                         T.C. Memo. 2009-294



                     UNITED STATES TAX COURT



                 CALLIE SUE OLSON, Petitioner v.
          COMMISSIONER OF INTERNAL REVENUE, Respondent



     Docket No. 20384-07.              Filed December 21, 2009.



     Callie Sue Olson, pro se.

     Kristin M. Timmons, for respondent.



             MEMORANDUM FINDINGS OF FACT AND OPINION


     GUSTAFSON, Judge:   This case arises from petitioner Callie

Sue Olson’s request for “innocent spouse” relief from joint

liability under section 60151 for 2003 taxes--i.e., an income tax


     1
      Unless otherwise indicated, all citations of sections refer
to the Internal Revenue Code of 1986 (26 U.S.C.), as amended, and
all citations of Rules refer to the Tax Court Rules of Practice
                                                   (continued...)
                                 -2-

deficiency of $13,600, an addition to tax of $3,400 under

section 6651(a)(1) for failure to file the return on time, and an

accuracy-related penalty of $2,720 under section 6662.    In a

statutory notice of deficiency issued to Ms. Olson and her

husband on June 12, 2007,2 the Internal Revenue Service (IRS)

denied Ms. Olson’s request for relief from joint liability; and

in response, Ms. Olson timely filed a petition with the Court on

September 10, 2007.    The issue for decision is whether Ms. Olson

is entitled under section 6015 to relief from joint liability.

We find that Ms. Olson is not entitled to such relief.

                          FINDINGS OF FACT

     Petitioner Callie Sue Olson has been married for over

30 years to Gregory John Olson, and they were married when they

filed their 2003 joint income tax return, when she filed her

petition in this case, and when they testified at the trial in

this case.   At all relevant times they lived in the same

household together.    They both graduated from high school; and

thereafter Ms. Olson had one year and Mr. Olson had two years of

vocational schooling.



     1
      (...continued)
and Procedure.
     2
      The 2003 deficiency itself was disputed in Gregory John
Olson v. Commissioner, docket No. 20383-07, in which case
Ms. Olson was not a petitioner. Mr. Olson conceded the case, and
decision was entered on November 17, 2009, sustaining against him
the IRS’s deficiency determination.
                                  -3-

     For about 20 years before 2003, Ms. Olson was employed at a

hospital as a pharmacy technician.      In those years she received

from her employer a Form W-2, Wage and Tax Statement, detailing

her wages and withholding, and her income was reported on joint

tax returns that Mr. Olson prepared.     In September 2002 Ms. Olson

quit work at the hospital.   Thereafter, their household received

no income from her hospital employment, and all its income was

derived from her husband’s business, known as “Fun Stuff Rental”,

which provided casino game nights for customers.     After quitting

her hospital employment, Ms. Olson assisted in that business.

     Mr. and Ms. Olson both considered that Fun Stuff Rental was

principally Mr. Olson’s business and that Ms. Olson was a helper

to Mr. Olson.   However, she was active in the business and, in

her trial testimony, often referred to the business as “we”.     She

answered business calls on the phone; did mailings for the

business; set up, took down, and cleaned up equipment; and worked

some of the jobs.

     Ms. Olson did not keep the books for Fun Stuff Rental.      The

records for the business were kept in an unlocked file cabinet in

a room in their home to which Ms. Olson had access, but she did

not consult those records.   Mail for the business arrived at the

house along with personal mail.    Ms. Olson had access to the

business mail, but she handed it over to Mr. Olson to open.      She

did not know how much revenue was coming into the business
                                  -4-

because she “never took the opportunity to look.”    Ms. Olson

testified about the situation as follows:

          THE COURT: * * * Was Mr. Olson kind of secretive
     or guarded about information for the business or was he
     open about it?

          THE WITNESS:   Open.

          THE COURT: So is it fair to say that you could
     have gotten any information that you wanted to get if
     you thought it was your business or duty to get it?

          THE WITNESS:   I could have.

Mr. Olson was not an abusive or domineering husband.

     The checks for the business bore the name “Fun Stuff Rental”

and underneath that title the caption “Greg & Callie’s”.    Mr. and

Ms. Olson both had check-signing authority for the account of Fun

Stuff Rental.   At Mr. Olson’s direction, Ms. Olson sometimes

wrote checks to pay the “help” (i.e., individuals paid by the

hour to work on specific jobs).    Mr. Olson generally wrote the

checks from that account to pay the other bills of the business.

