                               T.C. Memo. 2016-169



                         UNITED STATES TAX COURT



                    ADETUTU CANTY, Petitioner v.
           COMMISSIONER OF INTERNAL REVENUE, Respondent



      Docket No. 28483-14.                           Filed September 13, 2016.



      Thomas F. Decaro, Jr., for petitioner.

      Han Huang, for respondent.



            MEMORANDUM FINDINGS OF FACT AND OPINION


      RUWE, Judge: This case arises from respondent’s denial of petitioner’s

request for relief from joint and several liability under section 6015 for the taxable

years 2010 and 2011.1


      1
       In her pretrial memorandum petitioner concedes that she does not satisfy
the requirements of sec. 6015(c) because she is still married to and living with the
                                                                        (continued...)
                                        -2-

[*2] Unless otherwise indicated, all section references are to the Internal

Revenue Code in effect for all relevant years, and all 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 stipulation of

facts and the attached exhibits are incorporated herein by this reference.

      Petitioner resided in Maryland at the time she filed her petition.

      Petitioner married Charles Canty in July 1986 and was married to Mr. Canty

throughout the taxable years 2010 and 2011. Petitioner and Mr. Canty are still

married and live together.

      Petitioner has a bachelor’s degree in economics and a master’s degree in

business and public administration. Since 2008 petitioner has been employed by

the Nuclear Regulatory Commission as a financial management analyst. Petitioner

earned $88,241 and $84,999 in taxable wages and salary for the taxable years

2010 and 2011, respectively. Petitioner is currently still employed as a financial

management analyst with an annual salary of $107,000.




      1
      (...continued)
nonrequesting spouse. See sec. 6015(c)(3)(A).
                                        -3-

[*3] During the taxable years 2010 and 2011 Mr. Canty owned and operated the

Charles Canty Law Office (law office) in Washington, D.C. Mr. Canty prepared

his and petitioner’s joint Forms 1040, U.S. Individual Income Tax Return, for the

taxable years 2010 and 2011. A Schedule C, Profit or Loss From Business, was

attached to the 2010 and 2011 returns reporting the activity of the law office. The

2010 Schedule C reported gross receipts of zero, returns and allowances of

$66,981, net gross receipts of $123,334, and net profit of $39,452. The 2011

Schedule C reported gross receipts of $148,119, returns and allowances of

$42,100, net gross receipts of $106,019, and net profit of $3,512. Neither

petitioner nor Mr. Canty made estimated tax payments with respect to the law

office activity for the taxable years 2010 and 2011.

      Petitioner did not ask to review the returns for the taxable years 2010 and

2011 before they were filed. Petitioner was not forced to sign the returns for the

taxable years 2010 and 2011 under duress, threat of harm, or other form of

coercion. At the time she signed the tax returns for 2010 and 2011 petitioner had

no mental or physical health problems which prevented her from understanding

the contents of the tax returns. Petitioner was not a victim of spousal abuse or

domestic violence during her marriage to Mr. Canty.
                                        -4-

[*4] On September 9, 2013, a notice of deficiency was mailed to petitioner and

Mr. Canty for their taxable years 2010 and 2011. In the notice of deficiency

respondent made adjustments to the Schedule C income and expenses as follows:

                Income/Expense                TY 2010             TY 2011

      Business use of home                    $7,553.01          $4,379.28
      Other                                    8,602.00           8,602.00
      Utilities                                1,219.00           1,277.00
      Meals and entertainment                  2,634.00           3,450.00
      Travel                                   1,363.00           2,893.00
      Rent/lease (other business property)    27,600.00          27,600.00
      Office                                   8,763.00           9,354.00
      Insurance (not health)                   3,600.00           4,200.00
      Depreciation and sec. 179                2,339.00           3,853.00
      Contract labor                           5,325.00           5,635.00
      Advertising                              2,092.00           3,300.00
      Car and truck                               ---            13,769.51
      Gross receipts/sales                     8,000.00              ---

