                  T.C. Summary Opinion 2005-67



                     UNITED STATES TAX COURT



                 ALICIA M. ELIAS, Petitioner v.
          COMMISSIONER OF INTERNAL REVENUE, Respondent



     Docket No. 3144-03S.               Filed June 1, 2005.


     Alicia M. Elias, pro se.

     Thomas D. Greenaway, for respondent.




     COUVILLION, Special Trial Judge:   This case was heard

pursuant to section 7463 in effect when the petition was filed.1

The decision to be entered is not reviewable by any other court,

and this opinion should not be cited as authority.



     1
      Unless otherwise indicated, subsequent section references
are to the Internal Revenue Code in effect for the year at issue,
and all Rule references are to the Tax Court Rules of Practice
and Procedure.
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     Respondent determined a deficiency of $7,977 in petitioner’s

Federal income tax for the year 1999.    The sole issue for

decision is whether petitioner is entitled to relief from joint

liability under section 6015 for 1999 Federal income tax.

     Some of the facts were stipulated.    Those facts, with the

exhibits annexed thereto, are so found and are made part hereof.

Petitioner’s legal residence at the time the petition was filed

was Pismo Beach, California.

     Petitioner married Lee E. Elias (Mr. Elias) in May 1992.

They were divorced in the latter part of 2002.    They had two

children of their marriage.    Petitioner and Mr. Elias filed a

joint Federal income tax return for the year at issue, 1999.      In

the notice of deficiency, which was issued jointly to petitioner

and Mr. Elias, respondent determined a deficiency of $7,977 in

Federal income tax for 1999.    The deficiency is essentially based

on the disallowance of deductions for various Schedule C, Profit

or Loss From Business, expenses claimed on the 1999 return in

connection with the self-employed activity of Mr. Elias as an

agent for State Farm Insurance (State Farm).    Petitioner was not

involved in this activity, although both petitioner and Mr. Elias

had been engaged with State Farm in different capacities from the

time of their marriage.   During 1999, petitioner was employed as

a claims adjuster for State Farm.    In the latter part of 1999,

Mr. Elias discontinued his insurance agency business to become an
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insurance consultant for State Farm.   In this latter position,

Mr. Elias was an employee.   Throughout the years, petitioner

continued in her employment as a claims adjuster for State Farm.

In the latter part of the year 2000, Mr. Elias became ill with

viral encephalitis, a serious illness that resulted in his

becoming totally and permanently disabled.   His employment with

State Farm ended, and, likewise, petitioner, in November 1999,

terminated her employment with State Farm.

     The notice of deficiency for 1999, referred to earlier, was

issued after petitioner and Mr. Elias were divorced.    Mr. Elias

filed a petition with this Court, challenging the deficiency in

docket No. 2963-03.   Petitioner, in this case, also filed a

petition and challenged the deficiency and further alleged that,

if the determinations in the notice of deficiency were sustained,

she should be relieved from joint liability under section 6015.

In lieu of proceeding to trial on the various determinations in

the notice of deficiency, petitioner and respondent agreed, in a

stipulation, that petitioner would be bound by the outcome (the

decision to be rendered) in the case of Mr. Elias, docket No.

2963-03, to the extent the deficiency did not exceed $7,977 (the

deficiency determined in the notice of deficiency).    Prior to

trial of this case, Mr. Elias settled his case, and a decision

was entered in that case for a deficiency of $7,977.    As a result

of the closing of the case of Mr. Elias and the stipulation of
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petitioner in this case to be bound by the outcome in the case of

Mr. Elias, the deficiency in this case is not at issue.      The sole

issue is whether petitioner is entitled to relief from joint

liability under section 6015 for the deficiency of $7,977 for tax

year 1999.    A notice of filing of petition and right to

intervene, mandated by Rule 325(a), was served by respondent on

Mr. Elias.    King v. Commissioner, 115 T.C. 118 (2000).    Mr. Elias

has not intervened in this case, nor was he a witness at trial.

The sole issue heard at trial was petitioner’s section 6015 claim

for relief.

     Generally, married taxpayers may elect to file jointly a

Federal income tax return.    Sec. 6013(a).   Each spouse is jointly

and severally liable for the entire tax due.    Sec. 6013(d)(3).   A

spouse (requesting spouse) may, however, seek relief from joint

and several liability under section 6015(b) or, if eligible, may

seek an allocation of liability under section 6015(c).      Sec.

6015(a).   If relief is not available under section 6015(b) or

(c), a requesting spouse may seek equitable relief under section

6015(f).   Sec. 6015(f)(2).

     A prerequisite to granting relief under section 6015(b) or

(c) is the existence of a tax deficiency.     Sec. 6015(b)(1)(B) and

(c)(1); Block v. Commissioner, 120 T.C. 62, 65-66 (2003).

Consequently, if there is no deficiency for the year for which

relief is sought, relief from joint and several liability is not
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available under either subsection.      Washington v. Commissioner,

120 T.C. 137, 146-147 (2003); Hopkins v. Commissioner, 121 T.C.

73, 88 (2003); Block v. Commissioner, supra.      In this case, there

is a deficiency in tax; consequently, petitioner can be

considered for relief under section 6015(b) as well as section

6015(c) or (f).

     Under section 6015(b), a taxpayer is entitled to full or

apportioned relief from joint and several liability for an

understatement of tax on a joint return if, among other

requirements, the taxpayer establishes that he or she “did not

know, and had no reason to know” that the other spouse

understated the tax on the return.      Sec. 6015(b)(1)(C).   In this

case, the adjustments in the notice of deficiency all related to

the self-employed business activity of Mr. Elias as an agent for

State Farm and, more specifically, the disallowance of certain

deductions claimed on the return relating to that activity.

