                  T.C. Summary Opinion 2009-19



                     UNITED STATES TAX COURT



 LINDA SUSAN WILLIAMS, Petitioner, AND JOHN H. HUGO, Intervenor
                               v.
          COMMISSIONER OF INTERNAL REVENUE, Respondent



     Docket No. 17993-05S.              Filed February 10, 2009.



     Linda Susan Williams, pro se.

     John H. Hugo, pro se.

     Kaelyn J. Romey, for respondent.



     PANUTHOS, Chief Special Trial Judge:    This case was heard

pursuant to the provisions of section 7463 of the Internal

Revenue Code in effect at the time the petition was filed.

Pursuant to section 7463(b), the decision to be entered is not

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

treated as precedent for any other case.    Unless otherwise
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indicated, all section references are to the Internal Revenue

Code, and all Rule references are to the Tax Court Rules of

Practice and Procedure.

     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 with respect to an

underpayment of Federal income tax reported on a joint tax return

filed with intervenor for 2000.   The issue for decision is

whether petitioner is entitled to innocent spouse relief under

section 6015(f).

                            Background

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

The stipulations and the attached exhibits are incorporated by

reference.   Petitioner resided in California at the time the

petition was filed.

     Petitioner and intervenor were married on October 1, 1993.

Petitioner graduated from Dartmouth College with an undergraduate

degree and attended Wharton School of Business for 2 years but

did not complete her degree.   During 2000 petitioner worked for a

commercial real estate brokerage firm as an account executive

handling domestic and international real estate transactions.

In 2000 petitioner received income of $96,386 from her

employment, and she had Federal income tax of $11,708 withheld

from her wages.
                                 - 3 -

     During the marriage intervenor was an investment banker in

the real estate finance field.    He was self-employed during 2000.

Intervenor received a monthly consulting fee of $12,500 during

2000, and his 2000 income was $152,600.      At the time, intervenor

believed that these monthly payments would be only a fraction of

his total compensation for the year from his consulting work.

However, he did not receive the substantial yearend bonus that he

expected to receive.   Federal income tax was not withheld from

intervenor’s compensation during 2000.      Petitioner and intervenor

did not make quarterly estimated tax payments for 2000.      They had

not made estimated tax payments in previous years because

intervenor incurred deductible medical expenses that offset his

income.

     Petitioner and intervenor filed a joint Federal income tax

return for 2000.   Petitioner provided intervenor with tax

information including income, withholding, and business expenses

for the year, which she compiled.    Intervenor prepared the 2000

return using commercial tax software.      Petitioner reviewed and

signed the return.   The return reported total tax due of $37,471

and a $25,763 underpayment of tax.       No remittance was made with

the filing of the 2000 return.

     Petitioner realized that no quarterly estimated tax payments

had been made only after the 2000 return was prepared but before

she signed it.   Before petitioner signed the return, intervenor
                                - 4 -

acknowledged to petitioner that the unpaid tax liability was

attributable to his self-employment income and claimed that he

did not have money to pay the tax at that time.    However,

intervenor set out, in handwritten notes with his financial

documents, specific sources of funds that could be used to pay

the tax owed, including rental income from the marital residence

and a $10,000 payment relating to intervenor’s consulting

services.    Despite intervenor’s statements to the contrary,

petitioner believed that intervenor had sufficient funds to pay a

portion of the tax due.    She further believed that intervenor

would enter into an installment plan for the unpaid balance.

Petitioner knew that no payment would be made toward the reported

underpayment at the time of filing.

     During their marriage petitioner and intervenor experienced

financial difficulties.    Intervenor had serious medical problems

that made it difficult for him to work.    Although petitioner

understood that intervenor’s 2000 income was higher than in

previous years, she was aware of continued financial

difficulties.    Petitioner and intervenor borrowed money from

petitioner’s parents in January 2001 to pay off credit card debt.

In February 2001 intervenor’s consulting contract was not

renewed.    By the spring of 2001 petitioner realized that the

couple could not maintain their current standard of living.
                                - 5 -

However, in late 2001 intervenor listed his monthly income as

$25,000 on loan documents.