Ms. Olson had her own separate savings account.

     Ms. Olson testified--and we find that she believed--that

some of the money generated by the Fun Stuff Rental business was

put back into the business, and some was used to pay the everyday

living expenses of the family.    Instances of the payment of

family living expenses were checks written from the Fun Stuff

Rental account by Ms. Olson to pay the household electric bill,

to pay the dental insurance bill, and to make weekly
                                  -5-

contributions to the church that the Olsons attended.     One

significant instance in 2003 of money being invested in the

business was (according to the return) the purchase of a vehicle

for $39,172 in July.

     For the year 2003 Mr. Olson prepared a Form 1040, U.S.

Individual Income Tax Return,3 for the couple to file jointly,

and Ms. Olson had no role in the preparation of it.     She signed

the return on December 29, 2004, but did not review the return

before she signed it.   The return showed no tax due.    Attached to

that return was a Schedule C, Profit or Loss From Business, for a

business entitled “Fun Stuff Rental”.    The “Name of proprietor”

was given as “Greg Olson”, and the address for the business was

the same address as the Olsons’ personal residence.     The

Schedule C reported gross income of $86,747 and expenses of

$97,123, for a loss of $10,376.    The expenses consisted of

depreciation expenses totaling $27,104 and other expenses

totaling $70,019.   In addition to the Fun Stuff Rental loss of

$10,376, the return also reported a capital loss of $3,000



     3
      In the “Filing Status” block on the first page of the
return, neither the block for “Married filing jointly” nor any
other block is checked. However, the names of both Mr. and
Ms. Olson appear on the appropriate lines (with Ms. Olson’s name
on the line marked “If a joint return, spouse’s first name and
initial”); and Ms. Olson signed in the signature block on the
second page, under “Spouse’s signature. If a joint return, both
must sign.” The IRS treated the return as a joint return, and
Ms. Olson’s request for innocent spouse relief characterized the
return as a joint return.
                                -6-

carried forward from 2002 and a loss of $999 from a partnership

called “Teresa’s Smoothies”, so that, after income items totaling

$1,275, the return reported an overall loss of $13,100.

     It appears that the Olsons did not file returns for the

years 2004 and 2005, which are not at issue in this case.

     The IRS conducted an audit for the Olsons’ taxable years

2003 (for which they had filed the joint return), 2004, and 2005.

In August 2006 Ms. Olson received from the IRS agent a Form 4549,

Income Tax Examination Changes, proposing a joint tax liability

for 2003.   In response to the Form 4549, Ms. Olson filed a

Form 8857, Request for Innocent Spouse Relief, on September 12,

2006.

     On June 12, 2007, the IRS issued the notice of deficiency

for tax year 2003, denying Ms. Olson’s request for innocent

spouse relief and determining the deficiency described above.

The copy of the notice of deficiency attached to the complaint

consists only of the first two pages, and not the supporting

computations, and the record before us includes no complete copy.

Consequently, the record does not show whether the deficiency was

attributable solely to adjustments related to Fun Stuff Rental;

but the parties both argue as if it was, so we assume that the

deficiency was attributable solely to Fun Stuff Rental.   Even on

that assumption, the record does not show whether the deficiency

arose from adjustments that increased the revenue of Fun Stuff
                                -7-

Rental, or from adjustments that decreased the deductions of Fun

Stuff Rental, or from both kinds of adjustments.

     Also on June 12, 2007, the IRS issued a notice of deficiency

for the years 2004 and 2005 to Mr. Olson alone.    On September 10,

2007, Ms. Olson filed the petition in this case, requesting

“innocent spouse” relief for the year 2003.   On the same date,

Mr. Olson filed his own separate petition in docket No. 20383-07,

requesting redetermination of the deficiencies that the IRS had

determined for 2003, and a separate petition in docket

No. 20385-07, requesting redetermination of the deficiencies that

the IRS had determined for 2004 and 2005.   At the time they filed

their petitions, the Olsons resided in Minnesota.   Their three

cases were consolidated on June 4, 2009.

     The three cases were called from the calendar on

September 14, 2009, in St. Paul, Minnesota.   At that time

Mr. Olson conceded his two deficiency cases (docket No. 20383-07

for 2003 and docket No. 20385-07 for 2004 and 2005).    Those

concessions were effectuated in decisions entered November 17,

2009.   After those concessions, only Ms. Olson’s innocent spouse

claim remained, and her claim was tried on September 14, 2009.

