001 was assessed based on petitioners’ reporting.    The IRS

accepted petitioners’ amended return for 2001 and made a second

assessment against petitioners in the amount of $578,052 on

September 29, 2003.    The IRS did not accept petitioners’ amended

return for 2000.   On November 10, 2003, the IRS sent petitioners

a Notice of Intent to Levy for 2001.     On the same date, the IRS

sent petitioners a collection letter showing the unpaid balance
                                - 6 -

of petitioners’ liability for 2000 to be $2,703,152.90.    On

November 13, 2003, the IRS sent petitioners a Notice of Federal

Tax Lien for 2001.

     On December 4, 2003, petitioners filed a Request for a

Collection Due Process Hearing for 2000 and 2001 in response to

the Notice of Intent to Levy.   On December 16, 2003, petitioners

filed a Request for a Collection Due Process Hearing for 2000 and

2001 in response to the Notice of Federal Tax Lien.

     On April 8, 2004, petitioners filed a refund action for 2001

in the U.S. District Court for the Northern District of

California.   On July 6, 2004, the District Court action was

dismissed for lack of subject matter jurisdiction.    The dismissal

was appealed to the U.S. Court of Appeals for the Ninth Circuit,

but the appeal was dismissed on November 23, 2005.

     On April 9, 2004, the IRS notified petitioners that their

amended return for 2000 was being audited.   On May 13, 2004,

respondent’s Appeals Office sent a Decision Letter Concerning

Equivalent Hearing to petitioners regarding their tax liability

for 2000.   An equivalency hearing had been conducted because no

request for a hearing was filed within the 30-day period

prescribed by section 6320 and/or 6330 with respect to

petitioners’ liability for 2000.   In the decision letter, a

Notice of Intent to Levy dated December 6, 2001, was not

sustained because petitioners’ OIC was pending at the time that
                                 - 7 -

the levy notice was issued.   No Notice of Determination

Concerning Collection Action(s) Under Section 6320 and/or 6330

for 2000 has ever been issued.

     In an OIC submitted with respect to the requested section

6330 hearing and signed by each petitioner on July 27, 2004, it

was represented:   “In March, 2001, Jeff and Cindy had their tax

returns prepared and were told that they owed $1,962,365 in

tentative AMT because of the exercise of his stock options.”

     On January 31, 2005, Mrs. Chou filed a Form 8857, Request

for Innocent Spouse Relief, for 2000 and 2001.   The letter

submitting Mrs. Chou’s claims stated that the claim was being

submitted as part of petitioners’ section 6330 hearing for 2001.

The request asserted:   “If Jeff and Cindy’s OIC is not granted,

then Cindy’s claim for innocent spouse relief should be granted

as to her since she did not cause the AMT liability and received

no economic benefit from Jeff’s exercise of his Cisco ISOs.”    No

representation was made in the Form 8857 concerning Mrs. Chou’s

knowledge of the tax due for 2000 at the time the return was

filed.

     Appeals Officer Lawrence Dorr (Dorr) was assigned

petitioners’ OIC, the proposed levy and lien actions with respect

to collection of petitioners’ reported liability for 2001, and

Mrs. Chou’s section 6015(f) relief claim.   On July 27, 2005,

responding to an inquiry from Dorr about her thoughts regarding
                                 - 8 -

the payment of tax when she signed the 2000 tax return,

petitioners submitted a handwritten statement from her as

follows:

          At the time I signed the 2000 tax return, it was
     my understanding that my husband would take care of
     paying the taxes since the increase in our taxes was
     the result of employee stock options occurring in his
     separate stock account. I did not receive any
     brokerage statements for this account and did not know
     the amount of funds in this account. Ever since we’ve
     been married, my husband has always taken care of all
     our tax filings and at the time I signed the 2000 tax
     return, I had no reason to believe otherwise.

The transmittal letter by Mrs. Chou’s counsel noted that the

knowledge factor “is just one of several factors to be considered

and is not a conclusive factor.”

