                  T.C. Summary Opinion 2005-84



                     UNITED STATES TAX COURT



              SHUANG-DI SUN BENNETT, Petitioner v.
          COMMISSIONER OF INTERNAL REVENUE, Respondent



     Docket No. 6291-03S.             Filed June 16, 2005.


     Shuang-Di Sun Bennett, pro se.

     Elaine T. Fuller, for respondent.



     PANUTHOS, Chief Special Trial Judge:   This case was heard

pursuant to the provisions of sections 6330(d) and 7463 of the

Internal Revenue Code in effect when the petition was filed.   The

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

this opinion should not be cited as authority.   Unless otherwise

indicated, all subsequent section references are to the Internal

Revenue Code in effect at relevant times.   All Rule references

are to the Tax Court Rules of Practice and Procedure.
                                 - 2 -

       Respondent issued to petitioner a Notice of Determination

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

(notice of determination), in which respondent sustained a

proposed levy to collect petitioner’s unpaid 1998 tax liability

following an administrative hearing.      The issues for decision

are:    (1) Whether, in the context of this collection action,

petitioner is liable for the underlying tax for the taxable year

1998 and, if so, (2) whether respondent may proceed with

collection.

                             Background

       Some of the facts have been stipulated, and they are so

found.    The stipulation of facts, the supplemental stipulation of

facts, and the attached exhibits are incorporated by this

reference.    At the time of filing the petition, petitioner

resided in Monterey Park, California.

       Petitioner is a native of Shanghai, China.    In December

1993, petitioner married Alva D. Bennett (Mr. Bennett), a U.S.

citizen, and she immigrated to the United States in September

1994.    As described by petitioner, Mr. Bennett went to Shanghai

to marry her, and then “picked [her] up from the airport” a

little less than a year later.    At some point in 1999, petitioner

discovered that Mr. Bennett was having an extramarital affair.

Petitioner suspects that the extramarital affair began much

earlier than 1999.    Petitioner continued to reside in the same
                                 - 3 -

house as Mr. Bennett until May 8, 2000, the date their divorce

became final.

     Petitioner spoke little or no English when she immigrated to

the United States.    Even at the time of trial petitioner had

somewhat limited proficiency in English.    She placed her trust in

and completely relied on Mr. Bennett to manage their household

and financial matters.    She often signed documents at the request

of Mr. Bennett without knowing or understanding what she was

signing.    During the year at issue, Mr. Bennett was employed as

general manager of and possibly had an ownership interest in

Premium Fresh Juice & Food Co. (Premium Fresh Juice).

     During the tax year 1998, petitioner and Mr. Bennett were

married and living together in California, a community property

State.     Petitioner and Mr. Bennett filed separate Federal income

tax returns for 1998, each claiming a filing status of married

filing separately.    Petitioner’s 1998 return provided Mr.

Bennett’s name and Social Security number.    The return reported

gross income of $34,288 ($31,385 of taxable wages, $723 of

taxable interest, and $2,180 from a taxable IRA distribution), a

total tax of $3,372, total payments of $624, and a tax due of

$2,870.1    Attached to her 1998 return was a Form W-2, Wage and

Tax Statement, from Columbia Cleaning Co. (Columbia Cleaning),


     1
        The tax due reflected a $122 estimated tax penalty.
Petitioner claimed $8,546 in itemized deductions for the year and
a deduction of $2,000 for an IRA contribution.
                                 - 4 -

reporting that petitioner was paid wages of $19,384.68 in 1998.2

Petitioner failed to pay the amount of tax reported on her 1998

return.

     Petitioner’s 1998 return was prepared by a professional tax

preparer on October 20, 1999, and petitioner purportedly signed

and dated it on October 21, 1999.    However, her return was not

filed until December 13, 2000, a date occurring after petitioner

and Mr. Bennett were divorced.    She had not previously filed an

application for an extension of time to file a return.

Respondent accepted petitioner’s return as it was filed and

assessed the income tax liability reported therein as well as an

addition to tax for filing a delinquent return, an addition to

tax for failing to pay a tax shown on a return, and interest.

Respondent did not issue petitioner a statutory notice of

deficiency for 1998.   Although petitioner was a married

individual living in a community property State and filed a

return as “married filing separately”, respondent did not

determine or assess a tax based upon her one-half share of

community income.

     On his separate 1998 return, also filed on December 13,

2000, Mr. Bennett reported gross income of $57,138, taxable

income of $50,534, and a total tax due of $11,394.    Mr. Bennett’s



     2
        Other third-party information reported that petitioner
earned wages of $13,626 in 1998.
                               - 5 -

1998 return was not introduced into the record.   Transcripts of

account reflect that Mr. Bennett’s gross income included $40,054

of wages and $4,834 of taxable interest, and he claimed $1,904 in

itemized deductions.   Mr. Bennett also failed to pay the amount

of tax reported on his separate return, and respondent assessed

the tax liability reported therein.    As with petitioner’s return,

respondent did not determine or assess a tax based on Mr.

Bennett’s share of community income.   Respondent has initiated a

separate collection activity against Mr. Bennett.3

     On February 12, 2001, respondent issued to petitioner a

written request for payment of her 1998 tax liability.

Petitioner contacted respondent to discuss her tax liability.   In

correspondence received by respondent on November 20, 2001,

petitioner wrote:

     1) * * * I also never worked for Columbia Cleaning
     Company. My ex-husband had partners who ownd [sic]
     this company and he told them to prepare this W-2 form.

