                  T.C. Summary Opinion 2011-49



                     UNITED STATES TAX COURT



     STACEY LYNN CODY, Petitioner, AND MICHAEL PATRICK CODY,
                           Intervenor v.
           COMMISSIONER OF INTERNAL REVENUE, Respondent



     Docket No. 11048-09S.             Filed April 12, 2011.



     Jamie A. Rozzi and Adam C. Losey, for petitioner.

     Michael Patrick Cody, pro se.

     Christopher A. Pavilonis, for respondent.



     PANUTHOS, Chief Special Trial Judge:   This case was heard

pursuant to the provisions of section 7463 of the Internal

Revenue Code in effect when the petition was filed.1   Pursuant to



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

section 7463(b), the decision to be entered is not reviewable by

any other court, and this opinion shall not be treated as

precedent for any other case.

     This proceeding was commenced under section 6015(e) for

review of respondent’s determination that petitioner is not

entitled to relief from joint and several liability with respect

to underpayments of Federal income tax reported on joint Federal

income tax returns filed for 2002, 2003, 2004, and 2005.

                            Background

     Petitioner and intervenor were married in 1995.   Together

they have three children.   Petitioner sustained back injuries and

permanent nerve damage from an automobile accident in 1998.    She

has been disabled since the accident and unable to work.

Petitioner has suffered from chronic pain that has become more

severe since the injuries sustained in 1998.   Petitioner received

$200,000 in settlement of her claim for damages resulting from

the accident.2   Intervenor was a self-employed mortgage broker

and received commissions from F&S Mortgage Corp. and Avalar

Florida Real Estate during the years at issue.   While the economy

and real estate market were on the rise, intervenor was able to



     2
      Petitioner received approximately $140,000 of the
settlement proceeds after attorney’s fees. No evidence was
presented as to the date of receipt of the funds. Petitioner
credibly testified that the proceeds from the settlement were
fully expended to purchase the marital home, for family
necessities, and on trips taken by intervenor.
                                - 3 -

earn sufficient income to meet the family’s needs.    Petitioner

and intervenor shared a joint checking account into which

petitioner’s Social Security checks3 and intervenor’s business

income were deposited.    Petitioner had access to the checking

account and routinely wrote checks from the account for household

expenses.

     Petitioner and intervenor’s marriage was not stable.

Petitioner moved out of the marital home with the children on

more than one occasion.    After each departure petitioner and the

children returned to the marital home.    At some point during the

marriage intervenor was charged with misdemeanor domestic

assault.4   Near the end of the marriage petitioner and intervenor

began to experience financial difficulty.    Petitioner became

aware that the amount of intervenor’s income was decreasing.

They received foreclosure documents for the marital home dated

October 26, 2007.   On November 18, 2007, petitioner permanently

separated from intervenor.    Petitioner and intervenor eventually

divorced on September 17, 2008.




     3
      Petitioner’s checks were referred to only as Social
Security checks. The Court assumes that petitioner’s checks were
Social Security disability checks.
     4
      A document stating the charge and listing intervenor as the
defendant was entered into evidence. There was no date on the
document.
                                 - 4 -

     Petitioner and intervenor’s divorce was conducted through

mediation.     As a result of the mediation petitioner and

intervenor agreed to each be responsible for 50 percent of any

joint tax liability.     Also, intervenor agreed to pay petitioner a

lump sum of $7,000 for child support, with a continuing monthly

obligation.5    There was no amount designated for alimony.

     As of the time of trial, petitioner, as the custodial

parent, supported herself and the three children on her Social

Security income.    Petitioner received $916 a month for herself

and $152 a month for each child.     Petitioner’s expenses exceeded

her income by approximately $800 a month.    When petitioner ran

out of money each month, she visited a food bank to provide meals

for her children.

     At the time of trial intervenor was in arrears on child

support payments.    He had not paid the $7,000 ordered by the

final judgment of divorce and was behind approximately a payment

and a half on his monthly obligations.

     Petitioner and intervenor initially did not file Federal

income tax returns for the years 2002, 2003, 2004, and 2005.

