                        T.C. Memo. 2011-235



                      UNITED STATES TAX COURT



               MICHELLE S. TORRISI, Petitioner v.
          COMMISSIONER OF INTERNAL REVENUE, Respondent



     Docket No. 6039-09.              Filed September 29, 2011.



     Sara G. Neill and David V. Capes, for petitioner.

     Steven W. LaBounty, for respondent.



             MEMORANDUM FINDINGS OF FACT AND OPINION


     MARVEL, Judge:   Pursuant to section 6015, petitioner seeks

review of respondent’s determination to deny relief from joint

and several liability for unpaid Federal income taxes for 1997-

2000 under section 6015(f).1   Petitioner timely petitioned this


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

Court.   The sole issue for decision is whether petitioner is

entitled to relief under section 6015(f).

                         FINDINGS OF FACT

     Some of the facts have been stipulated.    The stipulations of

facts are incorporated herein by this reference.    Petitioner

resided in Missouri when she filed her petition.

I.   Petitioner’s Family Life

     Petitioner is a high school graduate who took some college

courses but did not graduate from college.    In 1981 petitioner

married Mark Anthony Torrisi (Mr. Torrisi).    Mr. Torrisi adopted

petitioner’s daughter, HT, and petitioner and Mr. Torrisi had

another daughter, ST.   In the early years of marriage petitioner

did not work outside the home, but later she worked part time.

From the 1990s Mr. Torrisi and petitioner resided at 432

Briarwyck Drive, Creve Coeur, Missouri (Briarwyck address or

Briarwyck home).2

     In 1990 Mr. Torrisi began to sell insurance policies for

State Farm.   Mr. Torrisi became interested in selling insurance

policies through petitioner’s father, who was a State Farm agent.

Around the mid-1990s petitioner’s father transferred part of his


     1
      (...continued)
references are to the Tax Court Rules of Practice and Procedure.
     2
      The parties stipulated that petitioner and Mr. Torrisi
resided at 432 Briarwyck Drive, Creve Coeur, Missouri. The
record also reflects the address as 432 Briarwyck, Ballwin,
Missouri.
                                - 3 -

State Farm business to Mr. Torrisi.     On a date that does not

appear in the record, petitioner’s father retired, and his

clients’ policies were gradually transferred to Mr. Torrisi, who

had moved into petitioner’s father’s office.

     Around the mid-1990s petitioner noticed a change in Mr.

Torrisi’s behavior.    Mr. Torrisi became easily agitated.

Petitioner described Mr. Torrisi as controlling, manipulative,

and verbally and physically abusive.     He screamed at petitioner,

grabbed her, and scared her.    On one occasion Mr. Torrisi threw

her out a door.

     About the same time that Mr. Torrisi’s behavior changed,

petitioner discovered that HT, who was 14 or 15 at the time, was

using illegal drugs.    HT’s illegal drug use later developed into

a more serious addiction.

     In 1994 petitioner began to suffer from depression and

anxiety.   From the end of 1995 through 2000 petitioner saw a

psychiatrist and a counselor.    At some point before October 2000

she also started seeing Dr. Lipshitz, a psychologist.     Around

1996 or 1997 petitioner started taking the antidepressant

Wellbutrin.

     In 1996 petitioner moved out of the Briarwyck home and

started renting an apartment because she “couldn’t stay [in the

Briarwyck home] any longer”.    ST moved with petitioner.
                                - 4 -

Petitioner never returned to the marital home, which Mr. Torrisi

continued to occupy.

     After the separation, Mr. Torrisi provided petitioner and ST

with financial support of $1,600 to $2,000 per month, and

petitioner and Mr. Torrisi maintained separate bank accounts.

Petitioner had no access to Mr. Torrisi’s accounts.

     Despite these developments, during the period 1997-2000

petitioner worked in Mr. Torrisi’s office between 5 and 15 hours

weekly.   She answered phone calls, answered clients’ questions,

and took claims.   However, petitioner had no authority to make

decisions.   Mr. Torrisi maintained a business checking account,

but petitioner had no access to the account, bank statements, or

business ledgers, nor did she know about gross receipts of Mr.

Torrisi’s insurance business.   Mr. Torrisi paid petitioner a

salary from which he withheld Federal income tax, and he issued

her Forms W-2, Wage and Tax Statement.

     From 1997 through September 2000 petitioner regularly

assisted Mr. Torrisi in paying bills, although Mr. Torrisi paid

some bills himself.    When they paid bills together, Mr. Torrisi

handed petitioner a blank check and told her to whom she had to

write it and in what amount.    Petitioner filled in the check as

instructed and handed it back to him.    Mr. Torrisi then posted

the payment to a ledger, which petitioner could not access.
                                 - 5 -

     In November 1997 Mr. Torrisi found out he had a brain

abscess, and he had it removed.    During his recovery from the

brain surgery Mr. Torrisi did not work for approximately 3 or 4

months.    He asked petitioner to work in the office during his

absence.    Petitioner spent more time in the office than usual,

working up to 20 hours weekly.    Because Mr. Torrisi also had two

secretaries who were licensed to sell insurance and had been in

the insurance industry for a long time, the office functioned

well in his absence.

     Besides working for Mr. Torrisi part time, at various times

during the years at issue petitioner worked part time in a sales

position and as a florist.    The sales and florist jobs paid

minimum wage, and the employers issued petitioner Forms W-2.      In

2000, in addition to working for Mr. Torrisi and at the florist’s

shop, petitioner also worked for May Department Stores Co.

selling cosmetics.    In 2001 petitioner’s only employment was with

May Department Stores Co.

     In June 1998 Mr. Torrisi started to experience seizures.

However, as long as he took his medication, the doctors were

generally able to control the seizures.    Nevertheless, Mr.

Torrisi was taken to the hospital several times for 5 to 7 days

each time.    State Farm required Mr. Torrisi to undergo a series

of tests to determine the extent of his inability to continue his
                                - 6 -

work.    State Farm offered him disability retirement, but he

refused it.

     During the summer of 2000 State Farm again required Mr.

Torrisi to undergo testing and thereafter required him to retire

on disability because of his inability to recall items and his

short-term memory loss.    On September 30, 2000, Mr. Torrisi

retired.    On a date that does not appear in the record, Mr.

