                        T.C. Memo. 2007-227



                      UNITED STATES TAX COURT



   CHARLES ROY SCHWENDEMAN AND CINDY L. BUTLER, Petitioners v.
           COMMISSIONER OF INTERNAL REVENUE, Respondent




     Docket No. 20028-05.             Filed August 14, 2007.



     Charles Roy Schwendeman and Cindy L. Butler, pro sese.

     Tamara L. Kotzker and Patricia A. Komor, for respondent.



             MEMORANDUM FINDINGS OF FACT AND OPINION


     LARO, Judge:   Petitioners petitioned the Court to

redetermine respondent’s determination of a $3,672 deficiency in

their 2002 Federal income tax.   We decide whether petitioners

substantiated $13,590 of charitable contributions claimed as

deductions on their 2002 Federal income tax return.    We hold they
                                -2-

did not.   Cindy L. Butler (Butler) also requests relief from

joint and several liability under section 6015(b), (c), or (f).1

We hold that Butler does not qualify for any relief under section

6015.

                         FINDINGS OF FACT

     Some facts are stipulated and are so found.   The stipulated

facts and the exhibits submitted therewith are incorporated

herein by this reference.   Petitioners Charles Roy Schwendeman

(Schwendeman) and Butler were husband and wife throughout 2002,

and they filed a joint Federal income tax return for 2002.

Butler and Schwendeman divorced in 2003, and each resided in

Colorado when this petition was filed.

     In 2002, Butler was employed by IBM as an associate project

manager, and Schwendeman was employed as a psychologist.

Schwendeman holds a master’s degree, and Butler has completed

some college courses.

     During 2002, petitioners shared household expenses.   They

were signatories on each other’s accounts, and they had access to

each other’s accounts.




     1
       Unless otherwise indicated, section references are to the
applicable versions of the Internal Revenue Code, and Rule
references are to the Tax Court Rules of Practice and Procedure.
Although the issue as to relief under sec. 6015 was not raised by
the pleadings, that issue was tried by the parties’ express or
implied consent. We consider that issue to be properly before
us. See Rule 41(b).
                                  -3-

     Petitioners’ 2002 income tax return was prepared by H&R

Block.   Butler and Schwendeman went to H&R Block together to have

their return prepared.    During their visit with H&R Block,

petitioners relayed information to the preparer jointly and

waited for the return together.

     On their 2002 return, petitioners claimed deductions for

charitable contributions totaling $13,590 (cash or check

contributions of $13,110 and other contributions of $480).

Butler reviewed the return and noted the amount claimed for

charitable contributions.    Butler had not made any charitable

contributions during the year and asked Schwendeman about the

reported deduction for charitable contributions.    Butler was

informed by Schwendeman that it was “within Internal Revenue

Service guidelines.”    Butler knew that there was a strong

likelihood that Schwendeman had not actually made the

contributions as reported but opted for convenience not to

inquire further.    Schwendeman did not make any charitable

contributions during 2002.

     In 2005, respondent mailed petitioners a notice of

deficiency for 2002.    The notice of deficiency disallowed

petitioners’ deduction for charitable contributions for lack of

substantiation.    After petitioners petitioned the Court to

redetermine that disallowance, Butler requested from respondent

innocent spouse relief for 2002 under section 6015(b), (c), and
                                    -4-

(f), by filing a Form 8857, Request for Innocent Spouse Relief

(request).    Respondent denied Butler’s request, determining that

she signed the joint return despite knowing about the item giving

rise to the deficiency.

                                  OPINION

A.     Deficiency Determination

       The burden of proof is on petitioners to show that

respondent’s determinations set forth in the notice of deficiency

are incorrect.    Rule 142(a)(1); Welch v. Helvering, 290 U.S. 111,

115 (1933).    Deductions are strictly a matter of legislative

grace, and petitioners must show that their claimed deductions

are allowed by the Code.    Rule 142(a); New Colonial Ice Co. v.

Helvering, 292 U.S. 435, 440 (1934); Welch v. Helvering, supra at

115.

       In certain circumstances, if the taxpayer introduces

credible evidence with respect to a factual issue relevant to

ascertaining the taxpayer’s proper tax liability, section

7491(a)(1) places the burden of proof on the Commissioner.    Sec.

7491(a)(1); Rule 142(a)(2).    For the burden to be placed on the

Commissioner under section 7491(a)(1), the taxpayer, inter alia,

must comply with the substantiation and record-keeping

requirements of the Internal Revenue Code (Code).    Sec.

7491(a)(2)(A) and (B).    We conclude that the burden of proof is

not upon respondent because petitioners have failed to introduce
                                 -5-

any evidence to substantiate the claimed charitable contributions

deducted on their joint 2002 Federal income tax return.   In fact,

Butler and Schwendeman testified that she and he, respectively,

did not make charitable contributions in 2002.   We sustain

respondent’s deficiency determination of $3,672.

B.   Relief Under Section 6015

     Spouses filing a joint Federal income tax return are

generally jointly and severally liable for tax found to be owing.

Sec. 6013(d)(3); Butler v. Commissioner, 114 T.C. 276, 282

(2000).   However, it is possible for an individual filing a joint

return to be relieved of such joint and several liability.

Section 6015 prescribes three types of relief:   (1) Full or

apportioned relief under section 6015(b), (2) proportionate

relief under section 6015(c), and (3) equitable relief under

section 6015(f).   Butler claims entitlement to one or more of

these types of relief.   Except as otherwise provided in section

6015, Butler bears the burden of proving that claim.   See Alt v.

Commissioner, 119 T.C. 306, 311 (2002), affd. 101 Fed. Appx. 34

(6th Cir. 2004); see also Rule 142(a)(1).