Ms. Olson and her husband were the only witnesses who testified.
                                  -8-

                              OPINION

I.   Standard and Scope of Review

     When determining whether a taxpayer is entitled to relief

under section 6015 (whether under subsection (b), (c), or (f)),

we conduct a trial de novo, in which we may consider evidence

introduced at trial which was not included in the administrative

record.   Porter v. Commissioner, 130 T.C. 115, 117 (2008).    For

all claims under section 6015 (including claims for equitable

relief under section 6015(f)), we do not review for abuse of

discretion but instead employ a de novo standard of review.

Porter v. Commissioner, 132 T.C. __ (2009).   Respondent contends,

however, that when the Court reviews a denial of relief under

section 6015(f), it must apply an abuse-of-discretion standard of

review and must limit the scope of its review to the

administrative record.   We have held otherwise in the two Porter

opinions cited above, and we do not repeat in this opinion the

reasons for those holdings.

     An appeal in this case would lie to the U.S. Court of

Appeals for the Eighth Circuit.    That court held in Robinette v.

Commissioner, 439 F.3d 455, 460 (8th Cir. 2006), revg. 123 T.C.

85 (2004), that the Tax Court’s scope of review in a collection

due process (CDP) proceeding under sections 6320 and 6330 should
                                -9-

be limited to the administrative record.4    However, the CDP

provisions of sections 6320 and 6330 are different from the

“innocent spouse” provisions of section 6015, and those

differences include the following:

     The CDP petitioner’s agency-level remedies are described at

some length in section 6330(a), (b), and (c), and section

6330(d)(2) requires the CDP petitioner to “exhaust[] all

administrative remedies”; but section 6015 makes no explicit

provision of agency-level remedies for “innocent spouse” relief

and says nothing about exhausting them.     The agency’s CDP action

is repeatedly characterized in section 6330 as a “hearing”, but

no agency hearing is explicitly provided for the “innocent

spouse” in section 6015.5   The taxpayer’s CDP submission to the

Tax Court under section 6330(d) is called an “appeal” and is not

referred to as a “petition” anywhere in the statute, while



     4
      This Court held to the contrary in Robinette v.
Commissioner, 123 T.C. 85 (2004), revd. 439 F.3d 455, 460 (8th
Cir. 2006), and in CDP cases we generally do not follow the
record rule. However, in cases appealable to Courts of Appeals
that follow the record rule, we do follow those precedents
pursuant to our “Golsen rule”. See Golsen v. Commissioner, 54
T.C. 742, 757 (1970), affd. 445 F.2d 985 (10th Cir. 1971).
However, as we noted in Porter v. Commissioner, 130 T.C. 115, 120
(2008), the Court of Appeals’ decision in Robinette interpreting
section 6330 does not govern the interpretation of section 6015.
     5
      See Porter v. Commissioner, supra, 130 T.C. at 135
(Thornton, J., concurring); Friday v. Commissioner, 124 T.C. 220,
222 (2005) (“There is in section 6015 no analog to section 6330
granting the Court jurisdiction after a hearing at the
Commissioner’s Appeals Office”).
                               -10-

section 6015(e) provides that the innocent spouse files a

“petition” that is nowhere called an “appeal”.    The Tax Court

“determine[s]” innocent spouse relief, sec. 6015(e)(1)(A), but

has “jurisdiction with respect to such matter” in the case of an

appeal from the agency’s CDP determination, sec. 6330(d)(1).6

      All these differences in statutory vocabulary suggest that

even if a CDP case under sections 6320 and 6330 is held to be

governed by a “record rule”, as the Court of Appeals for the

Eighth Circuit holds, the same rule is not warranted for an

“innocent spouse” case under section 6015.   We therefore follow

our Porter decisions and apply a de novo standard of review and

scope of review in deciding this case under section 6015.

II.   Joint and Several Liability and Section 6015 Relief

      Section 6013(d)(3) provides that if a joint return is filed,

the tax is computed on the taxpayers’ aggregate income, and

liability for the resulting tax is joint and several.    See also

sec. 1.6013-4(b), Income Tax Regs. (26 C.F.R.).    That is, each

spouse is responsible for the entire joint tax liability.

