                        T.C. Memo. 2006-155



                      UNITED STATES TAX COURT



                 CHERYL McKNIGHT, Petitioner v.
          COMMISSIONER OF INTERNAL REVENUE, Respondent



     Docket No. 3398-05.                 Filed July 27, 2006.



     Michael P. Merrion, for petitioner.

     Michael W. Lloyd, for respondent.



             MEMORANDUM FINDINGS OF FACT AND OPINION

     SWIFT, Judge:   The issue for decision is whether petitioner

is entitled to additional relief under section 6015 from joint

liability for 1995 Federal income taxes, and related penalty,

additions to tax, and interest.

     Unless otherwise indicated, all section references are to

the Internal Revenue Code in effect for the year in issue, and
                               - 2 -
all Rule references are to the Tax Court Rules of Practice and

Procedure.


                         FINDINGS OF FACT

     Some of the facts have been stipulated and are so found.

     At the time the petition was filed, petitioner resided in

Golden, Colorado.

     Petitioner has a background in property management and has

completed 1 year of college.   Petitioner has no children.

     In September of 1986, petitioner met John McKnight (John).

In 1987, John and his then wife Sally Overton (Overton) divorced.

Shortly thereafter, petitioner and John began dating.   John has a

son from his marriage to Overton.

     John acted as a sales representative for construction

product manufacturers.   John operated his business as a sole

proprietorship under the name of McKnight and Associates.

     As petitioner and John’s dating relationship developed,

petitioner allowed John to use petitioner’s personal credit cards

to pay a number of John’s business expenses.   Initially, John

promptly repaid petitioner so that petitioner could timely make

her credit card payments.

     In 1990, John asked petitioner to work in his business.

John told petitioner that he needed her help to expand the

business and that he would pay petitioner the same amount that
                                - 3 -
she earned in her prior job.    Petitioner accepted John’s offer,

quit her job, and went to work for John.

     Petitioner’s responsibilities working in John’s business

included answering phone calls, bookkeeping, taking orders for

products, and other clerical tasks.

     After a month, petitioner asked John why she was not getting

paid.    John explained to petitioner that he had not yet received

enough commissions to pay her but that he soon would do so.

However, from the time petitioner began working for John and his

business in 1990, petitioner never was paid any wages or other

compensation for her work.

        On October 12, 1992, petitioner and John were married.

Around the time of their marriage, John sold his home in

Westminster, Colorado, and petitioner and John moved into a new

home in Castle Rock, Colorado (Castle Rock home).    Using

petitioner’s poor credit as the excuse and even though John

himself was responsible for petitioner’s poor credit rating, John

titled the Castle Rock home only in his name.    John promised

petitioner that at a later date he would put petitioner’s name on

the title to the home, which he never did.

        To finance his business, John took out multiple second and

third mortgages on the Castle Rock home.

     Sometime after they were married, petitioner and John

decided to trade in on a new car a car which petitioner had owned
                               - 4 -
prior to their marriage.   John titled the new car only in his

name.   John told petitioner that he had mistakenly omitted

petitioner’s name from the car title, but John later acknowledged

that he had done so intentionally.

     After petitioner married John, John’s spending began to

spiral out of control.   John increased the amount and frequency

of charges he made on petitioner’s credit cards, and John became

increasingly delinquent in payments to petitioner to cover the

expenses so charged.   At one point, John’s charges to

petitioner’s credit cards relating to John’s business reached a

total outstanding balance of $38,000.

     With her own funds, petitioner eventually paid off a

significant portion of John’s charges to her credit cards.

     On December 30, 1993, John incorporated his sales

representative business as MGI/McKnight Group, Inc. (MGI).    An

election was filed with respondent to have MGI treated as an

S corporation.

     At John’s insistence, petitioner signed the MGI articles of

incorporation, and petitioner, along with John, was listed on the

MGI articles of incorporation as a director of MGI.   Petitioner,

however, was not aware of the legal significance of signing the

MGI articles of incorporation or of being listed as a director.

     John always made it clear to petitioner that he regarded

himself as sole owner of the business and of MGI and that he did
                                - 5 -
not recognize petitioner as having an ownership interest in MGI.

