                        T.C. Memo. 2003-201



                      UNITED STATES TAX COURT



                 MARC S. FELDMAN, Petitioner v.
          COMMISSIONER OF INTERNAL REVENUE, Respondent



     Docket No. 14326-01.               Filed July 10, 2003.



     Stephen C. Mancini, for petitioner.

     Elaine T. Fuller, for respondent.



             MEMORANDUM FINDINGS OF FACT AND OPINION


     COHEN, Judge:   This proceeding was commenced under section

6015 for review of respondent’s determination that petitioner is

not entitled to relief from joint and several liability for 1996

and 1997 with respect to joint returns filed with his former

spouse, Lauren Trevino (Ms. Trevino).    The issue for decision is
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whether respondent abused his discretion in denying petitioner

relief from joint and several liability under section 6015(f).

     Unless otherwise indicated, all section references are to

the Internal Revenue Code.

                         FINDINGS OF FACT

     Some of the facts have been stipulated, and the stipulated

facts are incorporated in our findings by this reference.    At the

time the petition in this case was filed, petitioner resided in

California.

     Petitioner is an attorney licensed to practice law in

California.   Around 1993, petitioner became a named partner in

the law firm of Koletsky, Mancini, Feldman & Morrow (law firm) in

Los Angeles, specializing in insurance defense.   Petitioner’s

draw from the law firm was $16,000 per week in 1996 and $18,000

per week in 1997.

Petitioner’s Marriage to Ms. Trevino and Personal Finances

     Petitioner and Ms. Trevino were married on March 4, 1990,

and had three children during their marriage.   The children were

born in 1993, 1995, and 1996.   When petitioner became a partner

in the law firm, Ms. Trevino became responsible for the family

finances due to petitioner’s increased work responsibilities.

Generally, petitioner would sign his paycheck and turn it over to

Ms. Trevino, who would pay the family’s bills and expenses.
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Ms. Trevino gave petitioner cash to spend.    During 1996 and 1997,

Ms. Trevino was not employed outside the home.

     Beginning in January 1997, petitioner requested bank

statements and documents from Ms. Trevino to show where his

income was placed and what investments were made.    They met

almost weekly for about 15 to 30 minutes to discuss their

finances.   Around the same time, petitioner requested that

Ms. Trevino purchase shares of stock in particular companies.

Subsequently, petitioner requested an accounting of which stocks

were purchased.   Ms. Trevino provided to petitioner a handwritten

ledger sheet accounting for the family’s investments.

Ms. Trevino also provided handwritten ledger sheets to show

petitioner the amounts held in their various bank accounts.

Additionally, Ms. Trevino provided photocopied bank statements

from several financial institutions with varying account

balances.   The bank statements were altered, reflected obvious

inconsistencies, and had dates printed in an irregular form.

     In late July 1997, petitioner’s law firm was experiencing

financial difficulties.    At that time, petitioner was managing

partner of the law firm.    Petitioner engaged Sanwa Bank to

provide a line of credit to the law firm, using his personal bank

accounts as collateral on the loan.     He collected statements from

the joint bank accounts to substantiate his income to Sanwa Bank.
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Petitioner discovered that the bank accounts were either closed

or had minimal balances.

     Petitioner and Ms. Trevino separated on September 20, 1997,

and Ms. Trevino filed a Petition for Dissolution of Marriage in

the Superior Court of the State of California, for the County of

Los Angeles.   On August 23, 1999, a Judgment for Dissolution was

entered in the marriage dissolution proceeding.    On July 11,

2000, a Stipulated Further Judgment of Dissolution of Marriage

was filed in the Superior Court with respect to the division of

property.   Petitioner was required by court order to pay spousal

and child support to Ms. Trevino.    By agreement between them,

Ms. Trevino has been reimbursing petitioner for child support at

the rate of $1,000 per month.