      In the notice of deficiency respondent made adjustments to non-Schedule C

income, deductions, and credits as follows:

                   Item                       TY 2010             TY 2011

      Taxable interest                            $94                ---
      Self-employed health insurance            3,470                ---
      Student loan interest deduction           1,590              $2,113
      Itemized deductions                      17,811              20,594
      Tuition/fees deduction                                        4,000
      Education credit                          3,000               2,000
      Making work pay &
        Government retiree credits                800                 ---
      Refundable education credit               2,000                 ---
                                        -5-

[*5] Neither petitioner nor Mr. Canty petitioned the Court in response to the notice

of deficiency.

      On March 24, 2014, respondent assessed against petitioner and Mr. Canty

with respect to the taxable year 2010: (1) additional taxes of $37,483; (2) interest

of $4,700.15; (3) an accuracy-related penalty under section 6662 of $8,056.60; and

(4) a failure to pay timely addition to tax of $476. On the same date respondent

assessed against petitioner and Mr. Canty with respect to the taxable year 2011:

(1) additional taxes of $36,297; (2) interest of $2,602.08; and (3) an accuracy-

related penalty under section 6662 of $7,259.40.

      On October 23, 2013, respondent received from petitioner a Form 8857,

Request for Innocent Spouse Relief, requesting relief from joint and several

liability for the taxable years 2010 and 2011. Petitioner explained in an

attachment to the Form 8857 as follows:

             The Taxpayer was not involved in the operating of Spouse’s
      legal practice and had now [sic] knowledge of the finances of the
      business. Therefore, Taxpayer had no way to determine the accuracy
      of the figures reported on the 2010 and 2011 tax returns with regard
      to the business. The Taxpayer and Spouse have separate finances.
      The Taxpayer was not involved in the preparation of either the 2010
      or 2011 tax returns. The Taxpayer gave her documentation to
      Spouse, and he prepared the returns and filed them electronically
      without the Taxpayer having reviewed them. * * *
                                          -6-

[*6] Petitioner also indicated in the Form 8857 that (1) she did not maintain a joint

account with Mr. Canty for the taxable years 2010 and 2011, and (2) there were

large expenses made during 2010 and 2011, such as family vacations, a trip to

Nigeria, and the purchase of a vehicle for petitioner’s daughter. Petitioner’s Form

8857 further states that she has: (1) monthly household income of $13,208.08;

(2) monthly household expenses of $10,113.87; and (3) assets with a net value of

$152,411.68.

      On May 8, 2014, respondent issued to petitioner a preliminary

determination denying petitioner relief from joint and several liability for the

taxable years 2010 and 2011. On May 28, 2014, petitioner submitted a Form

12509, Statement of Disagreement, which petitioner signed and dated May 20,

2014. On November 5, 2014, the Internal Revenue Service (IRS) Office of

Appeals issued a Final Appeals Determination (final determination) denying

petitioner’s request for relief from joint and several liability in full. The final

determination listed the following reasons for denial: (1) petitioner knew, or had

reason to know, of the income or deductions that caused the additional tax;

(2) petitioner is not eligible because of her current marital status; and (3) petitioner

did not show that it would be unfair to hold her responsible. Petitioner timely

petitioned the Court for review of the final determination.
                                         -7-

[*7] Petitioner filed her income tax return for the taxable year 2012 on April 29,

2014, and was assessed additions to tax for late filing and late payment.

Petitioner’s account balance for the taxable year 2012 is currently satisfied.

Petitioner is currently compliant with all Federal income tax obligations for the

taxable years 2013 and 2014.

                                      OPINION

      Petitioner asks this Court to review respondent’s final determination

denying her relief from joint and several liability for the taxable years 2010 and

2011. A married taxpayer may elect to file a joint Federal income tax return with

his or her spouse. Sec. 6013(a). Generally, after making the election, each spouse

is jointly and severally liable for the entire tax shown on the return or otherwise

determined to be due. Sec. 6013(d)(3). However, section 6015 provides relief

from joint and several liability for spouses who meet the conditions of subsection

(b), and it provides for equitable relief in subsection (f) when the relief provided

for in other subsections is not available. Olson v. Commissioner, T.C. Memo.

