                        T.C. Memo. 2012-11



                      UNITED STATES TAX COURT



  FARZANA ZAHER, Petitioner, AND MOHAMMAD ZAHER, Intervenor v.
          COMMISSIONER OF INTERNAL REVENUE, Respondent



     Docket No. 5984-10.                Filed January 10, 2012.



     Adam D. Christensen, for petitioner.

     Mohammad Zaher, pro se.

     Angela J. Kennedy, for respondent.



             MEMORANDUM FINDINGS OF FACT AND OPINION


     COHEN, Judge:   This proceeding was commenced under section

6015 for review of respondent’s determination that petitioner is

not entitled to relief from joint and several liability for 2006

with respect to a Federal income tax return she filed with her

former spouse, intervenor.   The issue for decision is whether
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petitioner is entitled to relief under section 6015(f).     All

section references are to the Internal Revenue Code, and all Rule

references are to the Tax Court Rules of Practice and Procedure.

                          FINDINGS OF FACT

     Some of the facts have been stipulated, and the stipulated

facts are incorporated in our findings by this reference.     At the

time the petition was filed, petitioner resided in Indiana.       At

the time the notice of intervention was filed, intervenor resided

in California.

     Petitioner holds a bachelor’s degree and graduated from

dental school in 2004.   During the marriage, intervenor

participated in various entrepreneurial activities, including

owning and operating a gas station through a corporate entity

that he owned and controlled, Zaher Enterprises, Inc.     Intervenor

sold the gas station, and payments were made to intervenor during

2006.   Petitioner had no ownership or controlling interest in

intervenor’s business activities, and petitioner had no access to

intervenor’s business bank account.

     Petitioner’s involvement with the family finances was

limited.   The couple had some joint accounts, but they also had

separate personal and business accounts.     Intervenor generally

was responsible for filling out bank forms, applying for loans,

and ensuring that the couple’s tax returns were prepared by their

accountant and filed.    Petitioner was not abused by intervenor,
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and petitioner did not suffer from mental or physical health

problems.

     During 2006, petitioner and intervenor lived together in

Indiana with their two minor children.    Petitioner was employed

as a dentist.   Intervenor realized capital gains of $587,760 from

the sale of the gas station.   After several loans associated with

the gas station operations were paid and payment was made for

work relating to a piece of investment property, the remainder of

the capital gains from the gas station sale (gas station

proceeds), approximately $315,000, was deposited in petitioner

and intervenor’s joint savings account.   At the time, intervenor

told petitioner that any taxes owed with respect to the capital

gains would be paid from the 2006 net proceeds.   No estimated tax

payments were made with respect to the 2006 capital gains.

      Petitioner and intervenor began having marital difficulties

in December 2006.   On August 1, 2007, only a week before

petitioner filed for divorce, intervenor transferred the gas

station proceeds from the couple’s joint savings account to his

business checking account.   This transfer left the joint savings

account with a balance of less than $1,000 and was made without

petitioner’s knowledge, although petitioner did learn of the

transfer before filing for divorce.

     A few days after transferring the gas station proceeds to

his business account, intervenor wrote a check drawn on his
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business account for $320,000 that was deposited in an account

owned by one of his brothers.    At the time, petitioner had no

knowledge of the transfer to intervenor’s brother.

     On August 8, 2007, petitioner filed for divorce in the

Circuit Court for Hamilton County, Indiana (circuit court), and

requested that the circuit court issue a financial restraining

order.    On August 10, 2007, the circuit court issued a temporary

financial restraining order prohibiting petitioner or intervenor

from disposing of marital assets without written consent of both

parties or permission of the circuit court.

     Petitioner and intervenor began living apart in November

2007.    On November 20, 2007, intervenor sent an email to

petitioner stating that he had left a copy of the couple’s 2006

joint tax return at her home for her to review and sign.     From

this email, petitioner learned for the first time that their 2006

tax return had not been filed by the due date and that there was

a significant amount of tax due.    Intervenor advised petitioner

that they needed to sign and file the 2006 tax return and that he

had set up an appointment for petitioner to discuss the tax

return with their accountant.