However, section 6015 provides for relief from joint liability

for spouses who meet the conditions of subsection (b) and for

divorced and separated persons under subsection (c), and provides

equitable relief in subsection (f) when the relief provided in



      6
      See Porter v. Commissioner, supra at 120; id. at 134-135
(Thornton, J., concurring).
                                 -11-

subsections (b) and (c) is not available.    Except as otherwise

provided in section 6015, the taxpayer bears the burden of proof.

See sec. 6015(c)(2); Rule 142(a); Alt v. Commissioner, 119 T.C.

306, 311 (2002), affd. 101 Fed. Appx. 34 (6th Cir. 2004).

Because Ms. Olson generally requests relief under section 6015,

we analyze her eligibility under all three subsections.

     A.   Subsection (b) Relief

     Section 6015 provides as follows in subsections (a) and

(b)(1):

     SEC. 6015.    RELIEF FROM JOINT AND SEVERAL LIABILITY ON
                   JOINT RETURN.

          (a) In General.--Notwithstanding section
     6013(d)(3)--
               (1) an individual who has made a joint
          return may elect to seek relief under the
          procedures prescribed under subsection (b); and

               (2) if such individual is eligible to elect
          the application of subsection (c), such individual
          may, in addition to any election under paragraph
          (1), elect to limit such individual’s liability
          for any deficiency with respect to such joint
          return in the manner prescribed under subsection
          (c).

     Any determination under this section shall be made
     without regard to community property laws.

          (b) Procedures for Relief from Liability
     Applicable to All Joint Filers.--

               (1) In general.--Under procedures prescribed
          by the Secretary, if--

                       (A) a joint return has been made for a
                  taxable year;
                                 -12-

                    (B) on such return there is an
               understatement of tax attributable to
               erroneous items of one individual filing the
               joint return;

                    (C) the other individual filing the
               joint return establishes that in signing the
               return he or she did not know, and had no
               reason to know, that there was such
               understatement;

                    (D) taking into account all the facts
               and circumstances, it is inequitable to hold
               the other individual liable for the
               deficiency in tax for such taxable year
               attributable to such understatement; and

                    (E) the other individual elects (in
               such form as the Secretary may prescribe) the
               benefits of this subsection not later than
               the date which is 2 years after the date the
               Secretary has begun collection activities
               with respect to the individual making the
               election,

          then the other individual shall be relieved of
          liability for tax (including interest, penalties,
          and other amounts) for such taxable year to the
          extent such liability is attributable to such
          understatement.

     Section 6015(b)(1) thus authorizes “innocent spouse” relief

if a taxpayer satisfies all five of the requirements set out in

subparagraphs (A) through (E).    Respondent does not dispute that

Ms. Olson meets the requirements of subparagraphs (A) (joint

return) and (E) (timely election), but he denies that she meets

the other three requirements in subparagraphs (B), (C), and (D).

We therefore discuss those three.
                              -13-

          1.   Erroneous Item of Non-requesting Spouse
               (Section 6015(b)(1)(B)

     Ms. Olson has the burden to prove that the understatement of

tax on the joint return was attributable to erroneous items of

Mr. Olson and not of Ms. Olson.   See Jonson v. Commissioner,

118 T.C. 106, 113 (2002), affd. 353 F.3d 1181 (10th Cir. 2003).

However, the erroneous item on the return was the business income

of Fun Stuff Rental,7 which was the family business.   The

business is identified on the company checks as “Greg & Callie’s”

(emphasis added), and Ms. Olson was active in the business--

answering the phone, sending out mail, paying the help, handling

the equipment, and working some of the jobs.   Mr. and Ms. Olson’s

work was collaborative and mutual.   Ms. Olson did not prove that

the Fun Stuff Rental income was an item of Mr. Olson alone, and

she did not offer any evidence of how the revenue could be

allocated between the two spouses.   See Ishizaki v. Commissioner,

T.C. Memo. 2001-318, 82 T.C.M. (CCH) 995, 1000-1001 (2001)

(income is not an item of one spouse when the other “actively and




     7
      Ms. Olson did not argue that the understatement was attrib-
utable to the erroneous exclusion of one or more specific revenue
items of which she could not have been aware or that it was
attributable to the erroneous deduction of one or more specific
items of expense whose legitimacy she could not have known.
Since she did not show what particular items contributing to the
income of Fun Stuff Rental gave rise to the understatement, and
since in any event the bank statements and other records were all
accessible to her, this argument could not have prevailed.
                                -14-

substantially participated”).   We hold that Ms. Olson did not

prove that she meets the requirement of section 6015(b)(1)(B).