     2) My ex-husband prepared the ‘98 & ‘99 tax forms for
     me to sign and I didn’t know what I was signing.

     3) I went to Columbia Cleaning Company on 11-19-01 and
     asked them for an amended W-2 form but they refused to
     give me one.




     3
        The collection of Mr. Bennett’s unpaid 1998 tax
liability, as assessed, is not at issue in this case. The income
reflected on Mr. Bennett’s return is relevant only for purposes
of determining petitioner’s underlying tax liability under
California’s community property laws.
                               - 6 -

     On June 17, 2001, petitioner submitted an amended 1998

return, on which she reported no taxable income, no taxes

withheld, and a tax liability of zero.   Petitioner did not submit

a corrected Form W-2 with the amended return.   Petitioner’s

amended 1998 return was received on June 17, 2001, but respondent

did not process the amended return.

     On March 12, 2002, respondent issued to petitioner a Final

Notice--Notice of Intent to Levy and Notice of Your Right to a

Hearing.   Petitioner timely filed a Form 12153, Request for a

Collection Due Process Hearing, on which petitioner stated, in

pertinent part:

     I came to U.S.A. 9-1-1994 and I have never worked at
     all. My ex-husband put me on his partner’s company
     payroll for insurance but I have never received any pay
     from any source. * * * He prepared the tax form for my
     signature and I signed it without looking at or
     understanding the form. I had no income from any job
     in 1998. My request for an amended W-2 Form was
     refused. * * *

     On September 10, 2002, an administrative hearing was held

between petitioner and a hearing officer from the IRS Office of

Appeals.   On March 21, 2003, respondent issued to petitioner the

notice of determination.   In the notice, respondent determined

that it was appropriate to proceed with collection.   The notice

provided the following explanation, in pertinent part:

     The taxpayer appeared for the conference and reiterated
     the argument presented in the Request for a Collection
     Due Process Hearing. The taxpayer was given an
     opportunity to provide evidence to support her argument
     that she did not earn wages [from] her former husband’s
                              - 7 -

     company. The taxpayer failed to respond. A follow-up
     letter was sent on January 20, 2002 but was returned
     undeliverable. The follow-up letter was sent a second
     time on February 6, 2003 in case the Post Office made a
     mistake. The follow-up letter was returned again
     undeliverable. I am processing this case based on the
     facts in the file since the taxpayer has failed to
     provide any evidence.

     No other issues were raised.   Compliance followed the
     proper procedures.

Petitioner timely filed with the Court a petition for lien and

levy action pursuant to section 6330(d).4

     At trial, respondent introduced into the record paychecks

made out to petitioner in 1998.   The paychecks included 12 checks

from Trojan Management Co. (Trojan Management) totaling $10,099

and 41 checks from Columbia Cleaning totaling $15,757.12.5

Executive officers from Trojan Management and Columbia Cleaning

testified that they issued paychecks to petitioner as payroll

agents for Premium Fresh Juice and that petitioner did not work




     4
        We note that respondent filed a motion for summary
judgment on Nov. 14, 2003, on the basis that petitioner could not
challenge a self-assessed tax liability under sec. 6330(c)(2)(B).
Following this Court’s Opinion in Montgomery v. Commissioner, 122
T.C. 1 (2004), we denied respondent’s motion for summary
judgment. By order dated Jan. 27, 2004, we remanded this case to
the IRS Appeals Office for further consideration of the
underlying tax liability reported on petitioner’s original
return. In a status report, filed Mar. 29, 2004, respondent
advised that upon reconsideration he had concluded that
petitioner was liable for the full tax and penalty as assessed.
     5
         The checks purported to represent net wages after
withholding of taxes and other miscellaneous deductions.
                                - 8 -

for either Trojan Management or Columbia Cleaning in 1998.6

Furthermore, in their capacity as payroll agents, they did not

independently verify whether petitioner performed services for

Premium Fresh Juice but issued paychecks to her based solely on

payroll information provided to them by Mr. Bennett.    As

explained by the president of Trojan Management:   “Mr. Bennett

asked us to put Ms. Bennett on our payroll, and the juice company

would reimburse us, plus pay us our profit that we normally

charge for such services”.

     The paychecks were deposited into joint bank accounts

belonging to petitioner and Mr. Bennett at Bank of America and

Mercantile National Bank.    Petitioner had signatory authority on

these joint accounts.   Petitioner examined the paychecks and

stated that the endorsement signatures were not hers.    Respondent

admitted that there was a “substantial question about whether

[the endorsements were] petitioner’s signature”.

     In addition to the joint bank accounts, petitioner

maintained a separate bank account at Bank of America in 1998.

Petitioner kept a modest combined balance in standard checking

and regular savings accounts ranging from a combined balance of

approximately $600 to $3,641.   Petitioner also maintained



     6
        The function of payroll agent was explained at trial by
the president of Trojan Management: “Trojan Management provided
payroll services, where we prepared payroll checks, payroll tax
deposits, for Mr. Bennett’s company, Premium Fresh Juice.”
                                - 9 -

certificate of deposit accounts at Bank of America with a

combined balance ranging from approximately $10,000 to $12,050

during the year.   Most of the deposits into petitioner’s

individual accounts came from checks written by Mr. Bennett from

their joint bank accounts.7

                              Discussion

I.   General Rules--Lien and Levy

      Section 6331(a) authorizes the Commissioner to levy upon

property and property rights where a taxpayer liable for taxes

fails to pay them within 10 days after notice and demand for

payment.   Before the Commissioner can proceed with a levy,

section 6331(d) requires the Secretary to send to the taxpayer a

written notice of intent to levy, and section 6330 entitles the

taxpayer to an administrative hearing conducted by an impartial

hearing officer from the Office of Appeals.

