                        T.C. Memo. 2002-249



                      UNITED STATES TAX COURT



                  RUTH FERRARESE, Petitioner v.
          COMMISSIONER OF INTERNAL REVENUE, Respondent



     Docket No. 11406-00.              Filed September 30, 2002.



     Ruth Ferrarese, pro se.

     Vivian Rodriguez, for respondent.



             MEMORANDUM FINDINGS OF FACT AND OPINION


     COLVIN, Judge:   Respondent determined that petitioner is not

entitled to relief from joint liability for tax under section

6015(f) for 1983.   Petitioner filed a petition under section

6015(e)(1) seeking review of respondent’s determination.   We hold

that petitioner is entitled to equitable relief from joint

liability for tax for 1983 under section 6015(f).
                                 - 2 -

     Section references are to the Internal Revenue Code in

effect for the applicable years.

                           FINDINGS OF FACT

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

A.   Petitioner

     Petitioner resided in Coral Springs, Florida, when she filed

her petition.     Since October 19, 1952, petitioner has been

married to Albert Ferrarese (Ferrarese).

     Petitioner’s and Ferrarese’s checking account balance was

$119.76 on June 22, 2000, $782.53 on July 20, 2000, $315.84 on

August 22, 2000, and $140.78 on September 20, 2000.     At the time

of trial, petitioner was 68, Ferrarese was 77 and was suffering

from congestive heart failure, and their only sources of income

were monthly Social Security payments of about $430 to petitioner

and $1,110 to Ferrarese.     At that time petitioner’s and

Ferrarese’s expenses exceeded their income, and petitioner’s and

Ferrarese’s children were providing money to them to pay some of

their living expenses.     At the time of trial, petitioner and

Ferrarese owned a 1998 Ford Taurus and lived in a condominium in

Florida owned solely by petitioner, the assessed value of which

for county real property tax purposes was between $40,000 and

$50,000.
                                - 3 -

B.   Prior Tax Court Case

     Ferrarese embezzled money from his company from 1975 to

1983.    He embezzled $392,468 in 1983.   Petitioner learned about

the embezzlement when Ferrarese told her about it in January 1984

when he was fired from his job because his embezzlement was

discovered.

     Petitioner agreed in April 1984 to let Ferrarese sign the

1983 return for her, and Ferrarese did so.     Respondent determined

deficiencies in petitioner’s and Ferrarese’s income tax for 1981,

1982, and 1983 based on their failure to report the embezzlement

income.

     Petitioner used the proceeds from the sale in 1985 of a

house owned jointly by her and Ferrarese in Massapequa, New York,

to buy a house in Merrick, New York.      She owned the Merrick house

solely in her name.    She sold the Merrick house and used the

proceeds to buy the Florida condominium that she owned at the

time of trial.    Petitioner paid $52,000 in 1988 for the

condominium.

     In Ferrarese v. Commissioner, T.C. Memo. 1993-404 (Ferrarese

I), affd. 43 F.3d 679 (11th Cir. 1994),1 we held that petitioner

was entitled to relief from joint liability under section 6013(e)

for 1981 and 1982.    In that opinion, we concluded that she filed



     1
        The parties agreed to be bound by the findings of fact in
that case.
                                - 4 -

joint returns for those years, she did not know or have reason to

know of the embezzled funds or of the understatements for 1981 or

1982, she did not significantly benefit from the embezzled funds

omitted from income in 1981 and 1982, and it would have been

inequitable to hold her liable for the 1981 and 1982

deficiencies.    Petitioner’s standard of living was the same in

1983 as it was in 1981 and 1982, and she has never received any

significant benefit from the embezzlement.    However, we held in

Ferrarese I that she was not entitled to relief from joint

liability for 1983 because she knew or had reason to know of the

understatement for 1983 before her husband (with her permission)

signed her name to their 1983 return.

C.     Petitioner’s Request for Relief From Joint Liability for Tax
       Under Section 6015

       On February 19, 2000, petitioner filed Form 8857, Request

for Innocent Spouse Relief (And Separation of Liability and

Equitable Relief), in which she sought relief from joint and

several liability for 1983.    Respondent denied petitioner’s

request by determination letter dated October 10, 2000.

Respondent’s only stated reason for denying relief to petitioner

was:

       Your request for Relief from Joint and Several
       Liability has been disallowed because information
       contained in your case indicates that you had knowledge
       and reason to know of the items that gave rise to the
       tax deficiency. Therefore, your claim is being denied
       under Internal Revenue Code Section 6013(e), 6015(b),
       6015(c) and 6015(f).
                                 - 5 -

                                OPINION

A.   Positions of the Parties

     Respondent determined that petitioner is not entitled to

relief from joint liability under section 6015(b), (c), and (f).

Petitioner contends that respondent’s determination that

petitioner does not qualify for relief under section 6015(f) was

an abuse of discretion.   We agree with petitioner.

     To prevail, petitioner must show that respondent’s denial of

equitable relief from joint liability under section 6015(f) was

an abuse of discretion.   Jonson v. Commissioner, 118 T.C. 106,

125 (2002); Cheshire v. Commissioner, 115 T.C. 183, 198 (2000),

affd. 282 F.3d 326 (5th Cir. 2002); Butler v. Commissioner, 114

T.C. 276, 292 (2000).