Shares of MGI stock apparently were never issued.

     To the extent petitioner held an ownership interest in MGI,

it was only a nominal interest.   Without consulting petitioner,

John made all of the decisions relating to MGI.    Petitioner did

not make a capital contribution to MGI, did not receive MGI

stock, did not have signatory authority on MGI’s bank account,

did not know what title or position she nominally held in MGI,

received no distributions from MGI, and as explained, never

received wages or other compensation from MGI.

     Throughout their marriage, petitioner generally kept track

of the household bills and expenses, but petitioner would show

the bills to John.   John would decide which bills to pay and when

to pay them.   Periodically, John would transfer just enough money

into the marital joint checking account for petitioner to write

checks to pay bills he had approved.    Petitioner did not have

access to John’s personal and business bank accounts.

     Prior to their marriage, in an effort to convince petitioner

to marry him, John had checked himself into an alcohol abuse

treatment center.    However, on the night of their marriage John

resumed drinking.

     Throughout his marriage to petitioner, John’s problems with

alcohol increased.   On three occasions during the marriage, John

was arrested for driving under the influence.
                               - 6 -
     In November of 1994, a tractor-trailer hit and injured John.

The accident occurred as John was walking drunk on the shoulder

of a highway.   John filed a lawsuit against the truck driver and

the trucking company.   In a settlement of the lawsuit, the

trucking company awarded John and petitioner jointly an $80,000

deferred annuity.

     In part as a result of John’s injuries from the accident,

MGI’s business began to do poorly.     John could not leave his home

to make sales calls, and John became argumentative with his

clients, most of whom soon terminated their contracts with MGI.

     In addition to not paying petitioner for her work, ruining

her credit, and putting major marital assets only in his name,

John became both mentally and physically abusive to petitioner,

which abuse escalated throughout the marriage.

     Due to his drinking problem, John often would go into rages

where he would shove and hit petitioner.

     John purchased firearms and other weapons which he kept in

the home.   Petitioner feared John and believed that John might

use his weapons to seriously harm her.

     In January of 1995, John beat petitioner with his crutches.

Upon petitioner’s request, the police removed 12 firearms from

the home.   The night of the beating petitioner left the home to

stay with a friend.
                                - 7 -
     When petitioner returned home to retrieve her belongings,

John had changed the locks and boarded up the windows.

     Petitioner did not have a job, credit, nearby family, or

other means of support, and only a few articles of clothing in

her possession.   John apologized to petitioner for his behavior.

Because she felt she did not have an alternative, petitioner

moved back in with John.    Thereafter, John’s conduct toward

petitioner became worse.

     From the Internet John downloaded pornography and while on

trips was unfaithful to petitioner.

     In one incident that occurred in the summer of 1997, John

broke a wine glass on a table and with the broken glass slashed

petitioner’s throat.   Petitioner fought off John and managed to

lock herself in a room.    Instead of going to a hospital,

petitioner did her best to stop the bleeding and to close up the

wound.   Petitioner feared that if she sought medical treatment

John would be arrested and that he might seek to kill her.

     Soon after the above incident, petitioner secretly packed up

many of her belongings and moved into a motel in a nearby

community.

     Petitioner stayed in the motel for several weeks before

finding a job and moving into an apartment.
                                 - 8 -
     In December of 1997, John filed for divorce from petitioner

so that he could marry another woman.    On October 16, 1998,

petitioner and John’s divorce became final.

     As of the time of the divorce, John had borrowed against all

of the equity in the Castle Rock home and had spent or consumed

all of the loan proceeds along with most other marital assets.

     In the divorce, the $80,000 deferred annuity relating to

John’s accident was split into two $40,000 deferred annuities,

one of which petitioner received, and John received the other.1

Petitioner also received possession of a used car, which car

John, contrary to the divorce decree, never transferred into

petitioner’s name.

         With regard to petitioner and John’s 1995 joint Federal

income taxes, the divorce decree stated:     “[John] shall be solely

responsible for payment of all such taxes, including all interest

and penalties...and * * * [John] shall indemnify and hold * * *

[petitioner] harmless therefrom.”

     In December of 1998, John remarried and moved to Tennessee.

