                        T.C. Memo. 2007-326



                      UNITED STATES TAX COURT



                 SUSAN KAY DOWELL, Petitioner v.
          COMMISSIONER OF INTERNAL REVENUE, Respondent



     Docket No. 22650-05.             Filed October 30, 2007.



     Susan Kay Dowell, pro se.

     Steven W. LaBounty, for respondent.



             MEMORANDUM FINDINGS OF FACT AND OPINION


     FOLEY, Judge:   The issue for decision is whether petitioner,

pursuant to section 6015,1 is entitled to innocent spouse relief

with respect to her 2000 and 2001 Federal income tax liabilities.




     1
       Unless otherwise indicated, all section references are to
the Internal Revenue Code of 1986, as amended.
                                - 2 -

                           FINDINGS OF FACT

       Petitioner and Reginald Bracy (Mr. Bracy) were married in

1999 and resided in Salina, Kansas.     Petitioner was employed as a

hairdresser, and Mr. Bracy worked as an equipment specialist for

a food services company.    In 2000, petitioner and Mr. Bracy moved

to California.    While in California, petitioner and Mr. Bracy

lived together and struggled to find employment.    To help pay

living expenses during this period, Mr. Bracy requested a

distribution of $19,300 from his individual retirement account

(IRA).    Mr. Bracy was the only individual authorized to draw upon

the account.    After receiving the distribution, Mr. Bracy

informed petitioner, but he did not tell her the amount of the

distribution.

       In 2001, petitioner and Mr. Bracy moved back to Kansas,

where both found employment.    During 2001, petitioner earned

wages of $15,363 from three different employers who withheld

$1,114 of Federal income tax, and Mr. Bracy earned wages of

$18,616 from two employers who withheld $1,748 of Federal income

tax.    In addition, Mr. Bracy withdrew $10,800 from an IRA.

       Petitioner and Mr. Bracy filed their joint Federal income

tax return relating to 2000 on March 26, 2001.    On this return,

they failed to report the $19,300 IRA distribution.    Petitioner

and Mr. Bracy’s joint Federal income tax return relating to 2001

was filed on February 15, 2002.    Mr. Bracy signed the return, but
                                 - 3 -

petitioner did not.    Petitioner did, however, intend to file a

joint return.    On this return, they reported, but failed to pay,

an income tax balance of $823.

     Throughout their marriage, Mr. Bracy abused petitioner both

physically and emotionally, and on August 20, 2002, they

divorced.    Pursuant to the divorce decree, petitioner and Mr.

Bracy were each responsible for one-half of their 2001 tax

liability.    In a notice of deficiency dated September 3, 2002,

respondent determined that petitioner and Mr. Bracy were liable

for $6,517 of tax and a $947 section 6662(a) accuracy-related

penalty relating to 2000.    Petitioner, on October 7, 2002, paid

$411.50 (i.e., half of the 2001 outstanding liability).

     On May 23, 2003, petitioner timely sent respondent a Form

8857, Request for Innocent Spouse Relief, relating to 2000 and

2001.   On August 10, 2005, petitioner untimely filed her

individual income tax return relating to 2003.    She had refrained

from filing the return while trying to settle outstanding issues

relating to her and Mr. Bracy’s 2000 and 2001 tax liabilities.

     On October 20, 2005, respondent issued petitioner a notice

of determination denying her request for innocent spouse relief

relating to both years.    Respondent denied the 2000 request

because he determined that petitioner knew or had reason to know

of the source of the understatement, benefited from the income,

and would not suffer economic hardship.    Respondent denied the
                                - 4 -

request relating to 2001 because he determined that petitioner

knew or had reason to know of the underpayment, the underpayment

was not solely attributable to Mr. Bracy, petitioner knew or had

reason to know that Mr. Bracy would not pay his half of the 2001

liability, petitioner had not been in compliance with Federal

income tax laws, and payment of the liability would not create

economic hardship.

     On November 30, 2005, petitioner, while residing in

Carthage, Illinois, filed her petition with the Court.

                               OPINION

     Married taxpayers may elect to file a joint Federal income

tax return.   Sec. 6013(a).   Each spouse filing the return is

jointly and severally liable for the accuracy of the return and

the entire tax due.   Sec. 6013(d)(3).   Pursuant to section

6015(a), however, a taxpayer may seek relief from joint

liability.

     With respect to the 2000 understatement, petitioner contends

she is entitled to relief from liability pursuant to section

6015(b), (c), or (f).   To qualify for relief pursuant to section

6015(b), the requesting spouse must establish that:    A joint

return was filed; there was an understatement of tax attributable

to erroneous items of the nonrequesting spouse; at the time of

signing the return, the spouse seeking relief did not know and

had no reason to know of the understatement; the requesting
                                 - 5 -

spouse seeks relief within 2 years of the first collection

activity relating to the liability; and, taking into account all

the facts and circumstances, it is inequitable to hold the spouse

seeking relief liable for the deficiency in tax attributable to

the understatement.   Sec. 6015(b)(1).

     Section 6015(c) permits a requesting spouse to seek relief

from joint liability and elect to allocate a deficiency to a

nonrequesting spouse if the following conditions are met:    A

joint return was filed; at the time of the election, the

requesting spouse was separated or divorced from the

nonrequesting spouse; the requesting spouse sought relief within

2 years of the first collection activity relating to the

liability; and the requesting spouse did not have actual

knowledge, at the time of signing the joint return, of the item

giving rise to the deficiency.    Sec. 6015(c)(3).

