                         T.C. Memo. 2008-211



                        UNITED STATES TAX COURT



                 KATHY LORRAINE STOLKIN, Petitioner v.
              COMMISSIONER OF INTERNAL REVENUE, Respondent



     Docket No. 5203-06.                 Filed September 4, 2008.



     Kathy Lorraine Stolkin, pro se.

     Steven M. Roth, for respondent.



                 MEMORANDUM FINDINGS OF FACT AND OPINION


     KROUPA, Judge:    This case arises from a request for relief

from joint and several liability under section 6015(f) for the

year 1993.1   Respondent denied petitioner’s request for relief,

and petitioner timely filed a petition.    The issue for decision



     1
       All section references are to the Internal Revenue Code,
unless otherwise indicated.
                                  2

is whether petitioner is entitled to relief from joint and

several liability under section 6015(f).      We hold that she is

not.

                           FINDINGS OF FACT

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

The stipulation of facts and the accompanying exhibits are

incorporated by this reference.    Petitioner resided in California

at the time she filed the petition.

       Petitioner married Mr. Stolkin in 1981.   They had one son in

1982 and a second son in 1985.    The Stolkins enjoyed a relatively

lavish lifestyle, with live-in maids as well as pool and grounds

help.    Mr. Stolkin earned over $100,000 a year as a pilot for

Federal Express, formerly known as the Flying Tigers, and had

separate trust fund and oil income.

       The Stolkins’ only bank account was a joint checking account

into which Mr. Stolkin would transfer funds.      Petitioner paid all

the household expenses from the joint checking account.        In

addition, she would pay all the invoices for any items Mr.

Stolkin had purchased.    Petitioner admitted that Mr. Stolkin was

a compulsive spender and a shopaholic.    She worried about his

spending because she knew that they did not have the income to

cover all their expenses and his purchases.      Mr. Stolkin

purchased guns, a gun safe, a customized motor home, and, at one
                                 3

point, purchased a new truck every few months.    He made no

efforts to conceal his excessive purchases from petitioner.

     The Stolkins experienced financial difficulties because

their expenses generally exceeded their income.    The couple sold

their $2.2 million Beverly Hills home in 1990 and relocated to a

$900,000 home in Ojai, California, to reduce costs.    They used

$500,000 of the proceeds from the Beverly Hills sale as a down

payment (and thus had $500,000 of equity) in the Ojai house.     The

house was titled in the names of both petitioner and Mr. Stolkin.

The Stolkins continued to experience financial difficulties after

their move to Ojai.   Mr. Stolkin’s spending habits exacerbated

the Stolkins’ financial problems and strained their marriage.

     The couple received a $220,000 distribution from Mr.

Stolkin’s individual retirement account (IRA) in 1993, and

petitioner was aware of this.   She discussed the distribution

with Mr. Stolkin before they received the money, and she used the

money to pay the expenses that were necessary to maintain the

comfortable lifestyle to which the Stolkins had grown accustomed.

The Stolkins’ marriage seemed to be plagued with financial

problems, however, and eventually they filed for bankruptcy in

June 1994.2




     2
       Mr. Stolkin continued to fail to make mortgage payments
and the Stolkins’ Ojai home was foreclosed after 1994.
                                  4

     The Stolkins filed a joint Federal income tax return for

1993 on October 16, 1994, approximately 4 months after filing

bankruptcy.3    The return for 1993 showed an $81,559 tax

underpayment that was attributable, in part, to the $220,000 IRA

distribution.    Petitioner knew that there was an underpayment for

which she was liable, but petitioner did not assist with

preparation of the return, nor did she discuss the return with

Mr. Stolkin.

     The Stolkins divorced in June 1995.    The California divorce

court ordered Mr. Stolkin to pay petitioner $4,500 in monthly

spousal support and a separate amount for child support.

Petitioner was earning $1,000 per month in wages at that time.

In addition, petitioner received half of her husband’s Federal

Express pension and will be entitled to between $900 and $1000

per month from the pension when she reaches the age of 59½ in

2009.    Mr. Stolkin also agreed to hold petitioner harmless from

the Federal income tax liability for 1993 as part of the divorce

settlement.