Petitioner’s Federal Returns

     In April 1997, petitioner and Ms. Trevino filed a joint Form

1040, U.S. Individual Income Tax Return, for 1996 reporting

adjusted gross income of $762,751 and taxable income of $573,117.

The return showed tax due of $228,143, with estimated tax

payments of $153,500, and remaining tax due of $74,643.

Ms. Trevino told petitioner that the return was prepared by a

certified public accountant.    The Form 1040 and the attached

schedules filed for 1996 were published by the IRS and intended

for use for the 1995 tax year.    The return reported that two of

their children lived with petitioner and Ms. Trevino for “42" and
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“22" months, respectively, during 1996.    Additionally, their

third child’s name was handwritten whereas the other names were

typed; their third child was born in 1996 and would not have been

listed on their 1995 return.    Their total exemptions were typed

as “4" and their third child was not included in that number.     On

the date the return was due, petitioner signed the return and

wrote a check for the amount shown as due.    The check was

presented to the bank against insufficient funds.

     In April 1998, petitioner and Ms. Trevino filed a joint Form

1040 for 1997 reporting adjusted gross income of $454,227 and

taxable income of $280,876.    The return showed tax due of

$119,595, an estimated tax penalty of $6,443, and total amount

due of $126,038.   At the time of filing, no estimated payments

towards the 1997 tax liability were reported.    Petitioner

submitted a check with the return in the amount of $500 towards

the 1997 liability.

Respondent’s Examination and Petitioner’s Request for Relief

     On November 20, 1998, respondent received petitioner’s Form

8857, Request for Innocent Spouse Relief, for the 1996 and 1997

liabilities.   Petitioner filed for relief no later than 2 years

after the IRS initiated collection activity.    From July 22, 1998,

through April 15, 1999, petitioner made payments totaling

$14,603.35 towards the 1996 liability.
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     On February 26, 1999, the IRS proposed adjustments to

petitioner and Ms. Trevino’s 1996 tax liability for underreported

interest and rental income.    Petitioner paid the proposed

adjustments on March 5, 1999.    On March 5, 1999, petitioner also

agreed to a proposed adjustment to the 1997 liability, increasing

total taxable income.    Respondent adjusted the charitable

contribution amount claimed in petitioner and Ms. Trevino’s

itemized deductions.    Petitioner signed the audit report on

March 5, 1999, and Ms. Trevino signed it on April 2, 1999.      On

May 6, 1999, respondent determined that petitioner’s 1996 and

1997 income tax liabilities were then currently uncollectible.

On September 16, 1999, petitioner signed an audit report agreeing

to additional adjustments to the 1996 return.    On October 1,

1999, Ms. Trevino signed the report.

     On October 29, 1999, the IRS denied petitioner’s request for

relief from joint and several liability.    Attached to the denial

letter was a Form 886A, Explanation of Items.    Relief was denied

because the tax liability was attributable to petitioner’s

partnership income and there was insufficient evidence to show

that petitioner would suffer economic hardship if not relieved

from the liability.    On November 23, 1999, petitioner protested

the denial of relief and requested review by the Appeals Office.

On October 31, 2001, the Appeals Office sent a Notice of

Determination Concerning Your Request for Relief from Joint and
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Several Liability Under Section 6015 to petitioner denying

requested relief under sections 6015(b), (c), and (f).      On

June 25, 2001, respondent reversed his determination that

petitioner’s 1996 and 1997 income tax liabilities were

uncollectible.

     At the time of trial in January 2003, petitioner was

receiving a partnership draw from the law firm in the amount of

$2,500 per week or $130,000 per year.

                               OPINION

     Generally, married taxpayers may elect to file a joint

Federal income tax return.   Sec. 6013(a).   After making the

election, each spouse is jointly and severally liable for the

entire tax due for that taxable year.    Sec. 6013(d)(3).    A spouse

(requesting spouse) may, however, seek relief from joint and

several liability by following procedures established in section

6015.   Sec. 6015(a).   A requesting spouse may request relief from

liability under section 6015(b) or, if eligible, may allocate

liability according to provisions under section 6015(c).      Sec.

