                           T.C. Memo. 2012-3



                        UNITED STATES TAX COURT



               JAVIER L. GAITAN, Petitioner, AND
                  MONICA GAITAN, Intervenor v.
          COMMISSIONER OF INTERNAL REVENUE, Respondent

          MONICA GAITAN, Petitioner v. COMMISSIONER OF
                   INTERNAL REVENUE, Respondent



     Docket Nos. 19090-09, 21254-09.     Filed January 3, 2012.



     Joseph A. DiRuzzo, III, for Monica Gaitan.

     Javier L. Gaitan, pro se.

     Tracey B. Leibowitz, for respondent.



             MEMORANDUM FINDINGS OF FACT AND OPINION


     MORRISON, Judge:    Javier L. Gaitan and Monica Gaitan filed a

joint income-tax return for 2006.    The Internal Revenue Service

(IRS) issued notices of deficiency determining a deficiency of
                               - 2 -

$40,740 and an accuracy-related penalty of $8,148.    The Gaitans

filed separate Tax Court petitions asking the Court to

redetermine the deficiency and the penalty.   The Court has

jurisdiction to make such a redetermination under section 6213 of

the Internal Revenue Code.   All citations of sections are to the

Internal Revenue Code.   The two cases have now been consolidated.

Both Javier and Monica Gaitan seek relief from joint and several

liability.   The Court has jurisdiction to grant such relief under

section 6015(e).

     For reasons we explain later, we hold that:

•    The Gaitans are not entitled to reduce the gross income from

     their clothing-export business by $134,575 for cost of goods

     sold (part 1(a) of the opinion).

•    The Gaitans are not entitled to deductions for $1,890 in

     car-and-truck expenses and $3,102 in travel expenses

     supposedly related to their clothing-export business (parts

     1(b) and 1(c), respectively).

•    The Gaitans were married to each other as of the end of 2006

     (part 2).

•    Javier Gaitan is entitled to relief under section 6015(c),

     but not under section 6015(b) or (f) (part 3).

•    Monica Gaitan is not entitled to relief under section

     6015(f) (part 4).
                                - 3 -

There are some other issues raised by the notice of deficiency

but these are purely computational.

                          FINDINGS OF FACT

     Javier Gaitan was born in Colombia.     He graduated from high

school in Colombia.

     Monica Gaitan was born in Colombia.     She graduated from high

school in Colombia.    She attended college in Colombia but did not

graduate.

     Monica Gaitan married Esau Correa in Colombia on November

19, 1999.   She had two children with Correa.    She claims that she

divorced Correa on August 15, 2002.     Whether the divorce occurred

is disputed.

     Monica Gaitan married a Cuban named Livannes Chavez in the

United States on September 6, 2002.     While still married to

Chavez, Monica Gaitan met Javier Gaitan in Miami.     She was

divorced from Chavez on July 31, 2003, by order of a Florida

state divorce court.

     Monica Gaitan married Javier Gaitan on August 22, 2003.

They purchased a house on December 15, 2004, in Pembroke Pines,

Florida.    The parties have stipulated that the Gaitans were

married to each other during 2006, which is the tax year at issue

here.   Under the particular circumstances of this case (including

the fact that Javier Gaitan is not represented by a lawyer), we
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do not construe the stipulation to be an agreement that the

Gaitans’ marriage was legally valid.

     The Gaitans lived together during 2006.   Sometime during

2006 the Gaitans established a clothing-export business.     The

business involved buying clothes in the United States without

paying state sales tax and exporting the clothes to Colombia.

Monica Gaitan was the primary person who operated the business,

but Javier Gaitan performed two important functions:

transporting and mailing the clothes.

     During 2006 Javier Gaitan owned and operated a car wash in

Hialeah, Florida.   He had operated the car wash for 25 years.

All business transactions involving the car-wash business were

done in cash.

     In 2006 Monica Gaitan’s children were approximately 8 and 11

years of age.   Javier Gaitan had an adult child of his own.    The

Gaitans did not have any children together.

     The Gaitans filed a joint income-tax return for 2006.     They

attached two Schedules C, Profit or Loss From Business, to the

joint return.

     The first Schedule C was for the clothing-export business.

The Schedule C reported (1) gross receipts of $161,500, reduced

by cost of goods sold of $134,575, (2) a deduction for car-and-

truck expenses of $1,890, and (3) a deduction for meals-and-

entertainment expenses of $192.   The resulting profit was
                               - 5 -

calculated to be $24,843.   The second Schedule C was for the car

wash.   That business’ profit was reported to be $15,156.   The

return was prepared by a tax return preparer, Gabino Pina.

