                  T.C. Summary Opinion 2007-16



                     UNITED STATES TAX COURT



              ROBBY GOODALE GILBERT, Petitioner v.
          COMMISSIONER OF INTERNAL REVENUE, Respondent



     Docket No. 21730-04S.              Filed January 30, 2007.



     Robby Goodale Gilbert, pro se.

     Robert V. Boeshaar, for respondent.



     COUVILLION, Special Trial Judge:    This case was heard

pursuant to section 7463 in effect when the petition was filed.1

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

and this opinion should not be cited as authority.




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

     Petitioner and his former spouse reported underpayments of

tax in the amount of $19,869 and $5,850 for 2000 and 2001,

respectively.   No notice of deficiency was issued for either of

these taxable years.   This case involves petitioner’s election to

seek relief from joint and several liability for Federal income

tax for the years 2000 and 2001 under section 6015(f).

Respondent determined that petitioner is not entitled to relief.

The sole issue for decision is whether petitioner is entitled to

relief under section 6015(f).

     Some of the facts were stipulated.    Those facts, with the

annexed exhibits, are so found and are made part hereof.

Petitioner’s legal residence at the time the petition was filed

was Bainbridge Island, Washington.

     During the years at issue, petitioner was married to

Juliette C. Peet (Ms. Peet).    Petitioner and Ms. Peet married

sometime in June 1995.   They separated in June 2001, and their

divorce was finalized on January 11, 2002.    Petitioner was

employed as an art teacher by the Art Institute of Seattle for

taxable years 2000 and 2001.    Additionally, he received income

from work he performed as a children’s illustrator for

Interactive Arts, a business he wholly owned and whose activities

were reported on a Schedule C, Profit or Loss From Business, of

the income tax returns for the years at issue.    Ms. Peet worked

as a designer during taxable years 2000 and 2001.
                                 - 3 -

     On a joint Federal income tax return for 2000, petitioner

and Ms. Peet reported a tax due of $19,869.      The tax was not paid

at the time the return was filed.    Despite their recent divorce,

petitioner and Ms. Peet decided to file an income tax return

jointly for taxable year 2001.    On the joint return for 2001,

they reported a tax due of $5,850.       This tax was also not paid at

the time the return was filed.

     Petitioner filed a Form 8857, Request for Innocent Spouse

Relief, on June 5, 2002, requesting relief from joint and several

liability for the tax associated with income earned by Ms. Peet

during the years at issue, 2000 and 2001.      Petitioner alleges

that Ms. Peet handled their financial affairs, prepared the 2000

tax return, and stole the money that he had set aside to pay the

tax liability for that year.2    Petitioner entered into an

installment agreement to pay the tax liability for 2000 as soon

as he learned from respondent sometime in June 2001 that Ms. Peet

had not, as she had represented to petitioner, paid the liability

in full.   Petitioner further alleges that the terms of the

divorce decree and Ms. Peet’s theft rendered him unable to pay


     2
      Petitioner received $39,826 from the sale of stock in 2000,
and he deposited the proceeds of the sale into a money market
account. In the weeks prior to the filing of the joint income
tax return for 2000, Ms. Peet transferred all of the money in the
aforementioned account and an unspecified sum from the couple’s
joint checking account to a private account in her name. She
told petitioner that the money missing from these accounts had
been used to satisfy, among other things, the tax liability for
2000.
                               - 4 -

the tax liability for 2001 at the time the return was filed.3

These circumstances prompted petitioner to enter into another

installment agreement with the IRS.    Respondent issued a

preliminary determination letter on May 12, 2003, denying

petitioner’s request for relief under section 6015(f).

Respondent denied relief for the reason that the tax liabilities

were associated with income earned exclusively by petitioner.

Petitioner appealed this determination.    On August 19, 2004,

respondent issued a Notice of Determination Concerning Your

Request for Relief Under the Equitable Relief Provision of

Section 6015(f) to petitioner denying him relief from joint and

several liability under section 6015(f) for taxable years 2000

and 2001.

     Petitioner argues in his petition that he is entitled to

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

The petition sets forth a number of arguments; yet, they all

support one proposition:   but for Ms. Peet’s actions, the

outstanding tax liabilities would be paid.    Pursuant to Rule 325

and King v. Commissioner, 115 T.C. 118 (2000), respondent served


     3
      Pursuant to the terms of the divorce decree, petitioner was
required to pay, inter alia, $21,500 to Ms. Peet for her share of
the communal household. Ms. Peet was required to pay, among
other things, $7,508.08, her portion of the 2000 tax liability,
and one-fourth of the tax liability for 2001. Rather than pay
her share of the tax liabilities for the years at issue, upon
receipt of the $21,500 from petitioner, Ms. Peet kidnaped the
couple’s minor son on or about April 3, 2002, and fled the United
States.
                                 - 5 -

Ms. Peet with notice of this proceeding and her right to

intervene.4   She did not, however, file a notice of intervention

and did not appear nor participate in the trial of this case.

