                  T.C. Memo. 1997-410



                UNITED STATES TAX COURT



  HUGH WILKINSON AND EVELYN WILKINSON, Petitioners v.
      COMMISSIONER OF INTERNAL REVENUE, Respondent



Docket No. 1963-96.               Filed September 16, 1997.


     H and W (Ps) filed their 1988, 1989, and 1990
Federal income tax returns on Nov. 6, 1992, reporting
large amounts of taxable income. H claimed that he
failed to file timely returns because he had emotional
problems. W claimed that she was not required to file
returns because she earned no income. On their 1988
Federal income tax return, Ps reported that they had a
$1,105 short-term capital loss that could be carried
over from 1988 to 1989. On their 1989 return, they
reported and deducted the carryover as $1,208. R
mailed a notice of deficiency to Ps on Nov. 3, 1995.
     Held: The period of limitations for assessment of
tax did not expire before R issued the notice of
deficiency.
     Held, further, Ps are liable for the deficiency
determined by R for 1989.
     Held, further, Ps are not liable for an addition
to tax for fraud under sec. 6653(b)(1), I.R.C., for
1988 or an addition to tax for fraudulent failure to
file under sec. 6651(f), I.R.C., for 1989.
                                     - 2 -

            Held, further, Ps are liable for an addition to tax for
       failure to file timely returns under sec. 6651(a)(1),
       I.R.C., for 1988 and 1989.
            Held, further, Ps are liable for an addition to tax for
       failure to pay estimated taxes under sec. 6654, I.R.C., for
       1988 and 1989.
            Held, further, W does not qualify for innocent
       spouse relief under sec. 6013(e), I.R.C.



       Ismael Gonzalez, for petitioner Hugh Wilkinson.

       Melvin Duke, for petitioner Evelyn Wilkinson.

       Theresa G. McQueeney, for respondent.



                  MEMORANDUM FINDINGS OF FACT AND OPINION


       LARO, Judge:     Hugh Wilkinson (Dr. Wilkinson) and Evelyn

Wilkinson (Mrs. Wilkinson) petitioned the Court to redetermine

respondent's determination with respect to their 1988 through

1990 taxable years.      Respondent determined and reflected in a

notice of deficiency dated November 3, 1995, the following

deficiency, additions to tax, and penalties:

                                   Additions to Tax          Penalties
                           Sec.        Sec.         Sec.        Sec.
Year     Deficiency      6651(f)     6653(b)(1)     6661        6662

1988        ---            ---        $97,845      $32,615     ---

1989        $29         $105,978         ---          ---    $29,856

1990        ---          135,597         ---          ---     36,183
                                     - 3 -

Respondent also determined in the alternative that petitioners

are liable for additions to their 1988 through 1990 taxes under

sections 6651(a)(1) and 6654.

       Respondent conceded in the answer that petitioners are not

liable for the addition to tax under section 6661 or the

penalties under section 6662.         Following this concession, and a

ruling by the Court as to 1990, the only issues left to decide

are:

       1.      Whether the period of limitations for assessment of tax

for 1988 and 1989 expired before respondent issued the notice of

deficiency to petitioners.         We hold it did not.

       2.      Whether petitioners are liable for the deficiency

determined by respondent in petitioners' 1989 income tax due to

unreported income.       We hold they are.

       3.      Whether petitioners are liable for the addition to tax

for fraud under section 6653(b)(1) for 1988 and the addition to

tax for fraudulent failure to file under section 6651(f) for

1989.       We hold they are not.

       4.      Whether petitioners are liable for additions to tax for

failing to timely file their 1988 and 1989 returns under section

6651(a).       We hold they are.

       5.      Whether petitioners are liable for additions to tax for

failing to pay estimated taxes under section 6654 for 1988 and

1989.       We hold they are.
                                - 4 -

       6.   Whether Mrs. Wilkinson is an "innocent spouse" under

section 6013(e) for either of the years in issue.      We hold she is

not.

     Unless otherwise indicated, section references are to the

Internal Revenue Code applicable to the years in issue.      Rule

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

                           FINDINGS OF FACT

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

The stipulations and exhibits submitted therewith are

incorporated herein by this reference.      Petitioners resided in

Westbury, New York, when they petitioned the Court.