      Section 6330(c)(2)(A) provides that the taxpayer may raise

any relevant issue with regard to the Commissioner’s collection

activities, including spousal defenses, challenges to the

appropriateness of the intended collection action, and

alternative means of collection.    Additionally, the taxpayer may

challenge the existence or amount of the underlying tax

liability, including a liability reported by the taxpayer on an



      7
        Petitioner earned $608 of the taxable interest in 1998
from her accounts at Bank of America.
                                - 10 -

original return, if the taxpayer “did not receive any statutory

notice of deficiency for such tax liability or did not otherwise

have an opportunity to dispute such tax liability.”   Sec.

6330(c)(2)(B); see also Montgomery v. Commissioner, 122 T.C. 1,

9-10 (2004).

     A taxpayer may appeal the Commissioner’s administrative

determination to this Court, and we have jurisdiction with

respect to such an appeal so long as we generally have

jurisdiction over the type of tax involved in the case.     Sec.

6330(d); Iannone v. Commissioner, 122 T.C. 287, 290 (2004).        If

the underlying tax liability is properly at issue, the Court will

review that issue de novo.   See Sego v. Commissioner, 114 T.C.

604, 610 (2000); Goza v. Commissioner, 114 T.C. 176, 181 (2000).

If the validity of the underlying tax liability is not properly

at issue, the Court will review the Commissioner’s determination

for abuse of discretion.   See Sego v. Commissioner, supra at 610;

Goza v. Commissioner, supra at 181.

     We have jurisdiction over petitioner’s appeal because the

underlying tax liability relates to Federal income taxes.     See

sec. 6330(d)(1); Montgomery v. Commissioner, supra at 9-10;

Landry v. Commissioner, 116 T.C. 60, 62 (2001).    At her

administrative hearing, petitioner challenged the existence of

her underlying tax liability.    Since petitioner did not receive a

statutory notice of deficiency and did not otherwise have an
                                - 11 -

opportunity to challenge her tax liability before her

administrative hearing, we review petitioner’s underlying tax

liability de novo.

      In a trial de novo, our findings and conclusions concerning

a taxpayer’s liability must be based on the merits of a case

without deference to the determination reached at the

administrative level.    See Ewing v. Commissioner, 122 T.C. 32,

37-38 (2004); Jones v. Commissioner, 97 T.C. 7, 18 (1991).

Although petitioner resided in a community property State and

filed her return as “married filing separate”, respondent did not

determine or assess a tax based upon petitioner’s share of

community income and, consequently, there was no consideration of

the issue in the notice of determination.      Since our task in a

trial de novo is to arrive at a conclusion of the correct amount

of a taxpayer’s underlying tax liability, we apply Federal income

tax principles as they relate to the taxpayer’s share of

community income.

II.   De Novo Review of Petitioner’s Underlying Tax Liability

      A.   Community Property--General Rules

      Generally, a spouse residing in a community property State

has a vested interest in and is owner of one-half of both

spouses’ community property.     United States v. Mitchell, 403 U.S.

190, 196 (1971).     California law defines community property as

all property, real or personal, wherever situated, acquired by a
                                - 12 -

married person during the marriage while domiciled in California.

Cal. Fam. Code sec. 760 (West 2004).     Under California law, there

is a rebuttable presumption that all property acquired during

marriage is community property.    Hanf v. Summers, 332 F.3d 1240,

1242-1243 (9th Cir. 2003); Haines v. Haines, 39 Cal. Rptr. 2d

673, 681 (Ct. App. 1995).    It follows that there is a rebuttable

presumption that all income derived during the marriage while

domiciled in California is community property.     See, e.g., Dooley

v. Commissioner, T.C. Memo. 1992-39.      Since Federal income tax

liability follows ownership with respect to income, there is a

rebuttable presumption that any income derived in a marriage in

California is taxable as community income.     See United States v.

Mitchell, supra at 197.

     Spouses who reside in a community property State may file

either a joint Federal income tax return or separate Federal

income tax returns.   If separate returns are filed, then

generally each spouse must report and pay tax on one-half of the

community income, regardless of whether the spouse actually

received that income.     Id. at 196-197; Hardy v. Commissioner, 181

F.3d 1002 (9th Cir. 1999), affg. T.C. Memo. 1997-97; Bernal v.

Commissioner, 120 T.C. 102, 105-106 (2003).

     B.   Petitioner’s Community Income

     The potential sources of community income in this case are:

(1) The items of income reported on petitioner’s return totaling
                                - 13 -

$34,288 and (2) the items of income reported on Mr. Bennett’s

return totaling $57,138.    Unless petitioner can rebut the

presumption under California law that these items are community

property, the Bennetts’ total community income for 1998 was

$91,426, and petitioner’s one-half share of community income was

$45,713, as follows:

   Item of Community Income     Total Amount   Petitioner’s Share

    Petitioner’s “wages”          $31,385        $15,692.50
    Petitioner’s interest             723            361.50
    Petitioner’s IRA                2,180          1,090.00
      Total (petitioner)           34,288         17,144.00

    Husband’s wages                40,054         20,027.00
    Husband’s interest              4,834          2,417.00
    Husband’s other income         12,250          6,125.00
      Total (husband)              57,138         28,569.00
        Petitioner’s share                       $45,713.00
          of community income