Respondent prepared substitutes for returns (SFRs)6 for each of


     5
      The agreed amount of intervenor’s monthly child support
obligation is between $800 and $1,000.
     6
      The Commissioner shall make returns from his own knowledge
or other information for any individual who fails to make any
return required by any internal revenue law or regulation. See
                                                   (continued...)
                               - 5 -

the tax years at issue for intervenor, and intervenor was sent a

notice of deficiency.   Intervenor did not respond to the notice,

and taxes and additions to tax of $370, $5,242, $13,959, and

$11,517 for 2002 through 2005, respectively, were assessed

against intervenor.7

     After the assessments, intervenor prepared joint Federal

income tax returns for all of the years at issue.   Intervenor

contacted petitioner and asked that she execute those joint

returns.   Because she was afraid to meet intervenor alone,

petitioner, accompanied by her adult niece, met with intervenor

in a parking lot to sign the returns.   Petitioner signed the

returns without reviewing them on November 26, 2007. The returns

reported tax liabilities due of $332, $2,713, $9,793, and $6,927

for 2002 through 2005, respectively.

     On November 27, 2007, intervenor filed for chapter 13

bankruptcy.   Petitioner was aware of intervenor’s plans to file

for bankruptcy.   Respondent received the signed joint returns on

December 6, 2007.   No remittance accompanied the joint returns.

    Respondent accepted the joint returns as filed by petitioner

and intervenor, assessed the joint tax liabilities from those

returns, and abated the assessments against intervenor that were



     6
      (...continued)
sec. 6020(b).
     7
      All amounts are rounded to the nearest dollar.
                                - 6 -

based upon the SFRs.   The assessments from the joint returns

remain unpaid.

     Petitioner filed Form 8857, Request for Innocent Spouse

Relief, in August 2008 for all of the tax years at issue.

Petitioner’s stated reasons for requesting relief included

economic hardship, spousal abuse, and mental or physical health

problems.   Petitioner’s initial request for innocent spouse

relief was denied in November 2008, and petitioner had a

telephone conference with the Appeals Office in February 2009 to

discuss whether she qualified for innocent spouse relief.      The

Appeals Office determined that petitioner was ineligible for

innocent spouse relief.

                             Discussion

     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 year.    Sec. 6013(d)(3); Butler v.

Commissioner, 114 T.C. 276, 282 (2000).       In certain

circumstances, however, a spouse who has filed a joint return may

seek relief from joint and several liability under procedures set

forth in section 6015.    Sec. 6015(a).

     Under section 6015(a) a spouse may seek relief from joint

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

allocate liability according to provisions set forth in section
                                 - 7 -

6015(c).    If a taxpayer does not qualify for relief under either

section 6015(b) or (c),8 the taxpayer may seek equitable relief

under section 6015(f).    The Secretary has discretion to grant

equitable relief to a spouse who filed a joint return with an

unpaid liability or to one who has a deficiency (or any portion

of either).    Sec. 6015(f); sec. 1.6015-4(a), Income Tax Regs.

Petitioner’s petition for innocent spouse relief is a “stand

alone” petition under section 6015(e) because she did not receive

a statutory notice of deficiency for the years at issue.

     Except as otherwise provided in section 6015, the taxpayer

bears the burden of proving that he or she is entitled to section

6015 (innocent spouse) relief.    Rule 142(a); Alt v. Commissioner,

119 T.C. 306, 311 (2002), affd. 101 Fed. Appx. 34 (6th Cir.

2004).    Both the scope and standard of our review in cases

requesting equitable relief from joint and several income tax

liability are de novo.    Porter v. Commissioner, 132 T.C. 203

(2009).

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

prescribed procedures for determining whether a spouse qualifies

for relief under that subsection.    The applicable provision is

found in Rev. Proc. 2003-61, 2003-2 C.B. 296.




