                         T.C. Memo. 2004-35



                       UNITED STATES TAX COURT



                   VERNA DOYEL, Petitioner v.
          COMMISSIONER OF INTERNAL REVENUE, Respondent



     Docket No. 9138-02.              Filed February 10, 2004.


     Terri A. Merriam, Wendy S. Pearson, and Jennifer A. Gellner,

for petitioner.

     Margaret A. Martin, for respondent.



             MEMORANDUM FINDINGS OF FACT AND OPINION


     VASQUEZ, Judge:    Respondent determined that petitioner did

not qualify for relief from joint and several liability pursuant

to section 6015(b), (c), or (f).1   The issue for decision is


     1
        Unless otherwise indicated, all section references are to
the Internal Revenue Code, and all Rule references are to the Tax
                                                   (continued...)
                              - 2 -

whether petitioner is entitled to relief from joint and several

liability pursuant to section 6015(b) or (f) for 1982, 1983,

1984, 1985, and 1986.2

                         FINDINGS OF FACT

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

The first stipulation of facts, second stipulation of facts,

third stipulation of facts, and the attached exhibits are

incorporated herein by this reference.   At the time she filed the

petition, petitioner resided in Buchanan, Michigan.

Petitioner

     Petitioner is a high school graduate and a mother of four.

After high school, she worked full time doing “office work”.

     Around 1960, petitioner married her first husband.   She

worked full time during this marriage.

     Petitioner’s marriage to her first husband lasted 7 years.

After their divorce, petitioner worked in order to support her

children.



     1
      (...continued)
Court Rules of Practice and Procedure.
     2
        In her petition, petitioner sought relief pursuant to
sec. 6015(b) and (f). Accordingly, sec. 6015(c) is not in issue.

     On brief, petitioner argues that she is entitled to sec.
6015 relief for 1981. In her petition, petitioner did not raise
her 1981 tax year; in her request for sec. 6015 relief,
petitioner did not raise her 1981 tax year; and, in the notice of
determination, respondent did not make a determination regarding
petitioner’s 1981 tax year. Accordingly, petitioner’s 1981 tax
year is not before the Court.
                                - 3 -

Petitioner and Her Second Husband Christopher

     Petitioner met Christopher Doyel (Christopher) in 1971 and

married him in 1973.   As of the date of trial, petitioner and

Christopher were married and living together.3

     After she married Christopher, petitioner sold Avon

products, Tupperware, and liquid embroidery; she also babysat.

Petitioner’s Relationship With Christopher

     Christopher never misled petitioner regarding their finances

or “anything else”.    Christopher never hid any information from

petitioner.   Anything petitioner wanted to see or know, including

anything about their finances, he shared with her.    Petitioner

was welcome to read all financial materials, and other mail, he

received.

     Christopher never abused petitioner.    He never threatened

petitioner or forced her to sign anything against her will.

     Each December or early January, Christopher drafted a budget

for the household bills.   After finishing his draft, Christopher

discussed the proposed budget with petitioner to make sure there

was enough money for projected expenses.    If the budget did not

balance, petitioner and Christopher decided what expenses to

eliminate so they achieved a balanced budget.



     3
        Since October 2002, Christopher has been working in
Charlotte, North Carolina.
                                - 4 -

Investments

     Christopher researched the investments petitioner and

Christopher made.    Christopher then talked with petitioner about

what he learned, and petitioner and Christopher reached an

agreement on whether or not to invest in that particular

investment.   Petitioner and Christopher had an agreement to reach

a consensus about investment decisions.    Neither did anything

without talking it over with the other.

Hoyt Partnerships

     Walter J. Hoyt III and some members of his family were in

the business of creating tax shelter limited partnerships for

their cattle breeding operations (Hoyt partnerships or Hoyt

investments).   As part of their services, the Hoyt organization

also prepared the investor’s tax returns.    For a description of

the Hoyt organization and its operation, see Bales v.

Commissioner, T.C. Memo. 1989-568; see also River City Ranches #1

Ltd. v. Commissioner, T.C. Memo. 2003-150; Mekulsia v.

Commissioner, T.C. Memo. 2003-138; River City Ranches #4, J.V. v.

Commissioner, T.C. Memo. 1999-209, affd. 23 Fed. Appx. 744 (9th

Cir. 2001).

Investment in SGE 1984-2

     Christopher first heard about the Hoyt partnerships in 1983

from a coworker.    In 1984, Christopher and petitioner’s
                               - 5 -

financial situation changed, and Christopher thought of the Hoyt

investment.

     Christopher received promotional materials from the Hoyt

organization about the Hoyt partnerships.    He read these

materials, often several times, and kept them in his files.      One

of the promotional materials included the following language

under the heading Specific Risks Involved:    “A change in the tax

law or an audit and disallowance by the I [illegible] could take

away all or part of the tax benefits, plus the possi [illegible]

of having to pay back the tax savings, with penalties and in

[illegible]”.   It further stated:

     Even though the term “head torn   off” is crude, it is a
     concept that is very applicable   to the comparison of a
     disallowance of a tax deduction   by the Internal Revenue
     Service, the prospect of having   to pay the taxes back
     when you have put the tax money   into a tax shelter, and
     its [sic] gone.

The brochure went on to state that there was no assurance that

things would be “O.K.”   In discussing the preparation of investor

tax returns, the promotional materials warned “there is a risk”

and stated that after many years of experience with tax shelters

the Hoyt partnerships have learned how “to deal with I.R.S.

audits of the Partnership returns and the Partners personal

returns, (being ‘attacked’ by the I.R.S.)”.

     The promotional materials also advised prospective investors

to “seek independent advice and counsel concerning this

investment.”
                               - 6 -

     The promotional materials further stated:   “If a Partner

needs more or less Partnership loss any year, it is arranged

quickly within the office without the Partner having to pay a

higher fee while an outside preparer spends more time to make the

arrangements.”

     The promotional materials clearly contemplated the tax

shelter being audited by respondent--stating at one point:    “we

know we will be subject to constant audits by the I.R.S.”

     After Christopher reviewed the promotional materials,

Christopher and petitioner talked about the Hoyt investment.