     The Gaitans separated in September 2007.   Monica Gaitan

moved out of their house into a two-bedroom apartment.   On

February 1, 2008, Monica Gaitan filed for divorce from Javier

Gaitan with the Circuit Court of the Eleventh Judicial Circuit

for Miami-Dade County.

     On May 19, 2009, the IRS issued a notice of deficiency to

Javier and Monica Gaitan for the tax year ended December 31,

2006.   The notice of deficiency was sent to Javier Gaitan’s

address, which was the house in Pembroke Pines, Florida.    The

notice of deficiency determined that the Gaitans were not

entitled to the $134,575 amount reported on their return for cost

of goods sold.   The notice of deficiency also disallowed the

$1,890 car-and-truck expense deduction.   As a result of (1) the

adjustments to cost of goods sold and to the car-and-truck

expense deduction, (2) a determination of self-employment tax

resulting from these two adjustments, and (3) computational

adjustments, the notice of deficiency determined that the Gaitans

had a deficiency of $40,740.   The notice of deficiency imposed a

section 6662(a) penalty of $8,148.
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     On June 11, 2009, the IRS issued an identical notice of

deficiency to Javier and Monica Gaitan at her new address in

Sunny Isles Beach, Florida.

     On August 5, 2009, Javier Gaitan filed his petition.      His

petition attached the notice of deficiency issued on May 19,

2009.   At the time he filed the petition, Javier Gaitan resided

in Pembroke Pines, Florida.    The Court assigned his case docket

No. 19090-09.

     Monica Gaitan filed her petition on August 31, 2009, and

later filed an amended petition.    Attached to her petition and

amended petition was the notice of deficiency issued June 11,

2009.   At the time she filed her petition, she resided in Sunny

Isles Beach, Florida.    Monica Gaitan signed her name to the

petition.   She signed her name and Javier Gaitan’s name to the

amended petition.    The Court assigned docket No. 21254-09.    On

November 16, 2009, Monica Gaitan filed a notice of intervention

in docket No. 19090-09, the case filed by Javier Gaitan.

     On November 24, 2009, Javier Gaitan completed a Form 8857,

Request for Innocent Spouse Relief, for the 2006 tax year.      An

IRS workpaper dated December 9, 2009, reflects that the IRS

denied relief to Javier Gaitan.

     On March 10, 2010, Monica Gaitan completed a Form 8857 for

the 2006 tax year.    An IRS workpaper dated April 15, 2010,

reflects that the IRS denied relief to Monica Gaitan.
                                - 7 -

     On March 24, 2010, the Court dismissed Javier Gaitan for

lack of jurisdiction from docket No. 21254-09, the case Monica

Gaitan had filed.

     On April 15, 2010, the Gaitans were divorced by decree of a

Florida court.    The decree dissolved the marriage; but the decree

did not expressly address the question of whether the marriage

was initially valid.

     On August 30, 2010, the Court consolidated the two cases,

docket Nos. 19090-09 and 21254-09, for trial, briefing, and

opinion.

     By the time of trial, Monica Gaitan was known as Monica

Restrepo.    We nonetheless refer to her as Monica Gaitan.

                               OPINION

1.   The Income From the Clothing-Export Business

     In considering a taxpayer’s challenge to a notice of

deficiency, the notice of deficiency is presumed correct.    As a

result, the taxpayer bears the burden of production.    Gatlin v.

Commissioner, 754 F.2d 921, 923-924 (11th Cir. 1985), affg. T.C.

Memo. 1982-489; Cozzi v. Commissioner, 88 T.C. 435, 443-444

(1987).    The burden of production is satisfied if the taxpayer

comes forward with enough evidence to support a finding contrary

to the IRS’s determination.    Estate of Gilford v. Commissioner,

88 T.C. 38, 51 (1987).
                               - 8 -

     The taxpayer also bears the burden of persuasion.    Tax Court

Rule of Practice and Procedure 142(a) (burden of proof is on the

petitioner); Cozzi v. Commissioner, supra at 443-444; Rockwell v.