Essentially, the disallowed items included expenses for travel,

meals, and entertainment.    Respondent determined, upon

examination of receipts provided by petitioner, that the

disallowed expenses included meals petitioner had consumed, trips

that she took, and gasoline, all of which respondent determined

were personal expenses that were unrelated to Mr. Elias’s

insurance agency activity.    Some of the expenses were for family

trips to Disneyland (a popular resort located in California) and
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other personal expenses.   By petitioner’s stipulation to be bound

in Mr. Elias’s case, petitioner, in effect, conceded respondent’s

determinations for and the reasons for the disallowance of such

items as trade or business expenses.   Although petitioner in this

case did not challenge these determinations, her contention is

that she did not know and had no reason to know that these items

had been claimed as trade or business expenses on their joint

return.   Petitioner knew the personal nature of these underlying

transactions giving rise to the deficiency.   In Levy v.

Commissioner, T.C. Memo. 2005-92, the Court held that the

standard to be applied in such a situation is whether a

reasonably prudent taxpayer under the circumstances of the spouse

requesting relief at the time of signing the return could be

expected to know that the tax liability on the return was

erroneous or that further investigation was warranted.     At trial,

petitioner admitted that she had a college degree in business;

consequently, the Court is satisfied that petitioner, based on

her educational background as well as her own business

experience, knew or should have known the nature of expenses that

could or could not be deducted in determining the net income of

an activity subject to an income tax on its net profits.

Moreover, the Court notes that some of these expenses personally

benefited petitioner; consequently, it would not be inequitable,

in the Court’s view, to hold petitioner liable for the tax
                                - 7 -

deficiency arising from deduction of these personal expenses.

The Court concludes that petitioner is not entitled to relief

under section 6015(b).

     The Court next addresses whether petitioner is entitled to

relief under section 6015(c).   Section 6015(c) provides relief

from joint liability for spouses either no longer married,

legally separated, or living separate and apart.   Generally, this

avenue of relief allows a spouse to elect to be treated as if a

separate return had been filed.    Rowe v. Commissioner, T.C. Memo.

2001-325.   Section 6015(c)(2) places the burden of proof with

respect to establishing the portion of the deficiency allocable

to the electing spouse upon such spouse.   An election is not

valid if the Commissioner demonstrates that the electing spouse

had actual knowledge of an item giving rise to the deficiency.

Sec. 6015(c)(3)(B).

     As noted earlier, the disallowed expenses in this case

related to nonbusiness travel and entertainment expenses, some of

which benefited petitioner personally.   Thus, if petitioner had

filed a separate return, she could not have claimed a deduction

for such expenses because they were not incurred in a trade or

business and were personal.   The Court is satisfied from the

record that respondent demonstrated that petitioner had actual

knowledge that the expenses claimed as deductions on the joint

return were personal in nature and were not deductible.   Sec.
                               - 8 -

6015(c)(3).   Petitioner, therefore, is not entitled to relief

under section 6015(c).

     The final area in which petitioner can be considered for

relief is section 6015(f).   This Court has jurisdiction to review

the Commissioner’s denial of a requesting spouse’s request for

equitable relief under section 6015(f).   To prevail, the taxpayer

must establish that respondent’s denial of equitable relief under

section 6015(f) was an abuse of discretion.   Washington v.

Commissioner, supra at 146; Cheshire v. Commissioner, 115 T.C.

183, 198 (2000), affd. 282 F.3d 326 (5th Cir. 2002).

     Pursuant to section 6015(f), the Commissioner has issued

guidelines setting out threshold conditions that must be met

before a request for relief under section 6015(f) can be

considered.   The guidelines that are applicable to this case are

set out in Rev. Proc. 2003-61, sec. 4.01, 2003-2 C.B. 296, 297.

This Rev. Proc. is applicable to requests for relief that were

pending on November 1, 2003, as to which no preliminary

determination letter had been issued as of that date.   Respondent

agrees that, in this case, no preliminary determination letter

had been issued on November 1, 2003, and, therefore, petitioner’s

request should have been considered under Rev. Proc. 2003-61.

However, in a trial memorandum, respondent acknowledged that

petitioner’s claim for relief under section 6015(f) was

considered under Rev. Proc. 2000-15, sec. 4.01, 2000-1 C.B. 447,
                                - 9 -

448, and relief was denied on the basis that none of the relevant

factors to be considered under Rev. Proc. 2000-15 weighed in

favor of petitioner.    Respondent agrees that Rev. Proc. 2003-61

includes another factor that is not a factor to be considered

under Rev. Proc. 2000-15.    That additional factor in Rev. Proc.

2003-61 is an additional threshold condition that must be met by

the taxpayer before an application for equitable relief can be

considered:   “(7) The income tax liability from which the

requesting spouse seeks relief is attributable to an item of the

individual with whom the requesting spouse filed the joint return

(the ‘nonrequesting spouse’)” unless one of certain other

exceptions applies--none of which exists in this case.

Respondent points out that the expense items on the return that

were disallowed were personal expenses of both petitioner and her

spouse and came within the contemplation of this provision of

Rev. Proc. 2003-61.    Therefore, respondent argues that this

requirement of Rev. Proc. 2003-61 works against petitioner’s

entitlement to relief because the expense items in question were

for her personal expenses (meals she ate, trips she took, and

gasoline purchased for personal use) and, therefore, constituted

a forfeiture of petitioner’s right to be considered for equitable

relief under section 6015(f).    The Court agrees with that

argument.   Petitioner is not entitled to relief under section

6015(f).
                            - 10 -

    Reviewed and adopted as the report of the Small Tax Case

Division.



                                       Decision will be entered

                                  for respondent.