          2.   Requesting Spouse’s Knowledge
               (Section 6015(b)(1)(C))

     As for the requirement of section 6015(b)(1)(C), Ms. Olson

did make a credible showing that “in signing the return * * * she

did not know * * * that there was such understatement”, but she

did not prove that she “had no reason to know”.8   On the

contrary, her testimony showed that she did have reason to know

that the return she signed understated the liability.   She had

quit her hospital job the prior year, so that in 2003 the

family’s only income source was Fun Stuff Rental; she saw that

family expenses were being paid from the revenues of the

business; she had access to all the records of the business; yet



     8
      See also sec. 6015-2(c), Income Tax Regs. (26 C.F.R.) (“A
requesting spouse has * * * reason to know of an understatement
* * * if a reasonable person in similar circumstances would have
known of the understatement. * * * All of the facts and
circumstances are considered in determining whether a requesting
spouse had reason to know of an understatement. The facts and
circumstances that are considered include, but are not limited
to, the nature of the erroneous item and the amount of the
erroneous item relative to other items; the couple’s financial
situation; the requesting spouse’s educational background and
business experience; the extent of the requesting spouse’s
participation in the activity that resulted in the erroneous
item; whether the requesting spouse failed to inquire, at or
before the time the return was signed, about items on the return
or omitted from the return that a reasonable person would
question; and whether the erroneous item represented a departure
from a recurring pattern reflected in prior years’ returns (e.g.,
omitted income from an investment regularly reported on prior
years’ returns)”).
                                 -15-

she signed a joint return on which Fun Stuff Rental reported a

loss of $10,376.     From the facts immediately available to her,

she had reason to know that Fun Stuff Rental had not really

experienced a loss of $10,376.

     Ms. Olson did not contend that she noticed the reported tax

loss but thought that the business might nonetheless have

produced a positive cash flow.     Such a contention would fail on

the facts of this case, even though the expense deductions did

include depreciation (which was not an out-of-pocket expense)

totaling $27,104.    A portion of the reported depreciation was on

the vehicle that, according to the return, was purchased for

$39,172 in July 2003 (i.e., in the taxable year at issue).      Thus,

the return not only reported a taxable loss of $10,376 but also

revealed a considerable negative cash flow--i.e., gross income of

$86,747, a vehicle purchase of $39,172, and out-of-pocket

expenses totaling $70,019, for an ostensible negative cash flow

of $22,444.   Yet somehow Ms. Olson paid living expenses from the

checking account of Fun Stuff Rental.

     The loss reported on the return that Ms. Olson signed simply

cannot be reconciled with her knowledge of the business and the

family activities.    If she did not know that the return she

signed understated the income of Fun Stuff Rental, it is because

she chose to pay no attention to the matter.    But as the Court of

Appeals for the Eighth Circuit has observed:
                                 -16-

     a taxpayer cannot satisfy the lack of knowledge
     requirement by claiming that he or she failed to review
     the joint return before signing it. “Section 6013(e) is
     designed to protect the innocent, not the intentionally
     ignorant.” Cohen v. Commissioner, T.C. Memo. 1987-537
     (Oct. 20, 1987). * * *

Erdahl v. Commissioner, 930 F.2d 585, 589 (8th Cir. 1991), revg.

T.C. Memo. 1990-101.   We hold that Ms. Olson did not prove that

she had no reason to know that the loss reported on the joint

return that she signed was erroneous.    Rather, she could and

should have known that the reported loss was erroneous.

          3.   Inequitable To Hold Liable (Section 6015(b)(1)(D))

     As for the requirement of section 6015(b)(1)(D), Ms. Olson

did not show that “it is inequitable to hold * * * [her] liable

for the deficiency in tax”.   The statute provides that this

judgment on the equities is to be made “taking into account all

the facts and circumstances”.9    Since this “inequitable”