     Petitioner filed a request for section 6015 relief of

$55,473 in 2004, claiming that a denial of relief would be

inequitable and would impose undue hardship on her.    Petitioner

asserted that most of the tax liability was attributable to her



     3
       The Stolkins were granted two extensions for filing the
return for 1993.
                                 5

ex-husband’s separate property and that at the time the return

was filed, petitioner reasonably believed her ex-husband would

pay the tax.   Petitioner further asserted that it would be

inequitable to hold her liable for the underpayment when her ex-

husband earned far more than petitioner’s $60,000 salary and when

petitioner had mortgage payments to make while her ex-husband

lived in property owned by his mother.   At the time she filed the

request for relief, petitioner owned a town house valued at

$500,000 with $80,000 in equity and leased a BMW at $600 per

month.   Petitioner was also attending law school.   Respondent

denied petitioner’s request for relief, and petitioner filed a

stand-alone petition to this Court.

     Petitioner failed to timely file a return for 1997.

Petitioner’s ex-husband has not filed a tax return for the past

12 years.

                               OPINION

     We are asked to decide whether respondent erred in denying

petitioner relief from an unpaid tax liability that was reported

some 4 short months after the Stolkins filed for bankruptcy.

Petitioner argues that, although she was aware there was an

underpayment, she reasonably believed that Mr. Stolkin would pay

the underpayment as the taxes had always been paid in the past.

Petitioner further argues that it is inequitable to hold her
                                 6

liable when the underpayment was attributable to her ex-husband

and her ex-husband had the means to pay it.

     Only section 6015(f) applies as this case involves an

underpayment of taxes shown on a joint return for 1993.4     The

Commissioner has the discretion to relieve the spouse or former

spouse of joint liability if, taking into account all the facts

and circumstances, it is inequitable to hold that spouse liable

for any deficiency or unpaid tax.    Sec. 6015(f); sec. 1.6015-

4(a), Income Tax Regs.

     We begin with whether we have jurisdiction.     This Court has

jurisdiction to determine whether section 6015(f) relief is

warranted after a request for relief has been denied by the

Commissioner.   See sec. 6015(e)(1).    The Court may consider

evidence outside the administrative record when determining

whether relief should be granted.      Porter v. Commissioner, 130

T.C. __ (2008).

     The Commissioner has outlined procedures for determining

whether a requesting spouse qualifies for equitable relief under

section 6015(f).   See Rev. Proc. 2003-61, 2003-2 C.B. 296.      The


     4
       Married taxpayers who elect to file a joint return are
jointly and severally liable for the entire tax due. See sec.
6013(d)(3). A spouse or former spouse may petition the
Commissioner for relief from joint and several liability in
certain circumstances. See sec. 6015(a). In cases involving an
underpayment of tax, as here, sec. 6015(b) and (c) does not apply
but equitable relief may be available under subsec. (f). Sec.
1.6015-4, Income Tax Regs.; Rev. Proc. 2003-61, sec. 2.04, 2003-2
C.B. 296, 297.
                                  7

requesting spouse must meet seven threshold conditions before the

Commissioner will consider a request for relief.    Rev. Proc.

2003-61, sec. 4.01, 2003-2 C.B. at 297.    The parties agree that

petitioner has met the preliminary requirements for relief.

I. Safe Harbor for Section 6015(f) Relief

     We now turn to whether petitioner satisfies the three

conditions of a safe harbor under section 6015(f) that the

Commissioner has established.    See Gonce v. Commissioner, T.C.

Memo. 2007-328; Billings v. Commissioner, T.C. Memo. 2007-234;

Rev. Proc. 2003-61, sec. 4.02, 2003-2 C.B. at 298.    Equitable

relief will ordinarily be granted if the requesting spouse

fulfills all three conditions of the safe harbor.    The parties

agree that petitioner satisfies the condition that she is no

longer married to Mr. Stolkin.    Id. sec. 4.02(1)(a).   In dispute

is whether (a) petitioner at the time of signing the return had

no knowledge or reason to know that Mr. Stolkin would not pay the

tax liability, and (b) petitioner would suffer economic hardship

if relief is not granted.   See id. sec. 4.02(1)(b) and (c).      We

address these two conditions in turn to determine whether

petitioner comes within the safe harbor.

     A. Petitioner Had Knowledge or Reason To Know That Mr.
        Stolkin Would Not Pay the Liability


     Respondent argues that it was not reasonable for petitioner

to think that Mr. Stolkin would pay the tax only 4 months after
                                 8

filing for bankruptcy.   We agree.   Petitioner had reason to

believe at the time she signed the return that her ex-husband

would not pay the joint income tax liability.     Moreover, we have

consistently found that a requesting spouse’s knowledge of the

couple’s financial difficulties deprives the requesting spouse of

reason to believe that his or her ex-spouse will pay the tax

liability.   Gonce v. Commissioner, supra; Butner v. Commissioner,

T.C. Memo. 2007-136.