2009-294, 2009 Tax Ct. Memo LEXIS 300, at *12.

      The Tax Court has jurisdiction to review respondent’s denial of petitioner’s

request for relief under section 6015. See sec. 6015(e)(1). Both the scope and
                                          -8-

[*8] standard of review in cases requesting relief from joint and several income

tax liability are de novo. Porter v. Commissioner, 132 T.C. 203, 210 (2009).

Except as otherwise provided in section 6015, the spouse requesting relief bears

the burden of proof. Rule 142(a); Alt v. Commissioner, 119 T.C. 306, 311 (2002),

aff’d, 101 F. App’x 34 (6th Cir. 2004).

I. Section 6015(b)

      Section 6015(b)(1) authorizes the Commissioner to grant relief from joint

and several liability for tax if the taxpayer requesting relief satisfies each of the

following five requirements:

             (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 * * * 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 * * *
                                        -9-

[*9] The requirements of section 6015(b)(1) are conjunctive, and therefore the

failure of a requesting spouse to satisfy any one of the elements precludes relief.

Alt v. Commissioner, 119 T.C. at 313. Respondent concedes that petitioner

satisfies the requirements of section 6015(b)(1)(A) and (E) but asserts that

petitioner does not meet the requirements of section 6015(b)(1)(B), (C), or (D).

      Section 6015(b)(1)(C) provides that in order to obtain relief the requesting

spouse must establish that she did not know, and had no reason to know, that there

was an understatement. A requesting spouse has reason to know of an

understatement “if a reasonable person in similar circumstances would have

known of the understatement.” Sec. 1.6015-2(c), Income Tax Regs. The facts and

circumstances that are considered include, among other things, whether the

requesting spouse failed to inquire, at or before the time the return was signed,

about items on the return or omitted from the return that a reasonable person

would question. Id. Petitioner bears the burden of proving that she satisfies the

requirements of section 6015(b)(1)(C). See Rule 142(a); Bokum v.

Commissioner, 94 T.C. 126, 138 (1990), aff’d, 992 F.2d 1132 (11th Cir. 1993).2

      2
       The no-knowledge-of-the-understatement requirement in sec.
6015(b)(1)(C) is virtually identical to the requirement of former sec.
6013(e)(1)(C); therefore, cases interpreting sec. 6013(e) remain instructive to our
analysis. Jonson v. Commissioner, 118 T.C. 106, 115 (2002), aff’d, 353 F.3d
                                                                       (continued...)
                                        - 10 -

[*10] Petitioner claims that she had “no knowledge” of the erroneous information

on the law office’s Schedules C. Even if we were to believe petitioner that she

had no knowledge of the income and expenses attributable to the law office, a

reasonable person in similar circumstances would have reviewed the tax returns

before filing and inquired about certain items reported on the return. See sec.

1.6015-2(c), Income Tax Regs. The Schedule C for the taxable year 2010 reported

gross receipts of zero, returns and allowances of $66,981, net gross receipts of

$123,334, and net profit of $39,452. In her posttrial brief petitioner acknowledges

that the zero gross receipts “is an obvious error, since the Schedule C for 2010

reflects gross income.” Petitioner is a highly educated individual who works as a

financial management analyst, and a cursory review of the 2010 tax return would

have revealed this “obvious error”.