     Before filing the 2000 return in April 2001, intervenor had

told petitioner that he wanted a divorce, and they were in the

process of separating.   Intervenor filed a petition for

dissolution of marriage on May 29, 2001, listing the date of

separation as April 1, 2001.   On approximately June 15, 2001,

petitioner and her son moved out of the marital residence, a

4,000-square-foot house in Pacific Palisades, California.

Intervenor purchased the residence before his 1993 marriage to

petitioner.   Petitioner and intervenor had resided at the

residence since 1998.    Petitioner and intervenor refinanced the

residence during the marriage, giving petitioner a community

property interest in the residence.     Petitioner and intervenor

had an agreement that they would both vacate the marital

residence in order to rent the property.     Intervenor listed

rental income from the property in his handwritten notes as a

potential source of funds to pay the 2000 tax liability.

However, intervenor did not move out of the marital residence,

and it was not rented.   There is evidence in the record that the

rent was set at an above-market rate and intervenor refused to

lower the rent.
                                 - 6 -

     Upon moving out of the marital residence, petitioner moved

into a nearby rental property in Pacific Palisades.    In May 2001

petitioner began being paid on a commission-only basis and no

longer received a monthly salary.    As a result, her annual income

decreased dramatically.   In January 2004 petitioner determined

that she could no longer meet the high costs of living in the Los

Angeles area and decided to move to a place with a lower cost of

living.   Petitioner chose to move to the Lake Tahoe area because

she could live with her parents rent free temporarily.

Petitioner and her son lived with her parents for approximately 1

year.   Thereafter, she moved into two different rental apartments

before moving into a carriage house on her parents’ property at a

rent of $1,000 per month in addition to an obligation to provide

caretaking services.   Employment opportunities in the Lake Tahoe

area were limited for someone with petitioner’s experience as a

commercial real estate broker.    At times petitioner worked three

part-time jobs because of the seasonal nature of employment

opportunities in the Lake Tahoe area.    Petitioner’s current

income is modest, and she often struggles to meet her monthly

living expenses.   At times she has borrowed from her parents to

pay living expenses.   During this time petitioner did not receive

court-ordered child support payments from intervenor.
                               - 7 -

     Throughout their marriage, petitioner and intervenor

generally maintained separate bank accounts.    Neither spouse had

access to the other’s account records.    Intervenor had some

account statements mailed to a post office box rather than the

marital residence.   Petitioner and intervenor divided living

expenses, which they paid from their separate accounts, and

performed regular accountings to reconcile expenses paid by each

spouse.   For the most part, intervenor paid the mortgage, real

estate taxes, and maintenance expenses associated with the

marital residence.   Petitioner paid for child care costs,

utilities, food expenses, and other personal living expenses.      At

times petitioner had to make the mortgage payment when intervenor

did not have sufficient funds to do so.

     Petitioner incurred attorney’s fees in excess of $1 million

during the divorce proceedings, including more than $500,000 from

a 10-day trial.   Petitioner borrowed money from her parents to

pay almost all of the legal fees.   During the course of the

divorce proceedings intervenor repeatedly disobeyed court orders

and interfered with the ordered sale of the marital residence,

the couple’s principal community asset.    Intervenor interfered

with the marketing of the marital residence, including refusing

to sign a listing agreement, renting the property without

petitioner’s consent, disconnecting utilities in violation of a

court order, interfering with petitioner’s access to the
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residence, failing to provide keys to the property, failing to

timely advise petitioner of water damage sustained by the

property and the cost of repairs, and residing in the residence

in violation of a court order.    Because of intervenor’s

misconduct, petitioner had to seek intervention from the family

law court on numerous occasions.    As a result of intervenor’s

actions, the court imposed on him a $50,000 sanction to be paid

to petitioner.