Torrisi received termination pay3 from State Farm.4

     Petitioner’s depression and anxiety persisted.    In 2000

petitioner started seeing Dr. Rolando Larice (Dr. Larice), a

psychiatrist.    Petitioner continued to see Dr. Larice and was

still taking medications for depression and anxiety as of the

date of trial.

     On a date in 2000 that does not appear in the record but

which we infer was sometime after August 19, 2000, Mr. Torrisi

approached petitioner about signing a home equity loan.    At this

time petitioner first learned that she and Mr. Torrisi still owed

taxes for 1997-99.    Mr. Torrisi had all the paperwork prepared




     3
      Termination pay is the payment from State Farm to buy back
Mr. Torrisi’s business.
     4
      Petitioner and Mr. Torrisi reported a State Farm disability
payment of $43,661 on their joint return for 2002. The record
does not disclose whether the disability payment reported on the
2002 return was a part of or all of the termination pay mentioned
above.
                                 - 7 -

and asked petitioner to sign the papers, which she did.5     Mr.

Torrisi told petitioner that the loan proceeds would be

sufficient to pay their bills.

      On September 16, 2006, Mr. Torrisi died.     Petitioner was the

beneficiary of Mr. Torrisi’s life insurance, and in 2006 she

received $600,000 in proceeds.

II.   Procedural History

      After their separation, Mr. Torrisi insisted that he and

petitioner file joint Federal income tax returns, which were

prepared by a paid return preparer.      Petitioner did not gather

the information for the return preparer.      She did not recall ever

reviewing the returns before signing them; Mr. Torrisi usually

just told petitioner to sign the returns.

      Petitioner and Mr. Torrisi requested an extension of time to

file their 1997 return and made a $15,000 payment with the

request.   They filed the 1997 return untimely in October 1999.

Petitioner signed the return but did not date it.      The 1997

return showed a balance due of $45,762, and petitioner knew about

it.   A payment voucher was attached to the return.     Mr. Torrisi

told petitioner to write a check to the Internal Revenue Service

(IRS) for $2,000, and she did so on October 15, 1999.




      5
      The record does not contain any documentation with respect
to the home equity loan, including any documentation that the
loan actually closed.
                               - 8 -

     On January 12, 2000, petitioner and Mr. Torrisi untimely

filed their joint 1998 return, which petitioner signed.    The

return showed a balance due of $44,296, which Mr. Torrisi and

petitioner did not pay when they filed the return.

     On August 19, 2000, Mr. Torrisi and petitioner timely filed

their 1999 return pursuant to an extension.   On the 1999 return

they reported a balance due of $32,633, but they did not pay the

balance when they filed the return.    Petitioner signed the return

but did not date it.

     On January 18, 2001, Mr. Torrisi and petitioner signed a

Form 656, Offer in Compromise, with respect to their 1997-99

Federal income tax liabilities.   In item 6 of the Form 656 they

checked “Doubt as to Collectibility” as the ground for the offer-

in-compromise and offered to pay $37,000.   In Item 9, Explanation

of Circumstances, they explained the circumstances of HT’s drug

treatment and family counseling, which were not covered by

insurance.   They also described Mr. Torrisi’s seizures:

     With a number of trips to the Emergency room as a
     result of the seizures. [sic] State Farm asked that
     taxpayer undergo a series of tests to determine the
     extent of (if any) his inability to continue his
     profession. It was recommended that he take disability
     which he refused. During the Summer of 2000, State
     Farm again tested taxpayer and this time required him
     to retire on disability due to his lack of being able
     to recall items, short term memory loss. Retired on
     9/30/00.
                                - 9 -

     On or around June 12, 2002, Mr. Torrisi and petitioner

retained Michael St. John (Mr. St. John) to represent them with

respect to the 1997-2002 Federal income tax liabilities.

     On or around June 10, 2002, petitioner signed but did not

date the 2000 return, which showed a balance due of $29,459.

When she signed the 2000 return, she knew there was a balance due

for the 3 prior years.    However, Mr. Torrisi assured her he had

adequate income and that the Federal income tax liabilities would

be paid.

     The unpaid Federal income tax liabilities for the years at

issue are as follows:

     Year      Amount           Penalties1          Interest1

     1997    $30,333.64     to be determined    to be determined
     1998     30,890.00     to be determined    to be determined
     1999     30,407.00        $9,077.75           $30,255.36
     2000     17,961.00         8,985.22            17,491.82
     1
      The parties stipulated that interest and penalties for 1997
and 1998 could not be computed at the time of the stipulation
because of respondent’s inadvertent failure to place a “freeze
code” on those years upon the expiration of the period of
limitation on collection. Petitioner’s filing of the request for
sec. 6015 relief tolled the period of limitation. See sec.
6015(e)(2).
                              - 10 -

     On August 1, 2002, petitioner filed her separate 2001 return

reporting an overpayment.6   On the 2001 return she used the

Briarwyck address as her home address.

     On June 17, 2003, respondent issued two Letters 1058, Notice

of Intent to Levy and Notice of Your Right to a Hearing (notices

of intent to levy), one to Mr. Torrisi and one to petitioner.7

The notices of intent to levy pertained to the 1997-2000 Federal

income tax liabilities.   Respondent mailed both notices of intent

to levy to the Briarwyck address in separate envelopes by

certified mail.   On June 18, 2003, someone signed for one of the

notices of intent to levy, and the U.S. Postal Service (USPS)

returned the other notice of intent to levy to respondent.     The

transcripts of petitioner’s tax accounts for 1997-2000 show that

one notice of intent to levy was delivered and the other one was

returned “refused or unclaimed”.   Those transcripts do not

explain which of the two notices was returned.8   Respondent’s

revenue officer assigned to the case did not attempt to redeliver


     6
      Petitioner attempted to file her 2001 return electronically
using the name of Michelle S. Torrisi. The return was rejected
for processing because the Social Security number on the return
did not match respondent’s records. Petitioner then filed her
return using the name of Michelle S. Johnson, and that return was
accepted for processing.
     7
      For a husband and wife, the Commissioner mails a Letter
1058, Notice of Intent to Levy and Notice of Your Right to a
Hearing, and the enclosures to each spouse in a separate
envelope.
     8
      Because of the passage of time, respondent’s electronic
case records and paper files are no longer available.
                               - 11 -

the notice of intent to levy that the USPS had returned to

respondent.    Petitioner’s position is that she did not receive a

notice of intent to levy dated June 17, 2003.