Commissioner, 512 F.2d 882, 885 (9th Cir. 1975) (the burden of

proof imposed by Tax Court Rule 142(a) is the burden of

persuasion), affg. T.C. Memo. 1972-133.    The burden of persuasion

is satisfied by the preponderance of the evidence.     Estate of

Gilford v. Commissioner, supra at 51.     Section 7491(a)(1) imposes

the burden of persuasion on the IRS if the taxpayer satisfies the

conditions of section 7491(a)(2) and introduces credible evidence

on factual issues relevant to the taxpayer’s liability for a tax

under subtitle A or B of the Internal Revenue Code.    A taxpayer

bears the burden of proving that the conditions in section

7491(a)(2) are satisfied.   Rolfs v. Commissioner, 135 T.C. 471,

483 (2010).   Because the Gaitans have neither contended nor

adduced evidence that they satisfied these conditions, section

7491(a)(1) does not impose the burden of persuasion on the IRS.

Thus, the Gaitans have the burden of persuasion regarding their

entitlement to subtractions for cost of goods sold, for

deductions for car-and-truck expenses, and for deductions for

travel expenses.

     The principle of Cohan v. Commissioner, 39 F.2d 540, 543-544

(2d Cir. 1930), which governs a taxpayer’s entitlement to

deductions, also applies to cost of goods sold.    See Goldsmith v.
                                   - 9 -

Commissioner, 31 T.C. 56, 62 (1958) (applying principles of Cohan

to cost of goods sold).    Under Cohan, if the taxpayer can

establish that a deductible expense has been paid but cannot

substantiate the precise amount, the court may estimate the

amount of the deductible expense.          Cohan v. Commissioner, supra

at 543-544.   There must be some basis for making the estimate.

See Williams v. United States, 245 F.2d 559, 560 (5th Cir. 1957);

Vanicek v. Commissioner, 85 T.C. 731, 742-743 (1985).         In making

the estimate, the Court may resolve uncertainties against the

taxpayer.    Cohan v. Commissioner, supra at 543-544.       This is

because the taxpayer--not the IRS--is at fault if there is not

enough information about the taxpayer’s expenses to accurately

calculate the deduction.     Id.

     a.   Cost of Goods Sold

     Cost of goods sold is the amount that the taxpayer expended

to purchase or construct inventory sold during the year.         See 26

C.F.R. sec. 1.162-3(a); Huffman v. Commissioner, 126 T.C. 322,

324 (2006), affd. 518 F.3d 357 (6th Cir. 2008).         Cost of goods

sold is subtracted from gross receipts in computing gross income.

Beatty v. Commissioner, 106 T.C. 268, 273 (1996).         It is not a

deduction.    Id.   A personal expense is not allowable as cost of

goods sold.   Sec. 262(a); Estate of Briden v. Commissioner, 11

T.C. 1095, 1134 (1948), affd. sub nom. Kirk v. Commissioner, 179

F.2d 619 (1st Cir. 1950).
                              - 10 -

     The Gaitans reported $161,500 of gross receipts and claimed

$134,575 in cost of goods sold on their Schedule C for the

clothing-export business.   The IRS disallowed the subtraction for

the cost of goods sold.   The Gaitans testified that their

clothing-export business consisted of purchasing clothes in the

United States and exporting them to Colombia.

     Monica Gaitan attempted to prove the cost of goods sold

through two types of documentation:    (1) receipts and (2)

statements for her American Express card.    She asserts that

through such evidence she has substantiated $70,275.29 of the

$134,575 originally claimed on the return.

     The receipts, which were marked for identification as

Exhibits 17-P and 25-P, are insufficient for us to estimate the

cost of the clothing purchased for export to Colombia.    There are

four problems with the receipts:

     (1) The receipts do not indicate which purchases of clothing

were for export and which purchases were for the Gaitans’

personal use.

     (2) Many of the receipts submitted by the Gaitans are

illegible.   Examples include receipts on pages 1, 3, 10, 14, and

16 of Exhibit 25-P.

     (3) Many of the receipts do not clearly identify the

purchaser.   Examples include receipts on pages 3, 4, 5, 10, 12,

33, 34, and 37 of Exhibit 17-P.
                               - 11 -

     (4) Some of the receipts show that the purchases were made

for the car-wash business.    There would be double counting of

deductions if the purchases were also deducted on the Schedule C

for the car-wash business.

     Next, Monica Gaitan submitted into evidence American Express

statements.   Monica Gaitan testified that she highlighted the

entries for purchases that were personal, and that she did not

highlight the entries that were business-related purchases.    The

highlighting was done shortly before trial.    The entries that

were not highlighted appear to show that Monica Gaitan purchased

clothing at clothing stores.