     8
      Petitioner is not entitled to relief under sec. 6015(b) or
(c) because she has underpayments of tax.
                               - 8 -

     Rev. Proc. 2003-61, sec. 4.01, 2003-2 C.B. at 297, sets

forth threshold requirements the Commissioner will consider

before granting a request for relief under section 6015(f).      All

requesting spouses must meet seven threshold requirements:     (1)

The requesting spouse filed a joint return for the taxable year

for which he or she seeks relief; (2) relief is not available to

the requesting spouse under section 6015(b) or (c); (3) the

requesting spouse applies for relief no later than 2 years after

the date of the Internal Revenue Service’s (IRS) first collection

activity after July 22, 1998, with respect to the requesting

spouse; (4) no assets were transferred between the spouses as

part of a fraudulent scheme by the spouses; (5) the nonrequesting

spouse did not transfer disqualified assets to the requesting

spouse; (6) the requesting spouse did not file or fail to file

the return with fraudulent intent; and (7) absent enumerated

exceptions, 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.    Id.

     This Court employs those factors when reviewing the

Commissioner’s denial.    Washington v. Commissioner, 120 T.C. 137,

147-152 (2003); see also Schultz v. Commissioner, T.C. Memo.

2010-233.   We find, as did respondent during the Appeals process,

that petitioner satisfies the seven threshold requirements for

innocent spouse relief.
                                - 9 -

       Where the requesting spouse satisfies the threshold

requirements of Rev. Proc. 2003-61, sec. 4.01, then Rev. Proc.

2003-61, sec. 4.02, 2003-2 C.B. at 298, sets forth circumstances

in which relief will ordinarily be granted under section 6015(f)

with respect to an underpayment of a properly reported liability.

If the requesting spouse can prove that he or she was no longer

married to or legally separated from the nonrequesting spouse on

the date of the request for relief, had no knowledge or reason to

know that the nonrequesting spouse would not pay the income tax

liability, and will suffer economic hardship, relief will

ordinarily be granted.    Rev. Proc. 2003-61, sec. 4.02, 2003-2

C.B. at 298.    As we will discuss below, petitioner had knowledge

or reason to know that intervenor would not pay the income tax

liability and is therefore not eligible for relief under Rev.

Proc. 2003-61, sec. 4.02.

       Where the requesting spouse fails to qualify for relief

under Rev. Proc. 2003-61, sec. 4.02, the IRS may nevertheless

grant relief under Rev. Proc. 2003-61, sec. 4.03, 2003-2 C.B. at

298.    The Court’s analysis with respect to the nonexhaustive list

of factors in Rev. Proc. 2003-61, sec. 4.03, is discussed below.
                                - 10 -

I.     Marital Status

       The IRS will take into consideration whether the requesting

spouse is divorced or separated (whether legally separated or

living apart) from the nonrequesting spouse.    Rev. Proc. 2003-61,

sec. 4.03(2)(a)(i), 2003-2 C.B. at 298.    We look to petitioner’s

marital status at the time of trial in applying de novo review.

See Wilson v. Commissioner, T.C. Memo. 2010-134.    At the time of

trial petitioner was divorced.    This factor weighs in favor of

relief.    See id.; see also McKnight v. Commissioner, T.C. Memo.

2006-155 (divorce weighs in favor of relief under Rev. Proc.

2003-61).

II.    Economic Hardship

       The IRS will take into consideration whether the requesting

spouse will suffer economic hardship if relief is not granted.

Rev. Proc. 2003-61, sec. 4.03(2)(a)(ii), 2003-2 C.B. at 298.

Generally, economic hardship exists if collection of the tax

liability will cause the taxpayer to be unable to pay reasonable

basic living expenses.     Butner v. Commissioner, T.C. Memo. 2007-

136.    To determine economic hardship, the IRS will use the

factors provided in section 301.6343-1(b)(4), Proced. & Admin.

Regs.    Rev. Proc. 2003-61, sec. 4.03(2)(a)(ii) (citing Rev. Proc.

2003-61, sec. 4.02(1)(c)).    The pertinent factors here are:   (1)

Petitioner’s age, employment status and history, ability to earn,

and number of dependents; (2) the amount reasonably necessary for
                               - 11 -

food, clothing, housing (including utilities, homeowner’s

insurance, homeowner’s association dues, and the like), medical

expenses (including health insurance), transportation, and

current tax payments (including Federal, State, and local); (3)

the cost of living in the geographic area in which petitioner

resides; and (4) any other factor that petitioner claims bears on

economic hardship.   See sec. 301.6343-1(b)(4)(ii), Proced. &

Admin. Regs.