Petitioner did not fully understand how the Hoyt partnerships

worked because she did not carefully read the promotional

materials.   Christopher, however, was always willing to discuss

the Hoyt investment with petitioner, and petitioner knew that

there were risks associated with the Hoyt investment.

     In 1984, petitioner and Christopher invested in Shorthorn

Genetic Engineering 1984-2 (SGE 1984-2), a Hoyt partnership.

Christopher signed the subscription agreements when they first

invested in the Hoyt partnership.   Under the heading of

ownership, the line next to joint tenants with the right of

survivorship was checked.

     In 1992, petitioner also signed subscription agreements

affirming and accepting the agreements Christopher had signed

earlier.   Included with the subscription agreements were powers
                                - 7 -

of attorney, partnership agreements, and a debt assumption

agreement.

     Petitioner was not forced by Christopher to invest in the

Hoyt partnerships.    Petitioner agreed to participate in the Hoyt

investments upon Christopher’s encouragement.

     After becoming investors in a Hoyt partnership, petitioner

and Christopher attended several meetings with other Hoyt

partners.    Petitioner made calls to the Hoyt organization.

     In 1984, petitioner and Christopher paid no “cash” to SGE

1984-2.   In 1985, petitioner and Christopher paid $19,999 in

“cash” to SGE 1984-2.    By 1986, petitioner and Christopher had

paid at least $29,298 in “cash” to SGE 1984-2.

     From 1985 through 1996, numerous checks, drawn on petitioner

and her husband’s joint checking account, were made payable to a

Hoyt partnership.    These checks totaled almost $25,000.

Additional checks, totaling over $14,000, made payable to a Hoyt

partnership, were drawn on an account owned by Christopher and

the Verna Irene Doyel Trust.

Tax Returns

     Petitioner and Christopher filed joint Federal income tax

returns for 1982, 1983, 1984, 1985, and 1986.    Petitioner signed

each of these returns.

     On their joint income tax return for 1982, petitioner and

Christopher reported $40,609.38 in wages.    Attached to this

return was a Form W-2, Wage and Tax Statement, for Christopher
                                - 8 -

from Florida Power Corp. reporting $38,889.90 in wages.      In

arriving at total income and adjusted gross income, the only

subtractions were a $426.06 Schedule C, Profit or (Loss) From

Business or Profession, business loss and a $577.65 Schedule E,

Supplemental Income Schedule, loss.     The total tax listed was

$4,160.   The Federal income tax withheld listed was $5,225.34.

Christopher prepared the 1982 return.

     On their joint income tax return for 1983, petitioner and

Christopher reported $42,570 in wages.     Attached to this return

was a Form W-2 for Christopher from Florida Power Corp. reporting

$42,363.66 in wages.   In arriving at total income and adjusted

gross income, the only additions and subtractions were $214.21 in

interest income, an $800.50 Schedule C business loss, and a

$753.62 Schedule E loss.    The total tax listed was $5,102.      The

Federal income tax withheld listed was $5,741.01.     Christopher

prepared the 1983 return.

     On their joint income tax return for 1984, petitioner and

Christopher reported $47,234 in wages.     Attached to this return

was a Form W-2 for Christopher from Florida Power Corp. reporting

$47,096.20 in wages and a Form W-2 for petitioner from “Mad.

Health Spa of St Pete, Inc” reporting $138.32 in wages.      In

arriving at total income, the only additions and subtractions

were $92 in interest income and a $30,270 Schedule E loss.        This

Schedule E loss was entirely attributable to petitioner and

Christopher’s investment in SGE 1984-2.     Petitioner and
                                 - 9 -

Christopher also subtracted $645 in adjustments to income to

arrive at adjusted gross income.    The total tax listed was zero.

The Federal income tax withheld listed was $6,609.    The Tax

Office of W.J. Hoyt Sons Management Co. was listed as the return

preparer on the 1984 return.

     On their joint income tax return for 1985, petitioner and

Christopher reported $49,748 in wages.    In arriving at total

income, the only additions and subtractions were $1,022 in

interest income, $300 in dividends, an $8 capital gain, and a

$23,719 Schedule E loss.    This Schedule E loss ($20,180) was

mostly attributable to petitioner and Christopher’s investment in

SGE 1984-2.   Petitioner and Christopher also subtracted $2,609 in

employee business expenses to arrive at adjusted gross income.

The total tax listed was zero.    The Federal income tax withheld

listed was $1,703.   The Tax Office of W.J. Hoyt Sons Management

Co. was listed as the return preparer on the 1985 return.

     On their joint income tax return for 1986, petitioner and

Christopher reported $50,407 in wages.    In arriving at total

income, the only additions and subtractions were $237 in interest

income, $691 in dividends, a $1 capital gain, and a $22,620

Schedule E loss.   This Schedule E loss ($20,180) was mostly

attributable to petitioner and Christopher’s investment in SGE

1984-2.   Petitioner and Christopher also subtracted $1,523 in

employee business expenses and a $2,000 IRA deduction to arrive

at adjusted gross income.    The total tax listed was $240.   The
                              - 10 -

Federal income tax withheld listed was $394.   The Tax Office of

W.J. Hoyt Sons Management Co. was listed as the return preparer

on the 1986 return.

     The Schedules K-1, Partner’s Share of Income, Credits,

Deductions, etc., issued by SGE 1984-2 to petitioner and

Christopher for 1984, 1985, and 1986 list the following under the

area for partner’s name:   “Christopher & Verna Doyel”.

     In reviewing the 1984 return, the $30,270 loss surprised

petitioner because it was so large, but she did not ask any

questions about this deduction.   Petitioner and Christopher

merely assumed that the losses would be large enough so that all

withheld income taxes would be refunded to them.

     In 1985, petitioner and Christopher applied for a refund of

their 1981, 1982, and 1983 taxes in the amounts of $3,531,

$4,160, and $5,102, respectively.

     On March 11, 1998, respondent mailed petitioner and her

husband two letters and reports explaining computational

adjustments made to their 1981, 1982, 1983, 1984, 1985, and 1986

returns as a result of adjustments made to the partnership

returns of SGE 1984-2 for 1981, 1982, 1983, 1984, 1985, and 1986.