1.   Personal Background

       Dr. Wilkinson graduated cum laude from Howard University in

1969 and received his medical degree from Howard University

Medical School in 1973.    He became board certified as an

obstetrician/gynecologist in 1981.      During the years in issue,

Dr. Wilkinson held three employment positions where he maintained

professional relationships with his colleagues and approximately

3,500 patients.    Primarily, he was a full-time, self-employed

physician specializing in obstetrics and gynecology with a

medical practice located in Brooklyn, New York.      Additionally, he

worked part time for New York City Health & Hospitals at Kings

County Abortion Unit.    He also worked part time as an associate

director for Wykoff Heights.
                                - 5 -

     Mrs. Wilkinson received a bachelor of science degree in

nursing from City College and became a registered nurse in 1986.

Since that time, she has been employed sporadically.    In 1987,

she worked for 3 months as a registered nurse.    In 1991, she

worked 2 days a week at Dr. Wilkinson's medical practice as a

registered nurse.   She knew that Dr. Wilkinson was working and

making money during this time and did not believe that he hid

money from her.   During the years in issue, she used Dr.

Wilkinson's income to buy things that benefited her and the

family, as well as to vacation in Florida.

     In September 1988, Dr. Wilkinson had gall bladder surgery.

He did not resume working until January 1989.    Other than the

gall bladder surgery, Dr. Wilkinson did not have any other

serious physical illnesses during the years in issue.

     Dr. Wilkinson did not undergo psychiatric evaluation during

the years in issue.   He saw Dr. Coleman, a psychiatrist,

approximately 5 years after the last year in issue, for symptoms

of depression.    Dr. Coleman treated Dr. Wilkinson from June 1995

through February 1996, approximately three times a month.    Dr.

Coleman opined that Dr. Wilkinson suffered during the relevant

years from a personality disorder known as "double depression",

and that a symptom of this disorder is a neglect of

responsibility such as failing to file tax returns.

2.   Preparation of Federal Income Tax Returns
                               - 6 -

     Petitioners retained an accounting firm named Thompson & Co.

to perform accounting work for 1987 and 1988, and petitioners

provided Thompson & Co. with all necessary information to prepare

petitioners' 1987 and 1988 Federal income tax returns.    On

August 15, 1988, Thompson & Co. prepared a 1987 Federal income

tax return for petitioners listing $187,231 as their adjusted

gross income.   Petitioners refused to file this return, believing

it to be incorrect because it understated their income.    Later,

Thompson & Co., prepared a 1988 return for petitioners listing

their income at $217,231.   Petitioners refused to file this

return, again believing the reported income was understated.

Thompson & Co. calculated petitioners' 1988 tax at $8,997 per

quarter and advised them to pay estimated taxes of $35,988.

During the summer of 1989, petitioners dismissed Thompson & Co.,

claiming that the firm underreported petitioners' income.      In or

about June 1989, petitioners hired another accounting firm named

Frumkin & Lukin to provide accounting services to Dr. Wilkinson's

medical practice and to prepare petitioners' Federal income tax

returns for the years in issue.

     Petitioners filed their 1988 and 1989 Federal income tax

returns, prepared by Frumkin & Lukin, on November 6, 1992.

Petitioners reported that Dr. Wilkinson's medical practice

realized gross income of $708,220 during 1988 and $792,444 during

1989, and that after subtracting payments of withholding and

estimated tax, petitioners owed taxes in the amounts of $133,437
                                - 7 -

for 1988 and $150,058 for 1989.   On petitioners' 1988 Federal

income tax return, they reported a $1,105 short-term capital loss

to be carried over to 1989, $5,000 of estimated tax payments, and

$11 of tax withheld.   On their 1989 Federal income tax return,

petitioners deducted a $1,208 short-term capital loss carryover

from 19881 and reported $8,000 of estimated tax payments and $3

of tax withheld.   Both petitioners signed the returns.     Mrs.

Wilkinson claims that she did not read the returns before signing

them but concedes that she could have read the returns before she

signed them.

     Petitioners have a history of filing delinquent tax returns

and paying late any tax that is due with respect thereto.

Petitioners filed their 1985 return in December 1986 and paid the

balance of the tax in April 1987.    Petitioners filed their 1986

return in July 1988, paying the balance of the tax due in January

1989.    Petitioners filed their 1987 return in July 1990, paying

the balance of the tax due in April 1991.