     Petitioner and Mr. Torrisi timely filed their 2002-05 joint

returns pursuant to extensions.9   Petitioner timely filed her

2006 return.10   Petitioner filed her 2007 individual return late,

although the tax liability shown thereon was timely paid.

Petitioner timely filed her 2008 return pursuant to an extension.

     On January 31, 2008, respondent sent a notice of Federal tax

lien (NFTL) with respect to 1997-2000 and 2003 addressed to Mr.

Torrisi and petitioner.   On February 4, 2008, respondent mailed a

Letter 1058, Notice of Intent to Levy and Notice of Your Right to

a Hearing, with respect to Mr. Torrisi’s 2001 Federal income tax

liability.    The notice of intent to levy dated February 4, 2008,

was addressed to “MARK A TORRISI DECD MICHELLE TORRISI”.    On

February 13, 2008, respondent mailed an NFTL with respect to

1997-2000 and 2003.   Respondent addressed it to Mr. Torrisi and

petitioner.   On March 5, 2008, respondent mailed a Form 8519,

Taxpayer’s Copy of Notice of Levy, with respect to 1997-2000.    It

was addressed to “MARK A DECD & MICHELLE TORRISI”.




     9
      The account transcripts in the record show zero balances
for each of these years.
     10
      Petitioner marked the 2006 return as joint, stating that
Mr. Torrisi was deceased.
                               - 12 -

     On or about September 3, 2008, petitioner filed a Form 8857,

Request for Innocent Spouse Relief, with respect to 1997-2000.

On September 22, 2008, respondent issued a preliminary

determination denying petitioner’s request for relief under

section 6015.   On October 16, 2008, petitioner completed and

signed a Form 12509, Statement of Disagreement.    On January 29,

2009, the Appeals Office issued a final Appeals determination

(final determination).   Respondent denied petitioner’s request

for relief under section 6015(b), (c), and (f) on the ground that

petitioner did not file her request within 2 years from the date

respondent initiated collection activity against her.

III. Petitioner’s Financial Circumstances as of the Trial Date

     After receiving life insurance policy proceeds of $600,000

as a result of Mr. Torrisi’s death, petitioner spent

approximately $75,000 to repair the Briarwyck home because it was

in poor shape and needed considerable work before it could be

sold.   In addition petitioner made monthly mortgage payments of

$1,800 on the Briarwyck home and paid utility bills.    At the end

of 2007 petitioner sold the Briarwyck home at a profit of

$25,000.    Petitioner deposited the money in an account with Mr.

St. John for use in paying the IRS.     Petitioner also paid $15,000

of ST’s college tuition and room and board.    Petitioner did not

make a lump-sum payment to the IRS using the life insurance

proceeds.
                               - 13 -

     Since 2007 petitioner’s expenses have exceeded her income,

and petitioner has used the remaining life insurance proceeds for

her and HT’s living expenses.11   Petitioner does not own a home.

She owns two vehicles (with no loan with respect to either

vehicle) with the combined value between $4,000 and $5,000.    HT,

who at the time of trial was 30 years old, lives with petitioner,

and petitioner continues to support her.    Petitioner has paid all

of HT’s expenses, including expenses for methadone treatment,12

food, clothes, and medical and dental care.   HT has seizures and

needs psychiatric treatment.   After she had seizures at her last

place of work, HT’s former employer told her they would not

rehire her for liability reasons.

     Petitioner invested the remaining life insurance proceeds

and lost approximately $130,000 in investment value because of

the market decline.   As of the date of trial petitioner had

investments valued at approximately $175,000 that were acquired

with the insurance proceeds.

     As of the time of trial petitioner had been employed by

Nordstrom for 9 months selling cosmetics.   She is paid $15 per

hour, receives no benefits, and works 33 or more hours per week.



     11
      Legal expenses constituted a large portion of petitioner’s
expenses. They totaled $11,800 in 2009 and at least $30,000 in
2010.
     12
      As of the time of trial HT no longer received methadone
treatment.
                              - 14 -

Income from the investments and the investment principal

supplement the wages she receives at Nordstrom.

IV.   Notice 2011-70, 2011-32 I.R.B. 135

      As discussed above, respondent denied petitioner’s request

for section 6015(f) relief as untimely because she filed it on

September 3, 2008, which was more than 2 years after June 17,

2003, when respondent mailed the notices of intent to levy.

Respondent relied on section 1.6015-5(b)(1), Income Tax Regs.,

which required a requesting spouse to file a request for relief

no later than 2 years from the date of the first collection

activity.

      After the parties filed posttrial briefs, the IRS issued

Notice 2011-70, 2011-32 I.R.B. 135 (notice), expanding the period

within which individuals may request equitable relief from joint

and several liability under section 6015(f).   According to the

notice, the IRS will consider requests for equitable relief under

section 6015(f) if the period of limitation on collection of

taxes under section 6502 remains open for the years at issue.13

In the notice the IRS states that the Department of Treasury and


      13
      Subject to a number of exceptions, see, e.g., sec.
6501(c), (e), sec. 6501(a) provides that the amount of any tax
shall be assessed within 3 years after the return was filed.
Once the IRS makes a timely assessment, sec. 6502 restricts the
time for collection by levy or by a judicial proceeding. The
levy must be made or the judicial proceeding must be commenced
within 10 years after the assessment or before the expiration of
any period for collection agreed to in writing by the parties.
In limited circumstances the IRS can obtain an extension of the
period for collection. See sec. 6502(a)(2).
                              - 15 -

the IRS concluded that the regulations under section 6015 should

be revised and that requesting spouses would no longer be

required to submit a request under section 6015(f) within 2 years

of the first collection activity.   The notice provides for

transitional rules, stating in relevant part:   “In any case in

litigation in which the IRS denied a request for equitable relief

under section 6015(f) as untimely, the IRS or the United States

will take appropriate action in the case as to the timeliness

issue consistent with the position announced in this notice.”

The notice is effective on July 25, 2011.