     The section 6015(f) claim, in accordance with IRS procedure,

was sent to a centralized unit in Cincinnati, Ohio.     The file

relating to the section 6015(f) claim was then transmitted from

Cincinnati to Oakland, California, but was lost in transit.     In

order to consider Mrs. Chou’s claim, Dorr recreated the file

relating to that claim.    In recreating the file, Dorr failed to

maintain a complete case activity record and did not prepare any

document supporting his determination with respect to Mrs. Chou’s

section 6015(f) claim.    The file that has been stipulated as the

“administrative record” in this case omitted at least four other

items that should have been included in the administrative

record.    Those items are:   (1) A true and complete copy of the

Notice of Intent to Levy dated November 10, 2003, and the Letter
                              - 9 -

3174(P) dated November 10, 2003; (2) a true and complete copy of

a Request for a Collection Due Process Hearing for 2000 and 2001

that petitioners filed on December 4, 2003, in response to the

Notice of Intent to Levy issued by the IRS on November 10, 2003;

(3) a letter sent by petitioners’ counsel Robert L. Sommers

(Sommers) to Appeals Officer Dorr on May 4, 2005; and (4) a

letter sent by Sommers to Appeals Officer Dorr on July 27, 2005.

     On September 13, 2005, the Appeals Office sent to

petitioners Notices of Determination Concerning Collection

Action(s) under Section 6320 and/or 6330 with respect to 2001.

Those notices contained an explanation, in relevant part, as

follows:

     Your representative has advanced several arguments for
     applying the * * * [AMT] on the exercise of the stock
     options at issue in 2001 rather than 2000.

     The first argument is that the exercise of the options
     was restricted in such a way as to subject you to a
     “substantial risk of forfeiture”.

     The “restriction” cited by your representative is the
     provision of IRC Section 422 that provides for capital
     gain treatment on the sale of stock held for at least
     twelve months. Your representative refers to this as
     “the required 12-month holding period” and argues that
     your rights in the stock were conditioned on the
     12-month holding period. Your representative cites
     Prentice I. Robinson, CA-1, 86-2 USTC 9790. In that
     case the Court held that the petitioner did not own
     transferable rights to stock acquired from his employer
     for the first year after receipt of the stock.
     However, that decision was based on a specific sell-
     back agreement requiring that the petitioner sell his
     shares back to the corporation at the original cost if
     he wished to dispose of them in less than one year.
     That agreement created a “substantial risk of
                        - 10 -

forfeiture” and rendered the stock non-transferable for
one year on its own terms, not because of Section 422.
No such agreement exists in the present case. When you
acquired the stock in early 2000 it was acquired
without restriction.

The provisions of IRC Section 422 impose no restriction
on the sale of stock. They do provide favorable tax
treatment if the stock is held for one year. While
this might have disadvantaged you for tax purposes had
you sold the stock before holding it for a year, it in
no way restricted your ability to sell or otherwise
dispose of the stock at any point.

Your representative also argues that the Service has a
“duty of consistency” which requires that it treat the
options as subject to * * * [AMT] in 2001, not 2000.
In support of that he cites Estate of Hilda Ashman,
CA-9, * * * [2000-2] USTC 50,806. In short, that case
states that a taxpayer cannot take a position which is
to his advantage in one year and then take an opposite
position after that year is barred by the statute of
limitations. The statutes for both 2000 and 2001 are
still open by virtue of your claim for refund. In
Orange Securities Corp., CA-5, 42-2 USTC 9735, the
Court held that there is a “duty of consistency on both
the taxpayer and the Commissioner”.

You originally filed your 2000 return and reported the
* * * [AMT] for that year. The Service accepted that
return. When you filed amended returns for both 2000
and 2001 to shift the * * * [AMT] to the later year the
Service accepted the amended return for 2001 but not
the one for 2000. Thus you found yourselves assessed
very substantial * * * [AMT] for both years for the
same underlying exercise of stock options. Your
representative argues that since the Service accepted
the amended return for 2001 and assessed the * * *
[AMT] shown thereon, it must–-to be consistent–-accept
the amended return for 2000 and abate the AMT for that
year.