B.   Relevance of All the Facts and Circumstances to the
     Commissioner’s Determination Under Section 6015(f)

     Section 6015(f) provides:

          SEC. 6015(f). Equitable Relief.--Under procedures
     prescribed by the Secretary, if--

               (1) taking into account all the facts
          and circumstances, it is inequitable to hold
          the individual liable for any unpaid tax or
          any deficiency (or any portion of either);
          and

               (2) relief is not available to such
          individual under subsection (b) or (c),

     the Secretary may relieve such individual of such
     liability. [Emphasis added.]
                                - 6 -

     The Commissioner has announced a list of factors in Rev.

Proc. 2000-15, sec. 4.03, 2000-1 C.B. 447, 448, that the

Commissioner will consider in deciding whether to grant equitable

relief under section 6015(f).   Rev. Proc. 2000-15, supra, lists

two factors that the Commissioner will consider only in favor of

granting relief:   (1) Whether the taxpayer is separated or

divorced from the nonrequesting spouse; and (2) whether the

taxpayer was abused by his or her spouse.   Rev. Proc. 2000-15,

supra, lists two factors which the Secretary will consider only

against granting relief:   (3) Whether the taxpayer received

significant benefit from the item giving rise to the deficiency;

and (4) whether the taxpayer has made a good faith effort to

comply with Federal income tax laws in the tax years following

the tax year to which the request for relief relates.   Rev. Proc.

2000-15, supra, lists four factors the Secretary will consider

for or against granting relief:   (5) Whether the taxpayer would

suffer economic hardship if relief is denied; (6) whether the

taxpayer knew or had reason to know of the item giving rise to

the deficiency; (7) whether the deficiency is attributable to the

nonrequesting spouse; and (8) whether either spouse has a legal

obligation pursuant to a divorce decree or agreement to pay the

outstanding liability.    Rev. Proc. 2000-15, sec. 4.03(1) and (2),

2000-1 C.B. at 448-449.    Rev. Proc. 2000-15, sec. 4.03, supra,

also states:
                                 - 7 -

     No single factor will be determinative of whether
     equitable relief will or will not be granted in any
     particular case. Rather, all factors will be
     considered and weighed appropriately. The list is not
     intended to be exhaustive.

     In deciding whether respondent’s determination that

petitioner is not entitled to relief under section 6015(f) was an

abuse of discretion, we will consider evidence relating to all

the facts and circumstances.

C.   Whether Petitioner Is Entitled to Equitable Relief

     Respondent concedes that the deficiency is attributable to

Ferrarese.    Petitioner concedes that the marital status and

spousal abuse factors do not favor her, and that the knowledge or

reason to know factor favors respondent.    The parties agree that

the legal obligation factor does not apply because petitioner and

Ferrarese are not divorced.     As discussed next, we conclude that

the disputed factors all favor petitioner.

     1.     Economic Hardship

     Respondent contends that petitioner offered no evidence that

she would suffer economic hardship if relief is denied.    We

disagree.    Petitioner testified that her only source of income

was Social Security, that she could barely pay her bills, that

she and Ferrarese must borrow from their children to pay

expenses, and that she would have to sell her condominium if she

were denied relief under section 6015(f).    Respondent did not
                               - 8 -

cross-examine petitioner on these points and offered no evidence

to contradict petitioner’s testimony.

     Respondent contends that petitioner has not shown that she

would suffer economic hardship if relief from liability is denied

because her hardship is hypothetical.    Respondent relies on Von

Kalinowski v. Commissioner, T.C. Memo. 2001-21, for the

proposition that section 6015(b) requires the taxpayer to show

that the imposition of joint and several liability is inequitable

in terms of the present and not in terms of a future hypothetical

situation.   Respondent’s reliance on Von Kalinowski is misplaced.

In Von Kalinowski, the taxpayer’s hardship was contingent on her

wealthy husband’s not paying the deficiencies during his lifetime

and his dying and disinheriting her.    We concluded that the

taxpayer’s situation was not a hardship for purposes of section

6015(b).   In contrast, petitioner has shown that she will suffer

economic hardship if she is held liable for the 1983 deficiency.

Thus, we reject respondent’s reliance on Von Kalinowski.

     Respondent further contends that petitioner will not suffer

economic hardship if relief is denied because she and Ferrarese

share a bank account and a credit card and function as a single

economic unit.   Respondent also contends that the deficiency will

be satisfied from that bank account whether or not petitioner is

denied relief from joint and several liability.    We disagree

because the only evidence in the record about petitioner’s joint
                                - 9 -

checking account shows that it contains enough to pay only a tiny

fraction of the deficiency for 1983.