      The law office’s 2011 Schedule C reported gross receipts of $148,119,

returns and allowances of $42,100, net gross receipts of $106,019, and net profit

of $3,512. Petitioner acknowledged at trial that the net profit for 2011 attributable

to the law office “looked to me like it was low”; however, the record before us

does not establish that petitioner inquired about this unusually low amount as a


      2
       (...continued)
1181 (10th Cir. 2003).
                                         - 11 -

[*11] reasonable person would. Petitioner testified that she asked Mr. Canty about

the low profit figure and that he assured her it was accurate, however, we do not

find petitioner’s testimony credible. Throughout the proceedings, petitioner has

provided inconsistent and evolving explanations regarding her review of the 2010

and 2011 tax returns. In her Form 8857 petitioner states that Mr. Canty “prepared

the returns and filed electronically without * * * [petitioner] seeing or reviewing

the return.” In the typewritten attachment to the Form 8857 petitioner similarly

states that Mr. Canty “prepared the returns and filed them electronically without

* * * [petitioner] having reviewed them.” Petitioner stipulated that she did not ask

to review the returns for 2010 and 2011 before they were filed. In her petition,

petitioner states that Mr. Canty “presented * * * [the returns] to * * * [her] for

signature” and she “asked him specifically if the return was accurate.” At trial

petitioner testified that she took a “brief look” at the tax returns but did not “study

or review any other pages.” During cross-examination petitioner testified that she

reviewed more than the first page of the Forms 1040 but “did not study the

numbers that were there to determine whether those numbers were accurate or how

those numbers were calculated.” On the basis of petitioner’s inconsistent and

vague testimony we are not persuaded that she reviewed the tax returns or inquired

as a reasonable person would do. Section 6015(b)(1)(C) “was not designed to
                                         - 12 -

[*12] protect willful blindness or to encourage the deliberate cultivation of

ignorance.” Doyel v. Commissioner, T.C. Memo. 2004-35, 2004 Tax Ct. Memo

LEXIS 35, at *29 (quoting Friedman v. Commissioner, 53 F.3d 523, 525 (2d Cir.

1995), aff’g in part, rev’g in part, and remanding T.C. Memo. 1993-549).

Accordingly, we hold that petitioner has failed to prove that she did not know or

have reason to know about the understatements. Petitioner has therefore failed to

satisfy the requirements of section 6015(b)(1)(C).

      Section 6015(b)(1)(D) provides that in order for a requesting spouse to

obtain relief, it must be inequitable to hold her liable for the deficiency in tax

attributable to such understatement. “All of the facts and circumstances are

considered in determining whether it is inequitable to hold a requesting spouse

jointly and severally liable for an understatement.” Sec. 1.6015-2(d), Income Tax

Regs. The regulation specifies that some of the relevant factors are: (1) whether

the requesting spouse significantly benefited, directly or indirectly, from the

understatement; (2) whether the requesting spouse has been deserted by the

nonrequesting spouse; and (3) whether the spouses have been divorced or

separated. Id.

      Section 1.6015-2(d), Income Tax Regs., provides that a relevant factor in

this determination is whether the requesting spouse significantly benefited,
                                          - 13 -

[*13] directly or indirectly, from the understatement. Normal support is not

considered a significant benefit. See Flynn v. Commissioner, 93 T.C. 355, 367

(1989). The record does not indicate whether petitioner significantly benefited

from the understatements.

        We may consider whether the requesting spouse was deserted, divorced, or

separated from the nonrequesting spouse. See Alt v. Commissioner, 119 T.C. at

315; sec. 1.6015-2(d), Income Tax Regs. Petitioner is still married to Mr. Canty,

and they still live together in Maryland.

        The Court has also held that a material factor is 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 nonrequesting spouse. See Alt v.

Commissioner, 119 T.C. at 314 (citing Jonson v. Commissioner, 118 T.C. 106,

119 (2002), aff’d, 353 F.3d 1181 (10th Cir. 2003)). Nothing in the record

indicates that Mr. Canty hid or concealed financial or tax information from

petitioner, and therefore we find that Mr. Canty did not hide or conceal from her

any information relating to their income tax returns for the taxable years 2010 and

2011.