     Mr. Bracy did not tell petitioner the amount of the

distribution.   She did, however, sign the return (i.e., which did

not report the IRA distribution) after Mr. Bracy told her he had

withdrawn funds from his IRA.    Thus, she had actual knowledge of

the understatement as well as actual knowledge of the item (i.e.,

Mr. Bracy’s withdrawal from his IRA) that gave rise to the

deficiency.   See Cheshire v. Commissioner, 115 T.C. 183, 195

(2000) (stating that the knowledge standard for purpose of

section 6015(c)(3)(C) is an actual and clear awareness of the
                               - 6 -

existence of the item giving rise to the deficiency), affd. 282

F.3d 326 (5th Cir. 2002).   Accordingly, petitioner is not

entitled to relief from the 2000 liability pursuant to section

6015(b) or (c).

     Petitioner contends, in the alternative, that she is

entitled to relief pursuant to section 6015(f).    Section 6015(f)

provides that the Commissioner is granted discretion to award

relief from joint and several liability if the facts and

circumstances indicate that it would be inequitable to hold the

requesting spouse liable for the deficiency.    Pursuant to an

abuse of discretion standard, we defer to the Commissioner’s

determination unless it is arbitrary, capricious, or without

sound basis in fact.   See Washington v. Commissioner, 120 T.C.

137, 146 (2003); Jonson v. Commissioner, 118 T.C. 106, 125

(2002), affd. 353 F.3d 1181 (10th Cir. 2003).

     Respondent denied petitioner’s request for relief relating

to 2000.   We agree with respondent.   Petitioner knew of the

distribution, did not establish economic hardship, benefited from

the enjoyment of the income, and did not act with reasonable

cause and good faith with respect to the filing of her return.

Thus, she is not entitled to relief pursuant to section 6015(f).
                                 - 7 -

     With respect to 2001, respondent also denied petitioner’s

request for relief.   Rev. Proc. 2003-61, 2003-2 C.B. 296,2

provides a list of factors that the Commissioner will weigh in

making his determination relating to innocent spouse relief,

including:   Marital status, abuse, significant benefit, the

nonrequesting spouse’s legal obligation, knowledge or reason to

know, compliance with income tax laws, and economic hardship.     We

address each of respondent’s conclusions.

     At the time of her request, petitioner was divorced from Mr.

Bracy.   During the marriage, Mr. Bracy abused petitioner, and she

derived no significant benefit from use of the funds giving rise

to the 2001 underpayment.   In addition, Mr. Bracy had a legal

obligation, pursuant to the divorce decree, to pay his half of

the 2001 liability.   Thus, these factors weigh in petitioner’s

favor.

     Respondent concluded that petitioner knew or had reason to

know of the 2001 underpayment.    The notice of determination

states that petitioner “reviewed the return before signing but

said she did not know money was owing, even though it was shown




     2
        We note that Rev. Proc. 2003-61, 2003-2 C.B. 296,
superseded Rev. Proc. 2000-15, 2000-1 C.B. 447. Rev. Proc. 2003-
61, supra, is effective for requests for relief under sec.
6015(f) which were filed on or after Nov. 1, 2003, and for
requests for such relief which were pending on, and for which no
preliminary determination letter had been issued as of, that
date. Rev. Proc. 2003-61, sec. 7, 2003-2 C.B. at 299.
                                - 8 -

on the return.”   The notice of determination is erroneous because

petitioner did not sign the 2001 return.     In addition, petitioner

was not aware that any tax was due until she filed individual tax

returns for later years.    Furthermore, Mr. Bracy handled all tax

matters for the couple and did not inform petitioner of financial

matters.   Thus, petitioner did not know, or have reason to know,

of the 2001 underpayment.

     Respondent concluded that the underpayment was not solely

attributable to Mr. Bracy.    While both petitioner and Mr. Bracy

earned wages during 2001, the notice of determination notes that

“She had income of $25,623 but only had withholding of $1,552.”

In fact, petitioner earned wages of only $15,363 and had $1,114

of Federal income tax withheld.    In addition, the notice of

determination failed to take into account a $10,800 distribution

from Mr. Bracy’s IRA.    Again, the notice of determination

misstates the facts.    Respondent correctly concluded, however,

that payment of the outstanding liability relating to 2001 would

not create an economic hardship for petitioner and that

petitioner’s failure to file her 2003 income tax return in a

timely manner demonstrated a lack of good faith in complying with

Federal income tax laws.

     Respondent repeatedly misstated facts and failed to properly

weigh evidence in making his determination.     His determination

did not have a sound basis in fact.     On balance, the factors
                               - 9 -

respondent considered weighed in favor of granting petitioner

innocent spouse relief.   Respondent abused his discretion in

denying petitioner relief from liability, and it would be

inequitable to hold petitioner responsible for the liability.

Accordingly, she is entitled to relief, pursuant to section

6015(f), from the outstanding balance of the 2001 underpayment.

     Contentions we have not addressed are irrelevant, moot, or

meritless.


                                             An appropriate decision

                                       will be entered.
