                    T.C. Summary Opinion 2002-34



                      UNITED STATES TAX COURT



 VONNIE W. GILLISPIE, Petitioner, and MIKE GILLISPIE, Intervenor
                                v.
           COMMISSIONER OF INTERNAL REVENUE, Respondent



     Docket No. 10884-99S.              Filed April 3, 2002.


     Vonnie W. Gillispie, pro se.

     Mike Gillispie, pro se.

     Jillena A. Warner, for respondent.



     RUWE, Judge:   This case was heard pursuant to the provisions

of section 74631 of the Internal Revenue Code in effect at the

time the petition was filed.   The decision to be entered is not




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

reviewable by any other court, and this opinion should not be

cited as authority.

     Respondent determined deficiencies in petitioner’s Federal

income taxes and an addition to tax as follows:

                                                  Addition to Tax
           Year           Deficiency              Sec. 6651(a)(1)
           1993            $5,362                     $1,171
           1994               686                        –

After concessions, the issue for decision is whether petitioner

is entitled to relief from joint and several liability pursuant

to section 6015(c) for the 1993 deficiency and addition to tax.

                              Background

     Vonnie W. Gillispie (petitioner) and Mike Gillispie

(intervenor) were married during the years in issue and divorced

on June 16, 1996.   During the years in issue, intervenor was the

sole proprietor of a residential and commercial painting business

known as “Mike’s Painting”.    Intervenor maintained an individual

business checking account for Mike’s Painting.       Petitioner and

intervenor maintained separate checking accounts in 1993.

     Petitioner and intervenor filed joint Federal income tax

returns for 1993 and 1994.    The 1993 return was prepared by Jo

Abney (Ms. Abney), intervenor’s aunt, and was filed on January 8,

1997.   A Schedule C, Profit or Loss From Business, for Mike’s

Painting was attached to the return.       The Schedule C reported

gross income of $188,632 and expenses of $186,473, resulting in

business income of $2,159.
                                 - 3 -

     On April 30, 1999, respondent mailed a notice of deficiency

to petitioner and intervenor for their 1993 and 1994 tax years.

As a result of supplemental substantiation from intervenor after

the issuance of the notice of deficiency, respondent concedes

that there is no deficiency in income tax due from either

petitioner or intervenor for 1994.       On the basis of the

supplemental information provided by intervenor, respondent

decreased the 1993 deficiency and addition to tax amounts

determined in the notice of deficiency and currently claims that

there is a deficiency of $2,863 and an addition to tax of $546

for 1993.   The revised 1993 deficiency stems from respondent’s

disallowance, for lack of substantiation, of a portion of costs

of goods sold and business expenses reported on the Schedule C

for Mike’s Painting.   A portion of the revised deficiency is

attributable to an increase in self-employment tax due to the

adjustments to the Schedule C.

     On June 14, 1999, petitioner filed her petition with this

Court.   At approximately the same time, petitioner submitted to

respondent a Form 8857, Request for Innocent Spouse Relief (And

Separation of Liability and Equitable Relief), requesting relief

under section 6015.    Petitioner subsequently amended her petition

to claim relief under section 6015.       Petitioner included a copy

of her Form 8857 with her amended petition.
                                - 4 -



     On July 15, 1999, intervenor filed his petition with this

Court.    Intervenor’s case was subsequently dismissed for lack of

jurisdiction on the ground that the filing fee was not paid.

Intervenor has filed a notice of intervention in this proceeding

and objects to petitioner’s being relieved of liability under

section 6015.

                             Discussion

     Petitioner does not dispute the revised deficiency amount

for 1993 or that the return for that year was not timely filed.

Both petitioner and respondent agree that petitioner is entitled

to relief under section 6015(c).2   On the basis of this

agreement, respondent has calculated that petitioner and

intervenor are jointly liable for $654 of the revised 1993

deficiency and that intervenor is solely liable for the remaining

$2,209.   Respondent has also calculated that petitioner and

intervenor are jointly liable for $125 of the revised addition to

tax and that intervenor is solely liable for the remaining $421

of the addition to tax.   Respondent’s calculations are based on

the application of section 6015(d)(3)(B), which generally

provides that, for purposes of determining the proper allocation

of a deficiency under section 6015(c), items giving rise to a

deficiency that are allocable to the nonrequesting spouse must


     2
      Petitioner does not argue that she is entitled to relief
from joint and several liability under either section 6015(b) or
(f).
                               - 5 -

also be allocated to the requesting spouse if the requesting

spouse received a “tax benefit” from the items on the joint

return.   Sec. 6015(d)(3)(B); Mora v. Commissioner, 117 T.C. 279,

293 (2001).   Respondent contends, and petitioner does not

dispute, that petitioner benefited from the Schedule C items

giving rise to the deficiency in the amounts listed above.

     As previously mentioned, intervenor has filed a notice of

intervention in this proceeding and objects to petitioner’s being

relieved of liability under section 6015.   Section 6015(e)(4)

grants the nonelecting spouse some participatory entitlement in

an action to determine the electing spouse’s right to relief from

joint and several liability pursuant to section 6015.     Corson v.

Commissioner, 114 T.C. 354, 364-365 (2000).    Therefore, in light

of intervenor’s opposition to petitioner’s being granted relief

from joint and several liability, we shall proceed to examine the

requirements of section 6015(c) to decide whether petitioner is

entitled to relief under this subsection.

     Section 6015(c) provides relief from joint and several

liability for spouses either no longer married, legally

separated, or living apart.   Generally, this avenue of relief

allows a spouse to elect to be treated, for purposes of

determining tax liability, as if separate returns had been filed.