Two weeks later, on January 4, 1999, John was found dead.       John

died intestate.

     On November 27, 2000, Overton, John’s first wife, petitioned

the Chancery Court of Bedford County, Tennessee, to allow her to


     1
        As of the trial herein, petitioner had received total
installment payments of $30,000 on the $40,000 annuity. The
remaining $10,000 is scheduled to be paid to petitioner in 2006.
                               - 9 -
administer John’s intestate estate.    The Court granted Overton’s

petition, opened a probate proceeding relating to John’s estate,

and appointed Overton as personal representative.

     John’s estate consisted primarily of one asset (namely, the

balance due on John’s separate $40,000 deferred annuity relating

to his 1994 accident).

     Apparently, only two claims were filed against John’s

estate:   (1) A claim filed by respondent for unpaid taxes; and

(2) a claim filed by Overton for support and for an allowance for

her then minor child.

     Petitioner was not notified until 2003 about the probate of

John’s estate, by which time petitioner apparently was time-

barred from filing a claim against the estate for the portion of

the 1995 joint Federal income taxes, penalty, additions to tax,

and interest which petitioner had paid (see below) but all of

which John was obligated to pay under the divorce decree.

     At the time of the trial herein, petitioner earned

approximately $52,000 a year, rented a comfortable home, and was

trying to rebuild her life.

      On approximately August 19, 1996, petitioner and John

timely filed their 1995 joint Federal income tax return on which

was reflected a Federal income tax underpayment or balance due of

$17,516 (the underpayment).   The tax return also reflected that

for 1995 petitioner and John had made no estimated income tax
                             - 10 -
payments and that no income taxes had been withheld from wages or

salary on their behalf.2

     All of the reported income on petitioner and John’s 1995

joint Federal income tax return, with the exception of a small

amount of interest income, consisted of income from MGI.   On the

above tax return and on related Schedules K-1, Shareholder’s

Share of Income, Credits, Deductions, etc., MGI’s reported income

was reflected as allocable equally to petitioner and to John.

     Petitioner was generally aware of the $24,050 interest

deductions on the mortgages and the $109,742 MGI income that were

reflected on her and John’s 1995 joint Federal income tax return.

     From October of 1996 through December of 1997, with joint

marital assets, petitioner and John made 13 additional payments

totaling $11,657 on their $17,516 underpayment for 1995.

     On January 13, 1998, after an audit of petitioner and John’s

1995 joint Federal income tax return, respondent mailed to



     2
        Also mailed to respondent with petitioner and John’s 1995
joint Federal income tax return was a $1,000 partial payment
toward the $17,516 balance due reflected on the return. As a
result, the amount of petitioner and John’s 1995 tax underpayment
apparently should be $16,516. Both parties, however, have
treated the entire $17,516 balance due as the underpayment. For
convenience herein, we refer to the underpayment amount as
$17,516 and leave any modification thereof to the parties’ Rule
155 computation. Further, with their 1995 tax return and the
$1,000 payment, petitioner and John mailed to respondent an
additional $7,235 check reflecting the balance due on their then
outstanding 1993 joint Federal income taxes, and petitioner and
John made a request to pay in installments the remaining $16,516
balance due on their 1995 income tax liability.
                              - 11 -
petitioner and to John a notice of deficiency.    In the notice of

deficiency, respondent disallowed $19,721 in mortgage interest

deductions, charged petitioner and John with self-employment

taxes on the MGI income, and determined a tax deficiency against

petitioner and John of $6,452 (the deficiency).    Respondent also

determined that petitioner and John were liable for a $1,290

accuracy-related penalty.

     Respondent mailed the above notice of deficiency to John’s

separate address.   John did not inform petitioner that he had

received the notice of deficiency.     Neither petitioner nor John

filed with this Court a petition for redetermination of the

deficiency.

     Petitioner did not learn of the notice of deficiency until

after respondent had assessed the deficiency.