     Besides her perfunctory testimony about the highlighting, no

other evidence corroborates that the purchases reflected on the

American Express statements were purchases of business inventory.

In addition, Monica Gaitan did not bring to the trial complete

copies of the statements.    Because some of the statements are

missing from the trial record, there is a possibility that some

of the payments reflected on the American Express statements in

the record were recredited to Monica Gaitan later.

     Because of the lack of evidence corroborating the American

Express statements and because the statements themselves are

incomplete, the American Express statements do not convince us

that Monica Gaitan made business purchases.
                               - 12 -

     The defects in Monica Gaitan’s receipts, American Express

statements, and testimony prevent us from estimating the amount

of cost of goods sold.    She might have compensated for these

defects by introducing evidence about the clothing that she sold.

However, the record shows only that she made two small shipments

of clothes out of the United States: a shipment on June 6, 2006,

of clothes with a reported value of $845; and a shipment on

September 16, 2006, of clothes with a reported value of $450.      We

are not sure of the specific clothes to which these records

correspond, for what purpose the clothes were valued, or who, if

anyone, bought the clothes.    Therefore, the two shipping records

do not help establish an estimate of cost of goods sold.    Under

the circumstances, the Gaitans are entitled to no offset for cost

of goods sold.

     b.   Car-and-Truck Expenses

     In her brief, Monica Gaitan did not address the car-and-

truck deduction claimed on the Schedule C for the clothing-export

business.   Therefore, she is deemed to have conceded that no such

deduction is allowable.    See Petzoldt v. Commissioner, 92 T.C.

661, 683 (1989).   Javier Gaitan did not file a brief.   Under the

circumstances, he too has conceded the deduction.    Furthermore,

the Gaitans presented no evidence at trial concerning how they

computed this deduction.    We hold that the car-and-truck expense

deduction is disallowed.
                                - 13 -

     c.   Travel Expenses

     Monica Gaitan contends that she is entitled to deduct the

cost of trips to (1) Colombia, (2) Orlando, Florida, and (3) New

Jersey.   She claims that the total cost of the three trips is

$3,102.

     If a trip is motivated by both business and personal

reasons, the cost of the trip is deductible only if the primary

purpose of the trip is business.    26 C.F.R. sec. 1.162-2(b)(1).

Monica Gaitan has failed to demonstrate that the primary purpose

of the trips was business.   Her husband and children accompanied

her on some or all of the trips.    Her husband testified that the

trips were primarily vacations.    We conclude that the trips were

primarily personal.   Therefore the Gaitans are not entitled to

the travel-expense deduction.

     d.   Respondent’s Motion To Conform Pleadings to the Evidence
          Presented at Trial

     At trial the IRS moved to conform the pleadings to the

evidence presented at trial that the Gaitans underreported gross

receipts from both the car wash and the clothing-export business.

The IRS does not assert an increased deficiency.   Rather, the IRS

asks that the Court find that the Gaitans had unreported income

to the extent that the Court permits any reductions in their

income for cost of goods sold.    It is unnecessary to rule on the

motion to conform the pleadings to the evidence presented at

trial.    This is because we hold that the Gaitans are not entitled
                               - 14 -

to reduce the gross income of the clothing-export business for

cost of goods sold.

2.   Whether the Gaitans Were Married to Each Other as of the End
     of 2006

     Javier and Monica Gaitan both request relief from joint and

several liability for 2006.   Relief from joint and several

liability is available only if the parties have filed a joint

return.   Raymond v. Commissioner, 119 T.C. 191, 195, 197 (2002).

     A joint return may be filed only by a couple that was

married as of the last day of the tax year.    Sec. 6013(a)

(defining a joint return as that made by a “husband and wife”);

sec. 6013(d)(1)(A) (status as husband and wife of two individuals

having taxable years beginning on the same day is determined as

of the close of the year).    Persons who are not legally married

because of an impediment to a legal marriage on the part of one

party are not entitled to file a joint income-tax return.

Gersten v. Commissioner, 28 T.C 756, 771 (1957), affd. on this

issue and remanded 267 F.2d 195 (9th Cir. 1959).    The marital

status of individuals is determined under the law of the state

where they reside.    Von Tersch v. Commissioner, 47 T.C. 415, 419

(1967).   Accordingly, we must consider the Gaitans’ marital

status under Florida law.

     Under Florida law, a person who has a living spouse and

marries another person is guilty of a third-degree felony.     Fla.