     In early December 2007, petitioner met with the accountant

to review the 2006 tax return, which reported a tax due of

$63,379.    Petitioner then had her divorce attorney forward an

unsigned copy of the 2006 joint return to intervenor’s attorney
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for intervenor’s signature, because petitioner was afraid

intervenor would make unauthorized changes to the 2006 tax return

if she gave him a signed copy.

     In a series of emails exchanged from November 2007 to

January 2008, petitioner and intervenor discussed the 2006 tax

return and how the tax due would be paid.   Because petitioner no

longer had access to the gas station proceeds, she urged

intervenor to pay the tax.   Intervenor responded that he did not

have the money and suggested that they first file the return,

then talk to the Internal Revenue Service (IRS) about a payment

plan.   Intervenor also said he was seeking another accountant to

redo the 2006 return since he felt their accountant “went too

much by the book”.

     In April 2008, in violation of the financial restraining

order, intervenor directed his brother to distribute to other

family members the gas station proceeds he had been holding for

intervenor.   Intervenor eventually signed the 2006 return as

originally prepared and sent it back to petitioner in mid-2008.

Petitioner signed the return for filing with the IRS.   By this

time, petitioner had learned of the transfer of the gas station

proceeds to the bank account of intervenor’s brother.

     The 2006 joint return was filed on December 3, 2008.    The

return reported petitioner’s wage income of $113,037,

intervenor’s capital gains of $587,760, rental losses of
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$137,781, and taxable interest income of $35,073.   After

crediting petitioner’s wage withholding of $15,866, the joint

return showed tax due of $63,379, which petitioner and intervenor

did not pay when they filed the return.   The reported balance due

for 2006 was solely attributable to intervenor.

     Petitioner submitted a Form 8857, Request for Innocent

Spouse Relief, to the IRS dated April 30, 2009.   An IRS tax

examiner reviewed petitioner’s request under the process

described in Rev. Proc. 2003-61, 2003-2 C.B. 296, and ultimately

denied her relief under section 6015.   A final determination

letter dated December 10, 2009, was sent to petitioner.

According to the IRS’ workpaper, the denial was based, in large

part, on the examiner’s conclusion that petitioner had not

established that she had a reasonable belief when the return was

signed that the tax would be paid by intervenor and that

petitioner would not suffer economic hardship if relief was not

granted.

     In March 2010, after several years of contentious

proceedings, petitioner and intervenor’s divorce became final.

In April and May 2010, the circuit court issued orders regarding

the couple’s property division and child custody issues.

Petitioner was granted full custody of the couple’s two children.

     As to the property division, the circuit court included the

gas station proceeds in the marital estate because the court
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ruled that intervenor had wrongfully transferred the funds from

the couple’s joint account just before petitioner filed for

divorce.   However, in the light of intervenor’s greater financial

contributions during the marriage and petitioner’s future earning

potential as a dentist, the circuit court awarded intervenor 55

percent and petitioner 45 percent of the marital assets.    To

effect this property division, the circuit court required

petitioner to take on a much greater share of marital debt than

intervenor.

     The circuit court also ruled that intervenor had violated the

financial restraining order on numerous occasions, including

instructing his brother to distribute the gas station proceeds to

other family members.   Intervenor claimed that these distributions

were made to repay loans that family members made to petitioner

and intervenor during their marriage, but the circuit court ruled

that no credible evidence supported the existence of these claimed

family loans.   The circuit court found it probable that the gas

station proceeds had been distributed to family members in a

scheme to funnel the money back to intervenor through “loans” and

“gifts” from the same family members.   The circuit court further

concluded that intervenor had remained voluntarily unemployed

during the entire course of the divorce proceedings to avoid

“paying his fair share to raise his children” and had attempted to

foist all his financial responsibilities on petitioner.    The
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divorce decree did not assign responsibility for the 2006 tax

liability.