The Service has not taken inconsistent positions. It
has consistently argued that the liability attaches to
2000. Further, the Service has taken the position that
the resolution of the inconsistency can be achieved by
simply abating the AMT for 2001. This is the position
taken by the Revenue Agent in the examination of the
                             - 11 -

     amended returns. Your claim for refund is under
     consideration in Appeals and will be submitted
     sustaining the application of the AMT in 2000 and
     proposing abatement of the AMT for 2001.

     Incentive stock options were issued to you by Cisco
     Systems as part of your compensation for services. You
     exercised the options in 2000 and 106,560 shares of
     Cisco stock were transferred to you unconditionally and
     without restriction. The * * * [AMT] liability
     produced by these transactions attaches to the year
     2000.

The lien notice stated:

     Addressing Efficient Collection with Concern Over the
     Intrusiveness of Collection

     Internal Revenue Manual 5.12.1.13 provides for the
     filing of a Notice of Federal Tax Lien for balances due
     of over $5,000.00.

     The lien is intrusive but it is appropriate in this
     instance to protect the government’s interest. You
     have made no payments toward either 2000 or 2001 and
     there is no indication that the liability for 2000 will
     be paid voluntarily. In terms of alternatives to
     collection, you have filed an * * * [OIC] based on
     doubt as to liability, doubt as to collectibility, and
     effective tax administration. That offer is being
     rejected on all three grounds. It is the Service’s
     position that ultimately there will be no AMT liability
     for 2001. However, until the issue is finally decided
     in the various venues to which you have turned for
     relief the lien continues to be appropriate.

The levy notice stated:

     Addressing Efficient Collection with Concern Over the
     Intrusiveness of Collection

     IRC Section 6330(c)(3)(C) requires that the
     determination by an Appeals Officer under this
     subsection shall take into consideration whether any
     proposed collection action balances the needs for the
     efficient collection of taxes with the legitimate
     concern of the taxpayer that any collection action be
     no more intrusive than necessary.
                              - 12 -

     The levy is intrusive but it is appropriate in this
     instance to protect the government’s interest. You
     have made no payments toward either 2000 or 2001 and
     there is no indication that the liability for 2000 will
     be paid voluntarily. In terms of alternatives to
     collection, you have filed an * * * [OIC] based on
     doubt as to liability, doubt as to collectibility, and
     effective tax administration. That offer is being
     rejected on all three grounds. It is the Service’s
     position that ultimately there will be no AMT liability
     for 2001. However, until the issue is finally decided
     in the various venues to which you have turned for
     relief the levy notice continues to be appropriate.

     On September 29, 2005, the IRS Appeals Office sent Mrs. Chou

a Notice of Determination Concerning Your Request for Relief

under the Equitable Relief Provision of Section 6015(f) that

denied Mrs. Chou’s request for innocent spouse relief for 2000

and 2001.   The notice simply stated, in relevant part:

     We’ve determined that, for the above tax year(s), we:

        -   cannot allow your request.

No further explanation was given.    No further explanation was

placed in the administrative file.

     By notice served March 24, 2006, this case was set for trial

in San Francisco, California, on August 28, 2006.    On July 24,

2006, respondent filed a motion for continuance of trial,

representing, in part:

          5. Respondent concedes that the determination set
     forth in the Notice of Determination Concerning
     Collection Action(s) under Section 6320 and/or 6330
     issued to petitioners on September 13, 2005, for
     petitioners’ income tax liability for the taxable year
     2001 will not be sustained.
                              - 13 -

          6. On July 19, 2006, respondent’s Appeals Officer
     requested a full abatement of the entire tax liability
     assessed against petitioners for the taxable year 2001.

          7. Petitioner Cindy Chou’s claim for relief from
     joint and several liability under I.R.C. sec. 6015(f)
     for the taxable year 2001 is moot, as respondent has
     requested an abatement of all tax owed by petitioners
     for the taxable year 2001.

          8. The only issue remaining in this case concerns
     whether Petitioner Cindy Chou is entitled to relief
     from joint and several liability under I.R.C. sec.
     6015(f) for the taxable year 2000.