Stat. Ann. sec. 826.01 (West 2006).     A marriage entered into by a
                                - 15 -

person who has a living spouse is void ab initio.    Groover v.

Groover, 383 So. 2d 280, 283 (Fla. Dist. Ct. App. 1980).

     Monica Gaitan married her first husband--Esau Correa--in

Colombia on November 19, 1999.    She claims that she was divorced

from Correa on August 15, 2002.    She then married Livannes Chavez

in Florida--and divorced him.    She then married Javier Gaitan in

Florida on August 22, 2003.    She filed for a divorce from Javier

Gaitan on February 1, 2008, and they were divorced on April 15,

2010.

     Javier Gaitan contends that Monica Gaitan did not divorce

Correa on August 15, 2002, and that his own marriage to her was

therefore void ab initio.    He attempted to introduce documentary

evidence that Monica Gaitan did not divorce Correa, but the

evidence was inadmissible.    Thus, there is no evidence in the

record that the divorce did not occur.

     Furthermore, the IRS contends that the 2010 Florida divorce

decree dissolving the Gaitans’ marriage established that the

Gaitans were validly married before the divorce.    We agree.

     A divorce decree establishes the validity of the marriage

before the divorce for purposes of subsequent disputes between

the two parties to the divorce.    See 24 Am. Jur. 2d, Divorce and

Separation, sec. 393 (2008) (“‘A final decree granting an

absolute divorce also determines conclusively, as between the

parties, that they were legally married prior to the decree.’”
                              - 16 -

(quoting Ashley v. Ashley, 51 So. 2d 239, 243 (Ala. 1951) (“We

think the effect of the divorce decree of December 2, 1918, in

favor of Myrtle Ashley granting a divorce from Lewis J. Ashley,

is controlling as to the parties to that suit that prior to and

at the time the decree was rendered there was a legal marriage

existing between Myrtle and Lewis.”))); Petry v. Petry, 118 P.2d

498, 499 (Cal. Dist. Ct. App. 1941) (“It is well established in

this state that a final decree of divorce conclusively

determines, as between the parties thereto, that they were

legally married”).   As to nonparties, there is a different rule:

the divorce decree establishes only that the married persons are

divorced after the date of the divorce decree.   As the Court of

Appeals of New York explained:

     “as between strangers or between parties and strangers,
     a decree of divorce does not establish the previous
     validity of the marriage, since the res involved and
     adjudicated is the condition of subsequent singleness
     of the parties and not the valid prior existence of
     marital relations between them.” * * *

In re Holmes’ Estate, 52 N.E.2d 424, 429 (N.Y. Ct. App. 1943),

(quoting 2 Freeman on Judgments, sec. 910).   The rules we have

discussed were also summarized by the Supreme Court of Vermont:

     A valid divorce decree is conclusive against the world
     as to the status of the parties as unmarried persons
     from the time of the decree. The divorce decree does
     not, however, establish the facts on which the decree
     is based in any later proceeding involving strangers to
     the divorce action. As to strangers, the divorce
     decree does not establish the existence of a valid
     marriage prior to the decree.
                               - 17 -

In re Estate of Leno, 433 A.2d 260, 262-263 (Vt. 1981) (citations

omitted).   And the Supreme Court of California has stated:

     The weight of authority holds that a decree of divorce
     is a judgment in rem only to the extent that it
     adjudicates the future status of the parties in
     relation to each other. As between parties or privies,
     the decree is res judicata not only of their status
     with relation to each other but also of all issues that
     were litigated or that could have been litigated
     therein.

Rediker v. Rediker, 221 P.2d 1, 4 (Cal. 1950) (citations

omitted).

     In determining the effect of the Florida divorce decree we

must determine which rule to apply:     the rule for parties to the

divorce, or the rule for nonparties.    We believe the rule for

parties controls here.    The purpose of the rule for nonparties,

i.e., the rule that a divorce does not establish the prior

validity of the marriage, is that nonparties should not be bound

by a proceeding in which they did not take part.    Cf. Rediker v.

Rediker, supra at 5 (rights of third parties should not be

“diminished” by giving divorce decree retroactive effect); Ashley

v. Ashley, supra at 243 (a person who is not a party to the

divorce should not be “concluded by the decree of divorce as to

the legal status of the marriage before the divorce”).    Although

the IRS was not a party to the Gaitans’ divorce action, no one

seeks to bind the IRS with the legal effects of the action.     It

is Javier Gaitan who would be bound.    He was a party to the

Florida divorce action.   He had an opportunity then to
                                - 18 -

demonstrate that Monica Gaitan had been married before.       We

conclude that because of his participation in the 2010 Florida

divorce decree, Javier Gaitan is barred from arguing in this

proceeding that Monica Gaitan’s divorce from her first husband

was invalid.