     On November 1, 2010, intervenor filed his notice of

intervention.   Intervenor stated in his notice that he believed

petitioner should be responsible for all of the 2006 income tax

liability.

                              OPINION

     Generally, married taxpayers may elect to file a joint

Federal income tax return.   Sec. 6013(a).   After making this

election, each spouse generally is jointly and severally liable

for the entire tax due for that taxable year.    Sec. 6013(d)(3);

Butler v. Commissioner, 114 T.C. 276, 282 (2000).    A requesting

spouse, however, may seek relief from joint and several liability

under section 6015(b) or, if eligible, may allocate liability

under section 6015(c).   Sec. 6015(a).   If relief is not available

under section 6015(b) or (c), a requesting spouse may seek

equitable relief under section 6015(f).   Because this case

involves failure to pay tax shown on a return, rather than a

deficiency, petitioner and respondent agree that petitioner is not

entitled to relief under section 6015(b) or (c).    See Washington

v. Commissioner, 120 T.C. 137, 146-147 (2003).

     Petitioner contends that she is entitled to relief under

section 6015(f) from joint and several liability.    Section 6015(f)

gives the Commissioner the discretion to grant equitable relief
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from joint and several liability if “taking into account all the

facts and circumstances, it is inequitable to hold the individual

liable for any unpaid tax or any deficiency (or any portion of

either)”.

     We have jurisdiction to review respondent’s denial of

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

See sec. 6015(e)(1).   In doing so, we apply a de novo standard of

review, as well as a de novo scope of review.      Porter v.

Commissioner, 132 T.C. 203, 210 (2009); Porter v. Commissioner,

130 T.C. 115, 117 (2008).    Respondent disagrees, contending that

the proper standard of review is abuse of discretion and that the

proper scope of review is limited to the administrative record.

We decline to revisit Porter.    The presence of intervenor as a

party in this case emphasizes the need to consider matters not in

the administrative record.    See Porter v. Commissioner, 132 T.C.

at 219-220 (Gale, J., concurring).      Petitioner bears the burden of

proving that she is entitled to relief under section 6015(f).      See

Porter v. Commissioner, 132 T.C. at 210; see also Rule 142(a).

     The Commissioner has outlined procedures for determining

whether a taxpayer qualifies for equitable relief under section

6015(f) from joint and several liability.     See Rev. Proc. 2003-61,

supra.   First, Rev. Proc. 2003-61, sec. 4.01, 2003-2 C.B. at

297-298, sets forth seven threshold conditions that must be

satisfied before the Commissioner will consider a request for
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equitable relief under section 6015(f).   There is no dispute that

petitioner meets the threshold conditions.

     If the threshold conditions are satisfied, the requesting

spouse will ordinarily be granted relief if he or she then

satisfies each requirement of the safe harbor provision found in

Rev. Proc. 2003-61, sec. 4.02, 2003-2 C.B. at 298:   (1) On the

date of the request for relief, the requesting spouse is no longer

married to, or is legally separated from, the nonrequesting

spouse; (2) on the date the requesting spouse signed the joint

return, the requesting spouse had no knowledge or reason to know

that the nonrequesting spouse would not pay the income tax

liability; and (3) the requesting spouse will suffer economic

hardship if not granted relief.    Petitioner concedes that she does

not satisfy the third condition.   Accordingly, petitioner does not

qualify for relief under Rev. Proc. 2003-61, sec. 4.02.

     When a requesting spouse satisfies the threshold conditions

but fails to satisfy the conditions in Rev. Proc. 2003-61, sec.