     In further payment of the balance due on the underpayment,

the deficiency, the related penalty, and the additions to tax

(that were later assessed) and interest, respondent offset and

applied Federal income tax refunds that were due to petitioner

for 1999 through 2002, and petitioner individually made a number

of additional $938 installment payments to respondent.    Also,

John’s estate made a $12,663 payment.    The below schedule

summarizes the various payments made jointly by petitioner and

John, as well as the separate payments made by petitioner and by

John’s Estate:
                                       - 12 -
              Payments                   Petitioner & John’s Total 1995
                              John’s     Federal Income Taxes, Penalty,
 Joint        Petitioner      Estate     Additions to Tax, & Interest
$12,657         $8,234       $12,663                $33,554*

          *   Respondent’s certificate of assessment reflects that
              petitioner and John’s total 1995 Federal income tax
              liability and related amounts as determined by respondent
              consist of the $17,516 tax underpayment, the $6,452 tax
              deficiency, the $1,290 accuracy-related penalty, two
              separately assessed sec. 6651(a)(2) failure-to-pay additions
              to tax of $513 and $3,004, and interest of $4,779, all
              totaling $33,554.


     For years following 1995, petitioner has made a good faith

effort to comply with the Federal income tax laws.

     On February 24, 2004, petitioner requested relief under

section 6015(b), (c), and (f) from her joint 1995 Federal income

tax liability, including penalty, additions to tax, and related

interest paid.

     On May 26, 2004, respondent’s Compliance Office proposed to

grant petitioner full relief from liability for the underpayment

and deficiency under a combination of section 6015(f) and (b), as

follows, subject to any applicable refund limitations under Rev.

Proc. 2003-61, sec. 4.04(2), 2003-2 C.B. 296, 299:


 Nature of           Amount of         Compliance Office Proposed Relief
 Liability           Liability             Amount*          Basis for

Underpayment          $17,516             $17,516            Sec. 6015(f)
Deficiency            $ 6,452             $ 6,452            Sec. 6015(b)
              *   Plus additional amounts for the related penalty, additions
                  to tax, and interest.
                              - 13 -
     Overton, however, as executor of John’s estate, contacted

respondent’s Compliance Office and objected to petitioner’s

request for innocent spouse relief.    At the hearing, Overton

alleged that petitioner actively participated in the day-to-day

operation of John’s business, that petitioner owned a 50-percent

interest in MGI, and that petitioner was financially able to bear

the burden of payment of petitioner and John’s 1995 joint Federal

income taxes.   Overton also expressed concern that if petitioner

were granted relief, respondent’s claim for payment from John’s

estate of additional amounts likely would reduce any payment her

son might receive from John’s estate.

     Respondent’s Compliance Office reviewed Overton’s objection

to petitioner’s request for innocent spouse relief but did not

alter the proposal to grant full relief to petitioner.

     On August 20, 2004, Overton mailed a letter to respondent’s

Compliance Office in which she formally objected to any relief

being given to petitioner.   Based on Overton’s written objection,

respondent’s Compliance Office transferred petitioner’s request

for innocent spouse relief to respondent’s Appeals Office for

further review.3

     On November 17, 2004, respondent’s Appeals Office determined

that petitioner qualified for relief from joint liability under



     3
        At the trial herein, Overton did not participate as a
party, but she did testify as a witness.
                             - 14 -
section 6015(f) only with respect to 50 percent of petitioner’s

and John’s $17,516 underpayment and under section 6015(c) only

with respect to 50 percent of petitioner and John’s $6,452

deficiency, as follows, subject to any applicable limitations

under Rev. Proc. 2003-61, sec. 4.04(2) and sec. 6015(g)(3):


        Nature of     Amount of       Appeals Office Relief
        Liability     Liability       Amount     Basis for
       Underpayment    $17,516        $8,792    Sec. 6015(f)
       Deficiency       $6,452        $3,226    Sec. 6015(c)


     Respondent’s Appeals Office’s determination (to grant

petitioner relief from joint liability only as to 50 percent of

the $17,516 underpayment and as to 50 percent of the $6,452

deficiency) was based primarily on respondent’s analysis that the

other 50 percent of the underpayment and the other 50 percent of

the deficiency were attributable to what respondent regarded as

petitioner’s 50-percent ownership interest in MGI.

      With regard to the portion of the underpayment from which

respondent determined that petitioner should be granted relief

under section 6015(f), respondent’s Appeals Office determined

that the factors set forth in Rev. Proc. 2003-61, sec. 4.03,

2003-2 C.B. at 298, supported such relief.