These computational adjustments resulted from the Court’s opinion

in Shorthorn Genetic Engg. 1982-2, Ltd. v. Commissioner, T.C.

Memo. 1996-515.
                               - 11 -

Section 6015 Claims--General

     Currently, all section 6015 cases are centralized in

respondent’s Cincinnati Service Center.    The centralized unit,

called the “Innocent Spouse Unit”, was set up in 1999.   When the

Innocent Spouse Unit was set up, the unit anticipated about 600

cases per year; however, in its first year the Innocent Spouse

Unit received approximately 70,000 cases.

     When an Innocent Spouse Unit employee is assigned a case,

the employee requests documents, reviews the file, and then makes

a determination.   In all requests for relief pursuant to section

6015 made by Hoyt investors, respondent’s employees request

available internal documents regarding the Hoyt cases.

Respondent works on section 6015 cases, including those involving

Hoyt investors, on a case-by-case basis.

Request for Relief From Joint and Several Liability

     On July 19, 2000, petitioner mailed respondent a Form 8857,

Request for Innocent Spouse Relief (and Separation of Liability

and Equitable Relief).   Betty Sneed, a financial assistant in the

Innocent Spouse Unit, was assigned to review petitioner’s request

for section 6015 relief.

     Ms. Sneed reviewed petitioner’s entire file.   In processing

petitioner’s claim, Ms. Sneed requested Hoyt partnership related

information regarding petitioner and Christopher from Revenue
                                - 12 -

Agent Deborah Ritchie.4    Ms. Richie provided Ms. Sneed with a

computer printout for Hoyt partnership taxable years related to

petitioner and Christopher, copies of agreements and powers of

attorney signed by petitioner and/or Christopher, copies of

Schedules K-1 issued to petitioner and Christopher from the Hoyt

partnerships, and copies of checks made payable to Hoyt

partnerships drawn on petitioner’s and her husband’s joint

checking account and on an account owned by Christopher and the

Verna Irene Doyel Trust.

     On April 20, 2001, petitioner sent a declaration of

Christopher B. Doyel to the Cincinnati Service Center

(Christopher’s declaration).    In Christopher’s declaration, he

stated:   “I decided to investigate the investment opportunity

with the Hoyt partnerships.    Initially, my spouse did not attend

any meetings, but, did read some promotional literature on the

Hoyt partnership investments.    After we were involved my spouse

did attend approximately three meetings.”    Christopher also

stated that petitioner signed the subscription agreements and

that petitioner never asked any questions about the Hoyt




     4
        Ms. Ritchie worked   on the “Hoyt audit team” and the “Hoyt
tax shelter project”. The    Hoyt tax shelter project examined Hoyt
partnerships. Ms. Ritchie    assisted District Counsel in preparing
Hoyt partnership cases for   trial.
                              - 13 -

partnership investment until they declared bankruptcy (sometime

after the years in issue).

     On June 5, 2001, respondent mailed Christopher a letter

notifying him of petitioner’s request for relief from joint and

several liability.

     On October 26, 2001, respondent mailed petitioner a

preliminary determination with respect to petitioner’s request

for relief from joint and several liability for 1982 through

1986.   Respondent determined that petitioner was not entitled to

relief pursuant to section 6015(b), (c), or (f).

     On February 11, 2002, respondent mailed petitioner a notice

of determination that determined petitioner was not entitled to

relief from liability pursuant to section 6015(b), (c), or (f)

for 1982 through 1986 (notice of determination).   On Form 886-A,

Explanation of Items, attached to the notice of determination,

regarding section 6015(b) respondent explained:

     We have concluded that you had actual knowledge or
     reason to know of the item giving rise to the
     understatement. The following factors were considered
     in reaching this conclusion:

           • You signed one or more
             partnership/subscription agreements/powers
             of attorney with respect to the Hoyt
             partnerships.

           • You signed personal checks made payable to
             W.J. Hoyt Sons or other Hoyt entity.
                                - 14 -

          • You signed other correspondence/documents
            relating to the Hoyt partnerships.

          • The size of the loss/deduction in relation
            to the income reported on the return would
            reasonably put you on notice that further
            inquiry would need to be made.

          • You have not shown that you satisfied your
            duty of inquiry at the time the return was
            prepared and signed to make sure the
            return was correct.

          • Your investment in the Hoyt partnerships
            was a joint investment with your spouse
            giving you actual knowledge of the item
            giving rise to the deficiency.

     You cannot claim relief under section 6015(b) with
     respect to your own erroneous items and you have not
     shown that the erroneous items are attributable to your
     spouse.

     You have not shown that it would be inequitable, taking
     into account all of the facts and circumstances, to
     hold you liable for the deficiency attributable to the
     understatement.

Respondent also explained why petitioner did not qualify for

relief under section 6015(c).    Regarding section 6015(f),

respondent wrote:   “You have not shown that it would be

inequitable, taking into account all of the facts and

circumstances, to hold you liable for the deficiency attributable

to the understatement.”

     On or about April 9, 2002, Ms. Sneed forwarded petitioner’s

case to respondent’s Appeals Office.     Appeals Officer Gloria

Flandez was assigned to review petitioner’s case.     In November
                               - 15 -

2002, Ms. Flandez completed her review.    Ms. Flandez concluded

that petitioner was not entitled to relief from liability

pursuant to section 6015(b), (c), or (f) for 1982 through 1986.

                               OPINION

I.   Evidentiary Issue

     As a preliminary matter, we must decide whether a document

petitioner submitted during the trial of this case should be

admitted into evidence.    At trial, petitioner sought to introduce

a “fraud referral” memorandum for Walter J. Hoyt III (Exhibit

120-P).   Respondent objected to the admission of Exhibit 120-P on

the grounds of authentication, relevance, and hearsay.    We

reserved ruling on Exhibit 120-P’s admissibility.

     Petitioner failed to make any arguments regarding the

admissibility of Exhibit 120-P in her opening brief.    In her

reply brief, petitioner stated:   “Petitioner has addressed the

relevance and purpose of Exhibit 120-P in her opening brief, in

the context of proposed findings of fact.”