          9. Because a Notice of Determination was not
     issued for a Collection Due Process appeal with respect
     to the taxable year 2000, I.R.C. secs. 6320 and 6330 do
     not provide the Court with jurisdiction to hear an
     appeal of Petitioner Cindy Chou’s claim for relief
     under I.R.C. sec. 6015(f) for the taxable year 2000.
     Thus, the only basis for the Tax Court to review
     respondent’s section 6015(f) determination in this case
     is section 6015(e).

Respondent’s motion for continuance was based on then-outstanding

caselaw to the effect that the Court would not have jurisdiction

to hear Mrs. Chou’s section 6015(f) claim because no deficiency

had been determined.   (Respondent now concedes jurisdiction over

that issue based on subsequently enacted legislation, as

discussed below.)

     Petitioners objected to respondent’s motion for continuance.

Petitioners also objected to respondent’s abatement of the

assessment for 2001, accusing respondent of attempting to deprive

the Court of jurisdiction over that year.   Respondent’s motion

for continuance was denied.
                               - 14 -

                               OPINION

     This is an unusual case, in which petitioners insist that we

should reject respondent’s concession that they owe no tax

liability for 2001, that the assessment based on petitioners’

amended return for that year will be abated, and that no

collection action will be taken with respect to that assessment.

Petitioners ask the Court to determine that they owe tax of

$578,052 for 2001.    Petitioners’ obvious purpose is to have the

Court determine that they do not owe the tax that they originally

reported for 2000, a question that is not properly before the

Court in this case.

     The parties were able to cooperate with respect to a fairly

complete stipulation, but not otherwise.   Petitioners’ rhetoric

includes irresponsible accusations against respondent, and

respondent unnecessarily attacks the credibility of petitioners’

testimony, even after the Court commented at trial that their

testimony was credible.   We do not condone or address at length

such overzealous advocacy and meritless arguments.   Lack of

objectivity serves no purpose other than unreasonably to protract

these proceedings.    For the reasons set forth below, we conclude

that there is only one issue properly before the Court, and that

is Mrs. Chou’s entitlement to relief under section 6015(f) for

2000.
                               - 15 -

Section 6330 and Liability for 2001

     Our jurisdiction in this case is predicated upon section

6330(d)(1)(A), which gives the Tax Court jurisdiction “with

respect to such matter” as set forth in the determination of the

Appeals Office.    Greene-Thapedi v. Commissioner, 

, 6

(2006); Freije v. Commissioner, 

, 25 (2005).

     Petitioners originally reported almost $2 million in AMT

liability for 2000 as a result of Mr. Chou’s exercise of his

Cisco options.    Stunned by the consequence and unable to secure

relief through an OIC, petitioners then filed amended returns

claiming that the liability should have been reported in 2001,

when it would be substantially lower because of the reduced value

of the stock.    Petitioners now contend that, by assessing the tax

based on their amended 2001 return, the IRS “accepted” their

position and is required, by the “duty of consistency”, to abate

the liability for 2000.

     In their amended returns, in their OIC, and in their briefs,

petitioners assert that the capital gains holding period under

section 422 renders the stock that they acquired through exercise

of Cisco ISOs nontransferable for 12 months without “forfeiture”

of the favorable tax rates on capital gains.   Their argument

cites section 83(a), which deals with the time for recognizing

income from property transferred in connection with the

performance of services.   This “risk of forfeiture” argument is
                               - 16 -

untenable, because that term applies to a condition that renders

a taxpayer’s beneficial ownership of stock subject to

termination.   See Kadillak v. Commissioner, 

(2006);

Montgomery v. Commissioner, 

(2006); Spitz v.

Commissioner, T.C. Memo. 2006-168; Racine v. Commissioner, T.C.

Memo. 2006-162; Facq v. Commissioner, T.C. Memo. 2006-111; Merlo

v. Commissioner, T.C. Memo. 2005-178; see also United States v.

Tuff, 

(9th Cir. 2006); Guzak v. United States, 

, 311 (2007).   Mr. Chou testified:   “I exercised

because I could, the stock was vested and I just happened to not

sell.”   There is neither logic nor authority supporting the

argument that consideration of tax consequences is a risk of

forfeiture within the meaning of section 83(a).    There is no

evidence of any nontax reason for Mr. Chou not to sell the stock

that he acquired in 2000.