3.   Dr. Wilkinson's Criminal Plea

     On or about March 31, 1995, a "Misdemeanor Information" was

filed against Dr. Wilkinson, charging him with violating

section 7203 by willfully failing to file timely Federal income

tax returns for 1988 through 1990.      On November 1, 1995,

Dr. Wilkinson pled guilty to violating section 7203 for 1988.

     1
        This discrepancy accounts for the $29 deficiency in the
1989 tax year.
                               - 8 -

The other two counts were dismissed.    Dr. Wilkinson was sentenced

to 5 years of probation and 4 months of electronic home

detention, and he was fined $10,000.

                              OPINION

A.   Period of Limitations

     Petitioners allege in their petition that respondent is time

barred from assessing or collecting a deficiency, or an addition

thereto, for 1988 or 1989.   We disagree with petitioners that

such an assessment or collection by respondent is time barred.

     The Commissioner generally must assess tax against an

individual within 3 years of the later of the due date or the

filing date of his or her return.   Sec. 6501(a) and (b)(1);

Mecom v. Commissioner, 101 T.C. 374, 381 (1993), affd. without

published opinion 40 F.3d 385 (5th Cir. 1994).    Given that

petitioners filed their 1988 and 1989 Federal income tax returns

after their due dates, the 3-year period commences on the date of

filing; i.e., November 6, 1992.   See Korshin v. Commissioner,

T.C. Memo. 1995-46, affd. 91 F.3d 670 (4th Cir. 1996).    Because

respondent issued the notice for the years in issue on

November 3, 1995, which is within 3 years of the filing date, it

is timely.2

B.   Unreported Income



     2
       Petitioners apparently agree.    They have not further
argued this issue in their brief.
                               - 9 -

     Respondent determined that petitioners underpaid their 1989

income tax by $29.   The underpayment was attributable to the

overstated short-term capital loss carryover reported and

deducted on their 1989 tax return.     Petitioners did not present

any evidence at trial and did not argue in their brief that

respondent's determination of the $29 deficiency is incorrect.

We therefore sustain respondent's determination of this

deficiency.   Rule 142(a); Welch v. Helvering, 290 U.S. 111, 114

(1933); Rapco, Inc. v. Commissioner, 85 F.3d 950, 954 (2d Cir.

1996), affg. T.C. Memo. 1995-128.

C.   1988 and 1989 Additions to Tax for Fraud

     Respondent argues that petitioners are liable for the

additions to tax for fraud under section 6653(b)(1) for 1988 and

section 6651(f) for 1989.   For returns the due date for which is

after December 31, 1988, determined without regard to extensions,

but before December 31, 1989, section 6653(b)(1) imposes an

addition to tax equal to 75 percent of the portion of an

underpayment that is due to fraud.     In the case of returns the

due date for which is after December 31, 1989, determined without

regard to extensions, section 6651(f) imposes an addition to tax

where a failure to file a return is fraudulent.     Because both

provisions are analyzed similarly as to the determination of

fraudulent intent, we consolidate our discussion of the fraud

determinations.   Clayton v. Commissioner, 102 T.C. 632, 653

(1994).
                               - 10 -

     The additions to tax for fraud are civil sanctions "provided

primarily as a safeguard for the protection of the revenue and to

reimburse the Government for the heavy expense of investigation

and the loss resulting from the taxpayer's fraud."     Helvering v.

Mitchell, 303 U.S. 391, 401 (1938).     Fraud is defined as

intentional wrongdoing on the part of the taxpayer with the

specific purpose of evading a tax believed to be owing.       Miller

v. Commissioner, 94 T.C. 316, 332 (1990); Petzoldt v.

Commissioner, 92 T.C. 661, 698 (1989).     Section 7454 provides in

pertinent part that "In any proceeding involving the issue

whether the petitioner has been guilty of fraud with intent to

evade tax, the burden of proof in respect of such issue shall be

upon the Secretary."   Furthermore, Rule 142(b) requires that this

burden be carried by clear and convincing evidence.     Castillo v.

Commissioner, 84 T.C. 405, 408 (1985).