6015(a).   If relief is not available under section 6015(b) or

(c), an individual may seek equitable relief under section

6015(f).   Section 6015(f) gives respondent the discretion to

grant equitable relief from joint and several liability if

“taking into account all the facts and circumstances, it is

inequitable to hold the individual liable for any unpaid tax”.
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     Petitioner concedes that he is not eligible for relief under

section 6015(b) or (c).   Petitioner has instead requested

equitable relief under section 6015(f).    Except as otherwise

provided in section 6015, petitioner bears the burden of proof.

Alt v. Commissioner, 119 T.C. 306, 311 (2002); Jonson v.

Commissioner, 118 T.C. 106, 113 (2002).    We review the

determination to deny relief under an abuse of discretion

standard.   See Washington v. Commissioner, 120 T.C. 137, 146

(2003); Cheshire v. Commissioner, 115 T.C. 183, 198 (2000), affd.

282 F.3d 326 (5th Cir. 2002); Butler v. Commissioner, 114 T.C.

276, 291-292 (2000).   Petitioner must show that respondent’s

actions in denying relief were arbitrary, capricious, or without

sound basis in fact.   Jonson v. Commissioner, supra at 125.

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

prescribed procedures to determine whether a taxpayer qualifies

for relief from joint and several liability.    These procedures

are set forth in Rev. Proc. 2000-15, 2000-1 C.B. 447.      This Court

has upheld the use of these procedures in reviewing a negative

determination.   See Washington v. Commissioner, supra at 147;

Jonson v. Commissioner, supra at 125.     Rev. Proc. 2000-15, sec.

4.01, 2000-1 C.B. at 448, lists seven conditions (threshold

conditions) that must be satisfied before the Commissioner will

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

concedes that petitioner satisfies the seven threshold conditions
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required for relief.    If the threshold conditions are satisfied,

Rev. Proc. 2000-15, sec. 4.02, 2000-1 C.B. at 448, lists

circumstances where relief will generally be granted, subject to

two limitations.   If it is unclear whether these circumstances

are satisfied, the Commissioner looks to Rev. Proc. 2000-15, sec.

4.03, 2000-1 C.B. at 448, to determine whether the taxpayer

should be granted equitable relief.

     Rev. Proc. 2000-15, sec. 4.03(1), 2000-1 C.B. at 448, lists

the following six factors that the Commissioner will consider as

weighing in favor of granting relief for an unpaid liability

(positive factors):    (1) The requesting spouse is separated or

divorced from the nonrequesting spouse; (2) the requesting spouse

would suffer economic hardship if relief is denied; (3) the

requesting spouse was abused by the nonrequesting spouse; (4) the

requesting spouse did not know or have reason to know that the

reported liability would be unpaid at the time the return was

signed; (5) the nonrequesting spouse has a legal obligation

pursuant to a divorce decree or agreement to pay the unpaid

liability; and (6) the unpaid liability is attributable to the

nonrequesting spouse.    Rev. Proc. 2000-15, sec. 4.03(2), 2000-1

C.B. at 449, lists the following six factors that the

Commissioner will consider as weighing against granting relief

for an unpaid liability (negative factors):    (1) The unpaid

liability is attributable to the requesting spouse; (2) the
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requesting spouse knew or had reason to know that the reported

liability would be unpaid at the time the return was signed;

(3) the requesting spouse significantly benefited (beyond normal

support) from the unpaid liability; (4) the requesting spouse

will not suffer economic hardship if relief is denied; (5) the

requesting spouse has not made a good faith effort to comply with

Federal income tax laws in the tax years following the tax year

to which the request for relief relates; and (6) the requesting

spouse has a legal obligation pursuant to a divorce decree or

agreement to pay the unpaid liability.   No single factor is

determinative, and the list is not exhaustive.   See Washington v.