     There is no evidence in the record to rebut the presumption

that any of the items of income listed above were community

property.   While petitioner contends that she did not work for

Premium Fresh Juice in 1998 and that she should not owe taxes on

any portion of the $31,385 in wages, she does not dispute that

paychecks were issued in her name and deposited into joint bank

accounts over which she had signatory authority.     As a result,

legal title to the purported wages passed to the Bennetts in

1998, and they are properly included in the Bennetts’ community

income for 1998.8


     8
         There is no evidence in the record that Premium Fresh
                                                    (continued...)
                                  - 14 -

III.       Statutory Relief Under Section 66

       Having concluded that petitioner’s share of community income

is $45,713, we consider the application of section 66.       Under

certain circumstances, section 66 provides that a taxpayer may be

relieved of liability on community income.       Section 66(a)

addresses the treatment of community income in the case of

spouses who live apart.       Section 66(b) allows the Secretary to

disallow the benefits of community property laws if the taxpayer

acted as if he or she were solely entitled to the income and

failed to notify his or her spouse of the nature and amount of

the income before the due date for filing the return.       Section

66(c) provides a taxpayer with relief if certain circumstances

are satisfied.

       Under the circumstances of the present case, petitioner is

not eligible for the type of relief provided by section 66(a) and

(b).       Section 66(a) does not apply because petitioner and Mr.

Bennett lived together in 1998.       Section 66(b) allows the

Commissioner to disregard the benefits of community property

laws, and in the present case, petitioner is seeking relief from




       8
      (...continued)
Juice considered any of the payments as improper or illegally
issued.
                              - 15 -

community income.9   Consequently, we need to consider only relief

under section 66(c).

     To qualify for statutory relief under section 66(c),

petitioner must satisfy all four conditions provided in

paragraphs (1)-(4) of section 66(c).   In particular, section

66(c) provides:

          SEC. 66(c). Spouse Relieved of Liability in
     Certain Other Cases.-- Under regulations prescribed by
     the Secretary, if–-

               (1) an individual does not file a joint
          return for any taxable year,

               (2) such individual does not include in
          gross income for such taxable year an item of
          community income properly includible therein
          which, in accordance with the rules contained
          in section 879(a), would be treated as the
          income of the other spouse,

               (3) the individual establishes that he
          or she did not know of, and had no reason to
          know of, such item of community income, and

               (4) taking into account all facts and
          circumstances, it is inequitable to include
          such item of community income in such
          individual’s gross income,

     then, for purposes of this title, such item of
     community income shall be included in the gross income
     of the other spouse (and not in the gross income of the
     individual). Under procedures prescribed by the
     Secretary, if, taking into account all the facts and
     circumstances, it is inequitable to hold the individual
     liable for any unpaid tax or any deficiency (or any


     9
        Sec. 66(b) is not a relief provision and can be used only
by the Commissioner to disallow the benefits of community
property laws to a taxpayer. It cannot be used by a taxpayer to
claim relief from community property.
                              - 16 -

     portion of either) attributable to any item for which
     relief is not available under the preceding sentence,
     the Secretary may relieve such individual of such
     liability.

     A.   The Items of Community Income From Petitioner’s Return
          Fail To Satisfy Section 66(c)(2)

     Section 66(c)(2) provides that petitioner must not have

included in gross income an item of community income properly

includable therein, which, in accordance with the rules contained

in section 879(a), would be treated as the income of Mr. Bennett.

As it relates to the items of community income reflected on her

1998 return ($31,385 of “wages”, $723 of taxable interest, and

$2,180 of IRA distributions), petitioner fails to satisfy either

of the conditions for relief under section 66(c)(2).

     The first condition, that petitioner must not “include in

gross income for such taxable year an item of community income

properly includible therein”, is not satisfied because

petitioner’s original 1998 return reported the items of community

income from which she seeks relief.    Although petitioner

subsequently submitted an amended “zero return” claiming no

income, this amended return does not negate the filing of the

original return.

     Even if her amended return were sufficient to satisfy the

first requirement of section 66(c)(2), petitioner would not

satisfy the second requirement that the items of community income

“would be treated as the income of the other spouse” in
                               - 17 -

accordance with the rules provided in section 879(a).    Section

879(a) provides that (1) “earned income”10 is attributable to the

spouse who performed the services; (2) trade or business income

is attributable in accordance with section 1402(a)(5); (3)

community income not described in either (1) or (2) which is

derived from the spouse’s separate property is attributable to

that spouse; and (4) all other items of community income are

attributable in accordance with the applicable community property

law.    We conclude that the correct classification of all the

items of community income reported on petitioner’s return is

under the category of “other such community income” under section

879(a)(4).    Although payroll agents acting on behalf of Premium

Fresh Juice reported that petitioner earned $31,385 of wages in

1998, the payroll agents did not verify that petitioner performed

services for Premium Fresh Juice and acted solely on the basis of

payroll information submitted to them by Mr. Bennett.

Petitioner’s testimony that she never worked for Mr. Bennett’s

company was credible, and as a result, we find that the $31,385

is correctly classified as “other such community income” rather

than wages.    The taxable interest and the IRA distribution also




       10
        For purposes of sec. 879(a), “earned income” is defined
by reference to sec. 911(d)(2), which provides that the term
means “wages, salaries, or professional fees, or and other
amounts received as compensation for personal services actually
rendered”.
                                - 18 -

do not fit one of the other categories of section 879(a), and are

also classified as “other such community income”.

