                    T.C. Summary Opinion 2011-12



                       UNITED STATES TAX COURT



                 SONGIE S. MILHOUSE, Petitioner,
               AND ANTHONY D. TODD, Intervenor v.
          COMMISSIONER OF INTERNAL REVENUE, Respondent



     Docket No. 20468-09S.             Filed February 9, 2011.



     Songie S. Milhouse, pro se.

     Anthony D. Todd, pro se.

     Julie A. Jebe, for respondent.



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

of section 7463 of the Internal Revenue Code in effect when the

petition was filed.1   Pursuant to section 7463(b), the decision



     1
      Subsequent section references are to the applicable
versions of the Internal Revenue Code. Rule references are to
the Tax Court Rules of Practice and Procedure.
                                - 2 -

to be entered is not reviewable by any other court, and this

opinion shall not be treated as precedent for any other case.

     Petitioner petitioned the Court under section 6015(e)(1) to

review respondent’s determination that she is not entitled to

relief from joint and several liability on her 2006 joint Federal

income tax return.   Petitioner’s former husband, Anthony D. Todd

(Mr. Todd), intervened in opposition to petitioner’s request for

relief.   See Rule 325(b).   We decide whether to sustain

respondent’s determination that petitioner was not entitled to

relief under subsection (b), (c), or (f) of section 6015.   We

hold that we will not.

                             Background

     Some facts were stipulated and are so found.    The stipulated

facts and the exhibits submitted therewith are incorporated by

this reference.   When the petition was filed, petitioner and Mr.

Todd resided at separate addresses in Illinois.

     Petitioner and Mr. Todd were married in February 2006 and

divorced in October 2007.    Petitioner entered into the marriage

with three children, all of whom lived with petitioner and Mr.

Todd in his residence.   Before their divorce was finalized,

petitioner and Mr. Todd filed a joint Federal income tax return

for 2006 (joint return).

     Throughout the marriage, petitioner mostly separated herself

financially from Mr. Todd because of a “pattern” of “financial
                               - 3 -

mismanagement” which she perceived on the part of Mr. Todd.

Wages and child support payments which petitioner received were

therefore deposited into her individual bank account.    Mr. Todd,

however, deposited his wages into a bank account jointly held

with petitioner (joint account).    Funds deposited into the joint

account were used to pay household expenses and make improvements

to Mr. Todd’s house.   While petitioner had access to the joint

account, she never in fact accessed it.    Instead, petitioner

periodically transferred money to the joint account when Mr. Todd

requested that she do so.

     During 2006 Mr. Todd received distributions (retirement

distributions) from a retirement account with Ameriprise

Financial Services, Inc., and $25 in interest income from an

account with Charter One Bank.2    Petitioner and Mr. Todd did not

report the retirement distributions or the interest income on the

joint return.   Respondent subsequently determined a deficiency in

petitioner and Mr. Todd’s 2006 Federal income tax liability for

failure to report the retirement distributions and the interest

income as taxable.   Neither petitioner nor Mr. Todd petitioned

the Court to challenge respondent’s determination, and respondent

assessed the deficiency in due course.




     2
      We understand the interest income to have been earned on
deposits held in the joint account.
                               - 4 -

     Petitioner sent to respondent a Form 8857, Request for

Innocent Spouse Relief, which respondent received on August 27,

2008.   In her request for relief, petitioner stated that she

reported “all” of her income and that she was “under the

impression” that Mr. Todd had provided her with all yearend tax

statements he received for inclusion on the joint return.    Before

petitioner’s entitlement to relief was determined, respondent

provided Mr. Todd with the opportunity to oppose relief by filing

with respondent a Form 12509, Statement of Disagreement.

     Mr. Todd sent to respondent his statement of disagreement,

which respondent received on February 26, 2009.   In that

statement Mr. Todd asserted that petitioner “knew” about the

retirement income because she had access to the joint account

both online and through statements that were mailed to their

residence.   Mr. Todd also stated that he gave petitioner all

year-end tax statements to be reported on the joint return.

Respondent subsequently forwarded petitioner’s request for relief

to respondent’s Office of Appeals for further consideration.

     By notice of determination dated May 28, 2009, Appeals

determined that petitioner was not entitled to innocent spouse

relief under section 6015(b), (c), or (f) because petitioner (1)

knew or had reason to know of the items giving rise to the

deficiency, and (2) did not demonstrate that it would be unfair

to hold her liable for the deficiency.   On August 26, 2009,
                               - 5 -

petitioner petitioned the Court to review respondent’s

determination.   Pursuant to Rule 325(a), respondent served notice

of this proceeding on Mr. Todd, who filed his notice of

intervention with the Court on December 2, 2009.   A trial was

held on September 20, 2010, during which petitioner and Mr. Todd

testified.

                            Discussion

     In general, spouses who file a joint Federal income tax

return are jointly and severally liable for all taxes due.     Sec.

6013(d)(3); see also sec. 1.6013-4(b), Income Tax Regs.   In

certain limited circumstances, however, section 6015 permits an

individual who has made a joint return to seek relief from joint

and several liability.   Petitioner argues that she is entitled to

relief under subsections (b), (c), and (f) of section 6015.

Respondent argues that petitioner is not entitled to such relief

because she had actual knowledge of the income giving rise to the

deficiency.   We focus on petitioner’s entitlement to relief under

section 6015(c).

     A requesting spouse who has made a joint return may elect to

proportionally limit her liability where she is no longer married

to the nonrequesting spouse at the time the election is made.