     Under section 6653(b)(1), the fraud addition is imposed

where there is an underpayment of tax required to be shown on the

return that is due to fraud.   Once an underpayment of tax has

been established, fraud is shown by proof that the taxpayer

intended to conceal, mislead, or otherwise prevent the collection

of his or her taxes.   Spies v. United States, 317 U.S. 492, 499

(1943); Douge v. Commissioner, 899 F.2d 164, 168 (2d Cir. 1990);

Stoltzfus v. United States, 398 F.2d 1002, 1004 (3d Cir. 1968);

Rowlee v. Commissioner, 80 T.C. 1111, 1123 (1983).     Under section
                               - 11 -

6651(f), a fraud addition is imposed if any failure to file a

return is fraudulent.

     1. Section 6653(b)(1) Addition for Underpayment of Tax
for 1988

     To impose liability under section 6653(b)(1), respondent

must first prove that there has been an underpayment of taxes for

the year in issue.    Lee v. United States, 466 F.2d 11, 16-17 (5th

Cir. 1972); Plunkett v. Commissioner, 465 F.2d 299, 303 (7th Cir.

1972), affg. T.C. Memo. 1970-274.   Section 6653(c)(1) defines

"underpayment" as a deficiency as defined in section 6211, except

that for this purpose section 6653(c)(1) provides that "the tax

shown on a return referred to in section 6211(a)(1)(A) shall be

taken into account only if such return was filed on or before the

last day prescribed for the filing of such return".

     Because petitioners did not file their 1988 Federal income

tax return until November 6, 1992, there is deemed to be an

underpayment of tax for 1988 equal to the amount reported as due

on their delinquent return.   In this situation, "a taxpayer will

automatically create an 'underpayment' in the amount of the

correct tax simply because he or she files an untimely return."

Emmons v. Commissioner, 92 T.C. 342, 349 (1989), affd. 898 F.2d

50 (5th Cir. 1990).

     2.   Fraudulent Intent

     Under sections 6653(b)(1) and 6651(f), respondent must show

that petitioners intended to conceal, mislead, or otherwise
                                - 12 -

prevent the collection of taxes.     Stoltzfus v. United States,

supra at 1004; Webb v. Commissioner, 394 F.2d 366, 377 (5th Cir.

1968), affg. T.C. Memo. 1966-81; Rowlee v. Commissioner, supra at

1123.   Because direct proof of a taxpayer's intent is rarely

available, fraud may be proven by circumstantial evidence and

reasonable inferences may be drawn from the relevant facts.

Spies v. United States, supra at 499; Stephenson v. Commissioner,

79 T.C. 995, 1006 (1982), affd. 748 F.2d 331 (6th Cir. 1984);

Collins v. Commissioner, T.C. Memo. 1994-409.

     Courts have relied on a number of indicia of fraud in

deciding section 6653(b) and section 6651(f) cases.    Indicia of

fraud include:    (1) Understating income; (2) maintaining

inadequate records; (3) failing to file tax returns; (4) giving

implausible or inconsistent explanations of behavior; (5)

concealing assets; (6) failing to cooperate with tax authorities;

(7) engaging in illegal activities; (8) attempting to conceal

illegal activities; (9) dealing in cash; and (10) failing to make

estimated tax payments.    Recklitis v. Commissioner, 91 T.C. 874,

910 (1988).   These "badges of fraud" are nonexclusive.

Niedringhaus v. Commissioner, 99 T.C. 202, 211 (1992).       The

taxpayer's education and business background are also relevant to

the determination of fraud.     See Wheadon v. Commissioner, T.C.

Memo. 1992-633.    We turn to the indicia of fraud that are

relevant to the instant case.
                                 - 13 -

     Respondent presented evidence on the presence of several

indicia of fraud.   Among other things, respondent claims that the

following indicia clearly and convincingly establish fraud:

Dr. Wilkinson's conviction under section 7203; petitioners'

understatement of income; petitioners' failure to make estimated

tax payments; petitioners' failure to file tax returns; and

petitioners' failure to cooperate with tax authorities.

     First, respondent argues that Dr. Wilkinson's conviction for

violating section 7203 is evidence of fraud.    Citing Castillo v.