     For the purposes of this proceeding, Monica Gaitan’s

marriage to Javier Gaitan was valid until they were divorced in

2010.

3.   Whether Javier Gaitan Is Entitled to Innocent-Spouse Relief
     Under Section 6015(b), (c), or (f)

        In general, spouses who file a joint federal income-tax

return are jointly and severally liable for the full amount of

the tax liability shown or required to be shown on the return.

See sec. 6013(d)(3); Butler v. Commissioner, 114 T.C 276, 282

(2000).     Section 6015 provides three types of relief from joint

liability:     relief under subsection(b), subsection (c), and

subsection (f).     In judicial proceedings to determine whether an

individual is entitled to section-6015 relief, the individual

seeking relief generally bears the burden of proof.     See Tax

Court Rule 142(a); Alt v. Commissioner, 119 T.C. 306, 311 (2002),

affd. 101 Fed. Appx. 34 (6th Cir. 2004).     This Court has

jurisdiction to determine whether a taxpayer is entitled to

relief, sec. 6015(e), and applies de novo scope and standard of

review, Porter v. Commissioner, 132 T.C. 203, 210 (2009) (de novo

standard of review; de novo scope of review).
                                - 19 -

     a.   Section 6015(b)

     The first requirement for relief under section 6015(b) is

that a joint return was filed.    Sec. 6015(b)(1)(A).   A joint

return was filed.

     The second requirement is that there must be an

understatement of tax that is attributable to erroneous items of

the other individual filing the joint return.    Sec.

6015(b)(1)(B).    The understatement on the 2006 return related to

the clothing-export business.    Javier Gaitan was involved in the

clothing-export business.    He transported and mailed clothes.

The erroneous cost-of-goods-sold amount and the erroneous car-

and-truck expense deduction are therefore not items solely of his

spouse.   See Olson v. Commissioner, T.C. Memo. 2009-294 (income

from collaborative enterprise was not an item of one spouse).

They are items of both Javier Gaitan and Monica Gaitan.

     Because Javier Gaitan fails at least one of the requirements

for section 6015(b) relief, he is not eligible for section

6015(b) relief.    See Alt v. Commissioner, supra at 313

(requirements for section 6015(b) are conjunctive).

     b.   Section 6015(c) Relief

     An individual who is no longer married to the person with

whom the individual filed a joint return can elect relief under

section 6015(c).    Sec. 6015(c)(1), (3)(A)(i)(I).   Section 6015(d)

specifies how to determine the electing individual’s liability.
                              - 20 -

     A spouse requesting section 6015(c) relief is not entitled

to relief for a portion of a deficiency if the spouse had actual

knowledge, at the time the return was signed, of an item giving

rise to the portion of the deficiency.    Sec. 6015(c)(3)(C).   The

IRS has the burden of production and the burden of persuasion

that the spouse had actual knowledge.    26 C.F.R. sec. 1.6015-

3(c)(2)(i).   The regulation setting forth the test of whether a

spouse has actual knowledge of an erroneous item distinguishes an

item of “omitted income” from an “erroneous deduction”.    26

C.F.R. sec. 1.6015-3(c)(2)(i)(A) provides:    “In the case of

omitted income, knowledge of the item includes knowledge of the

receipt of the income.”   26 C.F.R. sec. 1.6015-3(c)(2)(i)(B)

provides:

          (1) Erroneous deductions in general. In the case
     of an erroneous deduction or credit, knowledge of the
     item means knowledge of the facts that made the item
     not allowable as a deduction or credit.

          (2) Fictitious or inflated deduction. If a
     deduction is fictitious or inflated, the IRS must
     establish that the requesting spouse actually knew that
     the expenditure was not incurred, or not incurred to
     that extent.