     9
      See also sec. 1.6015-2(d), Income Tax Regs. (26 C.F.R.)
(“All of the facts and circumstances are considered in
determining whether it is inequitable to hold a requesting spouse
jointly and severally liable for an understatement. One relevant
factor for this purpose is whether the requesting spouse
significantly benefitted, directly or indirectly, from the
understatement. A significant benefit is any benefit in excess
of normal support. Evidence of direct or indirect benefit may
consist of transfers of property or rights to property, including
transfers that may be received several years after the year of
the understatement. Thus, for example, if a requesting spouse
receives property (including life insurance proceeds) from the
nonrequesting spouse that is beyond normal support and traceable
to items omitted from gross income that are attributable to the
nonrequesting spouse, the requesting spouse will be considered to
have received significant benefit from those items. Other
factors that may also be taken into account, if the situation
                                                   (continued...)
                               -17-

requirement under section 6015(b)(1)(D) is equivalent to the

“inequitable” requirement under section 6015(f)(1), which is

discussed below in part II.C, we relegate our analysis to that

part of this opinion.   In sum, Ms. Olson did not prove that it is

inequitable to hold her jointly liable.

     Thus, Ms. Olson fails to satisfy the requirements of

subparagraphs (B), (C), and (D) of section 6015(b)(1) and does

not qualify for relief under section 6015(b).

     B.   Subsection (c) Relief.

     Section 6015(c) is entitled “Procedures to Limit Liability

for Taxpayers No Longer Married or Taxpayers Legally Separated or

Not Living Together.”   Because Mr. and Ms. Olson were married in

the year in issue and continue to be married, Ms. Olson is not

entitled to relief under subsection (c).

     C.   Equitable Relief Under Subsection (f)

          1.   Standards Applicable Under Section 6015(f)

     Subsection (f) of section 6015 provides as follows:



     9
      (...continued)
warrants, include the fact that the requesting spouse has been
deserted by the nonrequesting spouse, the fact that the spouses
have been divorced or separated, or that the requesting spouse
received benefit on the return from the understatement. For
guidance concerning the criteria to be used in determining
whether it is inequitable to hold a requesting spouse jointly and
severally liable under this section, see Rev. Proc. 2000-15
(2000-1 C.B. 447), or other guidance published by the Treasury
and IRS (see § 601.601(d)(2) of this chapter)”). The revenue
procedure cited in the regulation has been superseded by Revenue
Procedure 2003-61, 2003-2 C.B. 296.
                              -18-

          SEC. 6015(f). Equitable Relief.--Under procedures
     prescribed by the Secretary, if--

               (1) 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); and

               (2) relief is not available to such
          individual under subsection (b) or (c),

     the Secretary may relieve such individual of such
     liability.

Thus, a taxpayer may be relieved from joint and several liability

under section 6015(f) if, taking into account all the facts and

circumstances, it is inequitable to hold the taxpayer liable.

     In accord with the statutory provision that section 6015(f)

relief is to be granted “[u]nder procedures prescribed by the

Secretary,” the Commissioner has issued revenue procedures to

guide IRS employees in determining whether a requesting spouse is

entitled to relief from joint and several liability.     See Rev.

Proc. 2003-61, supra, 2003-2 C.B. 296, modifying and superseding

Rev. Proc. 2000-15, 2000-1 C.B. 447.   Revenue Procedure 2003-61

provides a three-step analysis for IRS employees to use in

deciding whether to grant relief:    Section 4.01 (discussed below)

lists seven threshold conditions that must be met for any relief

to be granted; section 4.02, not applicable here, lists

circumstances in which relief will ordinarily be granted as to

liabilities (unlike those at issue here) that were reported on a

return; and section 4.03 (discussed below) sets out eight non-
                               -19-

exclusive factors to be considered in determining whether

equitable relief should be granted.

     The Tax Court has been given express authority to review the

IRS’s denial of equitable relief under section 6015(f).

Section 6015(e)(1) provides:

     [I]n the case of an individual who requests equitable
     relief under subsection (f) * * * [i]n addition to any
     other remedy provided by law, the individual may
     petition the Tax Court (and the Tax Court shall have
     jurisdiction) to determine the appropriate relief
     available to the individual under this section * * *.

In “determin[ing] the appropriate relief”, the Court reviews the

IRS’s three-step analysis prescribed in its revenue procedure,

see Washington v. Commissioner, 120 T.C. 137, 147-152 (2003), but

our review is not circumscribed by that matrix.   Rather, we

consider “all the facts and circumstances” in determining whether

the taxpayer is entitled to “innocent spouse” relief.   Sec.

6015(f)(1); see Porter v. Commissioner, 132 T.C. at __ (slip op.

at 12-13); Lantz v. Commissioner, 132 T.C. __ (2009).