     To qualify for relief under section 6015(b), a requesting

spouse needs to satisfy the requirements of section 6015(b)(1).

Under section 6015(b)(1), relief may be granted under 6015(b) if

the following factors are met:   (1) A joint return has been made

for the taxable year; (2) on such return there is an
                                -6-

understatement of tax attributable to erroneous items of one

individual filing the joint tax return; (3) the spouse seeking

relief must establish that in signing the return he or she did

not know, nor have reason to know, that there was an

understatement of tax; and (4) taking into account all of the

facts and circumstances, it is inequitable to hold the requesting

spouse liable for the deficiency in tax for the taxable year

attributable to the understatement.   The requesting spouse’s

failure to meet any one of these requirements prevents him or her

from qualifying for full or apportioned relief under section

6015(b).   Alt v. Commissioner, supra at 313.

     We focus on the third requirement concerning knowledge.    The

facts indicate that Butler knew that there was an understatement

of tax when she signed her joint return.   Butler admitted during

her testimony that she suspected that the claimed charitable

contributions were questionable and sensed that they were not

actually made by Schwendeman.   She also admitted that she signed

the return with the inflated deductions because it was not worth

the effort to correct the reported amount.   While Butler was

married to Schwendeman, she was aware of petitioners’ monthly

expenses and combined income.   She also testified that she would

deal with the issue later, were it discovered that an inflated

amount was reported.   We conclude that Butler fails the
                                 -7-

referenced third requirement and, hence, that she does not

qualify for relief under section 6015(b).

     Section 6015(c) allows a qualifying individual to receive

proportionate relief from joint and several liability for a

deficiency if the following conditions, inter alia, are

satisfied:    (1) Upon electing relief under section 6015(c), the

requesting spouse is divorced, legally separated, or otherwise

has lived apart from the other spouse for the past 12 months, and

(2) when the joint return was signed, the requesting spouse did

not have actual knowledge of the items giving rise to the

deficiency.   Actual knowledge is present if the requesting spouse

had actual knowledge of the factual circumstances which made the

item unallowable as a deduction.       King v. Commissioner, 116 T.C.

198, 204 (2001); see also Cheshire v. Commissioner, 115 T.C. 183

(2000), affd. 282 F.3d 326 (5th Cir. 2002).      In that we have

concluded supra that Butler knew that the charitable contribution

deduction was invalid, we hold that Butler does not qualify for

any proportionate relief under section 6015(c).

     Because we have held that Butler is not entitled to either

full or proportionate relief for 2002 under section 6015(b) or

(c), we now consider whether she is entitled to equitable relief.

Under section 6015(f), the Commissioner has the discretion to

grant equitable relief to any individual who files a joint return

but is not entitled to full or proportionate relief under section
                                -8-

6015(b) or (c), and it would be inequitable to hold the

requesting spouse liable for the tax liability.   Respondent

denied Butler’s claim to equitable relief, and Butler bears the

burden of proving that this action was an abuse of respondent’s

discretion.   See Washington v. Commissioner, 120 T.C. 137, 146

(2003); Cheshire v. Commissioner, supra at 198.   In order to

prevail, Butler must demonstrate that respondent exercised his

discretion arbitrarily, capriciously, or without sound basis in

fact or law when respondent denied her the equitable relief.2

See Jonson v. Commissioner, 118 T.C. 106, 125 (2002), affd. 353

F.3d 1181 (10th Cir. 2003).

     Before the Commissioner will consider a taxpayer’s request

for relief under section 6015(f), the taxpayer must satisfy seven

threshold conditions listed in Rev. Proc. 2003-61, sec. 4.01,

2003-2 C.B. 296, 297.   These conditions are as follows:   (1) The

requesting spouse filed a joint return for the taxable year for

which he or she seeks relief; (2) relief is not available to the

requesting spouse under section 6015(b) or (c); (3) the



     2
       This Court has held that our determination of whether a
taxpayer is entitled to relief under sec. 6015(f) “is made in a
trial de novo and is not limited to matter contained in
respondent’s administrative record”. See Ewing v. Commissioner,
122 T.C. 32, 44 (2004), vacated 439 F.3d 1009 (9th Cir. 2006).
That decision was vacated for lack of jurisdiction. We need not
and do not decide here whether our review of respondent’s denial
of relief under sec. 6015(f) is limited to the administrative
record because our holding under sec. 6015(f) would remain the
same in any event.
                                -9-

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 spouses as part of a

fraudulent scheme by the spouses; (5) the nonrequesting spouse

did not transfer disqualified assets to the requesting spouse;

(6) the requesting spouse did not file or fail to file the return

with fraudulent intent; and (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.

     Respondent concedes that Butler satisfies all but one of

these conditions; to wit, whether the income tax liability from

which she seeks relief is attributable to an item of her former

husband, Schwendeman.   The record establishes that the income tax

liability from which Butler seeks relief is attributable to both

her and Schwendeman.

     Neither petitioner made any charitable contributions in

2002.   Yet, they claimed on their 2002 Federal tax return that

they were entitled to deduct $13,590 of charitable contributions

for that year.   They went to H&R Block together; they together

relayed their tax information to the preparer; they reviewed

their joint return together; and they together knew that

charitable contributions were claimed as deductions on their
                               -10-

joint return.   On these facts, we find petitioners jointly

responsible for the claimed charitable contributions and

attribute this item to both of them.

     We have considered all arguments made by petitioners for

holdings contrary to those expressed herein and reject these

arguments not discussed herein as irrelevant or without merit.


                                              Decision will be

                                         entered for respondent.