Section 6015(c) provides, in pertinent part:
                                    - 6 -



          SEC. 6015(c). Procedures to Limit Liability for
     Taxpayers No Longer Married or Taxpayers Legally
     Separated or Not Living Together.--

               (1) In general.–-Except as provided in this
          subsection, if an individual who has made a joint
          return for any taxable year elects the application
          of this subsection, the individual’s liability for
          any deficiency which is assessed with respect to
          the return shall not exceed the portion of such
          deficiency properly allocable to the individual
          under subsection (d).

               (2) Burden of proof.–-Except as provided in
          subparagraph (A)(ii) or (C) of paragraph (3), each
          individual who elects the application of this
          subsection shall have the burden of proof with
          respect to establishing the portion of any
          deficiency allocable to such individual.

                  (3) Election.--

                       *    *       *       *   *   *   *

                       (C) Election not valid with respect to
                  certain deficiencies.–-If the Secretary
                  demonstrates that an individual making an
                  election under this subsection had actual
                  knowledge, at the time such individual signed
                  the return, of any item giving rise to a
                  deficiency (or portion thereof) which is not
                  allocable to such individual under subsection
                  (d), such election shall not apply to such
                  deficiency (or portion). * * *

     The items giving rise to the deficiency for 1993 related to

intervenor’s sole proprietorship, Mike’s Painting.          “‘The

allocation of business deductions is expected to follow the

ownership of the business.’”        Charlton v. Commissioner, T.C.

Memo. 2001-76 (quoting S. Rept. 105-174, at 57 (1998), 1998-3

C.B. 537, 593).    In the instant case, the items giving rise to

the deficiency are allocable solely to intervenor because he
                               - 7 -

owned Mike’s Painting, and, as more fully explained later, the

evidence does not indicate that petitioner was involved in the

business.   Rowe v. Commissioner, T.C. Memo. 2001-325; Charlton v.

Commissioner, supra.   Thus, petitioner is entitled to the relief

which she and respondent have agreed to unless it is shown that

petitioner had “actual knowledge”, at the time she signed the

return, of any item giving rise to a deficiency (or portion

thereof) which is not allocable to her.3   Sec. 6015(c)(3)(C).

Because the instant case involves disallowed deductions, it must

be shown that petitioner had actual knowledge of the factual

circumstances which made the business expenses unallowable as

deductions.   King v. Commissioner, 116 T.C. 198, 204 (2001).

     Petitioner contends that she was not involved with Mike’s

Painting, she did not have access to intervenor’s business

records, and she did not know he maintained an office for the

business in Lexington, Kentucky.    Petitioner claims she did not

have any idea of the tax liability attributable to Mike’s

Painting and points out that her name was not on any of the

accounts related to the business.   Intervenor argues that

petitioner was aware of everything about Mike’s Painting and that

she assisted in running the business and keeping track of



     3
      As previously mentioned on supra pp. 4-5, items giving rise
to a deficiency that are allocable to intervenor must also be
allocated to petitioner to the extent she received a “tax
benefit” from the items on the joint return. Sec. 6015(d)(3)(B).
                                 - 8 -

business receipts.    Intervenor claims that petitioner maintained

business records for Mike’s Painting on her computer and that he

was not involved in keeping the records.    Intervenor also claims

that petitioner should be held liable for the deficiency

attributable to the business because joint returns were filed for

1993, and petitioner was responsible for putting together the

information that was used to complete the Schedule C for Mike’s

Painting.

     Respondent contends that he cannot demonstrate that

petitioner had “actual knowledge” and, therefore, proposes to

grant petitioner relief under section 6015(c).      Respondent argues

that since intervenor has not introduced credible evidence

demonstrating that petitioner had actual knowledge of any item

creating the deficiency, petitioner is entitled to relief under

section 6015(c).   Intervenor has filed his notice of intervention

for the purpose of opposing petitioner’s claim for relief under

section 6015.   If intervenor can establish that petitioner had

“actual knowledge” of the erroneous business deductions, then

petitioner should not be entitled to relief under section

6015(c).

     The relevant inquiry is whether petitioner knew or believed

that the costs and business expenses reported on the 1993 return

were overstated.     Rowe v. Commissioner, supra.   At trial,

petitioner credibly testified that she was not involved in the
                                - 9 -

operation of Mike’s Painting, she was unaware of the business’s

financial transactions, and she did not have access to the

business records.    The evidence in the record shows that

intervenor maintained a separate individual business account for

Mike’s Painting, and he admitted at trial that petitioner did not

have signatory authority on the account.    At trial, Ms. Abney

testified that she prepared the 1993 Schedule C based on check

stubs, receipts, and invoices, which were provided to her in

plastic bags.   She testified that she was not provided with any

computer printouts and that she did not know whether petitioner

used her computer to maintain business records for Mike’s

Painting.   Ms. Abney further testified that she did not sit down

with petitioner and go over the business records pertaining to

Mike’s Painting.    Intervenor’s testimony that petitioner was

involved in the operation of Mike’s Painting and maintained the

business records is not corroborated by other testimony and is

not supported by the evidence in the record.    But even if

petitioner had some involvement with the business, there is no

evidence in the record that she had knowledge of the facts that

gave rise to the deficiency.    Accordingly, we conclude that

petitioner did not have actual knowledge of the factual

circumstances which made the business expenses unallowable as

deductions, because it has not been shown that petitioner knew or
                             - 10 -

believed that the business expenses reported on the 1993 return

were overstated.

     As previously mentioned, petitioner does not dispute

respondent’s application of section 6015(d)(3)(B) to allocate

$654 of the revised deficiency and $125 of the revised addition

to tax to both petitioner and intervenor.   Accordingly, we hold

that petitioner is entitled to relief from joint and several

liability under section 6015(c) to the extent she did not receive

a tax benefit from intervenor’s erroneous business deductions.


                                        Decision will be entered

                                   under Rule 155.