     Petitioner’s requests for findings of fact in her opening

brief are not argument for the admissibility of Exhibit 120-P.

Merely requesting a finding of fact does not automatically make

the requested finding relevant.   On this basis, we can conclude

that petitioner abandoned this issue.     Petzoldt v. Commissioner,

92 T.C. 661, 683 (1989).
                                 - 16 -

      Even were we to conclude that petitioner did not abandon

this issue, petitioner makes no argument regarding the

authenticity of Exhibit 120-P or why Exhibit 120-P is not

excludable as hearsay.      Fed. R. Evid. 802-804, 807, 901.

Furthermore, petitioner’s belated, conclusory assertion in her

reply brief that Exhibit 120-P is relevant is insufficient.        We

find Exhibit 120-P to be hearsay, lacking authenticity, not

relevant to the issue of petitioner’s being entitled to section

6015 relief.   Furthermore, even if we did not so find, it would

be within our discretion to exclude Exhibit 120-P as wasteful.

Fed. R. Evid. 403.

      Accordingly, we do not admit Exhibit 120-P into evidence.

II.   Section 6015 Relief

      In general, spouses filing joint Federal income tax returns

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

6013(d)(3).    Under certain circumstances, however, section 6015

provides relief from this general rule.      Except as otherwise

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

Rule 142(a); Jonson v. Commissioner, 118 T.C. 106, 113 (2002),

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

      In arguing that petitioner is entitled to relief pursuant to

section 6015, petitioner also relies on the regulations related

to section 6015.     Sections 1.6015-0 through 1.6015-9, Income Tax
                                - 17 -

Regs., are applicable for elections or requests for relief filed

on or after July 18, 2002.     Sec. 1.6015-9, Income Tax Regs.

Petitioner filed her election prior to this date; accordingly,

the regulations are inapplicable.

     A.   Relief Under Section 6015(b)

     To qualify for relief from joint and several liability under

section 6015(b)(1), a taxpayer must establish:

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

          (B) on such return there is an understatement of
     tax attributable to erroneous items of 1 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 * * *.

     The requirements of section 6015(b)(1) are stated in the

conjunctive.     Accordingly, a failure to meet any one of them is

sufficient for us to find that petitioner does not qualify for

relief pursuant to section 6015(b).      Alt v. Commissioner, 119
                                - 18 -

T.C. 306, 313 (2002).

     Respondent contends that petitioner failed to meet the

requirements of subparagraphs (B), (C), and (D).     For the sake of

completeness, we shall discuss the application of 6015(b)(1)(B),

(C), and (D).   See Jonson v. Commissioner, supra at 119.

          1.      Section 6015(b)(1)(B):   Attributable to One Spouse

     Petitioner admits that the Hoyt investment caused the

erroneous items on the returns.    Petitioner, however, contends

that the Hoyt investments are not attributable to her.

     Petitioner was a joint investor with Christopher in the Hoyt

investments.    She signed documents relating to her and

Christopher’s investment in the Hoyt investments.     See Hayman v.

Commissioner, 992 F.2d 1256, 1260-1261 (2d Cir. 1993), affg. T.C.

Memo. 1992-228.    From the inception, the documents listed the

Hoyt investment as a joint investment of petitioner and

Christopher.

     Additionally, checks were drawn on their joint account and

on a trust account apparently belonging to petitioner.     These

checks were made payable to Hoyt partnerships.

     Furthermore, it is clear that the Hoyt organization treated

her as a joint investor with Christopher in the Hoyt

partnerships.    The Schedules K-1 the Hoyt organization issued

regarding their investment in SGE 1984-2 listed petitioner as a
                                - 19 -

joint investor with her husband.

     Finally, Christopher may have taken the initiative and

researched the Hoyt investment, but petitioner agreed to invest

in the Hoyt partnerships and she did it jointly with Christopher.

All investment decisions in the Doyel household were made jointly

by petitioner and Christopher.

     Accordingly, we conclude that the understatements are not

attributable to the erroneous items of one individual filing the

joint returns.

          2.      Section 6015(b)(1)(C):   Know or Reason To Know

     The requirement in section 6015(b)(1)(C), the no-knowledge-

of-the-understatement requirement, is virtually identical to the

same requirement of former section 6013(e)(1)(C); therefore,

cases interpreting former section 6013(e) remain instructive to

our analysis.     Jonson v. Commissioner, supra at 115; Butler v.

Commissioner, 114 T.C. 276, 283 (2000).

     The relief-seeking spouse knows of an understatement of tax

if she knows of the transaction that gave rise to the

understatement.    E.g., Purcell v. Commissioner, 826 F.2d 470,

473-474 (6th Cir. 1987), affg. 86 T.C. 228 (1986).     The relief-

seeking spouse has reason to know of an understatement if she has

reason to know of the transaction that gave rise to the

understatement.    E.g., Bokum v. Commissioner, 94 T.C. 126, 146

(1990), affd. 992 F.2d 1132 (11th Cir. 1993).     Courts
                               - 20 -

consistently apply these standards to omission of income cases;

however, some Courts of Appeals, starting with the U.S. Court of

Appeals for the Ninth Circuit, have adopted a more lenient

approach to deduction cases.     Kistner v. Commissioner, 18 F.3d

1521 (11th Cir. 1994), revg. and remanding T.C. Memo. 1991-463;

Price v. Commissioner, 887 F.2d 959, 963 (9th Cir. 1989), revg.

an Oral Opinion of this Court.    In Bokum v. Commissioner,

supra at 153, we declined to apply the Price approach to

deduction cases; however, under the rule established in Golsen v.

Commissioner, 54 T.C. 742 (1970), affd. 445 F.2d 985 (10th Cir.

1971), we are bound to defer to the decision of a Court of

Appeals that is squarely on point and which is the likely venue

for appeal.   Jonson v. Commissioner, 118 T.C. at 116.

     Petitioner contends that the U.S. Court of Appeals for the

Eleventh Circuit, which has adopted the Price approach, is the

likely venue for appeal because petitioner currently resides in

Florida.5   Respondent contends that the U.S. Court of Appeals for

the Sixth Circuit is the likely venue for appeal.