     Petitioner is disabled and has not worked since her

automobile accident in 1998.   At the time of trial petitioner had

custody of her three children.     Petitioner’s income, including

child support, is approximately $800 below the national and local

standards for expenses.   See Internal Revenue Manual pt.

5.15.1.8, 5.15.1.9., Exhibit 5.15.1-2 (Oct. 2, 2009).     Intervenor

was behind on child support by one and one-half payments,

reducing petitioner’s income by approximately $1,350 for those

months.   Given petitioner’s disability and financial standing at

the time of trial, we find that the factor of economic hardship

weighs in favor of granting relief.

III. Knowledge or Reason To Know

     In an underpayment case, the pertinent question is whether

the requesting spouse did not know or had no reason to know that

the nonrequesting spouse would not pay the income tax liability.

Merendino v. Commissioner, T.C. Memo. 2006-2 (typically, in the
                              - 12 -

case of a reported but unpaid tax liability, the relevant

knowledge is that the tax would not be paid when the return was

signed); Rev. Proc. 2003-61, sec. 4.03(2)(a)(iii)(A), 2003-2 C.B.

at 298.   In determining whether the requesting spouse had reason

to know, the following factors are used:    (1) The requesting

spouse’s level of education, (2) any deceit or evasiveness of the

nonrequesting spouse, (3) the requesting spouse’s degree of

involvement in the activity generating the income tax liability,

(4) the requesting spouse’s involvement in business and household

financial matters, (5) the requesting spouse’s business or

financial expertise, and (6) any lavish or unusual expenditures

compared with past spending levels.    Rev. Proc. 2003-61, sec.

4.03(2)(a)(iii)(C), 2003-2 C.B. at 298.    A taxpayer who signs a

return is generally charged with constructive knowledge of its

contents.   Hayman v. Commissioner, 992 F.2d 1256, 1262 (2d Cir.

1993), affg. T.C. Memo. 1992-228.

     Petitioner has some college education, though she is not

trained in finance, business, or taxation.    Petitioner testified

that although she does not have any technical education in

taxation, she is aware that taxes have to be paid on income.9



     9
      No evidence was presented that intervenor was explicitly
deceitful or evasive about the returns or the tax liability. The
Court notes that intervenor’s explanation to petitioner was that
the returns had to be signed to keep the marital home out of
foreclosure and that the couple met in a parking lot to sign the
returns.
                             - 13 -

Petitioner was not involved with intervenor’s business activities

that created the tax liabilities, but she was involved in the

couple’s household financial matters because she paid the

couple’s bills from their joint checking account.    Petitioner did

not have any lavish or unusual expenditures.

     Petitioner argues that she was unaware that the couple had

any tax liabilities for the years at issue.     Petitioner was aware

of a decline in the household’s income, as the real estate market

had weakened and intervenor brought home less and less income.

Petitioner was aware that the marital home was in foreclosure

because she and intervenor could not make the mortgage payments.

We note that petitioner was aware when she signed the returns of

intervenor’s plan to file for bankruptcy.   Petitioner also signed

the returns without reviewing them.   See id.

     Given petitioner’s understanding of intervenor’s financial

and employment situation, her knowledge that the marital home was

in foreclosure, and her lack of review of the returns before

signing them, the Court concludes that petitioner knew or had

reason to know that the tax liabilities would not be paid when
                                - 14 -

the returns were filed.10    This factor weighs against granting

relief.

IV.   Nonrequesting Spouse’s Legal Obligation

      The IRS will also consider whether the nonrequesting spouse

has a legal obligation to pay the outstanding income tax

liability pursuant to a divorce decree or agreement.    See Rev.

Proc. 2003-61, sec. 4.03(2)(a)(iv), 2003-2 C.B. at 298.    After

the joint returns were signed and filed with the IRS, petitioner

and intervenor each agreed, as part of the divorce mediation, to

be liable for 50 percent of any tax liability.    Thus it is clear

that intervenor had a legal obligation to pay at least one-half

of the outstanding Federal income tax liabilities.    This factor

(the nonrequesting spouse’s legal obligation) will not weigh in

favor of relief if the requesting spouse knew or had reason to

know that the nonrequesting spouse would not pay the tax

liability.   Id.   We have found that petitioner knew or had reason

to know that intervenor would not pay the tax liabilities.    In

our discussion supra we reviewed the facts and circumstances that

led us to this conclusion.    Our conclusion holds.   Accordingly,

this factor weighs against granting relief.