     A taxpayer generally may petition this Court for a review of

the Commissioner’s determination denying relief under section

6015.    Sec. 6015(e)(1)(A).   On July 25, 2006, this Court issued

Billings v. Commissioner, 127 T.C. 7 (2006), holding that the

Court does not have jurisdiction to review the Commissioner’s

denial of relief under section 6015(f) in a stand-alone section

6015 case where no deficiency has been asserted.    The Tax Relief

and Health Care Act of 2006, Pub. L. 109-432, div. C, sec. 408,

120 Stat. 3061, amended section 6015(e)(1) to provide that this

Court may review the Commissioner’s denial of relief under

section 6015(f) in cases where no deficiency has been asserted.5

Accordingly, this Court has jurisdiction to review respondent’s

determination that petitioner is not entitled to relief under

section 6015(f) from tax reported but not paid on his joint

income tax returns for 2000 and 2001.


     4
      Between the time that the petition was filed in this case
and the time of trial, Ms. Peet was found in New Zealand,
extradited to the United States, and incarcerated. As of the
date of trial, petitioner’s minor son had been returned to the
United States and was in petitioner’s custody.
     5
      The legislative amendment applies “with respect to
liability for taxes arising or remaining unpaid on or after the
date of the enactment of this Act.” The date of enactment was
Dec. 20, 2006. See Tax Relief and Health Care Act of 2006, Pub.
L. 109-432, div. C, sec. 408, 120 Stat. 3061.
                               - 6 -

     Generally, married taxpayers may elect to file a Federal

income tax return jointly.   Sec. 6013(a).    Each spouse filing a

joint return is jointly and severally liable for the accuracy of

the return and the entire tax due.     Sec. 6013(d)(3).   Under

certain circumstances, however, section 6015 provides relief from

this general rule.6

     A taxpayer may be considered for relief under section

6015(f) where there is an unpaid tax or deficiency for which

relief is not available under section 6015(b) or (c).7     Sec.

6015(f)(2).   Section 6015(f)(1) provides that a taxpayer may be

relieved from joint and several liability if it is determined,

after considering all facts and circumstances, that it is

inequitable to hold the taxpayer liable for the unpaid tax or

deficiency.   This Court reviews the Commissioner’s denial of

relief pursuant to section 6015(f) under an abuse of discretion

standard.   Butler v. Commissioner, 114 T.C. 276, 287-292 (2000).


     6
      Sec. 6015 applies to any liability for tax arising after
July 22, 1998, and to any liability for tax arising on or before
July 22, 1998, remaining unpaid as of such date. Internal
Revenue Service Restructuring and Reform Act of 1998, Pub. L.
105-206, sec. 3201(g), 112 Stat. 740.
     7
      A prerequisite to granting relief under sec. 6015(b) or (c)
is the existence of a tax deficiency or, as referred to in
various cases, an “understatement of tax”. Sec. 6015(b)(1)(B),
(c)(1); Block v. Commissioner, 120 T.C. 62, 65-66 (2003). The
requirement that a proposed or assessed deficiency be present
precludes petitioner from seeking relief in the instant case
under sec. 6015(b) or (c) for the underpayment of income tax
reported on the joint returns for the years at issue but not paid
at the time the returns were filed.
                               - 7 -

The Court defers to the Commissioner’s determination unless it is

arbitrary, capricious, or without sound basis in fact.     Jonson v.

Commissioner, 118 T.C. 106, 125 (2002), affd. 353 F.3d 1181 (10th

Cir. 2003).   Whether the Commissioner’s determination was an

abuse of discretion is a question of fact.   Cheshire v.

Commissioner, 115 T.C. 183, 198 (2000), affd. 282 F.3d 326 (5th

Cir. 2002).   The requesting spouse bears the burden of proving

that there was an abuse of discretion.   Abelein v. Commissioner,

T.C. Memo. 2004-274.