     With regard to the portion of the deficiency from which

respondent determined that petitioner should be granted relief
                              - 15 -
under section 6015(c), respondent’s Appeals Office determined

that petitioner satisfied the requirements of section 6015(c).4

     Petitioner contends that under section 6015(b), (c), or (f)

she is entitled to full relief for the entire $17,516

underpayment, the entire $6,452 tax deficiency, and the related

penalty, additions to tax, and interest.


                              OPINION

     Taxpayers filing joint Federal income tax returns are

generally jointly liable for all taxes due thereon.    Sec.

6013(d)(3).   Limited relief from joint liability, however, may be

available under section 6015(b), (c), and (f).

     Based on the express statutory language, relief from joint

liability under section 6015(b) and (c) is limited to tax

deficiencies and is not available for underpayments.     Hopkins v.

Commissioner, 121 T.C. 73, 88 (2003).

     Under section 6015(b), relief from joint liability for a

Federal income tax deficiency is available only where:



     4
        Although respondent determined that petitioner met the
statutory requirements for relief under sec. 6015(c), in an
alternate writeup respondent concluded that even though
petitioner had actual knowledge of the items giving rise to the
deficiency, petitioner, because of the abuse she suffered from
John, still should be regarded as generally qualified for such
relief. See sec. 1.6015-3(c)(2)(v), Income Tax Regs. (abused
spouse not treated as having actual knowledge of items on joint
return for purposes of sec. 6015(c) where her failure to question
the tax return treatment of such items was caused by fear of
retaliation).
                             - 16 -
          (1) The joint tax return contains an
     understatement of tax attributable to the spouse not
     requesting relief;

          (2) the spouse seeking relief establishes that in
     signing the return he or she did not know, and had no
     reason to know, that there was such a tax
     understatement;

          (3) taking into account all the facts and
     circumstances, it would be inequitable to hold the
     spouse requesting relief liable for the tax deficiency
     related to such a tax understatement; and

          (4) the spouse requesting relief timely elects the
     benefit of section 6015(b).

     Under section 6015(b), a requesting spouse is regarded as

knowing or as having reason to know of a tax deficiency if the

spouse was aware of the transactions or items that gave rise to

the tax deficiency or had reason to know that a deduction would

give rise to an understatement of tax.     Purcell v. Commissioner,

826 F.2d 470, 473-474 (6th Cir. 1987), affg. 86 T.C. 228 (1986);

Jonson v. Commissioner, 118 T.C. 106, 115 (2002), affd. 353 F.3d

1181 (10th Cir. 2003).

     Under section 6015(c), relief from joint liability for a

Federal income tax deficiency is available if the following

conditions, among others, are satisfied:


          (1) At the time the election of section 6015(c)
     is filed, the two spouses are divorced, legally
     separated, or otherwise have been living apart for the
     preceding 12 months; and

          (2) the requesting spouse, at the time the return
     was signed, did not have actual knowledge of the items
     giving rise to the deficiency.
                             - 17 -
     Relief under section 6015(c) generally is limited to the

portion of a tax deficiency that would be allocated to the

nonrequesting spouse if separate returns were filed.    Sec.

6015(c)(1), (c)(3), (d).

     Under section 6015(f), so called “equitable” relief from

joint liability may be available for tax deficiencies with

respect to which section 6015(b) and (c) relief has been denied

and for underpayments of Federal income taxes reported on Federal

income tax returns.

     Equitable relief under section 6015(f) from joint liability

may be available where the facts and circumstances indicate that

it would be inequitable to hold the requesting spouse liable for

the tax underpayment or the tax deficiency.   Sec. 6015(f)(1).

     The relief available under section 6015(f) generally is

limited further to the portion of a tax underpayment or

deficiency attributable to an item of the nonrequesting spouse.

Rev. Proc. 2003-61, sec. 4.01(7), 2003-2 C.B. at 297.