          2.   Evaluation of Ms. Olson’s Entitlement to Relief
               Under Section 6015(f)

     As we now show, the IRS correctly employed the analysis

prescribed in Revenue Procedure 2003-61, supra, to determine that

Ms. Olson is not entitled to equitable relief under

section 6015(f).   We find that that the IRS’s analysis did not

exclude any relevant fact or circumstance that ought to be taken
                               -20-

into account, and that relief from joint liability is not

appropriate in this case.

                a.   Threshold Eligibility Under
                     Rev. Proc. 2003-61, Sec. 4.01

     Revenue Procedure 2003-61 sets out, in section 4.01, seven

threshold conditions that all requesting spouses must meet in

order for the IRS to grant relief pursuant to section 6015(f).10

In his pretrial memorandum respondent asserts generally that

Ms. Olson “fails to meet the threshold eligibility requirements”

but does not specify which one or ones she fails to meet.   It

appears that she satisfies the first six but that she fails to

satisfy the seventh--i.e., “The income tax liability from which

the requesting spouse seeks relief is attributable to an item of

the individual with whom the requesting spouse filed the joint

return”.   As we explained above in part II.A.1, Ms. Olson failed


     10
      See Rev. Proc. 2003-61, sec. 4.01, 2003-2 C.B. at 297 (all
requesting spouses must meet seven threshold conditions: (i) The
requesting spouse filed a joint return for the taxable year for
which he or she seeks relief; (ii) relief is not available to the
requesting spouse under section 6015(b) or (c); (iii) the
requesting spouse applies for relief no later than 2 years after
the date of the Service’s first collection activity after July
22, 1998, with respect to the requesting spouse; (iv) no assets
were transferred between the spouses as part of a fraudulent
scheme by the spouses; (v) the nonrequesting spouse did not
transfer disqualified assets to the requesting spouse; (vi) the
requesting spouse did not file or fail to file the return with
fraudulent intent; and (vii) absent enumerated exceptions, the
income tax liability from which the requesting spouse seeks
relief is attributable to an item of the individual with whom the
requesting spouse filed the joint return). As to requirement
(iii) above, we have held that the two-year rule is invalid. See
Lantz v. Commissioner, 132 T.C. __ (2009).
                               -21-

to show that the underreported income of Fun Stuff Rental was an

item attributable to Mr. Olson alone.   Rather, Ms. Olson was also

active in the business, so that its income is properly

attributable not only to Mr. Olson but also to her.    Ms. Olson

therefore fails to meet the threshold conditions for the IRS to

grant equitable relief.

     We nonetheless proceed to consider “[i]n the alternative”,

see O’Meara v. Commissioner, T.C. Memo. 2009-71, whether there

are any additional facts and circumstances that would justify

relief for Ms. Olson.   We find that there are not.

                b.   Facts-and-Circumstances Test of
                     Rev. Proc. 2003-61, Sec. 4.03

     Where the requesting spouse satisfies the threshold

conditions of section 4.01 of Revenue Procedure 2003-61 (not the

case here), the IRS may grant relief under the facts-and-

circumstances test of section 4.03.   Under that test the IRS

considers a “nonexclusive list of factors” in section 4.03(2)(a)

to determine whether “taking into account all the facts and

circumstances, it is inequitable to hold the requesting spouse

liable”:   (i) whether the requesting spouse is separated or

divorced from the nonrequesting spouse; (ii) whether the

requesting spouse would suffer economic hardship if not granted

relief; (iii) whether the requesting spouse knew or had reason to

know that the other spouse would not pay the liability;

(iv) whether the nonrequesting spouse has a legal obligation to
                                -22-

pay the outstanding tax liability pursuant to a divorce decree or

agreement; (v) whether the requesting spouse received a

significant benefit from the item giving rise to the deficiency;

and (vi) whether the requesting spouse has made a good faith

effort to comply with the tax laws for the taxable years

following the taxable year to which the request for such relief

relates.   Other factors that the IRS considers under

section 4.03(2)(b) are (i) whether the nonrequesting spouse

abused the requesting spouse and (ii) whether the requesting

spouse was in poor mental or physical health at the time he or

she signed the tax return or at the time he or she requested

relief.

     We consider these factors and any other relevant facts and

circumstances in determining whether the taxpayer is entitled to

“innocent spouse” relief.    No single factor is determinative, and

all factors are to be considered and weighted appropriately.