Commissioner, supra at 409-410, respondent also argues that

Dr. Wilkinson is collaterally estopped from denying that he

willfully failed to file his 1988 return.    It is well settled

that a taxpayer's conviction under section 7203 for a given year

conclusively establishes the willfulness of that taxpayer's

failure to file returns.   Id.    However, willful failure to file,

even over an extended period of time, does not conclusively

establish the fraudulent intent required under sections 6653(b)

and 6651(f).   Grosshandler v. Commissioner, 75    T.C. 1, 19

(1980); see also Sarcone v. Commissioner, T.C. Memo. 1985-548.

An intent to evade taxes is not an element of section 7203; that

section may be violated by the willful failure to pay a tax, file

a return, maintain records, or supply information.    Although

Dr. Wilkinson's conviction under section 7203 collaterally estops

him from denying that he willfully failed to file his 1988

return, it does not bar him from arguing that his failure was
                                - 14 -

without fraudulent intent.   The conviction under section 7203

only provides some evidence of fraud as to the 1988 tax year.       It

does not conclusively establish fraud for that year.

Furthermore, Dr. Wilkinson's conviction for the 1988 return does

not establish fraud as to the 1989 return.

     Second, respondent argues that petitioners' understatement

of income is evidence of fraud.     Respondent points to the fact

that petitioners failed to report in a timely manner Schedule C

gross income for 1988 and 1989 in the amounts of $708,220 and

$792,444, respectively.   We do not find this fact dispositive.

Petitioners did file their tax returns, even if they did so

delinquently.   Except for the capital loss carryover, respondent

made no adjustments to the amounts reported on those returns.

Petitioners also did not attempt to conceal assets.     They did not

earn any income from illegal activities, and they did not have

substantial dealings in cash.    These facts weaken respondent's

argument as to this indicium of fraud.

     Third, respondent argues that petitioners' failure to pay

estimated taxes equal to their 1988 and 1989 tax liabilities is

evidence of fraud.   We disagree.    Under the facts herein, we do

not give much weight to the fact that petitioners failed to make

timely estimated tax payments equal to their tax liabilities.       As

a point of fact, petitioners made estimated tax payments for 1988

and 1989 totaling $5,000 and $8,000, respectively.     It is also

relevant that petitioners reported (but failed to pay) a balance
                              - 15 -

due of $40,000 on their 1989 Form 4868, Application for Automatic

Extension of Time to File U.S. Individual Income Tax Returns.

The Court questions why petitioners would have reported a $40,000

tax liability if it was indeed their intent to evade taxes.

     Fourth, respondent argues that petitioners' failure to file

timely returns, combined with their knowledge of a duty to file,

is evidence of fraud.   In essence, respondent argues that

petitioners originally failed to file their 1988 and 1989 tax

returns with fraudulent intent, and that the subsequent

delinquent filing was made only after petitioners became aware of

respondent's investigation.   Respondent cites Blackwell v.

Commissioner, T.C. Memo. 1965-252, and Niedringhaus v.

Commissioner, supra at 213, for the proposition that the later

filing of delinquent returns does not absolve a taxpayer of his

antecedent fraud.   In Niedringhaus, fraudulent intent was found

where the taxpayers filed their delinquent returns only after

notification of pending civil and criminal investigations.

     Although it is true that petitioners failed to file timely

tax returns, this action is consistent with petitioners' prior

actions.   Petitioners have historically filed delinquent returns,

opting to satisfy their tax liability with payments that include

interest, additions to tax, and/or penalties.    It is also

important that the record shows no affirmative acts of

concealment, such as filing false information.    See Zell v.
                                - 16 -

Commissioner, 763 F.2d 1139, 1146 (10th Cir. 1985), affg. T.C.

Memo. 1984-152.

     And finally, respondent argues that petitioners' failure to

cooperate with tax authorities is evidence of fraud.    We

disagree.   Although there is some evidence that Dr. Wilkinson was

not fully accurate in responding to questions posed by

respondent's agent, we do not find that these inaccuracies were

the product of an intent to conceal income from respondent or

otherwise evade income taxes.

     We hold that respondent has failed to prove by clear and

convincing evidence that petitioners fraudulently failed to file

their 1988 and 1989 tax returns by intending to "conceal,

mislead, or otherwise prevent the collection of the tax."    See

Stoltzfus v. United States, 398 F.2d at 1004; Webb v.

Commissioner, 394 F.2d at 377.    We hold for petitioners on this

issue.