     Petitioners raise a series of arguments that they are

entitled to a windfall as a result of the assessment, now abated,

for 2001.   (They accuse respondent of “gamesmanship”, apparently

believing that the best defense is a strong offense.)    We cannot

conclude that the abatement and concession should be rejected.

Respondent’s position, as set forth in detail in the

September 13, 2005, notices of determination quoted at length

above, was not unreasonable.   Assuming that the 2001 tax

liability should have been abated earlier, however, and
                                 - 17 -

paraphrasing Justice Frankfurter, we believe that wisdom comes

too seldom, and it should not be rejected merely because it comes

late.     (“Wisdom too often never comes, and so one ought not to

reject it merely because it comes late.”       Henslee v. Union

Planters Natl. Bank & Trust Co., 

, 600 (1949)

(Frankfurter, J., dissenting).)

        Respondent contends that the concession and abatement with

respect to 2001 render petitioners’ claims with respect to that

year moot.     We agree.   Our jurisdiction under section 6330 is

generally limited to reviewing whether a proposed lien or levy

action is proper.     Once respondent concedes that there is no

unpaid liability for the year in dispute upon which a lien or

levy could be based, the case is moot.       Greene-Thapedi v.

Commissioner, supra at 7; Gerakios v. Commissioner, T.C. Memo.

2004-203; Chocallo v. Commissioner, T.C. Memo. 2004-152.         We need

say no more about the issue for 2001.

Section 6015(f)

        Generally, spouses filing joint Federal income tax returns

are jointly and severally liable for the taxes due on those

returns.     Sec. 6013(d)(3).   Section 6015 provides relief from

liability in certain circumstances.       Because the relief sought in

this case is from a liability shown on petitioners’ original 2000

return and assessed based on that return, only section 6015(f) is
                              - 18 -

applicable.   See Washington v. Commissioner, 

, 147

(2003).

     At the time of the motion to continue, respondent’s position

was that Commissioner v. Ewing, 

(9th Cir. 2006),

revg. 

(2002) and vacating 

(2004), was

controlling in this case.   In that case, the Court of Appeals

held that the Tax Court did not have jurisdiction to hear cases

involving relief under section 6015(f) where there was no

determination of a deficiency.    Respondent now concedes, however,

that the Tax Relief and Health Care Act of 2006, Pub. L. 109-432,

120 Stat. 2922, which amended section 6015(e), confers the

necessary jurisdiction with respect to Mrs. Chou’s claim for

relief for the year 2000.   Respondent contends, and we agree,

that her claim for 2001 is moot for the reasons discussed above.

     The testimony of petitioners at trial with respect to the

allocation of household responsibilities between them was brief

and was credible.   It was credible because petitioners did not

make the improbable claims that now appear in the briefs authored

by their counsel, as discussed below.

     Respondent asserts that we should disregard the testimony of

petitioners because we should consider only the “administrative

record” in deciding whether it was an abuse of discretion to deny

the relief sought by Mrs. Chou.   Respondent acknowledges that

this Court has held that the determination to deny relief under
                              - 19 -

section 6015(f) is subject to de novo review by the Court, but

relies on our opinion as having been vacated on jurisdictional

grounds.   See Ewing v. Commissioner, 

, 38-39 (2004),

revd. in part and vacated in part on jurisdictional issue

Commissioner v. Ewing, 

(9th Cir. 2006).     Though we

may have occasion in the future to reconsider the Court’s

approach to these cases, as explained in Ewing v. Commissioner,

(2004), and applied in numerous other cases, we do

not do so here.   Respondent found it necessary to call Dorr to

explain his reasons for rejecting Mrs. Chou’s claim, because his

reasons were not anywhere in the administrative record.

Respondent stipulated that at least four other documents that

should have been included in the administrative record were not.

The administrative record had to be “recreated” by Dorr because

the parts relating to Mrs. Chou’s claim were lost in transmittal

between IRS offices.   The testimony at trial will be considered

in determining whether Mrs. Chou is entitled to relief.