The IRS contends that Javier Gaitan “knew that the amount claimed

on the return as cost of goods sold was inflated”.    The IRS

concedes, however, that if he did not know that the amount was

inflated, then the deficiency attributable to the amount should

be allocated between Javier Gaitan and Monica Gaitan under

section 6015(d).
                              - 21 -

     Although we believe Javier Gaitan knew generally the nature

of the cost-of-goods-sold amount reflected on the joint return,

i.e., that the amount supposedly represented the cost of clothing

that was sold, we do not believe that he knew that the amount was

inflated.   One prime defect of the amount reported is that it

included Monica Gaitan’s personal expenses.   We think that it was

Monica Gaitan who supplied Pina with information about the

clothing-export business.   It was she, not Javier Gaitan, who

knew about the problems with the cost of goods sold reported on

the return.

     Because section 6015(c) is applicable to Javier Gaitan with

respect to the portion of the deficiency attributable to cost of

goods sold, it is necessary to determine how to allocate that

portion of the deficiency between Javier Gaitan and Monica

Gaitan.   Section 6015(d)(1) provides:

     The portion of any deficiency on a joint return
     allocated to an individual shall be the amount which
     bears the same ratio to such deficiency as the net
     amount of items taken into account in computing the
     deficiency and allocable to the individual under
     paragraph (3) bears to the net amount of all items
     taken into account in computing the deficiency.

Section 6015(d)(3)(A) in turn sets forth a general rule that “any

item giving rise to a deficiency on a joint return shall be

allocated to individuals filing the return in the same manner as

it would have been allocated if the individuals had filed

separate returns for the taxable year.”   A regulation
                                - 22 -

interpreting section 6015(d)(3)(A) provides that erroneous items

of business income and erroneous business deductions are

allocated in accordance with each spouse’s interest in the

business.   26 C.F.R. sec. 1.6015-3(d)(2)(iii) and (iv).

      The clothing-export business was jointly owned and operated

by Javier Gaitan and Monica Gaitan.      What is unclear is the

relative fractions of the business that were owned by Javier

Gaitan and Monica Gaitan.     When the relative fractions of a

jointly owned business are unclear, the regulation directs that

erroneous items of business income and erroneous business

deductions are generally allocated 50 percent to each spouse.

Id.   We therefore determine that the amount reported as cost of

goods sold for the clothing-export business is allocated to each

spouse 50-50 for purposes of determining the portion of the

deficiency allocable to Javier Gaitan under section 6015(c)(1).

      c.    Section 6015(f)

      In accord with the statutory provision that relief is to be

granted under section 6015(f) following “procedures prescribed by

the Secretary,” the IRS has issued revenue procedures to guide

its employees in determining whether a taxpayer is entitled to

relief from joint and several liability.      See Rev. Proc. 2003-61,

2003-2 C.B. 296.    Rev. Proc. 2003-61, supra, lists the factors

that IRS employees should consider, and courts consider those

factors when reviewing the IRS’s denial of relief.     See
                              - 23 -

Washington v. Commissioner, 120 T.C. 137, 147-152 (2003)

(consulting Rev. Proc. 2000-15, 2000-1 C.B 447).   One such

factor, which according to Rev. Proc. 2003-61, sec. 4.01(7),

2003-2 C.B. at 297, is a condition of section 6015(f) relief, is

that “The income tax liability from which the requesting spouse

seeks relief is attributable to an item of the individual with

whom the requesting spouse filed the joint return”.   (That

condition is waived in four circumstances, none of which is

applicable to Javier Gaitan’s request for relief.)    We find that

Javier Gaitan has not satisfied the condition specified in Rev.

Proc. 2003-61, sec. 4.01(7)(a).   Both he and Monica Gaitan were

involved in the clothing-export business.   Therefore, the items

of income of the business are attributable to both spouses, not

one spouse.   See Golden v. Commissioner, T.C. Memo. 2007-299

(holding that where the wife, a retired schoolteacher, and her

husband, a lawyer, were both limited partners in a partnership

and filed a joint return reporting their shares of partnership

losses, the wife could not seek relief from the income-tax

liability attributable to her investment in the partnership,

which was an item attributable to “both spouses”, not to the

husband “alone”), affd. on other grounds 548 F.3d 487 (6th Cir.

2008).

     We conclude that Javier Gaitan is not entitled to be

relieved of joint liability for the deficiency under section
                               - 24 -

6015(f).   However, as explained before, Javier Gaitan’s liability

for the deficiency excludes the portion of the deficiency

attributable to 50 percent of the cost of goods sold.

4.   Whether Monica Gaitan Is Entitled to Section 6015 Relief

     In her brief, Monica Gaitan does not contend she is entitled

to section 6015(b) or (c) relief.    She contends only that she is

entitled to section 6015(f) relief.