     Under Revenue Procedure 2003-61, section 4.01(7)(b), an

exception is provided to the above limitation denying section

6015(f) equitable relief from the portion of a tax liability

attributable to an item of the requesting spouse where the

requesting spouse establishes that her ownership of the assets

producing the income was only nominal.
                               - 18 -
       Rev. Proc. 2003-61, sec. 4.03(2), elaborates further on

various factors to consider in reviewing requests for section

6015(f) equitable relief.    No one factor will control, and all

relevant factors are to be considered and weighed.     The factors

set forth in Rev. Proc. 2003-61, supra, are not intended to be

exhaustive.    Rev. Proc. 2003-61, supra.

       We review respondent’s denial of section 6015(f) equitable

relief for an abuse of discretion.      Hopkins v. Commissioner,

supra at 87; Cheshire v. Commissioner, 115 T.C. 183, 198 (2000),

affd. 282 F.3d 326 (5th Cir. 2002).


Section 6015(b) Relief

       As explained, section 6015(b) relief is available only for

tax deficiencies, not underpayments.     Respondent correctly

concluded that petitioner fails to qualify for relief under

section 6015(b) as to her joint liability for the $6,452 tax

deficiency.

       Petitioner had knowledge of the interest on the home

mortgages and of the various business activities and income of

MGI.    Cf. sec. 1.6015-3(c)(4), Example (1), Income Tax Regs.

Although John made all the financial decisions, petitioner

tracked and paid the bills, including the mortgage payments.

       Petitioner does not qualify for section 6015(b) relief for

any portion of the tax deficiency at issue herein.
                               - 19 -
Section 6015(c) Relief

     As explained, respondent concluded that petitioner qualified

generally for relief under section 6015(c).   Respondent, however,

concluded that only 50 percent of the $6,452 deficiency was

attributable to John and therefore granted relief to petitioner

from joint liability under section 6015(c) only as to 50 percent

(or $3,226) of the $6,452 tax deficiency.

     The entire $6,452 deficiency, however, is attributable to

John.    John owned all of MGI beneficially, and whatever interest

in MGI petitioner may have held was only as a nominee.

Petitioner has established that none of the income from MGI

should be attributable to her.   Further, John, not petitioner,

owned the Castle Rock home to which the disallowed mortgage

interest deductions relate.

     Petitioner therefore qualifies under section 6015(c) for

relief from joint liability as to the entire $6,452 deficiency.5




     5
        Sec. 6015(g)(3), however, provides that no credit or
refund will be allowed as a result of sec. 6015(c) relief.
Herein, the entire $6,452 deficiency has been paid, and therefore
petitioner is not entitled to a refund of any amounts that
petitioner paid on the deficiency. If, however, we were to hold
that petitioner did not qualify for relief from the deficiency
under sec. 6015(c), and then grant petitioner equitable relief
from the deficiency under sec. 6015(f), under Rev. Proc. 2003-61,
sec. 4.04(1), 2003-2 C.B. 296, 299, petitioner apparently still
would be disallowed a refund of amounts petitioner has paid on
the deficiency (i.e., payments petitioner made on the deficiency
prior to her request for sec. 6015(f) equitable relief relating
thereto would not be refundable).
                               - 20 -
Sec. 6015(f) Relief

     As explained, whatever interest in MGI petitioner may have

held was only as a nominee, and none of the MGI income should be

attributed to her.    Rev. Proc. 2003-61, sec. 4.01(7)(b).

Petitioner is potentially eligible for section 6015(f) equitable

relief from the entire $17,516 underpayment.

     As respondent acknowledges, most of the equitable factors

set forth in Rev. Proc. 2003-61, supra, support the relief

petitioner requests under section 6015(f): (1) Petitioner and

John are divorced; (2) under the divorce decree, John had a legal

obligation to pay the 1995 unpaid Federal income taxes and any

penalties and interest relating thereto; (3) petitioner did not

receive a significant benefit (beyond support) from the unpaid

underpayment; and (4) petitioner has complied with the income tax

laws in the years following 1995.

     Three remaining factors require further analysis.


(1) Economic Hardship

      A requesting spouse will be regarded as suffering economic

hardship if the requesting spouse, if not granted relief, will be

unable to pay his or her reasonable basic living expenses.   Rev.

Proc. 2003-61, sec. 4.02(1)(c), 2003-2 C.B. at 298, sec.