     After the IRS issued the notice, the parties filed with the

Court a supplemental stipulation of facts.   The parties

stipulated that respondent received petitioner’s Form 8857 before

the expiration of the period of limitation on collection of taxes

under section 6502.   On the basis of the guidelines in the

notice, the parties now agree that petitioner’s request for

equitable relief from joint and several liability under section

6015(f) was timely.

                              OPINION

I.   Section 6015

     In general, married taxpayers who file a joint Federal

income tax return are jointly and severally liable for the tax

reported or reportable on the return.   Sec. 6013(d)(3).   Section

6015 allows a spouse to obtain relief from joint and several
                                - 16 -

liability in certain circumstances.      Section 6015(a)(1) provides

that a spouse who has made a joint return may elect to seek

relief from joint and several liability under section 6015(b)

(dealing with relief from liability for an understatement of tax

with respect to a joint return).    Section 6015(a)(2) provides

that an eligible spouse may elect to limit that spouse’s

liability for any deficiency with respect to a joint return under

section 6015(c) (dealing with relief from joint and several

liability for taxpayers who are no longer married or who are

legally separated or no longer living together).     If a taxpayer

does not qualify for relief under either section 6015(b) or (c),

the taxpayer may seek equitable relief under section 6015(f).

Under section 6015(f), the Secretary14 has discretion to grant

equitable relief to a spouse who filed a joint return with an

unpaid liability or to one who has a deficiency (or any portion).

See also sec. 1.6015-4(a), Income Tax Regs.

      The parties agree that petitioner is not entitled to relief

under section 6015(b) or (c).    Petitioner contends she is

entitled to relief from joint and several liability under section

6015(f).

II.   Jurisdiction

      The Tax Court is a court of limited jurisdiction, and we may

exercise our jurisdiction only to the extent authorized by


      14
      The term “Secretary” means the Secretary of the Treasury
or his delegate. Sec. 7701(a)(11)(B).
                                 - 17 -

Congress.    See sec. 7442.   We have jurisdiction to determine

whether petitioner qualifies for section 6015(f) relief.     See

sec. 6015(e); see also Kollar v. Commissioner, 131 T.C. 191, 196

(2008).

III. The Standard and Scope of Review

      In Porter v. Commissioner, 132 T.C. 203, 210 (2009), we held

that in determining whether the taxpayer is entitled to equitable

relief under section 6015(f), we apply a de novo standard of

review and a de novo scope of review.15    Petitioner bears the

burden of proving that she is entitled to relief under section

6015(f).    See Porter v. Commissioner, supra at 210; see also Rule

142(a).

IV.   The Effect of the Notice

      As discussed supra pp. 14-15, in the final determination

respondent denied petitioner’s request on the ground of

untimeliness.    Before the issuance of the notice the parties

disagreed whether the June 17, 2003, notice of intent to levy

triggered the 2-year period for filing a request for relief from

joint and several liability because petitioner’s position was

that she never received it.     In addition, petitioner contended

that if the 2-year period had started to run, section 1.6015-

5(b)(1), Income Tax Regs., which establishes the 2-year deadline,



      15
      On brief respondent disagrees with Porter v. Commissioner,
132 T.C. 203 (2009), and contends that the proper standard of
review is abuse of discretion. We decline to revisit Porter.
                               - 18 -

was an invalid construction of section 6015.16     In the light of

the notice, the parties stipulated that petitioner’s request for

relief was timely.

     Although respondent denied petitioner’s request for section

6015(f) relief solely on the ground of untimeliness, neither

party argues that the stipulation that petitioner’s request for

relief under section 6015(f) was timely entitles petitioner to a

decision in her favor.    Rather, the parties appear to recognize

that we must still decide whether petitioner is entitled to

section 6015(f) relief.   We agree.     Despite respondent’s

concession of the timeliness issue, the parties’ dispute is far

from being resolved.   The workpaper prepared by an IRS employee

dated July 17, 2009, contained in the record shows that

respondent reviewed petitioner’s request using the factors set

out in Rev. Proc. 2003-61, 2003-2 C.B. 296, and concluded,

without stating so in the final notice, that she was not entitled

to relief from joint and several liability under section 6015(f).


     16
      In Lantz v. Commissioner, 132 T.C. 131 (2009), revd. 607
F.3d 479 (7th Cir. 2010), we held that the 2-year deadline
imposed by sec. 1.6015-5(b)(1), Income Tax Regs., is an invalid
interpretation of sec. 6015(f). See Pullins v. Commissioner, 136
T.C. ___, ___ (2011) (slip op. at 15); Hall v. Commissioner, 135
T.C. 374 (2010), on appeal (6th Cir., Dec. 7, 2010); Mannella v.
Commissioner, 132 T.C. 196, 202 (2009), revd. on other grounds
631 F.3d 115 (3d Cir. 2011). The U.S. Courts of Appeals for the
Seventh and Third Circuits have reversed Lantz and Mannella. See
Mannella v. Commissioner, 631 F.3d 115 (3d Cir. 2011); Lantz v.
Commissioner, 607 F.3d 479 (7th Cir. 2010). The U.S. Court of
Appeals for the Fourth Circuit also upheld the validity of sec.
1.6015-5(b)(1), Income Tax Regs. See Jones v. Commissioner, 642
F.3d 459 (4th Cir. 2011).
                             - 19 -

At trial and on brief the parties addressed the merits of

petitioner’s request, citing evidence related to petitioner’s

knowledge of the unpaid Federal income tax liabilities, economic

hardship, mental and physical health, and spousal abuse.    In

addition, the parties stipulated that “Respondent does not waive

or confess error with respect to any other grounds for the denial

of petitioner’s request for equitable relief under I.R.C.

§ 6015(f) for underpayments of her income taxes for 1997, 1998,

1999 and 2000.”

     Section 6015(e) provides that in the case of an individual

who requests equitable relief under section 6015(f), “In addition

to any other remedy provided by law, the individual may petition

the Tax Court (and the Tax Court shall have jurisdiction) to

determine the appropriate relief available to the individual”.