     The Stolkins’ financial difficulties throughout their 14-

year marriage should have put petitioner on notice that Mr.

Stolkin would not pay the tax liability.    Mr. Stolkin did not

hide his shopaholic tendencies from petitioner.    Moreover,

petitioner was aware that the couple’s expenses exceeded their

income because she paid the household expenses and all the bills,

including bills for Mr. Stolkin’s “toys.”    We agree with

respondent that petitioner’s testimony that she believed her ex-

husband would pay the tax liability is disingenuous given

petitioner’s knowledge of the Stolkins’ financial difficulties

and her ex-husband’s financial irresponsibility.

     We also reject petitioner’s argument that it was reasonable

for her to assume that Mr. Stolkin would pay the tax liability

with the $500,000 of equity they had in the Ojai house.      First,

the relevant date for determining the requesting spouse’s

knowledge is the time at which he or she signs the tax return.
                                   9

See Rev. Proc. 2003-61, sec. 4.02(1)(b).     Second, any refinancing

would have to have involved petitioner because her name was on

the title to the Ojai property.     Petitioner did not provide any

evidence that she assisted her ex-husband with obtaining a home

equity loan.     Moreover, Mr. Stolkin’s history of spending beyond

the couple’s means belies petitioner’s alleged belief.     We

therefore find that petitioner had reason to know at the time she

signed the return that her ex-husband would not pay the joint tax

liability.

        B. Petitioner Will Not Suffer Economic Hardship If Relief
           Is Denied

        We now address whether petitioner will suffer economic

hardship if relief is denied.     We find that she will not.    A

denial of section 6015(f) relief imposes economic hardship if it

prevents the requesting spouse from being able to pay his or her

reasonable basic living expenses.      Butner v. Commissioner, supra;

Sec. 301.6343-1(b)(4)(i), Proced. & Admin. Regs.     Reasonable

basic living expenses are based on the taxpayer’s circumstances

but do not include amounts needed to maintain a luxurious

standard of living.     Sec. 301.6343-1(b)(4)(i), Proced. & Admin.

Regs.    Relevant circumstances include the taxpayer’s age, ability

to earn an income, number of dependents and status as a

dependent.     Sec. 301.6343-1(b)(4)(ii)(A), Proced. & Admin. Regs.

The amount of property available to satisfy the taxpayer’s
                                10

expenses is also a relevant factor.     Butner v. Commissioner,

supra; sec. 301.6343-1(b)(4)(ii)(D), Proced. & Admin. Regs.

     Petitioner was receiving $4,500 in monthly spousal support

and $1,000 per month in salary at the time she filed the request

for relief in the amount of $55,473.     Petitioner had assets

available to satisfy the tax liability, including a $500,000

townhouse with $80,000 of equity and an interest in her ex-

husband’s pension.   Petitioner’s monthly expenses included $600

monthly lease payments on a BMW.     Furthermore, respondent

determined that, based on petitioner’s spousal support and

salary, petitioner had monthly disposable income of $600 which

could have been applied to the tax liability.

     Petitioner argues that she would suffer economic hardship if

she were held liable for the joint tax liability but her husband

would not.   Petitioner argues that her ex-husband, unlike her,

has no monthly housing expense because he lives in a place owned

by his mother.   In addition, he earns much more than petitioner.

We find these factors irrelevant.     This Court was not asked to

decide who should bear the burden of the tax liability.     Instead,

our focus is on whether petitioner is entitled to relief from the

liability.   We find that petitioner had the means to make monthly

payments to reduce the tax liability and that denying her relief

will not impose economic hardship on her.
                                  11

II. Balancing Test for Determining Whether Section 6015(f)
    Equitable Relief Would Be Appropriate

     When a requesting spouse fails to satisfy the safe harbor

conditions, the Commissioner may determine through a balancing

test whether equitable relief is appropriate.     The Commissioner

has listed relevant positive, neutral, and negative factors to be

weighed by the Commissioner in determining relief.     See Rev.