D.   Failure To File Timely Under Section 6651(a)

     Respondent asserts in the alternative that petitioners are

liable for the section 6651(a)(1) addition to tax for their

failure to file timely 1988 and 1989 Federal income tax returns.

Pursuant to section 6651(a)(1), where a taxpayer fails to file a

tax return on the date prescribed for filing (including any

extension of time for filing), there shall be added to the tax

required to be shown on the return an amount equal to 5 percent

of that tax for each month or fraction thereof that the failure
                                - 17 -

to file continues, not exceeding 25 percent in the aggregate.

The addition to tax is mandatory unless it is shown "that such

failure is due to reasonable cause and not due to willful

neglect".   Sec. 6651(a)(1).

     To establish reasonable cause, the taxpayer must demonstrate

that he or she exercised ordinary business care and prudence and

was nonetheless unable to file a return on time.     Sec. 301.6651-

1(c)(1), Proced & Admin. Regs.; see Spencer v. Commissioner, T.C.

Memo. 1994-531.     A finding of reasonable cause negates willful

neglect, which has been interpreted to mean a conscious,

intentional failure or reckless indifference.     United States v.

Boyle, 469 U.S. 241, 245 (1985).     Whether "reasonable cause" and

lack of "willful neglect" exist is a question of fact, and the

burden of establishing these facts is on the taxpayer.     Rule

142(a).

     Dr. Wilkinson contends that his "underlying emotional

disturbance" constitutes reasonable cause and negates a finding

of "willful neglect".3    At trial, Dr. Wilkinson presented

evidence that during the relevant time period he suffered, and

continues to suffer, from chronic dysphoria, a mild form of

depression, and a


     3
        We focus on Dr. Wilkinson's "reasonable cause" argument
as to 1989. Petitioners are collaterally estopped from denying
that Dr. Wilkinson willfully failed to file a return for 1988
because of Dr. Wilkinson's conviction under sec. 7203 for 1988.
Castillo v. Commissioner, 84 T.C. 405, 409 (1985).
                               - 18 -

     Non-Specific Personality Disorder encompassing elements
     of Avoidant, Dependant and Obsessive Compulsive
     Personality Disorders * * * resulting in [his]
     recurrent victimization at [the hands of others], low
     self-esteem, social and financial naivete,
     perfectionism and rigidity.

     Incapacity on the part of a taxpayer due to mental or

physical illness can establish reasonable cause for failure to

file timely returns.    United States v. Boyle, supra at 248 n.6;

Williams v. Commissioner, 16 T.C. 893, 906 (1951).      However, a

mental or emotional disorder does not excuse a failure to file

timely returns unless it is shown that the disorder rendered the

taxpayer incapable of exercising ordinary business care and

prudence during the period in which the failure to file

continued.   Bear v. Commissioner, T.C. Memo. 1992-690, affd.

without published opinion 19 F.3d 26 (9th Cir. 1994); Conley v.

Commissioner, T.C. Memo. 1992-215.      Moreover, a taxpayer's

selective inability to meet his or her tax obligations when he or

she can carry on normal activities does not excuse a late filing.

See Estate of McClanahan v. Commissioner, 95 T.C. 98, 101-102

(1990).

     We are not convinced that Dr. Wilkinson's psychological

state during the relevant time provided reasonable cause for his

untimely filings.   Dr. Wilkinson headed up a thriving medical

practice throughout 1989.    Despite his alleged depression,

Dr. Wilkinson continued to attend to patients and perform various

medical procedures.    From 1985 to 1989, Dr. Wilkinson employed
                               - 19 -

the accounting firm of Thompson & Co. to prepare, among other

things, his Federal income tax returns.    In 1989, Dr. Wilkinson

dismissed Thompson & Co. from their accounting duties and hired

Frumkin & Lukin to provide accounting services to his medical

practice and to prepare tax returns for the years in issue.

These actions demonstrate Dr. Wilkinson's ability to function in

his chosen profession, his business acumen, and his ability to

exercise ordinary business care and prudence.    Moreover,

petitioners' history of filing untimely returns establishes a

pattern of behavior seemingly unrelated to Dr. Wilkinson's

claimed mental illness.