Relying on section 6015(e) and in particular the word “determine”

contained therein, we held in Porter v. Commissioner, supra at

208-210, that in determining whether the taxpayer is entitled to

equitable relief under section 6015(f), we apply a de novo

standard of review and a de novo scope of review.   A de novo

standard of review means that the reviewing court must make an

“‘independent determination of the issues.’” 3 Childress & Davis,

Federal Standards of Review, sec. 15.02, at 15-3 to 15-5 (4th ed.

2010) (quoting United States v. First City Natl. Bank, 386 U.S.
                                - 20 -

361, 368 (1967)).    Accordingly, we shall consider petitioner’s

request for relief under section 6015(f) on the merits.

V.     Rev. Proc. 2003-61

       The Commissioner analyzes requests for section 6015(f)

relief filed on or after November 1, 2003, using procedures set

forth in Rev. Proc. 2003-61, supra.      See Porter v. Commissioner,

supra at 210.    We consider all relevant facts and circumstances

in determining whether the taxpayer is entitled to relief.        Id.

We determine whether requirements set forth in Rev. Proc. 2003-

61, supra, were satisfied in deciding whether a taxpayer

qualifies for section 6015(f) relief.     See, e.g., Pugsley v.

Commissioner, T.C. Memo. 2010-255; O’Meara v. Commissioner, T.C.

Memo. 2009-71.

       A.   Rev. Proc. 2003-61, Sec. 4.01:   The Threshold
            Requirements

       The Commissioner generally will not grant relief unless the

taxpayer meets seven threshold requirements.      Rev. Proc. 2003-61,

sec. 4.01, 2003-2 C.B. at 297.     The seven threshold requirements

are:    (1) The requesting spouse filed a joint return for the

taxable year or years for which relief is sought; (2) the

requesting spouse does not qualify for relief under section

6015(b) or (c); (3) the requesting spouse applies for relief no

later than 2 years after the date of the Commissioner’s first

collection activity after July 22, 1998, with respect to the

requesting spouse; (4) no assets were transferred between the
                                - 21 -

spouses filing the joint returns as part of a fraudulent scheme

by such spouses; (5) the nonrequesting spouse did not transfer

disqualified assets to the requesting spouse; (6) the requesting

spouse did not file the returns with fraudulent intent; and (7)

the liability from which relief is sought is attributable to an

item of the nonrequesting spouse.     Rev. Proc. 2003-61, sec. 4.01.

     Before the issuance of the notice, the parties stipulated,

and respondent conceded on brief, that petitioner satisfied all

of the threshold conditions except for the timeliness of her

request, which was the third condition of Rev. Proc. 2003-61,

sec. 4.01.     Respondent now stipulates he no longer contests the

timeliness of petitioner’s request, and consequently petitioner

satisfied all threshold requirements for relief under section

6015(f).     We therefore consider whether petitioner is entitled to

section 6015(f) relief under Rev. Proc 2003-61, sec. 4.02 and

4.03.

     B.      Rev. Proc. 2003-61, Sec. 4.02:   The Safe Harbor
             Requirements

        If a requesting spouse fulfills the threshold requirements

of Rev. Proc. 2003-61, sec. 4.01, the Commissioner ordinarily

will grant relief from joint and several liability with respect

to underpayments on a joint Federal income tax return, provided

the following additional requirements are met:      (1) On the date

of the request for relief, the requesting spouse is no longer

married to, or is legally separated from, the nonrequesting
                               - 22 -

spouse; (2) on the date the requesting spouse signed the joint

return, the requesting spouse did not know, and had no reason to

know, that the nonrequesting spouse would not pay the tax

liability; and (3) the requesting spouse will suffer economic

hardship if the Commissioner does not grant relief.   Rev. Proc.

2003-61, sec. 4.02, 2003-2 C.B. at 298.   Respondent contends that

petitioner has not established that the second and third safe

harbor requirements are met.

          1.   Taxable Years 1997-99

               a.    The Knowledge or Reason To Know Requirement

     Respondent contends that petitioner has not established that

she had no knowledge or reason to know on the dates she signed

the returns that the underpayments reported on those returns

would not be paid.   As stated above, Rev. Proc. 2003-61, sec.

4.02(1)(b), provides that ordinarily, the Commissioner will grant

equitable relief under section 6015(f) with respect to

underpayments on joint returns if:

     On the date the requesting spouse signed the joint
     return, the requesting spouse had no knowledge or
     reason to know that the nonrequesting spouse would not
     pay the income tax liability. The requesting spouse
     must establish that it was reasonable for the
     requesting spouse to believe that the nonrequesting
     spouse would pay the reported income tax liability.
     * * *

     Petitioner and Mr. Torrisi filed their 1997 return more than

1 year late and their 1998 return 5 months late.   Mr. Torrisi

asked petitioner to write a check payable to the IRS for $2,000
                               - 23 -

although the 1997 return showed tax due of $45,762.   Petitioner

testified that when she signed the 1998 return, she did not know

that she and Mr. Torrisi still had a Federal income tax liability

for 1997.

     Because Mr. Torrisi and petitioner filed the 1997 and 1998

returns late, petitioner should have questioned whether Mr.

Torrisi would enclose payments with the returns.   This is

particularly true with respect to the 1997 Federal income tax

liability because Mr. Torrisi told petitioner to write a check in

an amount different from the amount shown on the 1997 return as

tax due.    However, petitioner credibly testified that she did not

assist Mr. Torrisi in paying all bills, and the record

establishes that Mr. Torrisi’s business was still generating

substantial income at this time.   We find it was reasonable for

her to believe that Mr. Torrisi would pay the remaining amounts

due for tax years 1997 and 1998.

     Respondent contends that petitioner knew that Mr. Torrisi

could not pay the taxes because of his medical condition and its

effect on his business.   The record is somewhat contradictory as

to the effect of Mr. Torrisi’s illness on the business.   For

example, petitioner attached to her request for section 6015

relief a document dated April 4, 2000, prepared by Mr. Torrisi.

Mr. Torrisi wrote that medication for controlling seizures left

him unable to concentrate and that his ability to perform as a
                                 - 24 -

productive agent continued to diminish.     Petitioner credibly

testified, however, when Mr. Torrisi was recovering from his

surgery in 1997, the business functioned as usual.     Petitioner

also credibly testified that during high school she worked with

her father answering phones and filing paperwork and that before

marrying Mr. Torrisi she worked at her father’s agency full time.