     As directed by section 6015(f), the Commissioner has

prescribed guidelines under which a taxpayer may qualify for

equitable relief from liability on a joint return.   See Rev.

Proc. 2003-61, 2003-2 C.B. 296.   Rev. Proc. 2003-61, sec. 4.02,

2003-2 C.B. at 298, provides in relevant part that relief

ordinarily will be granted if three criteria are met.   The first

criterion, that the requesting spouse is no longer married to or
                             - 20 -

is legally separated from the nonrequesting spouse, or is not a

member of the same household at anytime during the 12 months

prior to the request for relief, is not satisfied in this case.

The other two criteria are in dispute.    They are (1) whether, on

the date the requesting spouse signed the joint return, she had

no knowledge or reason to know that the nonrequesting spouse

would not pay the income tax liability and (2) that the

requesting spouse would suffer economic hardship if relief is not

granted.

     Rev. Proc. 2003-61, sec. 4.03, 2003-2 C.B. at 298-299,

provides a nonexclusive list of factors that may be considered in

determining whether, taking into account all of the facts and

circumstances, it would be inequitable to hold a taxpayer such as

Mrs. Chou liable for any part or all of the unpaid liability.   No

single factor is determinative.   Respondent concedes that

Mrs. Chou has made a good faith effort to comply with the income

tax laws in the years following the years in issue, which is one

of the factors favoring relief.   Respondent argues, however, that

factors weighing against relief in this case include lack of

economic hardship, knowledge or reason to know that the taxes

would not be paid, and significant benefit (beyond normal

support) from the unpaid tax liability.   Respondent asserts that

the remaining factors (that Mrs. Chou was still married to

Mr. Chou, the absence of abuse, and the absence of any mental or
                              - 21 -

physical health condition) are neutral.     Petitioners focus on the

hardship, benefit, knowledge, and health factors.

     Petitioners assert that, before analyzing the above factors,

we must determine whether petitioners actually owe the taxes

reported on their original return for 2000.     We assume that they

do, because, absent compromise, there is no tenable argument that

they do not.   We do not comment on the prospects for compromise.

Both parties, however, rely solely on material submitted in

relation to the OIC in their discussion of financial matters.

Petitioners provided no testimony or direct evidence at trial as

to their basic living expenses or Mr. Chou’s continuing ability

to pay them.   Petitioners’ hardship argument is essentially that,

if all of the assets owned by petitioners were liquidated and

paid towards the unpaid assessment for 2000, petitioners would

still owe more than $1 million.   While this may be an appropriate

analysis with respect to the OIC, it does not establish hardship

in the current record.   See sec. 301.6343-1(b)(4), Proced. &

Admin. Regs. (defining hardship as the inability to pay

reasonable basic living expenses).     So far as the record

reflects, Mr. Chou continues to earn a substantial income and to

provide more than basic support to the family.

     With respect to the significant benefit factor, petitioners

essentially argue that neither petitioner received a benefit from

the unpaid taxes, because the taxes accrued on value that they
                               - 22 -

never received from exercise of the stock options.      The parties

dispute the significance of Mr. Chou’s pledge of the Cisco stock

to support a loan and use of the proceeds of the loan for

purposes other than payment of taxes.      On the record in this

case, we conclude that the benefit factor neither favors nor

precludes relief.

     With regard to health factors, the briefs authored by

petitioners’ counsel repeatedly assert that Mrs. Chou had

recently given birth and was caring for a newborn infant.        Within

the briefs, filed in January and March 2007, the infant is at

various places described as born in “late 2000”, newborn, 6

months old, 8 months old, and 9 months old.      While thus so

careless with the facts on which they rely, the briefs accuse

respondent of “inaccuracies” and “shoddy analysis”.      These

arguments are unsupported, unpersuasive, and inexcusable.