     Like Javier Gaitan, Monica Gaitan has failed to satisfy the

condition specified in Rev. Proc. 2003-61, sec. 4.01(7)(a).      The

clothing-export business is partially her business.      Therefore,

the income from the business is an item attributable to both

spouses, not Javier Gaitan alone, and Monica Gaitan is not

entitled to section 6015(f) relief.

     One of the exceptions to the condition specified in Rev.

Proc. 2003-61, sec. 4.01(7)(a) is:      “If the requesting spouse

establishes that he or she was the victim of abuse prior to the

time the return was signed, and that, as a result of the prior

abuse, the requesting spouse did not challenge the treatment of

any items on the return for fear of the nonrequesting spouse’s

retaliation”.    Rev. Proc. 2003-61, sec. 4.01(7)(d), 2003-2 C.B.

at 298.    If this exception applies, the IRS will “consider

granting equitable relief although the deficiency or underpayment

may be attributable in part or in full to an item of the

requesting spouse.”    Although Monica Gaitan presented evidence
                             - 25 -

that Javier Gaitan physically harmed her, we do not believe that

any physical abuse suffered by her contributed to the way in

which the couple handled the tax return.

     Monica Gaitan’s failure to satisfy the condition specified

in Rev. Proc. 2003-61, sec. 4.01(7) means that she does not

qualify for section 6015(f) relief.   See Rev. Proc. 2003-61, sec.

4.02, 2003-2 C.B. at 298 (setting forth circumstances under which

the IRS will ordinarily grant equitable relief under section

6015(f), but only from the liability reported on the tax return);

id. sec. 4.03 (setting forth factors for determining whether to

grant equitable relief, but only for taxpayers who meet the

threshold conditions of Rev. Proc. 2003-61, sec. 4.01).   Because

Monica Gaitan is not entitled to section 6015(f) relief, she is

liable for the deficiency in income tax for 2006.   Although for

purposes of calculating the extent of Javier Gaitan’s liability

under section 6015(c) we held that the clothing-export business

was jointly owned and that the reported amount of cost of goods

sold should be split 50-50 between the Gaitans, these holdings

have no effect on Monica Gaitan’s liability.   She did not contend

that she qualified for section 6015(c) relief.

5.   The Accuracy-Related Penalty

     The accuracy-related penalty imposed by section 6662(a) and

(b)(1) and (2) is equal to 20 percent of the portion of an

underpayment attributable to (1) negligence or (2) any
                              - 26 -

substantial understatement of income tax.    No penalty is imposed

to the extent there was reasonable cause for the underpayment and

the taxpayer acted in good faith.   Sec. 6664(c)(1).   As to

whether the taxpayer has a defense to the penalty, such as the

reasonable cause-good faith exception, the taxpayer bears the

burden of production and burden of persuasion.    Higbee v.

Commissioner, 116 T.C. 438, 446-447 (2001).    For other

issues underlying the taxpayer’s liability for the penalty, the

IRS has the burden of production, sec. 7491(c); Higbee v.

Commissioner, supra at 446, and the taxpayer has the burden of

proof, Higbee v. Commissioner, supra at 447.

     We conclude that the underpayment of tax on the 2006 tax

return was the result of negligence.   Negligence includes a

failure to make a reasonable attempt to comply with internal

revenue laws or to exercise ordinary and reasonable care in

preparing a tax return.   See sec. 6662(c); 26 C.F.R. sec. 1.6662-

3(b)(1).   Negligence also includes the failure to keep adequate

books and records or substantiate items properly.   See 26 C.F.R.

sec. 1.6662-3(b)(1).   The Gaitans did not maintain adequate

records of their clothing-export business.    We conclude that the

deficiency is attributable to their negligence.

     A taxpayer who asserts that reliance on a tax professional

constituted reasonable cause must prove that the taxpayer

provided the adviser necessary and accurate information.
                             - 27 -

Neonatology Associates, P.A. v. Commissioner, 115 T.C. 43, 99

(2000), affd. 299 F.3d 221, 234 (3d Cir. 2002).   The Gaitans

failed to establish that Monica Gaitan disclosed to Pina the

necessary information about the purchases of clothing, including

whether the purchases were made for personal use.   Therefore, the

reasonable cause exception is unavailable.

     Given the foregoing,


                                        Decision will be entered

                                   under Rule 155 in docket No.

                                   19090-09.

                                        Decision will be entered

                                   for respondent in docket No.

                                   21254-09.