     Other such community income is treated under the applicable

community property law.   Therefore, the half of the $34,288 of

community income reported on petitioner’s return, or $17,144,

cannot be treated as Mr. Bennett’s income, and she is not

entitled to further relief under section 66(c)(2).

     B.   The Items of Community Income From Mr. Bennett’s Return
          Fail To Satisfy Section 66(c)(3)

     Section 66(c)(3) provides that petitioner must establish

that she did not know, and had no reason to know, of the

community income.    With regard to the items of community income

reflected on Mr. Bennett’s return ($40,054 of wages, $4,834 of

taxable interest, and $12,250 of other income), petitioner does

not satisfy section 66(c)(3).

     A taxpayer’s knowledge of an item of community income must

be determined with reference to her knowledge of the particular

income-producing activity.    See McGee v. Commissioner, 979 F.2d

66, 70 (5th Cir. 1992), affg. T.C. Memo. 1991-510; Hardy v.

Commissioner, T.C. Memo. 1997-97, affd. 181 F.3d 1002 (9th Cir.

1999).    Petitioner was aware that Mr. Bennett was employed by

Premium Fresh Juice and was aware that his wages were used to pay

their household living expenses.    While petitioner may not have

known the precise amount of Mr. Bennett’s salary, she had

knowledge of his employment.    Accordingly, we find that
                               - 19 -

petitioner knew, or had reason to know, about Mr. Bennett’s wages

of $40,054.

      Similarly, in regard to her share of the $4,834 of taxable

interest, petitioner was aware that the couple had joint bank

accounts.   As a result, petitioner knew, or had reason to know,

of the taxable interest income.

      With regard to her share of the remaining $12,250 of

unidentified community income, we do not have enough information

to evaluate whether petitioner knew or had reason to know of this

income.    Therefore, for purposes of section 66(c)(3), petitioner

has not established that she did not know, and had no reason to

know, of the unidentified income.

      Accordingly, we hold that she is not entitled to relief from

any of the items of community income reported on Mr. Bennett’s

return under section 66(c)(3).

IV.   Equitable Relief Under the Flush Language of Section 66(c)

      The flush language of section 66(c) provides:

      Under procedures prescribed by the Secretary, if,
      taking into account all the facts and circumstances, it
      is inequitable to hold the individual liable for any
      unpaid tax or any deficiency (or any portion of either)
      attributable to any item for which relief is not
      available under the preceding sentence, the Secretary
      may relieve such individual of such liability.[11]


      11
        The flush language providing equitable relief was added
to sec. 66(c) as part of the Internal Revenue Service
Restructuring and Reform Act of 1998, Pub. L. 105-206, sec. 3201,
112 Stat. 734, the same section of the same legislation that
                                                   (continued...)
                              - 20 -

     Generally, a spouse has to submit a request for relief under

the equitable relief provision of section 66(c) on Form 8857,

Request for Innocent Spouse Relief.    See Rev. Proc. 2003-61,

2003-2 C.B. 296; Rev. Proc. 2000-15, 2000-1 C.B. 447.    However,

since respondent did not seek until trial to collect a tax based

upon community property principles, petitioner had no reason to

submit a Form 8857 or request equitable relief until trial.

Since respondent did not consider equitable relief for petitioner

under section 66(c), we view section 66(c) as an affirmative

defense and may review respondent’s denial of that relief.    See

Rules 39, 41(a); Butler v. Commissioner, 114 T.C. 276, 287-288

(2000) (discussing jurisdiction under section 6015(f)).

     We review the Commissioner’s denial of equitable relief

under section 66(c) under an abuse of discretion standard.       Beck

v. Commissioner, T.C. Memo. 2001-198.    We previously stated that

our determination of petitioner’s tax liability takes place in a

trial de novo.   See supra p. 11.   Where the Commissioner has not

previously considered equitable relief, and our review of the

Commissioner’s determination is for an abuse of discretion in a

trial de novo, we have jurisdiction to determine whether



     11
      (...continued)
created the similar equitable relief provision under sec.
6015(f). Accordingly, cases interpreting our jurisdiction under
sec. 6015(f) provide guidance on interpreting our jurisdiction
under the equitable relief provision of sec. 66(c). See Beck v.
Commissioner, T.C. Memo. 2001-198.
                               - 21 -

equitable relief is appropriate.    See Ewing v. Commissioner, 122

T.C. at 38-39, 43-44 (discussing jurisdiction under section

6015(f)).    Our determination is not limited to matter in the

administrative record, and we consider equitable relief within

the guidelines that the Commissioner has published.    Id. at 43-

44.

      As directed by section 66(c), the Secretary has prescribed

factors in Rev. Proc. 2003-61, supra,12 that the Commissioner

will consider in determining whether an individual qualifies for

equitable relief under the flush language of section 66(c).      Rev.

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

“nonexclusive list of factors” that the Commissioner will

consider in determining whether, taking into account all the

facts and circumstances, it is inequitable to hold the spouse

requesting relief liable for all or part of the unpaid tax

liability.   Rev. Proc. 2003-61, sec. 4.03(2)(a), provides that

the following factors are relevant to whether the Commissioner

will grant equitable relief:   (1) Marital status, (2) economic

hardship, (3) knowledge or reason to know, (4) the nonrequesting



      12
        Rev. Proc. 2003-61, 2003-2 C.B. 296, supersedes Rev.
Proc. 2000-15, 2000-1 C.B. 447. Rev. Proc. 2003-61, supra, is
effective for requests for relief filed on or after Nov. 1, 2003,
and for requests for relief pending on Nov. 1, 2003, for which no
preliminary determination letter has been issued as of Nov. 1,
2003. Because respondent has not issued a determination letter
in this case regarding equitable relief under sec. 66(c), Rev.
Proc. 2003-61, supra, applies to this case.
                               - 22 -

spouse’s legal obligation, (5) significant benefit, (6)

compliance with income tax laws, (7) abuse, and (8) mental or

physical health.    Further, Rev. Proc. 2003-61, supra, provides

that no single factor will be determinative, but that all

relevant factors, regardless of whether the factor is listed in

Rev. Proc. 2003-61, sec. 4.03, will be considered and weighed.