     The briefs frequently assert “the physical and mental

demands on the mother of a newborn infant” as a health issue and

as excusing lack of knowledge of the unpaid liability, but

nothing in the record supports that characterization.      Mrs. Chou

testified that her child was born on August 1, 2000, and the

return was signed in April 2001.    The extent of her testimony

with respect to the “demands” of motherhood was as follows:

          Q [Mrs. Chou’s counsel]       Lot of work taking care
     of an infant?

          A   [Mrs. Chou]   Yes, definitely.
                               - 23 -

We conclude that there are no special mental or physical health

factors in this case.

     Petitioners’ briefs similarly overstate the record with

respect to Mrs. Chou’s lack of knowledge that the taxes would be

paid at the time she signed the return.    Petitioners each

testified that Mr. Chou handled the family’s finances, consulted

with the accountant, and paid for the household expenses.     They

also testified that they did not have any joint checking accounts

or credit cards.    Mrs. Chou’s testimony about her state of mind

at the time that she signed the return was as follows:

          Q [Mrs. Chou’s counsel] Do you remember looking
     at the 2000 return when you signed it, do you remember
     actually signing the 2000 return?

          A [Mrs. Chou] I’m sure I signed it. I don’t
     remember that specific one as different as the–-any
     other particular year.

In relation to the OIC, petitioners had submitted a factual

statement asserting that they learned of the AMT liability in

March 2001.    When she signed the joint income tax return in

April, the amount shown as owing, $1,928,732, appeared

approximately 1-1/2 inches above her signature.    In her

Form 8857, Mrs. Chou did not claim that she did not know of the

liability.    The July 27, 2005, statement that she submitted in

response to Dorr’s inquiry was similarly more cautious and candid

in asserting the state of her knowledge, to the effect that she

was aware of the increased taxes resulting from the stock options
                                - 24 -

but that she assumed that her husband would take care of paying

the taxes.    Mr. Chou testified as follows:

          A [Mr. Chou] I had some clue at the time of AMT
     but the gravity of the situation did not occur to me
     until my tax returns were finalized by my CPA.

          Q [Mrs. Chou’s counsel] Okay, if I use the term
     “AMT-ISO” or “AMT-ISO situation”, it just means a
     shorthand for the alternative minimum tax as caused by
     the exercise of incentive stock options, so you’ll
     understand what I mean by that.

           After this occurred, after your AMT-ISO situation
     occurred, did you engage in any activities regarding
     this?

          A Yes. I engaged in numerous activities. First
     I reported my tax and I went public with my story and I
     started an organization called Reform AMT-dot-org.
     We’re a national grassroots organization. We have over
     2000 members across 48 states.

          And our mission is to appeal to Congress and try
     to fix the law.

          Q    Did you engage in any legislative efforts?

          A Yes. Reform AMT has been heavily involved with
     our Congress representatives and senators in trying to
     introduce bills, and, hopefully, pass bills.

Mr. Chou also testified that he met with the National Taxpayer

Advocate and thereafter filed the OIC.    Apparently, challenging

the liability was the strategy adopted when the return was filed

without even partial payment.

     There is no suggestion by anyone that Mr. Chou ever deceived

Mrs. Chou or concealed anything from her.      Unfortunately, no

party on direct or cross-examination asked Mrs. Chou in detail

about her knowledge of the almost $2 million liability.      We
                                - 25 -

assume that, if she had been asked, she would have been truthful.

In the absence of further explanation, it is improbable that

Mrs. Chou did not know that, rather than paying the tax,

petitioners would be challenging their liability.   She certainly

did not satisfy her well-established duty of inquiry.   See, e.g.,

Albin v. Commissioner, T.C. Memo. 2004-230; Demirjian v.

Commissioner, T.C. Memo. 2004-22 (and cases cited therein).     On

the entire record, we conclude that Mrs. Chou knew or had reason

to know that the tax would not be paid at the time that she

signed the return.   We do not question petitioners’ allocation of

responsibility for family matters between themselves, but they

have not shown that Mrs. Chou should be relieved of their joint

liability on the 2000 return.

     We have reviewed the other arguments of the parties.     They

are without merit, irrelevant, or moot.


                                     An order of dismissal with

                                respect to 2001 and a decision for

                                respondent will be entered.