She observed then that her father’s insurance business earned

profit through commissions on insurance policies, and once a

policy was sold, it was easily renewed.     We find credible

petitioner’s testimony that in January 2000, when she signed the

1998 return, she believed the insurance business would continue

to do well because her father’s customers continued to transfer

to Mr. Torrisi.     This finding is further supported by the fact

that the business’ gross receipts did not disappear despite Mr.

Torrisi’s surgery and seizures, albeit gross profits gradually

declined.17

     We also conclude that when petitioner signed the 1999 return

on August 19, 2000, she had no reason to know that Mr. Torrisi

would not pay the 1999 Federal income tax liability.     Until his


     17
          Gross receipts of the insurance business were as follows:

                         Year       Gross Receipts

                         1997         $305,260
                         1998          282,777
                         1999          246,067
                         2000          201,289

Mr. Torrisi retired on Sept. 30, 2000.
                              - 25 -

retirement on September 30, 2000, Mr. Torrisi continued to run

the insurance business and to have the stream of income from the

business.   Petitioner did not know then that the Federal income

tax liabilities for 1997 and 1998 remained unpaid.   She found out

that the 1997-99 Federal income tax liabilities remained unpaid

when Mr. Torrisi asked her to sign the paperwork for the home

equity loan, which occurred sometime toward the end of 2000.18

Accordingly, we conclude that when petitioner signed the 1997-99

returns, she had no knowledge or reason to know that Mr. Torrisi

would not pay the 1997-99 Federal income tax liabilities.

                b.   Economic Hardship

     The parties disagree whether petitioner would suffer

economic hardship if she were not granted relief.    Generally, in

determining whether a requesting spouse will suffer economic

hardship if the Commissioner denies his or her request for

section 6015(f) relief, Rev. Proc. 2003-61, sec. 4.02, directs

the Commissioner to base his decision on rules similar to those

found in section 301.6343-1(b)(4), Proced. & Admin. Regs.

Section 301.6343-1(b)(4), Proced. & Admin. Regs., provides that

an economic hardship exists if an individual is unable to pay

reasonable basic living expenses.   In determining a reasonable

amount for basic living expenses, the Commissioner shall consider



     18
      We infer from the record that petitioner and Mr. Torrisi
applied for the home equity loan sometime after Aug. 19, 2000,
most likely to fund the offer-in-compromise dated Jan. 18, 2001.
                              - 26 -

information provided by the taxpayer, including:   (1) The

taxpayer’s age, employment status and history, ability to earn,

number of dependents, and status as a dependent of someone else;

(2) the amount reasonably necessary for food, clothing, housing,

utilities, medical expenses, transportation, child support, and

other necessities; (3) the cost of living in the geographical

area in which the taxpayer lives; (4) the amount of property

available to pay the taxpayer’s expenses; (5) any extraordinary

expenses, including educational expenses; and (6) any other

factor that the taxpayer brings to the Commissioner’s attention

that bears on economic hardship.   Sec. 301.6343-1(b)(4)(ii),

Proced. & Admin. Regs.   The determination of a reasonable amount

of basic living expenses will vary according to the unique

circumstances of the individual taxpayer.   Sec. 301.6343-

1(b)(4)(i), Proced. & Admin. Regs.

     Petitioner contends her expenses in 2010 (through July) were

as follows:
                               - 27 -

                     Expense                     Amount

           Rent                                  $7,000
           Water                                    350
           Electricity                            2,625
           Trash                                    175
           Cell phone                             1,330
           Home phone with Internet                 406
           Rental and life insurance              1,120
           Groceries                              2,800
           Personal hygiene items                   350
           Gas                                    1,680
           Car maintenance and licenses             750
           Auto insurance (including ST)          3,800
           Personal property tax (auto)             400
           Medical insurance                      1,050
           Medical deductible                     2,500
           Carpal tunnel surgery1                 1,500
           Prescriptions                            525
           Therapist copay amounts                 140
           Unreimbursed employee expenses2          910
           Legal fees                            30,000
           HT--food                               1,750
             Total                               61,161
     1
      Petitioner testified this surgery was not covered by
insurance, and she will have to undergo similar surgery on her
other hand.
     2
      This item consists of cosmetics and supplies. Petitioner
testified she must “have a nice presentation at work”, including
“really good” “costly” shoes, haircuts, and manicures.

According to petitioner, her wages for the same period were

$13,860.    She does not own a home and has two cars with a total

value between $4,000 and $5,000.

     However, in 2006 petitioner received $600,000 in proceeds

from Mr. Torrisi’s life insurance, of which she claims to have

$175,000 left.    To explain the decline in assets, petitioner

contends that she (1) lost $130,000 of investments because of the

market decline, (2) paid $15,000 for ST’s college tuition, (3)
                                - 28 -

spent $75,000 to repair the Briarwyck home in 2007, and (4) used

the life insurance proceeds to supplement her wages to meet her

living expenses.19    Some of the expenses petitioner paid in 2007-

2010, however, can hardly be classified as basic, such as a $190

monthly T-Mobile cell phone plan, a $2,000 “healing vacation”

with her children, bulldozer rental to remove trees on her

mother’s land in 2008, and HT’s legal fees of $18,000 and

petitioner’s legal fees, which, as of the date of trial, totaled

$41,800.   In any case, the remaining $175,000 of the life

insurance proceeds can be included in determining whether

petitioner would be able to pay her basic living expenses.     See,

e.g., Butner v. Commissioner, T.C. Memo. 2007-136.