4.02, he or she still may be eligible for relief under section

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

it is inequitable to hold the requesting spouse liable for an

underpayment.   Rev. Proc. 2003-61, sec. 4.03, 2003-2 C.B. at

298-299, lists nonexclusive factors to be considered in

determining whether to grant equitable relief under section

6015(f).   No single factor is determinative, all factors are to be
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considered and weighed, and the list of factors is not intended to

be exhaustive.   Id.   These listed factors are:   (1) Whether the

requesting spouse is separated or divorced from the nonrequesting

spouse; (2) whether the requesting spouse would suffer economic

hardship if not granted relief; (3) whether the requesting spouse

knew or had reason to know that the other spouse would not pay the

tax; (4) whether the nonrequesting spouse has a legal obligation

to pay the outstanding tax liability pursuant to a divorce decree

or agreement; (5) whether the requesting spouse received a

significant benefit (beyond normal support) from nonpayment of the

tax liability; and (6) whether the requesting spouse has made a

good-faith effort to comply with the tax laws for the taxable

years following the year to which the request for relief relates.

Other factors, if present, that favor equitable relief are:    (1)

The nonrequesting spouse abused the requesting spouse, and (2) the

requesting spouse was in poor mental or physical health on the

date the return was signed or at the time relief was requested.

However, the absence of these last two factors will not weigh

against equitable relief.    Id.

     The IRS denied petitioner’s request for relief under section

6015(f) after reviewing and weighing these factors.    Our analysis

of the relevant factors and circumstances is as follows.
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Marital Status

     The first factor considered is whether the requesting spouse

is separated or divorced from the nonrequesting spouse.

Petitioner and intervenor were separated at the time of her

initial request for innocent spouse relief, and they have since

divorced.   Therefore, this factor weighs in favor of relief for

petitioner.

Economic Hardship

     The second factor considered is whether the requesting spouse

will suffer economic hardship if relief is not granted.

Petitioner concedes that she will not suffer economic hardship.

This factor weighs against relief.

Knowledge or Reason To Know

     The third factor considered is whether the requesting spouse

had knowledge or reason to know that the nonrequesting spouse

would not pay the income tax liability.    For this factor to weigh

in favor of a requesting spouse, the requesting spouse must

establish that (1) when he or she signed the return, he or she had

no knowledge or reason to know the nonrequesting spouse would not

pay the tax reported on the return; and (2) it was reasonable for

him or her to believe that the nonrequesting spouse would pay the

tax shown as due.    See Collier v. Commissioner, T.C. Memo.

2002-144.     Another relevant consideration is whether petitioner

believed that intervenor would pay the taxes “reasonably promptly
                               - 13 -

after the filing of the joint return.”    See Waldron v.

Commissioner, T.C. Memo. 2011-288; see also Schepers v.

Commissioner, T.C. Memo. 2010-80; Banderas v. Commissioner, T.C.

Memo. 2007-129.   When petitioner signed the 2006 return reporting

an unpaid balance due that was filed with the IRS in December

2008, petitioner knew that intervenor had transferred the gas

station proceeds at least two times, first to intervenor’s

business account and then to intervenor’s brother.    Intervenor

also told petitioner that he did not have the money.    Furthermore,

although intervenor never explicitly stated that he was not going

to pay the tax, intervenor made it clear that he did not accept

sole responsibility for the tax that was due.    Considering these

circumstances, it simply is not reasonable for petitioner to have

believed, at the time she signed the 2006 return that was filed in

late 2008, that intervenor would pay the tax that was due.    This

factor weighs against relief for petitioner.

Nonrequesting Spouse’s Legal Obligation

     This factor is concerned with whether the nonrequesting

spouse has a legal obligation to pay the outstanding tax liability

pursuant to a divorce decree or agreement.     The parties agree that

petitioner and intervenor’s divorce decree does not determine who

has the legal obligation to pay the tax liability.     Therefore,

this factor is neutral.
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Significant Benefit

     The fifth factor considered is whether the requesting spouse

has received a significant benefit (beyond normal support) from

the unpaid income tax liability.   Normal support is measured by

the circumstances of the particular parties.   Porter v.

Commissioner, 132 T.C. at 212; Estate of Krock v. Commissioner, 93

T.C. 672, 678-679 (1989).   At the administrative level, respondent

determined that petitioner had not received a significant benefit

beyond normal support.   Now, respondent contends that petitioner

received a significant benefit beyond normal support because the

circuit court included the misappropriated gas station proceeds in

the marital estate subject to division, but not the tax liability,

and petitioner received substantial assets in the divorce

proceeding.