     Contrary to petitioner’s assertion, it is section 7482, and

not 28 U.S.C. section 1391 (2000), that provides the Courts of

Appeal with jurisdiction to review our decisions.    Section



     5
        Although petitioner claims to currently reside in
Florida, we note that since October 2002, Christopher has worked
full time in North Carolina (where he and petitioner own a home),
and petitioner lives with her husband.
                                - 21 -

7482(b)(1) provides that the venue for appeal of a case involving

a petitioner who is an individual is the legal residence of the

petitioner.    Sec. 7482(b)(1)(A).   Legal residence is determined

as of the time the petition was filed.     Sec. 7482(b)(1) (third

sentence).

     At the time she filed the petition, petitioner resided in

Michigan.     Accordingly, in the absence of a stipulation to the

contrary, the U.S. Court of Appeals for the Sixth Circuit is the

likely venue for any appeal of this case.     See sec. 7482(b)(2).

     We have found no published authority of the U.S. Court of

Appeals for the Sixth Circuit adopting the Price approach.     The

U.S. Court of Appeals for the Sixth Circuit has adopted the

following standard for reason to know in deduction cases:

          The test adopted by the Sanders court is the same
     test advanced by the Restatement (Second) of Agency §
     9, comment d (1958), which reads as follows:

             A person has reason to know of a fact if he
             had information from which a person of
             ordinary intelligence which such person may
             have, or of the superior intelligence which
             such person may have, would infer that the
             fact in question exists or that there is such
             a substantial chance of its existence that,
             in exercising reasonable care with reference
             to the matter in question, his action would
             be predicated upon the assumption of its
             possible existence.

     The primary ingredients of the “reason to know” tests
     are (1) the circumstances which face the petitioner;
     and (2) whether a reasonable person in the same
     position would infer that omissions or erroneous
     deductions had been made. [Shea v. Commissioner, 780
                                - 22 -

     F.2d 561, 565-566 (6th Cir. 1986) (citations omitted),
     affg. in part and revg. in part T.C. Memo. 1984-310.]

     We believe that petitioner had reason to know of the

understatements under the approaches followed by the Tax Court

and the U.S. Courts of Appeals for the Sixth and Eleventh (which

has adopted the Price approach) Circuits, and any disparity among

them is immaterial to our disposition of this case.    See Jonson

v. Commissioner, supra at 116.

            3.   Result of the Price Approach in This Case

     In Price v. Commissioner, supra at 965, the Court of Appeals

for the Ninth Circuit stated:

          A spouse has “reason to know” of the substantial
     understatement if a reasonably prudent taxpayer in her
     position at the time she signed the return could be
     expected to know that the return contained the
     substantial understatement. Factors to consider in
     analyzing whether the alleged innocent spouse had
     “reason to know” of the substantial understatement
     include: (1) the spouse’s level of education; (2) the
     spouse’s involvement in the family’s business and
     financial affairs; (3) the presence of expenditures
     that appear lavish or unusual when compared to the
     family’s past levels of income, standard of living, and
     spending patterns; and (4) the culpable spouse’s
     evasiveness and deceit concerning the couple’s
     finances. [Citations omitted.]

“The interplay of these factors is dynamic, so that different

factors will predominate in different cases.”    Bliss v.

Commissioner, 59 F.3d 374, 378 (2d Cir. 1995), affg. T.C. Memo.

1993-390.    One factor may dominate the analysis and alone be

reason for denying relief.    Id. at 379.
                                   - 23 -

     Under the Price approach, a spouse’s knowledge of the

transaction underlying the deduction is not irrelevant; the more

a spouse knows about a transaction, the more likely it is that

she will know or have reason to know that the deduction arising

from that transaction may not be valid.      Price v. Commissioner,

887 F.2d at 963 n.9; see Hayman v. Commissioner, 992 F.2d at 1261

(citing Price).

                  a.   Education

     Petitioner had a high school education.

                  b.   Involvement in Financial Affairs

     Petitioner argues that she was not involved in the family’s

financial affairs.     Being a homemaker, being focused on family

affairs, and lacking sophistication in financial affairs does not

relieve a taxpayer of joint and several tax liability.      Shea v.

Commissioner, supra at 566.     Additionally, complete deference to

the other spouse’s judgment concerning the couple’s financial

affairs, standing alone, is insufficient to establish that a

spouse had no “reason to know”.       Kistner v. Commissioner, supra

at 1525.

     Contrary to her assertion, petitioner was involved in her

family’s financial affairs.     Although she may have not played a

“dominant” role or been the initiator, all family investment

decisions were made in consultation with petitioner.      Petitioner

and her husband had an agreement to reach a consensus about
                               - 24 -

whether or not to make an investment before any investment was

made.

     Petitioner was shown the documents relating to the Hoyt

investments, signed Hoyt investment documents, was aware that the

Hoyt investment was supposed to result in substantial tax

savings, and attended Hoyt investor meetings.6    Petitioner was

aware of the large deductions taken on her joint tax returns

associated with the Hoyt investments.     The Hoyt investment

materials she was shown and had the opportunity to review

apprised her of tax risks associated with the investment.       These

facts establish that petitioner had “reason to know”.     See Jonson

v. Commissioner, supra at 117.

     Petitioner argues that her health issues limited her

involvement in financial affairs.   In the mid-1970s, petitioner

was diagnosed with sarcoidosis--a disease that affects the

lymphatic system.   Petitioner developed tumors in her body and

has a reduced lung capacity.   Despite her illness, the

testimonial and documentary evidence establishes that petitioner

participated in the family’s financial affairs.

               c.    Expenditures, etc.

     The evidence does not establish that the tax savings

generated by the Hoyt investments resulted in lavish or unusual

expenditures benefiting petitioner compared to prior years’


     6
        Although petitioner claimed not to attend Hoyt meetings,
her testimony was contradicted by Christopher’s testimony and the
documentary evidence.
                                  - 25 -

spending.    This factor, however, is not determinative.     Id. at

118.