     Even if we ignore those expenses that cannot be

characterized as reasonable or necessary, petitioner established

that she would suffer economic hardship if she were required to

pay the 1997-99 Federal income tax liabilities.      We recognize

petitioner’s special circumstances and the necessity to support

HT and also the fact that because of petitioner’s professional



     19
      Petitioner explains that she used the life insurance
proceeds for her living expenses because her expenses since Mr.
Torrisi’s death have always exceeded her income:

                     2007        2008         2009          2010

Income           $49,780       $33,046    $21,033.61     $13,860
Expenses          71,629       112,830     76,918.92      61,161
  Difference     (21,489)      (79,784)   (55,885.31)    (47,301)

Income and expenses for 2010 are presented through July.
                                 - 29 -

background her earning potential is unlikely to improve in the

short term.      We also recognize that petitioner’s reasonable

expenses, even if substantially reduced, will likely continue to

exceed her income.      If she were required to pay the 1997-99

Federal income tax liabilities, even without taking into account

interest and penalties for 1997 and 1998, her remaining assets

would be depleted substantially.        Petitioner submitted sufficient

evidence to convince us that requiring her to pay the 1997-99

Federal income tax liabilities would put her in severe financial

hardship.    Accordingly, we conclude that petitioner satisfies the

safe harbor requirements of Rev. Proc. 2003-61, sec. 4.02, with

respect to the 1997-99 Federal income tax liabilities and

therefore is entitled to section 6015(f) relief with respect to

those years.

            2.     Taxable Year 2000:    The Knowledge or Reason To
                   Know Requirement

     With respect to 2000, petitioner had reason to know when she

signed the 2000 return that Mr. Torrisi would not pay the 2000

tax liability.      Mr. Torrisi retired as of September 2000 and no

longer had a steady income.      Petitioner had relied previously on

his assurances that the liabilities would be paid, but she

learned that she and Mr. Torrisi still had Federal income tax

liabilities for 1997-99 when they applied for a home equity loan

at the end of 2000.      In addition, on January 18, 2001, Mr.

Torrisi and petitioner submitted an offer-in-compromise to the
                               - 30 -

IRS.    At least as of the January 18, 2001, offer-in-compromise,

petitioner knew Mr. Torrisi could not pay the outstanding Federal

income tax liabilities for 1997-99 out of their assets and

income.    When she signed the 2000 return on June 10, 2002, she

knew there was a balance due for 3 prior years.    Petitioner’s

reliance on Mr. Torrisi’s assurances that the 2000 Federal income

tax liability would be paid was not reasonable.

       Petitioner claims that she understood that Mr. Torrisi would

use the proceeds of the home equity loan to pay the outstanding

Federal income tax liabilities and that the home equity loan

supports the reasonableness of her belief that the taxes would be

paid.    We disagree with petitioner’s interpretation.   Petitioner

did not introduce any evidence regarding the amount of the home

equity loan.    Absent proof that the amount of the home equity

loan was sufficient to pay all of the 1997-2000 Federal income

tax liabilities, petitioner’s argument about the reasonableness

of her belief is not convincing.    Once petitioner found out that

Mr. Torrisi had failed to pay taxes for the prior years from his

business income or from the payment made to him upon his

retirement, her reliance on his subsequent assurances that the

2000 Federal income tax liability would be paid became

unreasonable.    We conclude that petitioner had reason to know

that the underpayment reported on the 2000 Federal income tax

return would not be paid.
                               - 31 -

     Petitioner points out that she was under psychiatric

treatment for depression and was taking medications for

depression and anxiety.   No credible evidence in the record,

however, supports a finding that depression and anxiety affected

her understanding of her Federal income tax obligations or her

ability to comply with them.   We reject petitioner’s argument

that her depression and anxiety affected her belief as to whether

Mr. Torrisi would pay the taxes due.    Accordingly, petitioner

does not satisfy the safe harbor requirements of Rev. Proc. 2003-

61, sec. 4.02 with respect to 2000.

     C.   Rev. Proc. 2003-61, Sec. 4.03: Factors for Determining
          Whether To Grant Equitable Relief

     If a requesting spouse satisfies the threshold requirements

of Rev. Proc. 2003-61, sec. 4.01, but fails to satisfy one or

more of the safe harbor requirements of Rev. Proc. 2003-61, sec.

4.02, the Commissioner may still grant relief under section

6015(f) on the basis of the facts and circumstances test.   The

following list of factors is not exclusive, and no single factor

is determinative:

          (a) Factors that may be relevant to whether the
     Service will grant equitable relief include, but are
     not limited to, the following:

          (i) Marital status. Whether the requesting spouse
     is separated (whether legally separated or living
     apart) or divorced from the nonrequesting spouse. * * *

          (ii) Economic hardship. Whether the requesting
     spouse would suffer economic hardship (within the
     meaning of section 4.02(1)(c) of this revenue
                             - 32 -

    procedure) if the Service does not grant relief from
    the income tax liability.

          (iii) Knowledge or reason to know.

          (A) Underpayment cases. In the case of an income
     tax liability that was properly reported but not paid,
     whether the requesting spouse did not know and had no
     reason to know that the nonrequesting spouse would not
     pay the income tax liability.

     *        *        *        *        *        *          *

         (iv) Nonrequesting spouse’s legal obligation.
    Whether the nonrequesting spouse has a legal obligation
    to pay the outstanding income tax liability pursuant to
    a divorce decree or agreement. * * *

          (v) Significant benefit. Whether the requesting
     spouse received significant benefit (beyond normal
     support) from the unpaid income tax liability or item
     giving rise to the deficiency. See Treas. Reg. §
     1.6015-2(d).

          (vi) Compliance with income tax laws. Whether the
     requesting spouse has made a good faith effort to
     comply with income tax laws in the taxable years
     following the taxable year or years to which the
     request for relief relates.

Rev. Proc. 2003-61, sec. 4.03(2)(a), 2003-2 C.B. at 298.

          (b) Factors that, if present in a case, will weigh
     in favor of equitable relief, but will not weigh
     against equitable relief if not present in a case,
     include, but are not limited to, the following:

         (i) Abuse. Whether the nonrequesting spouse
    abused the requesting spouse. The presence of abuse is
    a factor favoring relief. A history of abuse by the
    nonrequesting spouse may mitigate a requesting spouse’s
    knowledge or reason to know.

         (ii) Mental or physical health. Whether the
    requesting spouse was in poor mental or physical health
    on the date the requesting spouse signed the return or
    at the time the requesting spouse requested relief.
                                   - 33 -

     The Service will consider the nature, extent, and
     duration of illness when weighing this factor.

Rev. Proc. 2003-61, sec. 4.03(2)(b), 2003-2 C.B. at 299.      We now

consider each of these factors as they apply to the 2000

liability.

          1.      Marital Status

     Mr. Torrisi was deceased at the time petitioner sought

section 6015 relief, and being a widow is “tantamount to her

being separated or divorced.”       Rosenthal v. Commissioner, T.C.