     A.   Marital Status

     Rev. Proc. 2003-61, supra, provides that petitioner’s

marital status is a factor in determining whether a spouse should

be granted equitable relief.    Petitioner and Mr. Bennett divorced

on May 8, 2000, and her divorce weighs in favor of granting

equitable relief under section 66(c).

     B.   Economic Hardship

     Whether a spouse will suffer economic hardship if equitable

relief is not granted under section 66(c) is a factor which may

be considered pursuant to Rev. Proc. 2003-61, supra.    Economic

hardship exists if a levy will cause a taxpayer to be unable to

pay his or her reasonable basic living expenses.   Sec. 301.6343-

1(b)(4), Proced. & Admin. Regs.

     In this case, we are unable to properly evaluate whether

petitioner would suffer economic hardship if equitable relief

were not granted.    While petitioner testified that she was

economically dependent upon Mr. Bennett during their marriage, we

are not aware of petitioner’s current employment situation or
                               - 23 -

expenses.   Given the paucity of information in the record, we

view this factor as neutral.

     C.   Knowledge or Reason To Know

     A spouse’s knowledge, or reason to know, of the income from

which she seeks relief is a factor in determining whether the

spouse should be granted equitable relief.   In evaluating whether

a spouse had reason to know of an item of community income, Rev.

Proc. 2003-61, supra, provides that we may consider the spouse’s

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

degree of involvement in the activity generating the tax

liability, her involvement in business and household financial

matters, and her business or financial expertise.

     Petitioner was undeniably an unsophisticated spouse with

respect to business and household financial matters.   Petitioner

did not speak English when she immigrated to the United States in

1994 and had no prior experience with financial matters or with

running a household.   Further, it is undeniable that Mr. Bennett

exercised complete control over their financial matters.   Mr.

Bennett filed income tax returns and was responsible for

virtually all matters relating to their household finances.

Petitioner often signed documents at the request of Mr. Bennett

without knowing or understanding what she was signing.   Mr.

Bennett forbade petitioner to open mail that arrived at their

home, to review bank statements from their joint bank accounts,
                               - 24 -

and to withdraw money or to write checks from their joint bank

accounts.13

          1. Knowledge, or Reason To Know, About the Items of
             Community Income Reported on Petitioner’s Return

     Petitioner did not argue that she did not know about the

$723 of interest income or the $2,180 in distributions from her

IRA that were reported on her return.

     However, with respect to the $31,385 of wages petitioner

purportedly earned from Premium Fresh Juice, petitioner testified

that Mr. Bennett placed her on his company’s payroll without her

knowledge.14   In evaluating whether petitioner knew, or had


     13
        We have granted relief from joint and several liability
on a joint return in cases involving an unsophisticated spouse
and a controlling spouse who misled, controlled, or hid financial
matters from the unsophisticated spouse. See, e.g., Guth v.
Commissioner, 897 F.2d 441, 442 (9th Cir. 1990), affg. T.C. Memo.
1987-522; Price v. Commissioner, 887 F.2d 959 (9th Cir. 1989);
Laird v. Commissioner, T.C. Memo. 1994-564. These cases involved
relief from joint and several liability on a joint return
pursuant to former sec. 6013 and sec. 6015 rather than relief
under sec. 66. However, we believe that interpretations of
spousal relief from joint liability are instructive to our
interpretation of equitable relief from community income. See,
e.g., Beck v. Commissioner, T.C. Memo. 2001-198.
     14
        Although we previously concluded that petitioner had
knowledge or reason to know of Mr. Bennett’s wages from Premium
Fresh Juice for purposes of sec. 66(c)(3) because a taxpayer’s
knowledge of a particular item of community income is determined
with reference to knowledge of a particular income-producing
activity, see supra pp. 18-19, that conclusion has no bearing on
the wages purportedly earned by petitioner. Although both
petitioner’s purported wages and Mr. Bennett’s wages were from
Premium Fresh Juice, they are distinctly different. We have
concluded that petitioner, unlike Mr. Bennett, did not perform
services for Premium Fresh Juice and, thus, amounts paid to her
                                                   (continued...)
                              - 25 -

reason to know, about the purported wages from Premium Fresh

Juice, we must determine:   (1) Whether the payroll checks issued

in petitioner’s name and deposited into petitioner and Mr.

Bennett’s joint bank account gave petitioner knowledge, or reason

to know, of the purported wages, (2) whether petitioner’s 1998

return, which reported these wages from Premium Fresh Juice, gave

petitioner knowledge, or reason to know, of the purported wages,

and (3) whether the Form W-2 issued to petitioner from Columbia

Cleaning (as payroll agent for Premium Fresh Juice) gave

petitioner knowledge, or reason to know, of the purported wages.