       The losses helped to reduce petitioner and her husband’s

reported tax liabilities for 1984 through 1986 to a total of

$394.    Such deductions, which shelter such a large percentage of

the income reported on the returns, support a finding that

petitioner had reason to know of the understatement.       Id.

       Section 6015 relief “was not designed to protect willful

blindness or to encourage the deliberate cultivation of

ignorance.”       Friedman v. Commissioner, 53 F.3d 523, 525 (2d Cir.

1995), affg. in part and revg. and remanding in part T.C. Memo.

1993-549.    “Extravagant tax savings may alert even a financially

unsophisticated spouse to the possible improprieties of a tax

scheme.”    Id.

                    d.   Other Spouse’s Evasiveness and Deceit

       Where one spouse is “cunning and systematic” in concealing

the understatement of taxes, the other spouse may plausibly claim

ignorance notwithstanding some educational attainments or some

involvement in family financial affairs that are distinct from

the understatement of taxes.       Bliss v. Commissioner, supra at

379.    Disclosure by the other spouse, however, is probative in

determining that relief is inappropriate.       Id.; see also Hayman

v. Commissioner, supra at 1262, 1263 (lack of deceit by other

spouse important factor in denying relief).
                              - 26 -

     Petitioner and her husband testified that petitioner was

aware of the investment in the Hoyt partnerships, she had access

to all of the files/information regarding the Hoyt investment,

and that Christopher made no effort to deceive petitioner

regarding the family’s financial affairs.     This further supports

a finding that petitioner had reason to know of the

understatement.   Jonson v. Commissioner, supra at 118.

     Petitioner claims that Mr. Hoyt’s deceit is relevant to the

determination of “reason to know”.     Although Mr. Hoyt’s deceit

may be relevant, it does not lead to the result petitioner seeks.

     The purpose of section 6015 relief is to protect one spouse

from the overreaching or dishonesty of the other.     Purcell v.

Commissioner, 826 F.2d at 475.   Relief is inappropriate where it

would allow the requesting spouse to escape liability for

apparently legitimate claims that are later disallowed.     See

Bartlett v. Commissioner, T.C. Memo. 1997-413.

     As was the case in Mora v. Commissioner, 117 T.C. 279, 288

(2001), where we denied relief under section 6015(b) in a case

involving Hoyt investments, neither petitioner nor Christopher

knew the facts that made the flowthrough losses from the Hoyt

partnerships unallowable as deductions on their joint returns and

both petitioner and Christopher put their trust in the Hoyt

organization to determine the basis for, propriety of, and amount

of their deductions.
                                - 27 -

e.   Conclusion

     It is significant that petitioner knew (1) of the Hoyt

investment, (2) the Hoyt investment was designed to generate

large deductions resulting in substantial tax savings, (3) those

deductions were taken on joint returns for the years in issue,

and (4) there was a risk that the deductions might be disallowed

by the IRS.     Jonson v. Commissioner, 118 T.C. at 118.

     “Tax returns setting forth large deductions, such as tax

shelter losses offsetting income from other sources and

substantially reducing * * * the couple’s tax liability,

generally put a taxpayer on notice that there may be an

understatement of tax liability.”     Hayman v. Commissioner, 992

F.2d at 1262.     Furthermore, the court in Price noted that the

size of the deduction in issue vis-a-vis the total income

reported on the return, when considered in light of the fact that

the taxpayer knew of the investment and its nature, is enough to

put the taxpayer on notice that an understatement exists (and,

therefore, if the duty of inquiry is not discharged, leads to an

imputation of “reason to know” of the understatement).     Price v.

Commissioner, 887 F.2d at 966 ($90,000 deduction and just more

than $100,000 in income).

     Petitioner did not ask any questions about the Hoyt

investment deductions even though the loss surprised petitioner

because it was so large.    Petitioner never asked any questions

about the Hoyt partnerships until they declared bankruptcy (after
                                - 28 -

the years in issue).    Petitioner did not satisfy her duty to

inquire.   Id. at 965-966; see also Mora v. Commissioner, supra at

289 (involving a Hoyt investment).

     A reasonable person, faced with petitioner’s circumstances

and in petitioner’s position, would have had reason to know of

the understatement.    We conclude that, under both the U.S. Court

of Appeals for the Sixth Circuit’s standard and the

Price approach, petitioner had reason to know of the

understatements.

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

     The requirement in section 6015(b)(1)(D), that it be

inequitable to hold the requesting spouse liable for an

understatement on a joint return, is virtually identical to the

same requirement of former section 6013(e)(1)(D); therefore,

cases interpreting former section 6013(e) remain instructive to

our analysis.     Butler v. Commissioner, 114 T.C. at 283.

     Whether it is inequitable to hold a spouse liable for a

deficiency is determined “taking into account all the facts and

circumstances”.    Sec. 6015(b)(1)(D).     The most often cited

material factors to be considered are (1) whether there has been

a significant benefit to the spouse claiming relief, and (2)

whether the failure to report the correct tax liability on the

joint return results from concealment, overreaching, or any other

wrongdoing on the part of the other spouse.       Alt v. Commissioner,

119 T.C. at 314; Jonson v. Commissioner, 118 T.C. at 119.
                               - 29 -

     No such untoward circumstances are present in this case.     It

is clear that there was no concealment on Christopher’s part.

Christopher never hid information from petitioner, petitioner was

welcome to read all the Hoyt investment materials, Christopher

was always willing to discuss the Hoyt investment with

petitioner, petitioner never asked any questions about the Hoyt

partnership investment until she and Christopher declared

bankruptcy (after the years in issue), and petitioner did not

question the large deductions associated with the Hoyt

investment.   Additionally, the evidence established that

Christopher never attempted to deceive her with respect to their

financial affairs.

     As we noted supra, the purpose of section 6015 relief “is to

protect one spouse from the overreaching or dishonesty of the

other.”   Purcell v. Commissioner, 826 F.2d at 475.   The

understatement in tax in this case is attributable to a mistaken

belief on the part of both petitioner and Christopher as to the

legitimacy of the tax shelter deductions.   Under these

circumstances, we perceive no inequity in holding both spouses to

joint and several liability.   Bokum v. Commissioner, 992 F.2d at

1135; McCoy v. Commissioner, 57 T.C. 732, 735 (1972).