     The Commissioner has prescribed guidelines that are

considered in determining whether it is inequitable to hold a

requesting spouse liable for all or part of the liability for any

unpaid tax or deficiency.   Rev. Proc. 2000-15, sec. 4.01, 2001-1

C.B. 447, 448, sets forth seven threshold conditions that the

requesting spouse must satisfy before the Commissioner will

consider a request for relief under section 6015(f).8    Respondent




     8
      Rev. Proc. 2003-61, 2003-2 C.B. 296, which supersedes Rev.
Proc. 2000-15, 2000-1 C.B. 447, is effective for requests for
relief filed on or after Nov. 1, 2003, or requests for relief
pending on Nov. 1, 2003, for which no preliminary determination
letter has been issued as of that date. Petitioner’s request for
relief was submitted on June 5, 2002, and a preliminary
determination letter was issued on May 12, 2003. Accordingly,
the guidelines found in Rev. Proc. 2000-15, supra, are applicable
in this case.
                              - 8 -

does not dispute that petitioner has satisfied the seven

threshold conditions.9

     Where, as here, the requesting spouse satisfies the

threshold conditions, Rev. Proc. 2000-15, sec. 4.02, 2000-1 C.B.

at 448, lists factors to be considered in determining whether to

grant equitable relief for underpayments of tax.   Equitable

relief under section 6015(f) for an underpayment of tax on a

joint return will ordinarily be granted by the Commissioner if

all three of the following criteria are met:   (1) The requesting

spouse is divorced, is legally separated, or has been physically

separated for 1 year from the nonrequesting spouse at the time

relief is requested; (2) the requesting spouse did not know or

have reason to know that the income tax liability would not be

paid at the time the joint return was signed; and (3) the

requesting spouse will, absent relief, suffer economic hardship.

     Although he was divorced from his wife at the time relief

was requested, petitioner was aware that the income tax liability

for 2001 would not be paid at the time he signed the return.   As

explained by him, the recent divorce settlement and Ms. Peet’s

     9
      Although an underpayment of tax may be attributable to
income earned by the requesting spouse, Rev. Proc. 2003-61, sec.
4.01(7)(c), 2003-2 C.B. at 297, allows equitable relief to be
considered in cases, such as this one, where funds intended for
the payment of tax were misappropriated by the nonrequesting
spouse for the nonrequesting spouse’s benefit. Because the
guidelines found in Rev. Proc. 2000-15, supra, apply in the
instant case, however, this provision has no bearing on the
outcome of this case.
                               - 9 -

theft rendered petitioner unable to pay the tax reported on the

2001 return at the time of filing.     Further, petitioner has not

shown to the Court’s satisfaction that he would experience

economic hardship if he were forced to pay the tax liabilities

for the years at issue.   A taxpayer might experience economic

hardship if he or she were unable to pay basic reasonable living

expenses.   Sec. 301.6343-1(b)(4)(i), Proced. & Admin. Regs.   Even

taking into account the monthly payments being made on the

installment agreements for 2000 and 2001, petitioner acknowledged

that he managed to pay his basic living expenses.

     Rev. Proc. 2000-15, sec. 4.03, 2000-1 C.B. at 448, provides

factors to be evaluated for requests for relief under section

6015 for requesting spouses who filed a joint return and do not

qualify for relief under Rev. Proc. 2000-15, sec. 4.02.    Rev.

Proc. 2000-15, sec. 4.03(1), offers a partial list of positive

factors to be considered, including:    (1) Marital status; (2)

economic hardship; (3) abuse; (4) no knowledge or reason to know

that the reported liability would not be paid; (5) whether the

nonrequesting spouse had a legal obligation to pay the liability;

and (6) whether the liability for which relief is sought is

solely attributable to the nonrequesting spouse.    Negative

factors weighing against relief in Rev. Proc. 2000-15, sec.

4.03(2), 2000-1 C.B. at 449, include:    (1) The unpaid liability

is attributable to the requesting spouse; (2) the requesting
                              - 10 -

spouse knew or had reason to know that the reported liability

would be unpaid at the time of signing; (3) the requesting spouse

benefited significantly from the unpaid liability; (4) the

requesting spouse will not experience economic hardship if relief

is not granted; (5) the requesting spouse had not made a good

faith attempt to comply with the tax laws in subsequent years;

and (6) the requesting spouse has a legal obligation to pay the

deficiency.   Rev. Proc. 2000-15, sec. 4.03, makes clear that no

single factor is determinative.   The Court considers the

aforementioned factors in determining whether there is an abuse

of discretion by respondent in denying equitable relief under

section 6015(f) for the underpayments.