        Petitioner bears the burden of establishing that it is inequitable to hold her

liable for the deficiencies in tax attributable to the understatements. See Rule
                                         - 14 -

[*14] 142(a); Flynn v. Commissioner, 93 T.C. at 359. Petitioner has failed to meet

her burden. We find that under section 6015(b)(1)(D) it is not inequitable to hold

petitioner liable for the deficiencies in tax for 2010 and 2011. Since petitioner

failed to satisfy the requirements of section 6015(b)(1)(C) and (D), she does not

qualify for relief under section 6015(b)(1).3 See Alt v. Commissioner, 119 T.C. at

313.

II. Section 6015(f)

       Section 6015(f) allows for an alternative means of relief for a requesting

spouse who does not otherwise qualify for relief under section 6015. Pursuant to

section 6015(f), the Commissioner is authorized to grant equitable relief from joint

and several liability if “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)”.

       A. Threshold Conditions

       A requesting spouse must satisfy seven threshold conditions before a

request under section 6015(f) will be considered. See Rev. Proc. 2013-34, sec. 4,

2013-43 I.R.B. 397, 399-403, modifying and superceding Rev. Proc. 2003-61,


       3
       Accordingly, we need not discuss whether petitioner satisfies the
requirements of sec. 6015(b)(1)(B).
                                          - 15 -

[*15] 2003-2 C.B. 296. Rev. Proc. 2013-34, sec. 4.01, 2013-43 I.R.B. at 399-400,

sets forth the following threshold conditions: (1) the requesting spouse filed a

joint return for the year in which relief is sought; (2) relief is not available to the

requesting spouse under section 6015(b) or (c); (3) the claim for relief is timely

filed; (4) no assets were transferred between the spouses as part of a fraudulent

scheme; (5) the nonrequesting spouse did not transfer disqualified assets to the

requesting spouse; (6) the requesting spouse did not knowingly participate in the

filing of a fraudulent joint return; and (7) absent certain exceptions, the income tax

liability from which the requesting spouse seeks relief is attributable, either in full

or in part, to an item of the nonrequesting spouse. Respondent concedes that

petitioner meets all seven threshold requirements.

      B. Streamlined Relief

      When, as here, the seven threshold conditions have been met, the guidelines

allow a requesting spouse to qualify for a streamlined determination for relief

under section 6015(f) if all of the following conditions are met: (1) the requesting

spouse is no longer married to the nonrequesting spouse on the date the IRS makes

its determination; (2) the requesting spouse will suffer economic hardship if relief

is not granted; and (3) on the date the joint return was filed, the requesting spouse

did not know or have reason to know that there was an understatement or
                                        - 16 -

[*16] deficiency. Rev. Proc. 2013-34, sec. 4.02, 2013-43 I.R.B. at 400. Petitioner

does not qualify for a streamlined determination because she was married to Mr.

Canty when the IRS made its final determination.

      C. Facts and Circumstances

      Where a requesting spouse meets the threshold conditions but fails to

qualify for a streamlined determination, she may still be eligible for equitable

relief if, taking into account all the facts and circumstances, it would be

inequitable to hold her liable for the deficiency. See id. sec. 4.03. The guidelines

list the following nonexclusive factors that the Commissioner takes into account

when determining whether to grant equitable relief: (1) marital status;

(2) economic hardship; (3) in the case of an understatement, knowledge or reason

to know of the items giving rise to the understatement or deficiency; (4) legal

obligation; (5) significant benefit; (6) compliance with income tax laws; and

(7) mental or physical health. Id. In making our determination under section

6015(f), we consider these factors as well as any other relevant factors. No single

factor is determinative, and all factors shall be considered and weighed

appropriately. See Pullins v. Commissioner, 136 T.C. 432, 448 (2011); Molinet v.

Commissioner, T.C. Memo. 2014-109, at *10.
                                        - 17 -

[*17] The first factor is whether the requesting spouse is separated or divorced

from the nonrequesting spouse. Rev. Proc. 2013-34, sec. 4.03(2)(a). Petitioner is

still married to and living with Mr. Canty. Accordingly, this factor is neutral.