     We have also considered other factors that are relevant to

whether it would be inequitable to hold petitioner liable.   We

find that petitioner will not experience economic hardship if
                                - 30 -

relief from the liabilities is not granted given her current

level of income.   See Alt v. Commissioner, supra at 314-315; Von

Kalinowski v. Commissioner, T.C. Memo. 2001-21; Walters v.

Commissioner, T.C. Memo. 1998-111; Dillon v. Commissioner, T.C.

Memo. 1998-5.

     Christopher testified that he and petitioner owe $96,000 to

the IRS for their 1981 through 1986 tax years.7   In her “Appeals

Transmittal and Case Memo”, Ms. Flandez listed the tax owed for

1982 through 1986 as $20,300.    According to an IRS transcript, as

of August 26, 1998, petitioner and Christopher owed $20,300 in

tax and approximately $61,000 in interest for their 1982 through

1986 tax years.

     The Form 433-A, Collection Information Statement for Wage

Earners and Self-Employed Individuals, that petitioner and

Christopher signed on February 28, 2003, contained the following

statements:   Petitioner and Christopher owned their home; they

had no dependents they could claim on their tax return; they had

a Bank of America checking account with a balance of $4,000;

     7
        We note that the 1981 tax year is not in issue.   See
supra note 2.

     Additionally, on brief petitioner makes claims regarding the
total liability relating to the Hoyt investment for 1981 through
1996. Petitioner’s tax years 1987 through 1996 also are not
before the Court. Even if they were, according to petitioner’s
own estimate of the total tax liability, petitioner and her
husband have substantial assets (real property and investments)
and credit that could be used to pay the total tax liability for
1981 through 1996 without creating economic hardship.
                               - 31 -

their investments included (1) Vanguard--401(k) with a current

value of $267,578, (2) Fidelity--401(k) with a current value of

$14,007, and (3) a U.S. Savings Bond with a current value of $28;

they had $100 of cash on hand; they had available credit of

$19,750 from Discover Card and $4,200 from Capital One; they had

life insurance with a current cash value of $20,455; they owned

two cars (a 1991 Toyota Previa and a 1995 Toyota Avalon); they

owned the following real estate (1) a home in Beverly Hills,

Florida, purchased in June 1995 for $183,000, with a current

value of $168,000, a loan balance of $150,245, and a monthly

payment totaling $1,465, and (2) a home in Charlotte, North

Carolina, purchased in October 2002 for $95,000, with a current

value of $76,000, a loan balance of $75,000, and a monthly

payment of $872; and no personal assets (i.e., zero).

     In determining the current value of their investments,

petitioner and Christopher valued them at 60 percent of the face

value of the investments even though the Form 433-A states:

“Current Value:   Indicate the amount you could sell the asset for

today.”   In determining the current value of their real estate,

petitioner and Christopher valued their homes at “80 percent

quick sale value” even though the Form 433-A states:    “Current

Value:    Indicate the amount you could sell the asset for today.”
                              - 32 -

     Under the monthly income and expense analysis on Form 433-A,

petitioner and Christopher listed monthly wages of $9,167 and

monthly interest/dividends of $1,667 for total monthly income of

$10,834.   Under total living expenses, petitioner and Christopher

listed $1,290 for food, clothing, and miscellaneous; $2,212 for

housing and utilities; $573 for transportation; $1,173 for health

care; $2,679 for taxes; $108 for child/dependent care; $56 for

life insurance; $672 for other secured debt (second house); and

$1,683 for other expenses comprising $600 in attorney’s fees and

$1,083 for church contributions.   This brought their total

expenses to $10,446 per month.

     Attached to the Form 433-A were the following:   A uniform

residential appraisal report for the Beverly Hills, Florida, home

with an estimate of fair market value, as of March 16, 1998, of

$210,000; a Bank of America statement for petitioner and

Christopher for the period December 13, 2002, through January 14,

2003, which listed (1) their average balance of $8,165, a

beginning balance on December 13, 2002, of $12,423.62, and an

ending balance of $5,150 in their checking account and (2) having

an equity line of credit for $25,244.76; a Vanguard account

statement listing a closing and vested balance as of December 31,

2002, totaling $478,278.71; a Fidelity account statement listing

a closing and vested balance as of December 31, 2002, totaling

$29,865.49; their 2001 tax return which listed a total of
                              - 33 -

$5,193.31 in medical expenses; and a self-prepared chart listing

$6,018.70 in medical expenses that are not covered by their

insurance and $1,014.35 under “Flex Plan” for 2002.

     Petitioner testified that her oldest daughter, Tina, suffers

from health problems, is totally disabled, and that the financial

burden for her daughter rests on her and Christopher.     Tina has

her own home, does not live with petitioner and her husband, and

petitioner and Christopher admitted that they cannot claim her as

a dependent.   We also note that on the Form 433-A, petitioner and

Christopher stated that they had no dependents they could claim

on their tax return.

     Petitioner did not present evidence that demonstrated that

petitioner will be unable to pay her reasonable basic living

expenses if relief is not granted.     Sec. 301.6343-1(b)(4),

Proced. & Admin. Regs.   Some of the expense figures provided on

the Form 433-A are unsupported and seem excessive.

     Additionally, petitioner and her husband have substantial

assets (real property and investments) and credit that could be

used to pay a tax liability as high as $96,000 without creating

economic hardship.   We conclude that petitioner will not

experience economic hardship if relief from the liabilities is

not granted given her current level of income and assets.       See

Alt v. Commissioner, 119 T.C. at 314-315; Von Kalinowski v.

Commissioner, supra; Walters v. Commissioner, supra; Dillon v.
                              - 34 -

Commissioner, supra.

     We also may consider whether the requesting spouse was

deserted, divorced, or separated.   See Walters v. Commissioner,

supra.   Petitioner’s husband has not disappeared or left

petitioner to “face the music” alone.    Hayman v. Commissioner,

992 F.2d at 1263; Von Kalinowski v. Commissioner, supra.

Petitioner and Christopher remain married.    The two have not

separated, and petitioner has not been left by her husband to

deal with the tax liabilities alone.    Instead, petitioner

continues to enjoy the lifestyle and financial security that are

largely attributable to her husband’s assets and income.