     Before this controversy arose, intervenor was a successful

entrepreneur, and petitioner was a practicing dentist.     In

accordance with their level of income, petitioner and intervenor

acquired substantial assets that had no connection with their

failure to pay the 2006 tax liability.   The assets petitioner was

awarded in the property division were not acquired as a result of

the unpaid tax liability.   In addition, the property division was

unequal, with petitioner receiving a smaller share than intervenor

and shouldering more of the couple’s debts than intervenor.

Furthermore, the record contains no evidence that, as a result of
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the unpaid tax liability, petitioner lived an unusually lavish

lifestyle, made extravagant purchases, or took expensive

vacations, typical hallmarks of significant benefits beyond normal

support.    See Washington v. Commissioner, 120 T.C. at 151; Wiener

v. Commissioner, T.C. Memo. 2008-230.    Accordingly, petitioner did

not receive a significant benefit beyond normal support.   This

factor weighs in favor of relief.

Compliance With Income Tax Laws

     This factor considers whether the requesting spouse has made

a good-faith effort to comply with income tax laws since the year

at issue.    Respondent concedes that petitioner has made a good-

faith effort to comply with the income tax laws since 2006.     This

factor weighs in favor of relief for petitioner.   See Kruse v.

Commissioner, T.C. Memo. 2010-270; Chou v. Commissioner, T.C.

Memo. 2007-102.

Abuse and Mental or Physical Health

     These factors consider whether the requesting spouse was

abused by the nonrequesting spouse and whether the requesting

spouse had mental or physical health problems at the time the

return at issue was signed or at the time he or she requested

relief.    Petitioner concedes that she was not abused by intervenor

nor has she had any mental or physical health problems.

Therefore, these two factors are neutral.
                               - 16 -

Analysis

     Considering all the factors discussed above, three weigh in

favor of relief for petitioner, two weigh against relief, and

three are neutral.   However, our analysis does not end here.    The

factors listed in Rev. Proc. 2003-61, sec. 4.03 are nonexclusive,

and other relevant factors are to be considered.   We have allowed

innocent spouse relief in cases where as few as two listed factors

favored relief when there were other relevant factors to consider.

See Bozick v. Commissioner, T.C. Memo. 2010-61 (the taxpayer was

“browbeaten” into signing the joint tax return); Wiener v.

Commissioner, supra (the taxpayer was in her 70s and in bad

health, and her husband had consistently misled her about their

tax problems).

     Petitioner argues that the facts and circumstances regarding

intervenor’s sale of the business that resulted in the tax

liability and his subsequent evasiveness and deceit concerning the

funds that were to be used to pay the tax liability weigh in favor

of granting relief under section 6015(f).   Intervenor

misappropriated the gas station proceeds, which could and should

have been used to pay the 2006 tax liability.   Intervenor then

went to great lengths over several years to place the gas station

proceeds beyond petitioner’s reach, effectively preventing

petitioner from using these funds herself to pay the 2006 tax

liability.   Equitable relief is more likely to be appropriate
                                 - 17 -

where concealment, overreaching, or other wrongdoing on the part

of the nonrequesting spouse is present.    See Van Arsdalen v.

Commissioner, T.C. Memo. 2007-48 (citing Hayman v. Commissioner,

992 F.2d 1256, 1262 (2d Cir. 1993), affg. T.C. Memo. 1992-228).

Intervenor’s egregious misconduct weighs in favor of relief for

petitioner, and respondent acknowledged as much at trial.

     Taking into account all of the facts and circumstances, we

hold that petitioner is entitled to relief from joint and several

liability under section 6015(f) with respect to any unpaid Federal

income tax liability for 2006.    We have considered the arguments

of the parties not specifically addressed in this opinion.     They

are either without merit or irrelevant to our decision.   To

reflect the foregoing,


                                          Decision will be entered

                                     for petitioner.