     A divorce judgment, dated May 20, 2006, awarded an

equalization payment of $490,685 to petitioner.    The equalization

payment included, among other adjustments, $295,424 for a

property settlement relating to the marital residence, $50,000 in

sanctions against intervenor, and $97,241.82 for child support

arrearage and interest.   The divorce proceeds were distributed to

pay existing debt obligations of petitioner, principally to

reimburse her parents for attorney’s fees relating to the divorce

proceedings and to pay outstanding legal bills.    None of the

equalization payment was distributed directly to petitioner.      The

divorce court retained jurisdiction over the 2000 tax liability

pending resolution of this case.    Thus, the divorce court

reserved the right to allocate the 2000 tax liability between the

former spouses as part of the divorce settlement if innocent

spouse relief is not granted to petitioner.
                                 - 9 -

     On January 16, 2002, petitioner filed Form 8857, Request for

Innocent Spouse Relief.    On June 20, 2005, respondent issued a

notice of determination denying petitioner’s claim for innocent

spouse relief.    The notice of determination does not state the

basis for the denial of relief.    A preliminary letter dated

November 29, 2002, denied relief on the ground that petitioner

did not have a reasonable belief that intervenor would pay the

tax owed.   The “appeals case memo” recommended against relief

based primarily on petitioner’s expected receipt of over $500,000

from the divorce.    The Appeals memo stated that the request for

innocent spouse relief should be reconsidered if there was a

significant change in that monetary award, which was on appeal by

intervenor.   The Appeals memo did not consider the effect of

petitioner’s outstanding legal bills.

                             Discussion

     Generally, married taxpayers may elect to file a joint

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

election, each spouse is jointly and severally liable for the

entire tax due for that year.    Sec. 6013(d)(3); Butler v.

Commissioner, 114 T.C. 276, 282 (2000).       A spouse may seek relief

from joint and several liability under procedures set forth in

section 6015.    Sec. 6015(a).

     Under section 6015(a), a spouse may seek relief from joint

and several liability under section 6015(b) or, if eligible, may
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allocate liability according to provisions set forth in section

6015(c).   If a taxpayer does not qualify for relief under section

6015(b) or (c), the taxpayer may seek equitable relief under

section 6015(f).    Section 6015(f) confers on the Secretary

discretion to grant equitable relief to taxpayers where “it is

inequitable to hold the individual liable for any unpaid tax or

any deficiency (or any portion of either)”.    Petitioner contends

that she is entitled to innocent spouse relief under section

6015(f) for 2000.

     Except as otherwise provided in section 6015, the taxpayer

bears the burden of proving that he or she is entitled to section

6015 relief.   Rule 142(a); Alt v. Commissioner, 119 T.C. 306, 311

(2002), affd. 101 Fed. Appx. 34 (6th Cir. 2004).    In previous

cases, we have applied an abuse of discretion standard of review

for the Commissioner’s denial of equitable relief under section

6015(f).   Washington v. Commissioner, 120 T.C. 137, 146 (2003);

Cheshire v. Commissioner, 115 T.C. 183, 198 (2000), affd. 282

F.3d 326 (5th Cir. 2002).    We do not address the standard of

review issue because the standard applied would not affect the

result.

     As directed by section 6015(f), the Commissioner has

prescribed procedures for determining whether a spouse qualifies

for relief under that subsection.    The applicable provision is
                              - 11 -

found in Rev. Proc. 2000-15, 2000-1 C.B. 447.1   Respondent admits

that petitioner has satisfied the seven threshold conditions for

consideration of a request for innocent spouse relief under

section 6015(f) set forth in Rev. Proc. 2000-15, sec. 4.01, 2000-

1 C.B. at 448.   Intervenor has not raised any issues with respect

to these threshold conditions.   Accordingly, we find that

petitioner has satisfied the threshold requirements for

consideration of a request for innocent spouse relief under

section 6015(f).

     Rev. Proc. 2000-15, sec. 4.02, 2000-1 C.B. at 448, provides

a safe harbor for section 6015(f) relief.   The Appeals memo did

not specifically analyze whether petitioner qualified for relief

under the safe harbor.   Because we find below that petitioner is

entitled to relief under an alternative provision of Rev. Proc.