           5.   Conclusion

     Petitioner was not denied access to financial records by her

husband or threatened with physical violence if she objected to

the Hoyt investment or questioned the tax returns.    There was no

physical or mental abuse by petitioner’s husband, and he did not

coerce her into investing in the Hoyt partnerships or signing the

tax returns.

     The understatements are not attributable to the erroneous

items of one individual filing the joint returns for 1982 through

1986, petitioner had reason to know of the understatements on

these returns, and it is not inequitable to hold the petitioner

liable for the deficiencies in tax for 1982 to 1986.    On the

basis of all the facts and circumstances, we conclude that

petitioner is not entitled to relief pursuant to section 6015(b).
                              - 35 -

     B.   Relief Under Section 6015(f)

     Respondent argues that he did not abuse his discretion in

denying petitioner equitable relief under section 6015(f).

Respondent’s denial of relief is reviewed under an abuse of

discretion standard.   Cheshire v. Commissioner, 115 T.C. 183, 198

(2000), affd. 282 F.3d 326 (5th Cir. 2002); Butler v.

Commissioner, 114 T.C. at 292.   Our review is not limited to

respondent’s administrative record.    Ewing v. Commissioner, 122

T.C. ___ (2004).

     Considering the facts and circumstances of this case, we

held under section 6015(b)(1)(D) that it is not inequitable to

hold petitioner liable for the deficiencies.   The language of

section 6015(f)(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)”

does not differ significantly from the language of section

6015(b)(1)(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”.8   Butler v. Commissioner,


     8
        Additionally, the language in both sections is similar to
the language in former sec. 6013(e)(1)(D), “taking into account
all the facts and circumstances, it is inequitable to hold the
other spouse liable for the deficiency in tax for such taxable
year attributable to such substantial understatement”. Butler v.
Commissioner, 114 T.C. 276, 291 (2000); see Mitchell v.
Commissioner, 292 F.3d 800, 806 (D.C. Cir. 2002) (“Subsection (f)
                                                   (continued...)
                              - 36 -

supra at 291.   Further, the equitable factors we considered under

section 6015(b)(1)(D) are the same equitable factors we consider

under section 6015(f).9   Alt v. Commissioner, supra at 316.   As a

result, we hold that respondent did not abuse his discretion in

denying petitioner relief under section 6015(f) for taxable years

1982 to 1986.

     In this case, none of the six factors in Rev. Proc. 2000-15,

2000-1 C.B. 447, weighing in favor of granting relief are

present:   (1) Petitioner was not divorced from her husband, (2)

petitioner will not suffer economic hardship if relief is denied,

(3) petitioner was not abused by her husband, (4) petitioner had

“reason to know”, (5) petitioner’s husband did not have an

obligation to pay the liability pursuant to a divorce decree, and

(6) the items giving rise to the deficiencies are not


     8
      (...continued)
has no statutory antecedent as a stand alone provision, but has
roots in the equity test of former subparagraph 6013(e)(1)(D)
carried forward into subparagraph 6015(b)(1)(D).”), affg. T.C.
Memo. 2000-332.
     9
        As directed by sec. 6015(f), the Commissioner prescribed
procedures in Rev. Proc. 2000-15, 2000-1 C.B. 447, to be used in
determining whether an individual qualifies for relief under sec.
6015(f). The revenue procedure takes into account factors such
as marital status, economic hardship, and significant benefit in
determining whether relief will be granted under sec. 6015(f).
Rev. Proc. 2000-15, sec. 4.03, 2000-1 C.B. at 448.

     We note that Rev. Proc. 2003-61, 2003-32 I.R.B. 296 (Aug.
11, 2003), superseded Rev. Proc. 2000-15, supra. Rev. Proc,
2003-61, sec. 6, 2003-32 I.R.B. 296. The new revenue procedure,
however, is effective for requests for relief filed on or after
Nov. 1, 2003. Id. Accordingly, it is inapplicable to the case
at bar.
                                - 37 -

attributable solely to Christopher.      See Washington v.

Commissioner, 120 T.C. 137, 147 (2003).     Additionally, the

following factors weighing against relief are present:10      (1) The

items giving rise to the deficiencies also are attributable to

petitioner, (2) petitioner had “reason to know”, and (3)

petitioner will not suffer economic hardship.      Id.

     Petitioner also argues that respondent made blanket “pro

forma” denials of Hoyt investor section 6015 claims.     We

disagree.

     Respondent’s internal memoranda contemplate that some Hoyt

investors would qualify for section 6015 relief.     The memoranda

do not reflect a decision to issue blanket denials to all Hoyt

investor section 6015 claims.

     Ms. Sneed testified that she processed claims granting

section 6015 relief in other Hoyt investor cases she has

reviewed.   Furthermore, Ms. Sneed credibly testified that she

conducted a full, impartial, and fair evaluation of petitioner’s

section 6015 claim.

     The format of the determination letter denying section 6015

relief for Hoyt investors was unique to the Hoyt cases.       This

format was provided to Ms. Sneed.    Respondent did use uniform



     10
        The absence of factors weighing against equitable relief
does not weigh in favor of granting relief--this is merely
neutral. See Washington v. Commissioner, 120 T.C. 137, 149
(2003) (absence of factor weighing in favor of equitable relief
does not weigh against granting equitable relief--it is neutral).
                             - 38 -

procedures, and a uniform denial letter, in the Hoyt investor

section 6015 cases; however, respondent did not make blanket

denials of Hoyt investor section 6015 relief claims.   We find

nothing abusive in using this form letter.

     On the basis of all the facts and circumstances, we conclude

that respondent did not abuse his discretion in denying

petitioner relief pursuant to section 6015(f).

     In reaching our holdings, we have considered all arguments

made by the parties, and, to the extent not mentioned above, we

conclude they are irrelevant or without merit.

     To reflect the foregoing,

                                        Decision will be entered

                                   for respondent.