       We conclude that petitioners are liable for the section

6651(a)(1) addition to tax for 1988 and 1989.    Petitioners failed

to file timely tax returns for 1988 and 1989 and have failed to

carry their burden of proof on the issues of reasonable cause and

willful neglect for those years.

E.   Failure To Pay Estimated Taxes Under Section 6654

       Respondent determined additions to petitioners' 1988 and

1989 taxes under section 6654 for underpayment of estimated

Federal income tax.    An addition to tax under section 6654 is

mandatory absent the application of one of the exceptions

contained in that section.    Recklitis v. Commissioner, 91 T.C. at

913.    We find that none of the exceptions apply; thus, we hold

against petitioners on this issue.

F.   Innocent Spouse Relief
                              - 20 -

     Because the Court finds petitioners liable for the $29

deficiency and the additions to tax under sections 6651(a)(1) and

6654, we must address Mrs. Wilkinson's argument that she is an

innocent spouse under section 6013(e).   Mrs. Wilkinson claims

that she neither knew nor had reason to know of the unreported

income or the untimeliness of the returns.

     Spouses are generally jointly and severally liable for the

tax due on a joint Federal income tax return.4   Sec. 6013(d)(3);

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;

Hayman v. Commissioner, 992 F.2d 1256, 1259 (2d Cir. 1993), affg.

T.C. Memo. 1992-228.   This is so "regardless of the source of the

income or of the fact that one spouse may be far less informed

about the contents of the return than the other".   Murphy v.

Commissioner, 103 T.C. 111, 117 (1994); Sonnenborn v.

Commissioner, 57 T.C. 373, 381 (1971).

     A spouse may obtain limited relief from joint and several

liability pursuant to section 6013(e).   The "innocent spouse"

provision of section 6013(e) relieves a spouse of joint Federal

income tax liability if each of the following four requirements

is met:   (1) A joint Federal income tax return was filed by the


     4
        As a threshold argument, Mrs. Wilkinson claims that she
cannot be held liable for the additions to tax because she did
not have any independent income for the years in issue and had no
duty to file a Federal income tax return. We disagree. It is
undisputed that joint returns were filed for the years in issue.
                               - 21 -

spouses; (2) there is a substantial tax understatement

attributable to grossly erroneous items of the other spouse;

(3) in signing the return, the claimed "innocent spouse" did not

know, and had no reason to know, of the substantial tax

understatement; and (4) taking into account all the facts and

circumstances, it would be inequitable to hold the claimed

"innocent spouse" liable for the deficiency attributable to the

tax understatements.    Sec. 6013(e)(1).   Mrs. Wilkinson bears the

burden of proving that each of these requirements is satisfied,

and her failure to satisfy any one of these requirements

precludes "innocent spouse" relief.     Rule 142(a); Friedman v.

Commissioner, supra at 529; Bliss v. Commissioner, 59 F.3d 374,

378 (2d Cir. 1995), affg. T.C. Memo. 1993-390.

     In this case we focus on the second prong of the analysis.

In order for a taxpayer to qualify as an innocent spouse, there

must be a substantial tax understatement which is attributable to

grossly erroneous items of the other spouse.    "Substantial

understatement" is defined as "any understatement (as defined in

section 6662(d)(2)(A)) which exceeds $500."    Sec. 6013(e)(3).

Referencing section 6662(d)(2)(A), "understatement" is defined as

"the amount of the tax required to be shown on the return for the

taxable year, over * * * the amount of the tax imposed which is

shown on the return".    As a threshold matter, the innocent spouse

defense is not available to Mrs. Wilkinson because there is no

substantial tax understatement for either 1988 or 1989.    There
                                - 22 -

was no deficiency for 1988, and the 1989 deficiency was a mere

$29.    To meet the aforementioned definition, the understatement

must exceed $500, and it does not.

       We find that Mrs. Wilkinson is jointly and severally liable

for the deficiency and for the additions to tax pursuant to

sections 6651(a)(1) and 6654.

       We have considered all arguments made by the parties for

holdings contrary to those set forth above, and, to the extent

not discussed above, find them to be unpersuasive, irrelevant, or

without merit.

       To reflect the foregoing,

                                          Decision will be

                                     entered for respondent in the

                                     amount of the deficiency and

                                     the additions to tax under

                                     sections 6651(a) and 6654.