Commissioner, supra at 148; Jonson v. Commissioner, supra at 125.

     Respondent argues that petitioner is not eligible for relief

because the negative factors in favor of not granting relief

under section 6015(f) outweigh the positive factors in favor of

relief.   Specifically, respondent contends that petitioner would

not suffer economic hardship absent relief and that the tax

liabilities are attributable to his income.   Respondent further

argues that petitioner’s claim that he did not know or had no

reason to know that the tax liabilities stated on the return

would not be paid upon filing is not credible.

Economic Hardship

     Economic hardship is determined based on rules similar to

those under section 301.6343-1(b)(4)(ii), Proced. & Admin. Regs.
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The regulation provides that the Commissioner will consider any

information provided by the taxpayer that is relevant to the

determination, including, but not limited to, the taxpayer’s age,

ability to earn, responsibility for dependents, and the amount

reasonably necessary for basic living expenses.   See id.

     Petitioner argues, without relevant authority or persuasive

reason, that respondent bears the burden of negating petitioner’s

economic hardship claim and that respondent must conduct an

independent investigation into petitioner’s financial affairs.

Respondent argues that an attorney drawing $130,000 a year from

his law firm has sufficient income to meet basic living expenses.

Petitioner did not provide evidence of hardship during

respondent’s decisionmaking process.   At trial, petitioner

submitted only his own testimony, in response to leading

questions from his counsel, as to certain of his monthly

expenses.   His listed outlays include tax liabilities for prior

years as well as alimony to Ms. Trevino.   Petitioner also asserts

that his monthly expenses include payments on a debt to American

Express in excess of $100,000.   Petitioner did not provide bills,

bank statements, or other evidence to corroborate his testimony.

He did not provide financial information for his current spouse.

It is unclear whether his outlays are reasonable living expenses

or are simply debts for his prior lifestyle.   Overall,

petitioner’s situation is totally dissimilar from other
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requesting spouses, who were living at or near poverty level at

the time of their request and who proved that they would suffer

economic hardship without relief from joint and several

liability.   See, e.g., Washington v. Commissioner, 120 T.C. 137

(2003); cf. Collier v. Commissioner, T.C. Memo. 2002-144.     On the

record in this case, petitioner has failed to show that

respondent’s determination regarding economic hardship was an

abuse of discretion.

Attribution to Nonrequesting Spouse

     Under Rev. Proc. 2000-15, sec. 4.02, 2000-1 C.B. at 448,

section 6015(f) relief will ordinarily be granted where the

requesting spouse is no longer married to the nonrequesting

spouse; the requesting spouse would suffer economic hardship; and

the requesting spouse, at the time the return was signed, had no

knowledge or reason to know that the tax would not be paid.

Relief is limited to the extent that the unpaid liability is

allocable to the nonrequesting spouse.   In addition, one of the

positive factors in Rev. Proc. 2000-15, sec. 4.03, 2000-1 C.B. at

448, weighing in favor of relief is that the liability is

attributable solely to the nonrequesting spouse.

     Petitioner concedes that he earned the income that gave rise

to the liabilities from which he now seeks relief.   Petitioner

claims, however, that the unpaid liability is attributable to

Ms. Trevino because she was responsible for the family finances
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and she represented that she made the estimated tax payments.

Petitioner further argues that “equity demands that the tax

deficiency not be attributable to a spouse who does not know or

have reason to know that the other spouse misused funds intended

to pay a reported tax”.   Respondent argues, and we agree, that

the liability is allocable to petitioner because he earned the

income reported on the returns for both 1996 and 1997.    Cf. Wiest

v. Commissioner, T.C. Memo. 2003-91.     Petitioner’s remaining

arguments regarding attribution focus on his purported lack of

knowledge of the unpaid liability.