Proc. 2003-61, sec. 4.03, 2003-2 C.B. at 298.     The factors

include whether the requesting spouse (1) had knowledge or reason

to know that the nonrequesting spouse would not pay the income

tax liability; (2) would suffer economic hardship if relief were

denied; (3) complied with income tax laws in years after the year

at issue; (4) received significant economic benefit from the

items giving rise to the liability; (5) was abused by the

nonrequesting spouse; and (6) was in poor health when signing the

return or requesting relief; and (7) whether the nonrequesting

spouse had a legal obligation to pay the outstanding liability.

Id. sec 4.03(2).    The list is nonexhaustive and no single factor

is determinative.    Id.   We address each of the factors in turn.

     A. Knowledge That Petitioner’s Ex-Spouse Would Not Pay the
        Liability

     We have already explained our finding that petitioner did

not have reason to believe that her ex-husband would pay the tax

liability.   This factor weighs against relief.
                                 12

     B. Economic Hardship

     We have already explained our finding that a denial of

relief would not impose economic hardship on petitioner.    This

factor weighs against relief.

     C. Compliance With Tax Laws After 1993

     Petitioner admits that she failed to timely file a return

for 1997.   This factor weighs against relief.   Petitioner urges

us to consider her compliance with tax laws in comparison with

her ex-husband’s failure to comply with tax laws for the past 12

years.    We find petitioner’s ex-husband’s lack of compliance to

be irrelevant.    It does not shift the balance in favor of relief.

     D. Economic Benefit From Items Giving Rise to Liability

     A significant benefit for purposes of section 6015(f) is any

benefit in excess of normal support.    Sec. 1.6015-2(d), Income

Tax Regs.   Respondent concedes that there is no evidence that

petitioner benefited significantly from the unpaid tax liability.

We agree with respondent and find this factor weighs in favor of

relief.

     E. Abuse by Nonrequesting Spouse

     Petitioner argues that her ex-husband’s financial

irresponsibility constituted a form of emotional abuse against

petitioner.   We have indicated, however, that nonphysical abuse

will weigh in favor of relief only where it is severe enough to

incapacitate a requesting spouse in the same manner he or she
                                 13

would be incapacitated by physical abuse.    Nihiser v.

Commissioner, T.C. Memo. 2008-135.    There is no evidence that

petitioner’s ex-husband’s spending incapacitated petitioner to

that extent or that his spending was greater in 1993 than when

their marriage began.   We find this factor to be neutral.

     F. Poor Health

     Petitioner did not allege that she was in poor health when

she signed the petition.    Respondent determined that this factor

is neutral, and we have no information to find otherwise.

     G. Nonrequesting Spouse’s Legal Obligation To Pay Liability

     Petitioner argues that she should be relieved of liability

for the tax underpayment because the divorce agreement

specifically required her ex-spouse to pay the underpayment for

1993.   Respondent does not question the validity of the

California court order.    A legal obligation to pay is not a

persuasive factor in favor of relief, however, if the requesting

spouse had reason to believe upon entering the agreement that it

would not be upheld by the nonrequesting spouse.    Rev. Proc.

2003-61, sec. 4.03(2)(a)(iv), 2003-2 C.B. at 298.    Petitioner was

aware of her ex-husband’s tendency to spend beyond his means.     We

find that petitioner had reason to believe, at the time the

divorce agreement was issued in 2001, that her ex-husband would

not pay the underpayment.    Thus, petitioner’s ex-husband’s legal

obligation under the divorce agreement does not weigh in favor of
                                    14

relief.    We agree with respondent that Mr. Stolkin’s legal

obligation to pay the tax liability is a neutral factor.

       H. Additional Factors Cited by Petitioner

       Petitioner cites two additional factors that we do not find

to be persuasive.    First, petitioner argues that it is

inequitable to deny her relief because the underpayment is

attributable in part to the separate property of her ex-husband.

Petitioner was aware of the underpayment and agreed to joint and

several liability with Mr. Stolkin when she signed the return,

however, and she could have filed a married filing separate

return.    Petitioner argues further that the IRA distribution was

the separate property of Mr. Stolkin.       We agree with respondent

that the IRA distribution became community property once it was

commingled in the Stolkins’ joint checking account.       See Gee v.

Commissioner, 127 T.C. 1, 4-5 (2006).       We find these additional

factors to be neutral.

III.    Conclusion

       After taking into account all the facts and circumstances

presented, we find that petitioner is not entitled to equitable

relief under section 6015(f).

       To reflect the foregoing,

                                         Decision will be entered for

                                   respondent.