Memo. 2004-89.     This factor weighs in favor of relief.

             2.   Economic Hardship

     With respect to the 2000 liability petitioner failed to

prove that she would suffer economic hardship if she were to pay

the 2000 liabilities.    The 2000 liability, including interest and

penalty, is $44,438.04.    As of the date of trial, petitioner had

$175,000 of the life insurance proceeds remaining.      The payment

of the 2000 tax liability, even if we were to take into account

petitioner’s future low earning potential, would not deplete all

of her assets.    We conclude that petitioner has failed to prove

that she would experience economic hardship if she were required

to pay the 2000 Federal income tax liability.

          3.      Knowledge or Reason To Know

     For the reasons discussed supra pp. 29-31, we believe

petitioner had reason to know that Mr. Torrisi would not pay the
                                - 34 -

income tax liability for 2000.    This factor weighs against relief

for 2000.

            4.    Nonrequesting Spouse’s Legal Obligation

     This factor concerns obligations arising pursuant to a

divorce decree or agreement.     Mr. Torrisi and petitioner

separated but remained married.     Accordingly, this factor is

inapplicable.

            5.    Significant Benefit

     The parties stipulated that petitioner did not receive

significant benefit, beyond normal support, from the unpaid tax

liabilities.     This factor weighs in favor of relief.

            6.    Compliance With Income Tax Laws

     Petitioner and Mr. Torrisi timely filed their 2002-05

returns pursuant to extensions, and payments for 2004 and 2006

were timely.     Petitioner filed her 2007 return late although no

taxes were due.     Petitioner filed her 2008 return timely pursuant

to an extension.     This factor is neutral.

            7.    Abuse

     Abuse is a factor that, if present, will weigh in favor of

relief but will not weigh against relief if not present.        See

Rev. Proc. 2003-61, sec. 4.03(2)(b).     We consider whether the

nonrequesting spouse abused the requesting spouse.        Id.

     Petitioner testified that Mr. Torrisi became controlling,

manipulative, and verbally and physically abusive.     He screamed
                                - 35 -

at petitioner, grabbed her, and scared her.    On one occasion Mr.

Torrisi threw her out a door.    Dr. Larice testified that

petitioner had been depressed at least since 1996.    Between 1996

and the date of trial, petitioner saw doctors, a counselor, a

psychologist, and psychiatrists.

     On the other hand, after petitioner left Mr. Torrisi, she

continued to work for him.   There is no credible evidence in the

record that petitioner was forced to come to Mr. Torrisi’s

office.   Petitioner also continued to use the Briarwyck address

as her address, which suggests that Mr. Torrisi and petitioner

communicated on issues unrelated to the insurance business.    For

example, all Forms W-2 that petitioner’s employers issued to her

bear the Briarwyck address as her home address.    Also, Mr.

Torrisi and petitioner held an account at State Farm Investment

Management Corp., which issued them a Form 1099-DIV, Dividends

and Distributions.   The Form 1099-DIV shows both Mr. Torrisi and

petitioner as residing at the Briarwyck address.    While we do not

doubt that Mr. Torrisi’s condition generated behaviors that

caused petitioner to leave the marital home, petitioner has

failed to convince us that this factor should be given weight.

          8.    Mental or Physical Health

     Generally, whether the requesting spouse was in poor mental

or physical health on the date he or she signed the return or at

the time he or she requested relief, is a factor that weighs in
                                - 36 -

favor of equitable relief.    Rev. Proc. 2003-61, sec. 4.03(2)(b).

We consider the nature, extent, and duration of illness when

weighing this factor.

     During the years at issue petitioner was seeing various

doctors for her depression and anxiety.    No doubt HT’s drug

addiction and the marital problems affected petitioner’s mental

health.   As of the time of trial, petitioner continued to see Dr.

Larice for her depression and anxiety.    Petitioner testified that

she is generally in good health except that she has carpal tunnel

syndrome in her right hand for which she needs surgery.    She also

has back pain and pain in her legs and feet.    Nevertheless, these

problems do not prevent her from working.    Overall, we find this

factor weighs slightly in favor of relief.

          9.    Other Factors

     The list of factors set out in Rev. Proc. 2003-61, sec.

4.03, is nonexclusive, and therefore we may consider other facts

and circumstances.20    One additional circumstances we take into

account is petitioner’s continuous depleting of the life

insurance proceeds despite the outstanding Federal income tax

liabilities for 1997-2000.    From Mr. Torrisi’s death in September


     20
      Respondent does not argue that timeliness of the request
is a factor in the analysis under Rev. Proc. 2003-61, sec. 4.03,
2003-2 C.B. 296, 298. During a conference call between the
parties and the Court, counsel for respondent confirmed that
respondent does not allege that timeliness of the request is a
factor to be considered in deciding whether petitioner is
entitled to relief under sec. 6015(f).
                              - 37 -

2006 until April 22, 2008, petitioner made several payments

totaling $3,000 towards the 1997 liability.21   She did not make a

lump-sum payment to the IRS when she received the life insurance

proceeds, nor did she increase her payments to reduce the tax

liabilities.   Taking into account all the facts and

circumstances, we conclude that it would not be inequitable to

hold petitioner liable for the unpaid liability for 2000.

VI.   Conclusion

      On the basis of the foregoing, we conclude that petitioner

has satisfied the threshold conditions of Rev. Proc. 2003-61,

sec. 4.01, and the safe harbor requirements of Rev. Proc. 2003-

61, sec. 4.02, with respect to 1997-99 and that she is entitled

to section 6015(f) relief for those years.   After taking into

account the facts and circumstances of Rev. Proc. 2003-61, sec.

4.03, we conclude petitioner is not entitled to relief with

respect to 2000.

      We have considered the remaining arguments made by the

parties, and to the extent not discussed above, we conclude those

arguments are irrelevant, moot, or without merit.




      21
      Respondent also collected by levy $750 and $250 towards
the 1997 and 2000 Federal income tax liabilities and credited
$249.97 from other years.
                        - 38 -

To reflect the foregoing,


                                 Decision will be entered for

                            petitioner with respect to 1997,

                            1998, and 1999 and for respondent

                            with respect to 2000.