2000-15, supra, we have not considered whether petitioner

satisfies the requirements of the safe harbor.

     Rev. Proc. 2000-15, sec. 4.03, 2000-1 C.B. at 448-449,

provides a list of positive and negative factors for determining

whether to grant equitable relief under section 6015(f).

According to the revenue procedure, no single factor is



     1
        This revenue procedure was superseded by Rev. Proc. 2003-
61, 2003-2 C.B. 296, which is effective for requests for relief
filed on or after Nov. 1, 2003, or for requests for relief
pending on Nov. 1, 2003, for which no preliminary determination
letter has been issued as of Nov. 1, 2003. Id. sec. 7, 2003-2
C.B. at 299. The preliminary determination letter denying relief
was issued in this case on Nov. 29, 2002.
                                - 12 -

determinative, all facts are to be considered and weighed

appropriately, and the list of factors is not intended to be

exclusive.     Id.; see Jonson v. Commissioner, 118 T.C. 106, 125

(2002), affd. 353 F.3d 1181 (10th Cir. 2003).

I.     Factors Against Relief

       We first review the six factors weighing against relief, as

listed under Rev. Proc. 2000-15, sec. 4.03(2), 2000-1 C.B. at

449.

       A.    Attributable to Nonrequesting Spouse

       The unpaid tax is attributable to self-employment income

earned by the nonrequesting spouse and resulted from the failure

to make estimated tax payments on such income.      Tax liability

attributable to petitioner’s 2000 income was satisfied through

withholding on her wages.     This factor does not support denial of

relief.

       B.    Knowledge or Reason To Know

       The general rule for reported but unpaid tax liability is

that the requesting spouse’s knowledge or reason to know at the

time the return was signed that the tax would be unpaid weighs

against granting innocent spouse relief.     Id., sec. 4.03(2)(b).

The requesting spouse must establish that:     (1) She did not know

or have reason to know at the time she signed the return that the

reported tax liability would not be paid, and (2) it was

reasonable to believe that the nonrequesting spouse would pay the
                              - 13 -

reported tax liability.   Ogonoski v. Commissioner, T.C. Memo.

2004-52; Rev. Proc. 2000-15, sec. 4.03(2)(b).

     Typically, in the case of a reported but unpaid tax

liability, the relevant knowledge is that the tax would not be

paid when the return was signed.   Merendino v. Commissioner, T.C.

Memo. 2006-2.   Petitioner knew that no remittance was made with

the 2000 return.   Thus, she knew that the tax would not be paid

when the return was filed.   However, she argues that she

reasonably believed, at the time she signed the return, that

intervenor would pay the 2000 tax liability at some point on the

basis of assurances that intervenor made to her before she signed

the return.   During the preparation of the 2000 return intervenor

listed specific sources of funds to be used for payment of the

reported tax, including rental income from the marital residence

and an expected payment relating to his consulting activities.

We do not find credible intervenor’s testimony denying that he

made any assurances or representations to petitioner concerning

his responsibility to pay the tax due.   Petitioner and intervenor

took steps to rent the marital residence in 2001, although this

plan was not accomplished because of circumstances out of

petitioner’s control.

     It would appear to be reasonable to consider anticipated

payments to be made after the return is filed to determine

whether a requesting spouse had knowledge or reason to know that
                                - 14 -

the tax would not be paid.   See Banderas v. Commissioner, T.C.

Memo. 2007-129 (“a reasonable belief that taxes would be paid

must at minimum incorporate a belief that funds would be on hand

within a reasonably prompt period of time”.)   Petitioner signed

the return with a reasonable belief that the tax would be paid

out of the rental income and intervenor’s consulting income.

Petitioner and intervenor maintained separate bank accounts, and

petitioner did not have access to intervenor’s bank records.

Thus, she could not completely know intervenor’s financial

condition.   Nevertheless, she believed that he had sufficient

funds to make a partial payment of the tax at the time of filing

(although she knew no payment was remitted with the return).     The

record confirms that intervenor had funds available at and around

that time to pay the tax liability.