      10
      Although we find below that petitioner was abused by
intervenor, there was not enough evidence presented for the Court
to find there was a history of abuse to mitigate petitioner’s
knowledge or reason to know that intervenor would not pay the tax
liabilities. See Rev. Proc. 2003-61, sec. 4.03(2)(b)(i), 2003-2
C.B. 296, 299.
                                - 15 -

V.     Significant Benefit

       The IRS will consider whether the requesting spouse received

significant benefit beyond normal support as a result of the

unpaid tax liability.    Id., sec. 4.03(2)(a)(v), 2003-2 C.B. at

299.

       Respondent has not argued and there is no evidence

indicating that petitioner received a significant benefit as a

result of the unpaid liabilities.    Therefore, the Court concludes

that this factor weighs in favor of relief.      See Magee v.

Commissioner, T.C. Memo. 2005-263 (lack of significant benefit

weighs in favor of relief under Rev. Proc. 2003-61).

VI.    Compliance With Federal Tax Laws

       The IRS will take into consideration whether the requesting

spouse has made a good-faith effort to comply with the Federal

tax laws in the succeeding years.    See Rev. Proc. 2003-61, sec.

4.03(2)(a)(vi), 2003-2 C.B. at 299.      Petitioner has filed all

required Federal income tax returns since her separation and

divorce from intervenor.

       We conclude petitioner has made a good-faith attempt to

comply with Federal tax laws.    This factor weighs in favor of

granting relief.

VII. Abuse and Mental or Physical Health

       Abuse and mental or physical health are factors that, if

present, will weigh in favor of relief but will not weigh against
                                - 16 -

relief if not present.    See id., sec. 4.03(2)(b), 2003-2 C.B. at

299.    When examining the requesting spouse’s mental or physical

health at the time of the signing of the returns or the request

for relief, the nature, extent, and duration of his or her

illness will be taken into account.      Id.

       A.   Abuse

       In seeking relief petitioner claimed on her Form 8857 that

she had been abused.     Petitioner and Ms. Sweet, petitioner’s

mother, testified that intervenor abused both petitioner and the

couple’s son.    Intervenor denied all allegations of abuse.   Mr.

Nurnberger, intervenor’s employer, testified that he had known

intervenor and petitioner since 1991, had been in social

situations with them, and had never seen intervenor be abusive

towards any of intervenor’s family members.     While the testimony

of the witnesses does little more than present contradictory

viewpoints, two facts seem to rise above the fray.

       The first is that petitioner was afraid to meet intervenor

alone when it came time to sign the returns.     Petitioner asked

her adult niece to accompany her on that errand.     The second is

that there is one documented charge of misdemeanor domestic

assault against intervenor.

       We find that there was evidence of abuse against petitioner.

This factor weighs in favor of granting relief.
                              - 17 -

     B.    Mental or Physical Health

     Petitioner presented evidence that she suffered from

depression and anxiety and that she had prescription medication

for treatment of her mental health.     We have no reason to

question petitioner’s need of this medication.     At the time of

trial petitioner was also disabled by injuries from an automobile

accident in 1998.   The injuries and associated pain appear to be

chronic.   Petitioner’s mental and physical health at the time of

trial weigh in favor of granting relief.

                            Conclusion

     Upon examination of the factors, only knowledge or reason to

know and the nonrequesting spouse’s legal obligation weigh

against granting relief.   When these two factors are balanced

against the factors of petitioner’s mental and physical health,

her economic hardship, and the abuse she suffered, the factors

weigh in favor of granting petitioner relief.

     We have considered all of the parties’ arguments, and, to

the extent not addressed herein, we conclude the arguments to be

moot, irrelevant, or without merit.

     To reflect the foregoing,


                                            Decision will be entered

                                       for petitioner.