     Although the payroll checks were issued in petitioner’s name

and deposited into joint accounts with her purported endorsement

signature, petitioner testified that she never saw, and certainly

did not endorse for deposit, the payroll checks.   Further,

petitioner testified that she did not have access to monthly bank

statements and was forbidden by Mr. Bennett to access the

accounts.   We found petitioner’s testimony to be credible and

trustworthy.   Given Mr. Bennett’s position as general manager of

Premium Fresh Juice, and his control over their household and



     14
      (...continued)
from Premium Fresh Juice are not wages. In addition, there is no
indication that petitioner’s purported wages were actually the
wages of Mr. Bennett. Accordingly, we do not impute to
petitioner knowledge of the $31,385 of purported wages reported
on her return by virtue of the fact that Mr. Bennett worked for
the company.
                                - 26 -

financial matters, we conclude that petitioner did not have

knowledge about the purported wages reported in her name from

Premium Fresh Juice.

     A taxpayer may be charged with constructive knowledge of the

content of a return even when he or she signs an original return

without reviewing or understanding its contents.      Hayman v.

Commissioner, 992 F.2d 1256, 1262 (2d Cir. 1993), affg. T.C.

Memo. 1992-228; Levin v. Commissioner, T.C. Memo. 1987-67.        The

appropriate standard to be applied in determining whether a

taxpayer has constructive knowledge is whether a reasonable

person under the circumstances of the taxpayer at the time of

signing the return could be expected to know.    Terzian v.

Commissioner, 72 T.C. 1164, 1170 (1979); Levin v. Commissioner,

supra.15   As we stated earlier, petitioner was unsophisticated in

regard to financial matters, and she had a limited proficiency in

English.    She frequently signed documents at the request of Mr.

Bennett without understanding what she was signing.     We do not

believe that petitioner willingly turned a blind eye to the

contents of her return, but rather that she was not in a position

to understand the return and trusted Mr. Bennett to prepare

accurate returns on her behalf.

     Finally, we conclude that the Form W-2 issued to petitioner

from Columbia Cleaning did not provide petitioner with knowledge


     15
           See supra note 13 and accompanying text.
                              - 27 -

or reason to know of her purported wages.   We previously found

that Mr. Bennett forbade her to open mail and thus, we believe

petitioner’s testimony that she never saw the Form W-2.

     In sum, we conclude that petitioner did not have knowledge,

or reason to know, of the $31,385 of purported wages, but that

she knew, or had reason to know, of the $723 of taxable interest

and $2,180 of income from an IRA distribution.   This factor

weighs in favor of equitable relief with respect to the wage

income, but against granting equitable relief from the taxable

interest and IRA distributions reported on her original return.

          2. Knowledge, or Reason To Know, About the Items of
             Community Property Reported on Mr. Bennett’s Return

     We have previously held during our discussion on section

66(c)(3) that petitioner had knowledge, or reason to know, about

Mr. Bennett’s wages and the interest income reported on his

return.   With respect to the $6,125 of unidentified income

reported on Mr. Bennett’s return, we were unable to determine

whether petitioner knew of these items, but held for purposes of

section 66(c)(3) that petitioner could not establish that she did

not know, or have reason to know, about the income.   Thus, in

regard to Mr. Bennett’s wages and taxable interest, this factor

weighs against equitable relief but is relatively neutral with

respect to the $6,125 of unidentified income reported on Mr.

Bennett’s return because we do not have enough information to

evaluate her knowledge or reason to know.
                                - 28 -

     D.   Other Spouse’s Legal Obligation

     No evidence was introduced in the case regarding Mr.

Bennett’s legal obligation pursuant to a divorce decree or

agreement.   We regard this factor as neutral.

     E.   Significant Benefit

     Whether petitioner received a significant benefit (beyond

normal support) from the items of community income is a factor to

consider in weighing petitioner’s eligibility for equitable

relief.   The balances from petitioner’s individual bank accounts

and joint bank accounts with Mr. Bennett were modest, and even

though petitioner had certificates of deposit on account ranging

in value from $10,000 to $12,050 during the year, there is no

evidence to suggest that petitioner lived a lavish lifestyle or

had extravagant expenses.   Rather, Mr. Bennett controlled all of

the couple’s accounts, regardless of in whose name the account

was held.    Therefore, we conclude that petitioner did not receive

a significant benefit beyond normal support from the items of

community income.

     Therefore, this factor weighs in favor of relief from the

items of community income from both petitioner’s return and Mr.

Bennett’s return.
                                 - 29 -

     F.    Compliance With Income Tax Laws

     There is no evidence regarding petitioner’s compliance with

income tax laws in subsequent years.      This factor is, therefore,

neutral.

     G.    Abuse

     There is no evidence that petitioner was the victim of abuse

in this case.      Rev. Proc. 2003-61, 2003-2 C.B. 296, however,

provides that the presence of abuse is only a factor which may

weigh in favor of equitable relief; the absence of abuse is not a

negative factor weighing against equitable relief.      Thus, this

factor is neutral in this case.

     H.    Mental or Physical Health

     At trial, petitioner was extremely emotional and distraught.

Petitioner testified that she was financially and emotionally

dependent upon Mr. Bennett, and that she became depressed and

physically ill when she discovered that Mr. Bennett was engaged

in an extramarital affair.     Further, during their marriage, Mr.

Bennett exercised control over all facets of petitioner’s life,

and according to petitioner, would threaten to have her deported

to China if she disobeyed him.