     Even though petitioner knew that the reported tax liability

was not paid upon the filing of the return, we find that she

reasonably believed that the tax would be paid at some point.

Given the counterbalancing nature of her knowledge, we find that

this factor is neutral in our consideration of whether relief

should be granted.

     C.   Significant Benefit

     The record does not indicate that petitioner significantly

benefited (beyond normal support) from the unpaid tax liability.

To determine whether the requesting spouse received a significant
                              - 15 -

benefit from the unpaid tax, we determine whether the taxpayers

were able to make expenditures that they otherwise could not have

made and that were important to the requesting spouse.     Krasner

v. Commissioner, T.C. Memo. 2006-31.     Intervenor argues that

petitioner benefited because he continued to pay the mortgage on

the marital residence and petitioner benefited from appreciation

in the residence.   The Appeals memo found that petitioner

significantly benefited from the unpaid tax for this reason.

     There is no evidence in the record that petitioner and

intervenor acquired any assets or incurred unusual or lavish

expenses for petitioner’s benefit during 2000.    Petitioner

apparently left the marriage with no assets or investments beside

her interest in the marital residence.    Although the marital

residence was large, payment of the mortgage does not provide a

basis for finding a significant benefit to petitioner beyond

normal support.   The unpaid tax represents only 4 months of

mortgage payments; appreciation of the residence does not

constitute a benefit beyond normal support.    Petitioner moved out

of the residence shortly thereafter and began living in a more

modest fashion.   There is no indication that the residence, which

intervenor purchased before his marriage, was important to

petitioner.   This factor does not support denial of relief.
                              - 16 -

     D.   Lack of Economic Hardship

     The fact that the requesting spouse will not suffer economic

hardship from payment of the tax liability weighs against

granting relief.   Rev. Proc. 2000-15, sec. 4.03(2)(d).

Conversely, the presence of economic hardship favors granting

relief.   Id., sec. 4.03(1)(b), 2000-1 C.B. at 448-449.    Economic

hardship occurs where the requesting spouse would not be able to

pay reasonable basic living expenses if liability for the tax

were imposed.   Butner v. Commissioner, T.C. Memo. 2007-136.     In

determining a reasonable amount for basic living expenses, the

Court considers, among other things:   (1) The taxpayer’s age,

employment status and history, ability to earn, and number of

dependents; (2) an amount reasonably necessary for food,

clothing, housing, medical expenses, transportation, current tax

payments, and expenses necessary to the taxpayer’s production of

income; (3) the cost of living in the taxpayer’s geographic area;

(4) the amount of property available to pay the taxpayer’s

expenses; (5) any extraordinary circumstances; i.e., special

education expenses, a medical catastrophe, or a natural disaster;

and (6) any other factor bearing on economic hardship.    See sec.

301.6343-1(b)(4)(ii), Proced. & Admin. Regs.   Consideration of

unique circumstances of the requesting spouse is appropriate in

determining whether she would suffer an economic hardship if
                                - 17 -

relief is denied.   Sec. 301.6343-1(b)(4)(i), Proceed. & Admin.

Regs.

     At the time of trial petitioner struggled to pay basic

living expenses.    Petitioner submitted Form 433-A, Collection

Information Statement for Wage Earners and Self-Employed

Individuals, to respondent on April 8, 2005.    The form listed no

assets but checking accounts with nominal balances and a 1992

used car.   The form also listed monthly living expenses that

exceeded monthly income.    The parties have not disputed that

these amounts are reasonable.

     Intervenor argues that petitioner would not suffer economic

hardship because she received nearly $500,000 from the divorce.

Intervenor argues that she chose to use the money to pay her

legal bills and could have paid the 2000 tax liability instead.

The Appeals memo relied on the divorce distribution to find a

lack of economic hardship and did not take into account

petitioner’s extraordinary legal bills.    There is evidence in the

administrative record that petitioner’s legal bills totaled

$650,000 as of April 2004.