     Respondent contends that petitioner will not suffer economic

hardship if relief is denied because her children and family pay

some of her and Ferrarese’s living expenses. Respondent

apparently assumes that petitioner’s children would pay the 1983

taxes, and that, as a result, petitioner would suffer no hardship

if held jointly liable for those taxes.    We disagree.   First,

there is no evidence that petitioner’s children would or could

pay the 1983 taxes; second, we believe it would be a hardship to

compel petitioner to ask her children to do so.     We conclude that

petitioner will suffer economic hardship if she is not relieved

of joint liability.

     2.   Significant Benefit

     Respondent contends that petitioner significantly benefited

from the embezzlement income omitted from petitioner’s and

Ferrarese’s return for 1983.    We disagree.   In Ferrarese I, we

found that petitioner’s expenditures during 1981-83 were neither

unusual nor lavish and did not suggest that petitioner

significantly benefited from the embezzlement income.

Petitioner’s testimony in this case was consistent with our

findings in her prior case, and respondent did not cross-examine

petitioner or offer contrary evidence.    We conclude that
                             - 10 -

petitioner did not significantly benefit from the embezzlement

income.

     As stated above, Rev. Proc. 2000-15, supra, states that the

significant benefit factor can only favor respondent.   In

contrast, in cases decided under section 6013(e) in which the

spouse seeking relief did not significantly benefit from the

omitted income or erroneous deductions attributable to the other

spouse, the fact that the taxpayer did not significantly benefit

weighed in favor of granting relief.   See, e.g., Belk v.

Commissioner, 93 T.C. 434, 440-441 (1989); Foley v. Commissioner,

T.C. Memo. 1995-16; Robinson v. Commissioner, T.C. Memo. 1994-

557; Klimenko v. Commissioner, T.C. Memo. 1993-340; Hillman v.
                             - 11 -

Commissioner, T.C. Memo. 1993-151.2    We conclude that this factor

favors petitioner.

     3.   Compliance With Tax Laws

     Respondent first contends in respondent’s posttrial brief

that petitioner is not in compliance with Federal income tax laws

and that this weighs against relief.    Rev. Proc. 2000-15, sec.

4.03(2)(e), 2000-1 C.B. at 449.   Respondent also first alleges on

brief that petitioner is in arrears on her tax obligations for

1983 because she failed to make $100 monthly payments for

December 1997; February, June, July, August, and December 1998;

February, March, April, September, October, and December 1999;

and January, February, March, April, May, June, and July 2000.




     2
        Cases deciding whether a taxpayer was entitled to
equitable relief under sec. 6013(e)(1)(D) are helpful in deciding
whether a taxpayer is entitled to relief under sec. 6015(f).
Mitchell v. Commissioner, 292 F.3d 800, 806 (D.C. Cir. 2002)
(“Subsection (f) has no statutory antecedent as a stand alone
provision, but has roots in the equity test of former
subparagraph 6013(e)(1)(D) carried forward into subparagraph
6015(b)(1)(D).”), affg. T.C. Memo. 2000-332. In Cheshire v.
Commissioner, 282 F.3d 326, 338 n.29 (5th Cir. 2002), affg. 115
T.C. 183 (2000), the U.S. Court of Appeals for the Fifth Circuit
said:

     Because the wording of § 6015(f)(1) is virtually
     identical to that of former § 6013(e)(1)(D), case law
     construing former § 6013(e)(1)(D) is helpful in
     determining whether the Commissioner abused his
     discretion in denying equitable relief to Appellant
     under current § 6015(f)(1). See Butler, 114 T.C. at
     291 (applying the § 6013(e)(1)(D) standard to a
     § 6015(f) inquiry because ‘the language of sec.
     6015(f)(1) does not differ significantly from the
     language of former sec. 6013(e)(1)(D)’).
                               - 12 -

     Petitioner testified that she has made a good faith effort

to comply with Federal tax laws.    Respondent did not cross-

examine petitioner on this point and offered no contrary

evidence.    Petitioner attached to her reply brief 18 original

canceled checks for $100, payable to the Internal Revenue

Service, for each of the months for which respondent claims she

is in arrears.3   Respondent concedes that petitioner is not late

or in arrears on any tax obligations other than the 1983 tax

liability.    We do not consider respondent’s posttrial factual

allegations because petitioner did not have the opportunity to

dispute them at trial.

D.   Conclusion

     Respondent points out that petitioner knew or had reason to

know of Ferrarese’s embezzlement before he signed her name to

their 1983 return.    However, we believe respondent did not give

adequate weight to other important factors.    Petitioner will

suffer economic hardship if relief is not granted, the

embezzlement income was solely attributable to Ferrarese, she did

not significantly benefit from the embezzlement income, and she

has complied with Federal tax laws since 1983.    We conclude that

respondent’s denial of relief under section 6015(f) was an abuse

of discretion and that, on the basis of all the facts and




     3
        Petitioner also sent a payment for December 1999 but did
not attach the canceled check because respondent did not cash it.
                              - 13 -

circumstances, it would be inequitable to hold petitioner liable

for the 1983 deficiency.   See Belk v. Commissioner, supra; Foley

v. Commissioner, supra; Robinson v. Commissioner, supra; Klimenko

v. Commissioner, supra; Hillman v. Commissioner, supra.

     For the foregoing reasons,

                                              Decision will be

                                         entered for petitioner.