       The second factor is whether the requesting spouse will suffer economic

hardship if relief is not granted. Id. sec. 4.03(2)(b), 2013-43 I.R.B. at 401. A

requesting spouse suffers economic hardship if the satisfaction of the tax liability,

in whole or in part, would cause her to be unable to pay reasonable basic living

expenses. Id. In her Form 8857 petitioner reported monthly household income of

$13,208.08 and monthly household expenses of $10,113.87. We cannot find that

petitioner would suffer economic hardship if we deny her relief. Accordingly, this

factor is neutral.

       The third factor is whether the requesting spouse knew or had reason to

know of the items giving rise to the understatement as of the date the joint return

was filed. Id. sec. 4.03(2)(c)(i)(A). We found above that, under section

6015(c)(1)(C), petitioner failed to prove that she had no reason to know of the

understatements. Rev. Proc. 2013-34, sec. 4.03(2)(c)(iii), 2013-43 I.R.B. at 402,

provides that the facts and circumstances that are considered in determining

whether the requesting spouse had reason to know of an understatement include:

(1) the requesting spouse’s level of education; (2) any deceit or evasiveness by the
                                        - 18 -

[*18] nonrequesting spouse; (3) the requesting spouse’s degree of involvement in

the activity generating the income tax liability; (4) the requesting spouse’s

involvement in business or household financial matters; (5) the requesting

spouse’s business or financial expertise; and (6) lavish or unusual expenditures

compared with past spending levels.

      Petitioner has a bachelor’s degree in economics and a master’s degree in

business and public administration. No evidence was presented that Mr. Canty

was deceitful or hid any information from petitioner in regard to the tax returns.

Although petitioner was not involved with the law office, she had the opportunity

to question Mr. Canty regarding the items reported on the Schedules C but chose

not to do so. Petitioner is a financial management analyst, and she testified that

she “take[s] care of most of the household expenses.” We find that petitioner

failed to prove that she did not know and had no reason to know of the

understatements. Accordingly, this factor weighs against relief.

      The fourth factor is whether the requesting spouse or the nonrequesting

spouse has a legal obligation to pay the outstanding Federal income tax liability.

Id. sec. 4.03(2)(d). This factor will be neutral if the spouses are not separated or

divorced. Id. Accordingly, this factor is neutral.
                                        - 19 -

[*19] The fifth factor is whether the requesting spouse significantly benefited

from the understatement. Id. sec. 4.03(2)(e). We have not found that petitioner

significantly benefited from the understatements. Petitioner provided no

testimony or other evidence that the family vacations and vehicle purchase

benefited her or to what extent. This factor is neutral.

      The sixth factor considers whether the requesting spouse has made a good-

faith effort to comply with the income tax laws in the taxable years following the

years for which relief is requested. Rev. Proc. 2013-34, sec. 4.03(2)(f), 2013-43

I.R.B. at 402-403. Petitioner filed her 2012 income tax return more than a year

late and did not timely pay her 2012 income tax liability. Accordingly, this factor

weighs against granting relief.

      The seventh factor is whether the requesting spouse was in poor physical or

mental health. Id. sec. 4.03(2)(g), 2013-43 I.R.B. at 403. This factor will weigh in

favor of relief if the requesting spouse was in poor physical or mental health at the

time the returns to which the request for relief pertains were filed or at the time the

requesting spouse requested relief. Id. This factor is neutral if the requesting

spouse was in neither poor physical nor poor mental health. Id. Petitioner

stipulates that she had no physical or mental health problems at the time she

signed the 2010 and 2011 tax returns. Petitioner did not offer any testimony or
                                        - 20 -

[*20] other evidence regarding her physical or mental health at the time she

requested innocent spouse relief. Accordingly, this factor is neutral.

      On the basis of the foregoing facts and circumstances, we find that it would

not be inequitable to deny petitioner relief under section 6015(f).

      In reaching our decision, we have considered all arguments made by the

parties, and to the extent not mentioned or addressed, they are irrelevant or

without merit.

      To reflect the foregoing,


                                                           Decision will be entered

                                                    for respondent.