Haigh v. Commissioner, T.C. Memo. 2009-140.   In this case the

IRS’s factors provide a sufficient basis for evaluating

Ms. Olson’s claim for equitable relief, and the record suggests

no additional facts and circumstances that should be considered.

We therefore address the factors listed in section 4.03 of

Revenue Procedure 2003-61.
                                  -23-

                      i.     Marital Status

     Ms. Olson was not divorced, separated, or living apart from

Mr. Olson when she filed her request for “innocent spouse”

relief.    This factor weighs against granting relief.    See

McKnight v. Commissioner, T.C. Memo. 2006-155.

                      ii.   Economic Hardship

     Generally, economic hardship exists if collection of the tax

liability will cause the taxpayer to be unable to pay reasonable

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

2007-136.    Ms. Olson made no showing of economic hardship, so

this factor weighs against granting relief.

                      iii. Knowledge or Reason To Know

     As is discussed above in part II.A.2, Ms. Olson has failed

to establish that she did not have reason to know of the item

giving rise to the deficiency (i.e., the income of Fun Stuff

Rental).    This factor weighs against granting relief.    See Beatty

v. Commissioner, T.C. Memo. 2007-167.

                      iv.   Nonrequesting Spouse’s Legal Obligation

     Where a divorce decree or other court order gives the

nonrequesting spouse a legal obligation to pay the liability,

this fact can weigh in favor of granting relief to the requesting

spouse.    No divorce decree or separation order imposes such a

liability on Mr. Olson, and this factor therefore weighs against

granting relief to Ms. Olson.
                                  -24-

                       v.    Significant Benefit

     While Ms. Olson did share in the benefit of the Fun Stuff

Rental income in 2003 and did share with Mr. Olson the benefit of

the money that they did not use to pay their tax liability, there

is nothing in the record that indicates that Ms. Olson “received

significant benefit (beyond normal support) from the unpaid

income tax liability or item giving rise to the liability”, and

respondent does not contend that she did.     Therefore, this factor

weighs moderately in favor of relief.     See Magee v. Commissioner,

T.C. Memo. 2005-263.

                       vi.   Compliance With Federal Tax Laws

     As of the time the IRS issued the notice of deficiency that

denied Ms. Olson’s request for relief for 2003, the Olsons had

not filed returns for 2004 and 2005, so respondent contends that

Ms. Olson had not (for purposes of Rev. Proc. 2003-61, sec.

4.03(2)(a)(vi)) “made a good faith effort to comply with income

tax laws in the taxable years following the taxable year or years

to which the request for relief relates.”     We have found that in

2003 the income of Fun Stuff Rental was an item of both Mr. and

Ms. Olson.   However, the record is not clear on this point as to

2004 and 2005; and when the IRS determined deficiencies for 2004

and 2005, it issued the notice of deficiency to Mr. Olson only.

Since this factor, even if found in Ms. Olson’s favor, would not

sufficiently tip the scales to justify relief, we do not decide
                                 -25-

this issue and instead assume arguendo that this factor weighs in

favor of relief.   See Fox v. Commissioner, T.C. Memo. 2006-22.

                     vii.    Abuse

     There is no evidence or allegation of abuse by Mr. Olson.

Therefore, this factor is neutral.      See Magee v. Commissioner,

supra.

                     viii.    Mental or Physical Health

     Ms. Olson has not alleged, nor does the record show, that

her mental or physical health was poor at the relevant times.

Therefore, this factor is neutral.      See id.

     When we weigh the facts and circumstances implicated in

these eight factors, we find that Ms. Olson is not entitled to

relief.    Two factors are neutral, no more than two factors weigh

in favor of relief, and at least four factors weigh against

relief.   We find that the two favorable factors (subsequent

compliance and lack of significant benefit) are easily outweighed

by the four unfavorable factors:     Ms. Olson lived with and

continues to live with Mr. Olson; she showed no economic hardship

that would result if relief were not granted; she should have

known of the understatement reflected on the return; and

Mr. Olson is not under any order or decree to pay the liability.

As a result, when the facts and circumstances are weighed,

Ms. Olson is not entitled to “innocent spouse” relief under
                                 -26-

section 6015(f) with respect to the Olsons’ joint Federal income

tax liability for 2003.

     In sum, we find that Ms. Olson is not entitled to relief

from joint liability under section 6015(b), (c), or (f).

     To reflect the foregoing,


                                             Decision will be entered

                                        for respondent.