     On the basis of the record as a whole, we believe that she

was suffering from poor mental health.      This factor weighs in

favor of granting relief.
                               - 30 -

     I.   Conclusion

     In regard to petitioner’s share of items of community income

reported on her return ($15,692.50 share of “wages”, $361.50 of

taxable interest, and $1,090 of IRA distribution), petitioner’s

marital status, lack of knowledge or reason to know of the wages

from Premium Fresh Juice, a lack of significant benefit, and poor

mental health weigh in favor of granting equitable relief.    There

was insufficient evidence for us to evaluate petitioner’s

economic hardship, Mr. Bennett’s legal obligation pursuant to a

divorce decree or agreement, and her compliance with income tax

laws in subsequent years.   None of the factors under Rev. Proc.

2003-61, supra, weighed against relief with respect to her

community share of the wages reported on her return, and the only

factor weighing against relief with respect to her community

share of the taxable interest and IRA distribution is that she

had knowledge or reason to know of them.   Therefore, we conclude

that it is inequitable to hold petitioner liable for her share of

the purported wages of $15,692.50 reported on her return, but

that she remains liable for $361.50 in taxable interest and

$1,090 in IRA distributions.

     With respect to petitioner’s community share of the items of

community income reported on Mr. Bennett’s return ($20,027 of

wages, $2,417 of taxable interest, and $6,125 of other income),

the factors weigh as they do for the items on petitioner’s
                              - 31 -

return, except that we hold that she had knowledge, or reason to

know, of Mr. Bennett’s wages and taxable interest.   It would not

be inequitable to hold her liable for the amounts of which she

had knowledge or reason to know.   We cannot make a finding about

petitioner’s knowledge or reason to know of the remaining

community share of $6,125 of income reported on Mr. Bennett’s

return.   Because the source and nature of this other income is

uncertain, we cannot find that it is inequitable to hold her

liable for this amount.   Therefore, we conclude that petitioner

is not entitled to equitable relief with respect to her community

share of Mr. Bennett’s reported wages of $20,027, her community

share of taxable interest reported on his return of $2,417, or

her community share of the $6,125 of unidentified income.

      In sum, petitioner is liable for tax on gross income of

$30,020.50 and is relieved from liability on gross income of

$15,692.50 under the flush language of section 66(c).

V.   Addition to Tax

      Section 6651(a)(1) imposes an addition to tax for a

taxpayer’s failure to file a required return on or before the

specified filing due date, including extensions.   Section

6651(a)(2) imposes an addition to tax for failing to pay an

amount shown on a return.   An addition to tax under either

section 6651(a)(1) or (2) is inapplicable, however, if the
                              - 32 -

taxpayer’s failure to file the return was due to reasonable cause

and not due to willful neglect.   Sec. 6651(a)(1) and (2).

     Respondent has introduced evidence sufficient to establish

the appropriateness of imposing additions to tax under section

6651(a)(1) and (2).   See Higbee v. Commissioner, 116 T.C. 438,

446 (2001).   Petitioner’s 1998 return was filed December 13,

2000, well after its statutory due date of April 15, 1999, and no

application for extension of the filing due date was filed.     The

return showed a balance due of $2,748, but petitioner did not

remit payment with the return, and the outstanding balance

remains unpaid.

     Thus, petitioner is liable for additions to tax for filing a

delinquent return and failing to pay the tax due unless she can

attribute her failures to reasonable cause and not willful

neglect.   There are several established principles that operate

against petitioner.   First, a taxpayer cannot rely upon his or

her spouse to file a return or pay a tax due for purposes of

excusing the taxpayer from section 6651 liability.   See James v.

Commissioner, T.C. Memo. 1980-99.   Second, even though petitioner

did not actually know about the income from Premium Fresh Juice,

she is required to file a return and pay taxes based upon her

share of community income.   See United States v. Mitchell, 403

U.S. at 196-197.   Consequently, petitioner cannot attribute her
                              - 33 -

failure to timely file a return and pay tax to reasonable cause

and not willful neglect.

      Accordingly, respondent is sustained on the imposition of

additions to tax under section 6651(a)(1) and (2), but the

amounts of the additions to tax must be adjusted to account for

our finding that petitioner is not liable for tax on a portion of

the community income at issue.

VI.   Collection of Underlying Tax Liability

      Respondent’s determinations, aside from issues relating to

petitioner’s underlying tax liability, are reviewed for abuse of

discretion.   See Sego v. Commissioner, 114 T.C. at 610; Goza v.

Commissioner, 114 T.C. at 181.   An abuse of discretion occurs if

the hearing officer takes action that is arbitrary, capricious,

or without sound basis in fact or law.    See Woodral v.

Commissioner, 112 T.C. 19, 23 (1999).

      Under section 6330(c)(3), the Commissioner’s hearing officer

is required to consider any relevant issue raised at a taxpayer’s

administrative hearing, including spousal defenses, challenges to

the appropriateness of the intended collection action, and

collection alternatives.   Aside from challenging her underlying

tax liability, petitioner did not directly raise any relevant

issue relating to the unpaid tax or the proposed levy.     No

collection alternatives were discussed.   A spousal defense under

section 66 has been fully considered during the Court’s de novo
                              - 34 -

review of petitioner’s underlying tax liability, and there is no

reason to give further consideration to that issue.    Respondent’s

hearing officer obtained verification that any applicable law or

administrative procedure was met before making his determination

to proceed with collection.

     On the basis of the foregoing, we conclude that there was no

abuse of discretion by respondent’s hearing officer.    All the

requirements of section 6330 have been satisfied, and respondent

may proceed with his proposed collection action as to

petitioner’s underlying tax liability, as determined by the

Court.

     Reviewed and adopted as the report of the Small Tax Case

Division.

     To reflect the foregoing,


                                        An appropriate order and

                                   decision will be entered.