Sec. 6015(c)(3)(A)(i)(I).   At the time petitioner filed her

request for relief on August 27, 2008, she and Mr. Todd were not
                                 - 6 -

married.    Thus, petitioner was eligible to elect relief under

section 6015(c).

     Respondent argues that petitioner is not entitled to relief

under section 6015(c) because she had actual knowledge of the

items giving rise to the deficiency at the time she signed the

return.    See sec. 6015(c)(3)(C).   We disagree.   To determine the

existence of actual knowledge on the part of petitioner, we look

to the surrounding facts and circumstances for “an actual and

clear awareness (as opposed to reason to know)” of the items

giving rise to the deficiency.    See Cheshire v. Commissioner, 115

T.C. 183, 195 (2000), affd. 282 F.3d 326 (5th Cir. 2002); see

also sec. 1.6015-3(c)(2)(i)(A), Income Tax Regs.     The burden of

proving actual knowledge by a preponderance of the evidence rests

with the Commissioner.    See Culver v. Commissioner, 116 T.C. 189,

196 (2001).    Under this standard, respondent has failed to

satisfy his burden of proof.

     Petitioner and Mr. Todd were married less than 2 years,

during which time petitioner separated herself financially from

Mr. Todd because of a “pattern” of “financial mismanagement” on

the part of Mr. Todd.    Petitioner testified credibly that she

transferred money to the joint account but did not access the

account or have any knowledge regarding the funds being deposited

into that account.    This testimony supports petitioner’s claim

that she did not have actual knowledge of the items giving rise
                                - 7 -

to the deficiency at the time she signed the return.    We

generally reject Mr. Todd’s contradictory testimony as self-

serving and incredible.    See Tokarski v. Commissioner, 87 T.C.

74, 77 (1986).    Such is especially appropriate given that Mr.

Todd did not offer any corroborating evidence to support his

allegations of actual knowledge on the part of petitioner.

       Respondent effectively asks that we infer petitioner’s

actual knowledge on the basis of (1) her ability to access the

joint account, and (2) the use of the retirement distributions

and interest income to pay household expenses, which petitioner

benefited from.    In doing so, respondent implicitly asks that we

replace the “reason to know standard” of section 6015(b) and (f)

with the actual knowledge requirement of section 6015(c).    We

decline to do so.

       The actual knowledge requirement of section 6015(c) is

narrower than the “reason to know” standard of section 6015(b) or

(f).    See McDaniel v. Commissioner, T.C. Memo. 2009-137.   As

enunciated by the Senate report accompanying the enactment of

section 6015, “actual knowledge must be established by the

evidence and shall not be inferred based on indications that the

electing spouse had a reason to know.”    S. Rept. 105-174, at 59

(1998), 1998-3 C.B. 537, 595.    Respondent did not offer any

corroborating evidence at trial to support a finding that

petitioner had actual knowledge of the items giving rise to the
                                 - 8 -

deficiency, nor did respondent substantively cross-examine

petitioner or Mr. Todd on the scope of petitioner’s knowledge.

Petitioner, on the other hand, credibly disavowed any actual

knowledge of the items giving rise to the deficiency and provided

a vigorous cross-examination after Mr. Todd’s direct testimony.

Accordingly, we hold that petitioner did not have actual

knowledge of the items giving rise to the deficiency that would

preclude the granting of relief under section 6015(c).    See Levy

v. Commissioner, T.C. Memo. 2005-92; Sowards v. Commissioner,

T.C. Memo. 2003-180.   We now determine the extent of relief

available to petitioner as provided by section 6015(d).

     Section 6015(d)(3)(A) provides that items giving rise to a

deficiency on a joint return are to be allocated between spouses

as if separate returns had been filed.    The requesting spouse is

liable only for her proportionate share of the deficiency that

results from the allocation.   Sec. 6015(d)(1).   Where, as here,

the joint return omits items of income, those items are allocated

to the spouse who was the source of the income.    Sec. 1.6015-

3(d)(2)(iii), Income Tax Regs.    However, to the extent that an

item giving rise to a deficiency provided a tax benefit on the

joint return to the requesting spouse, that item shall be

allocated to the requesting spouse in computing her share of the
                               - 9 -

deficiency.   Sec. 6015(d)(3)(B).3   Petitioner, as the requesting

spouse, bears the burden of proving the portion of the deficiency

that is properly allocable to her.     See sec. 6015(c)(2).

     The record does not contain a copy of the joint return and

does not otherwise enable us to determine the amount (if any) of

the tax benefit petitioner received on the joint return.      In the

absence of any contradictory evidence or significant cross-

examination on the part of respondent, we are left only with

petitioner’s testimony that she did not receive any benefit from

the retirement distributions or the interest income.     After

observing petitioner’s demeanor at trial, we are satisfied that

her testimony was truthful and that she received no tax benefit

from the items giving rise to the deficiency.     See, e.g., Mora v.

Commissioner, 117 T.C. 279, 290-291 (2001).     We will allocate the

items giving rise to the deficiency entirely to Mr. Todd as the

person who earned them.




     3
      Respondent does not assert that the fraud exception of sec.
6015(d)(3)(C) is applicable here, nor is it.
                              - 10 -

     We conclude that petitioner is entitled to full relief under

section 6015(c).4   We have considered all arguments made by the

parties, and to the extent that we have not specifically

addressed them, we conclude that they are without merit.



                                         Decision will be entered

                                    for petitioner.




     4
      Given that holding, we need not discuss petitioner’s
entitlement to relief under sec. 6015(b) and (f).