     First, we note that nearly $100,000 of the equalization

payment was to compensate for intervenor’s failure to provide

child support for his son.    In addition, we find that it is

appropriate to consider petitioner’s legal fees in determining

her ability to meet her basic living expenses.    The extraordinary
                               - 18 -

legal fees resulted from the contentious nature of the divorce

and the division and sale of the marital residence.      Section

301.6343-1(b)(4), Proced. & Admin. Regs., expressly authorizes

the consideration of extraordinary circumstances faced by the

taxpayer and any other factor bearing on economic hardship.

Taxpayers are not required to choose among which debt to pay for

determining economic hardship, as intervenor contends.      Rather,

the question is whether the legal fees may be taken into account

to determine whether petitioner can meet her basic living

expenses.    Under the facts of this case, the legal fees would

place a significant burden on petitioner’s ability to meet her

living expenses.    Accordingly, we find that petitioner would

suffer an economic hardship if liability for the 2000 tax is

imposed.    This factor does not weigh against relief.

     E.     Noncompliance With Federal Income Tax Laws

     The requesting spouse must make a good faith effort to

comply with Federal income tax laws in the years after the year

for which relief is requested.    Rev. Proc. 2000-15, sec.

4.03(2)(e).    Although there were allegations of noncompliance in

earlier years, petitioner has complied with her tax obligations

for years after 2000.    Accordingly, this factor does not support

denial of relief.
                                - 19 -

      F.   Requesting Spouse’s Legal Obligation

      The family law court has retained jurisdiction over the

divorce proceeding pending the outcome of this case.    Since it

has not ruled on this issue, petitioner remains liable for the

unpaid tax.    This factor does not support denial of relief.

II.   Factors in Favor of Relief

      We next review the following six factors, as listed under

Rev. Proc. 2000-15, sec. 4.03(1), 2000-1 C.B. at 448-449 to

evaluate whether petitioner is entitled to equitable relief under

section 6015(f).

      A.    Marital Status

      Petitioner and intervenor are divorced.   This factor is in

petitioner’s favor.

      B.    Economic Hardship

      For the reasons stated above, we conclude that petitioner

would experience economic hardship if section 6015(f) relief were

denied.    Accordingly, this factor favors granting relief.

      C.    Abuse

      Petitioner did not contend that she was subject to abuse.

This factor does not apply.

      D.    No Knowledge or Reason To Know

      For the reasons stated above, we find that although she knew

no remittance was made upon the filing of the 2000 return,
                               - 20 -

petitioner had a reasonable belief that the tax would be paid at

some point.   This factor is neutral.

     E.    Nonrequesting Spouse’s Legal Obligation

     As explained above, intervenor does not have a legal

obligation under the divorce decree to pay the outstanding tax

liability.    This factor favors granting relief.

     F.     Attributable to Requesting Spouse

     As stated above, the unpaid tax was attributable to

intervenor’s self-employment income.    This factor favors relief.

                              Conclusion

     Upon consideration of the entire record, we hold that

petitioner is entitled to relief from joint and several liability

under section 6015(f).

     Petitioner’s knowledge that the reported tax was not paid

upon filing of the return is the only factor that potentially

weighs against the granting of relief in this case.    The

significance of that knowledge is lessened by petitioner’s

reasonable belief that intervenor would pay the tax at some

point.    Although it is unclear whether it is appropriate to

consider payments made after the filing of the return, this

factor alone does not support the denial of innocent spouse

relief.    “[W]hen the factors in favor of equitable relief are

unusually strong, it may be appropriate to grant relief under

§ 6015(f) in limited situations where a requesting spouse knew or
                             - 21 -

had reason to know that the liability would not be paid”.     Rev.

Proc. 2000-15, sec. 4.03(2)(b).   Accordingly, we hold that

petitioner is entitled to relief from joint and several liability

for 2000 under section 6015(f).

     To reflect the foregoing,


                                         Decision will be entered

                                    for petitioner.