4.03(2)(a)(ii).

     Respondent determined, and we agree, that it appears that

petitioner will not suffer economic hardship if relief is not
                              - 21 -
granted.   Petitioner earns approximately $52,000 a year, and

rents a comfortable home.   Petitioner and John’s $17,516

underpayment has already been paid in full, and thus no further

payments will be required from petitioner if relief is not

granted.

     We note, however, that petitioner did pay significant other

debts attributable to John and to his business.   Petitioner also

has had to rebuild her credit due to John’s conduct.   For 6 years

petitioner worked for John without being paid.    John squandered

most of the marital assets, including the equity in the Castle

Rock home, leaving little for petitioner after the divorce.

     These additional factors mitigate the weight to be given the

economic hardship factor.


(2) Knowledge or Reason To Know

     It appears that petitioner should have been on notice that

the $17,516 underpayment might not be paid.   Enclosed with the

tax return was a letter from petitioner and John stating that

full payment could not be made with the return.   In previous

years, petitioner and John had had difficulty paying their

Federal income taxes.   These facts combined with John’s

continuing business and financial difficulties should have put

petitioner on notice that the $17,516 underpayment reflected on

the 1995 joint Federal income tax return might not be paid in

full.
                              - 22 -
     Respondent correctly concluded that this factor weighs

against granting relief to petitioner.


(3) Abuse

     Respondent minimized the abuse petitioner suffered.   An

alternate writeup accompanying respondent’s Appeals Office

determination states:


     The abuses outlined in the claimant’s arguments do not
     appear to have been more than her willingness to hold a
     subservient role in the relationship. There is no
     indication that she was called names, ridiculed,
     criticized or belittled.


     We disagree.   The material petitioner submitted to

respondent and which is found in the administrative record in

this case, as well as vivid and credible trial testimony herein,

thoroughly establishes the extensive and severe abuse petitioner

suffered from John.

     Due to the severity of the abuse suffered by petitioner,

this factor strongly favors granting relief to petitioner.

     Further, John’s extensive abuse of petitioner mitigated

petitioner’s reason to know that John might not pay the

underpayment.   See Rev. Proc. 2003-61, sec. 4.03(2)(b)(i).


Overton’s Son

     Respondent also considered the impact on Overton’s son of

granting petitioner equitable relief.    Respondent concluded that
                             - 23 -
because granting relief to petitioner might reduce John’s estate

and the inheritance Overton’s son might be entitled to receive,

this factor weighed against granting equitable relief to

petitioner.

     Although sympathetic to the potential adverse financial

effect of our decision herein on Overton’s son, we do not find

this factor particularly relevant, nor does it outweigh the

factors which weigh in favor of granting petitioner equitable

relief.6


Conclusion

     Respondent correctly concluded that petitioner does not

qualify for relief under section 6015(b).

     Respondent correctly concluded that petitioner qualified

generally for relief under section 6015(c); however, we hold that

petitioner qualified for relief with regard to the entire $6,452

deficiency, not just 50 percent thereof.

     Respondent incorrectly rejected petitioner’s request for

section 6015(f) equitable relief as to the 50 percent of the

$17,516 income tax underpayment nominally attributable to

petitioner.

     We agree with respondent’s conclusion that petitioner is

entitled to section 6015(f) equitable relief as to 50 percent of


     6
        John’s third wife, with proceeds from insurance on John’s
life, provided Overton’s son with a $30,000 trust fund.
                              - 24 -
the $17,516 underpayment, but we hold that respondent abused his

discretion in not granting petitioner relief for the balance of

the $17,516 underpayment and the related penalty, additions to

tax, and interest.   Such additional relief is to be granted to

petitioner.

     To reflect the foregoing,

                                      Decision will be entered

                                 under Rule 155.7




     7
        Under our holding herein, refunds to petitioner relating
to petitioner and John’s underpayment and deficiency may be
limited, respectively, under Rev. Proc. 2003-61, sec. 4.04(2),
and sec. 6015(g)(3). In the Rule 155 computation, the parties
are to resolve how petitioner’s various payments are to be
allocated among the underpayment, the deficiency, and the
penalty, additions to tax, and interest.