Knowledge of Unpaid Liability

     Under Rev. Proc. 2000-15, sec. 4.02, 2000-1 C.B. at 448, the

relevant knowledge in the case of a reported but unpaid liability

is whether the taxpayer knew or had reason to know “that the tax

would not be paid” when the return was signed or filed.    Further,

a taxpayer has a “duty of inquiry” to determine the amount of his

or her tax liabilities.   See Price v. Commissioner, 887 F.2d 959,

965 (9th Cir. 1989), revg. an Oral Opinion of this Court; Butler

v. Commissioner, 114 T.C. 276, 284 (2000).

     Petitioner testified that Ms. Trevino told him that the 1996

return was prepared by an accountant.    Yet, there are several

obvious errors on the face of the return that should have been

discovered, even after a cursory review.    It appears that the

1996 return was an altered copy of a 1995 return.    On its face,
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the 1996 return was irregular, and petitioner should have known

that further inquiry was necessary to determine the validity of

the return.

     Despite the events that occurred between petitioner and

Ms. Trevino during 1997, petitioner chose to file a joint return

for that year.    (Petitioner testified that an accountant

recommended that petitioner file a joint return for 1997.    It was

this same accountant who recommended that petitioner file a

request for relief from joint and several liability just a few

months after filing the 1997 return.) At the time the 1997 return

was filed, petitioner was aware that no estimated tax payments

had been made on the 1997 liabilities and that only a $500

payment was made at the time of filing.    Petitioner thus had

actual knowledge of the unpaid liabilities for 1997 at the time

the return was filed.

     It also appears that petitioner knew of facts that should

have made him inquire further into his family’s financial

situation.    Petitioner asserted in his trial memorandum that

Ms. Trevino was suffering from a deteriorating mental condition,

beginning in September 1996.    He became suspicious enough at the

start of 1997 to request a financial accounting from Ms. Trevino,

but he now claims that he still relied on his wife.    He explained

in his testimony:

          MR. FELDMAN: * * * For some reason I made all of
     this money and I was, all of a sudden it started right
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     after the new year in January of 1997, I wanted to know
     where it was. I wanted to follow up with it.

          I--and because this was more money than I ever
     made in my entire life. So I wanted to try and find
     out where it was.

          Obviously, I didn’t do a good job. I missed
     things. But it was because of, that I was making a
     vast amount of money and I wanted to know where it was,
     Your Honor.

          And perhaps I should have started sooner, but
     that’s where I started right after the new year in
     January of 1997.

Both of the joint returns in issue here were filed subsequent to

the inquiries he described.   Petitioner stated on brief that “he

chose not to” handle the family’s financial affairs.   This choice

does not relieve petitioner of the duty to investigate blatant

factual inconsistencies in the materials provided to him.

Petitioner testified that he never requested original bank

statements from Ms. Trevino or from the banks directly.

Petitioner alleged in the petition that Ms. Trevino offered

photocopied bank statements because, she said, the banks would

not provide originals for accounts with such large balances.

Petitioner was satisfied receiving photocopies of bank statements

that were filled with obvious errors.   All of the materials that

petitioner presented at trial as evidence of Ms. Trevino’s

alleged misrepresentation were highly suspect and would put a

reasonable person on notice that further inquiry was needed.
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     Based on the facts and circumstances in this case, many of

the factors in Rev. Proc. 2000-15, sec. 4.03, 2000-1 C.B. at 448,

are neutral.    The negative factors discussed above outweigh the

positive factors in favor of relief.     Petitioner has not shown

that he will suffer economic hardship if relief is denied.

Petitioner had constructive knowledge that the liability would

not be paid for 1996 and had actual knowledge that it was not

paid in 1997.   The liability for each year is attributed solely

to him because he is the spouse who earned the income in each

year.

     We have considered the arguments of the parties not

specifically addressed in this opinion.     They are either without

merit or irrelevant to our decision.     We hold that it was not an

abuse of discretion to deny petitioner’s claim for equitable

relief under section 6015(f).


                                           Decision will be entered

                                     for respondent.