     For a taxpayer who seeks relief from an underpayment of

income tax due, Rev. Proc. 2000-15, 2000-1 C.B. at 449, questions

whether the requesting spouse knew or had reason to know that the

income tax liability would not be paid at the time of filing.      A

spouse requesting relief under section 6015 has a duty of

inquiry.   Butler v. Commissioner, 114 T.C. at 284.   Petitioner

admitted he was aware that the reported tax liability for 2001

would not be paid at the time the return was filed because the

combination of the divorce settlement agreement and Ms. Peet’s

illicit actions rendered him unable to pay the tax due at the

time of filing.   At trial, respondent asserted that petitioner

should have known that the tax liability for 2000 would not be
                               - 11 -

paid at the time the return was filed; however, the Court

disagrees.   In essence, respondent contends that, notwithstanding

the absence of factors to intimate financial infidelity on the

part of Ms. Peet, petitioner should have known that the money he

designated for the 2000 tax liability was instead siphoned into a

private account in her name.   There is nothing in the record to

indicate that petitioner had reason to suspect the financial

deception from Ms. Peet that gave rise to the underpayment of tax

for 2000.    The Court, thus, finds that petitioner did not know or

have reason to know that the tax liability for 2000 would not be

paid at the time the return was filed.

     Rev. Proc. 2000-15, sec. 4.03(1)(e), 2000-1 C.B. at 449,

considers whether the nonrequesting spouse had a legal obligation

pursuant to a divorce decree or other agreement to pay the

liability for which relief is sought.    According to the terms of

the divorce decree, Ms. Peet was obligated to pay $7,508.08 for

her share of the tax liability for 2000 and $1,462.50 for her

portion of the tax liability for 2001.10   This factor supports

granting relief to petitioner because, by making continued

payments on his installment agreements, he paid in excess of what



     10
      The return for 2001 reflected an underpayment of tax in
the amount of $5,850. Because Ms. Peet was liable under the
divorce decree for one-fourth of the reported tax liability for
2001, she is obligated to pay $1,462.50 of the total liability
for that year.
                               - 12 -

he was legally obligated to pay under the divorce decree for his

share of the tax liabilities for the years at issue.

     Petitioner’s filing for divorce prior to requesting relief

under section 6015(f) favors granting him relief.    Rev. Proc.

2000-15, sec. 4.03(1)(a).   Yet, even in those cases where the

requesting spouse’s marital status favors granting relief, Rev.

Proc. 2000-15, sec. 4.03(1)(f), 2000-1 C.B. at 449, questions

whether the tax liability is attributable to the spouse

requesting relief.   The basis for denying petitioner relief under

section 6015(f) stemmed from respondent’s belief that the

entirety of the tax liabilities for 2000 and 2001 arose from

income earned by petitioner.   Petitioner concedes his

responsibility for any tax liability associated with the income

he earned during the years at issue from his employment with the

Art Institute of Seattle.   He similarly concedes that the portion

of the underpayment from taxable year 2000 that arose from the

sale of stock was solely his income.    The tax liability

associated with the income earned by Ms. Peet for assisting

petitioner with Interactive Arts, his wholly owned Schedule C

business, during the years at issue, however, is the subject of

petitioner’s dispute.   At trial, petitioner testified that Ms.

Peet performed design work for Interactive Arts, assisted in

administering the affairs of the business, and received income

from Interactive Arts for these services.    Respondent contends
                                - 13 -

that petitioner’s status as the sole owner of Interactive Arts

subjects him to any and all tax liability associated with the

income earned by the business.    Respondent did not, however,

offer evidence to rebut petitioner’s testimony, which this Court

finds credible, that both petitioner and Ms. Peet actively

participated in the affairs of Interactive Arts that produced

income for the business during the years at issue.    Furthermore,

this Court has held that the income and losses of a business are

not blindly attributed to the person listed as proprietor of that

business on the joint return.    See, e.g., Rowe v. Commissioner,

T.C. Memo. 2001-325.    Accordingly, this factor weighs in favor of

granting relief.

     Petitioner appears to have done everything within his power

to settle amicably the tax liabilities for the years at issue and

made a good faith attempt to comply with the tax laws and satisfy

his obligations with the IRS.    Barring Ms. Peet’s deception, the

Court is convinced that the outstanding liabilities would have

been paid.    Upon consideration of all of the facts and

circumstances, the Court finds that respondent’s determination to

deny relief under section 6015(f) to petitioner was an abuse of

discretion.    Weighing all of the factors in this case both

supporting and opposing granting relief to petitioner, the Court

is satisfied that it would be inequitable to deny petitioner

relief under section 6015(f).
                            - 14 -

    Reviewed and adopted as the report of the Small Tax Case

Division.



                                  Decision will be entered

                             for petitioner.
