                         T.C. Memo. 1998-191



                       UNITED STATES TAX COURT



       ERNEST R. INFELISE AND ANN INFELISE, Petitioners v.
           COMMISSIONER OF INTERNAL REVENUE, Respondent



     Docket No. 15207-96.                   Filed May 26, 1998.



     Robert I. Ury, Edward A. Snyder, and Richard C. Gering, for

petitioners.

     Donna C. Hansberry and Robert T. Little, for respondent.


               MEMORANDUM FINDINGS OF FACT AND OPINION


     FOLEY, Judge:    On April 12, 1996, respondent issued a notice

of deficiency to Ernest and Ann Infelise.      In the notice,

respondent determined the following deficiencies in and additions

to petitioners' Federal income tax:
                                 - 2 -


                                        Additions to Tax
Year       Deficiency         Sec. 6653(b)         Sec. 6661

1983        $168,488             $84,244            $42,122
1984          64,130              32,065             16,033
1985          54,404              27,202             13,601
1986         122,711              92,033             30,678
1988          51,165              38,374             12,791


In their petition, filed on July 10, 1996, Ernest and Ann

Infelise challenged respondent's determinations.     After

concessions, the only remaining issue is whether Mrs. Infelise is

entitled, pursuant to section 6013(e), to innocent spouse relief.

All section references are to the Internal Revenue Code in effect

for the years in issue.

                           FINDINGS OF FACT

       Ann Infelise resided in Hollywood, Florida, when the

petition was filed.     On March 20, 1981, she had married Ernest

Infelise, a reputed member of the Chicago organized crime

community.    Before and during their marriage, Mr. Infelise

operated an extensive illegal gambling business that included

sports bookmaking and a variety of card games.     Shortly before

their marriage, Mrs. Infelise attended a "going away party" for

Mr. Infelise's partner, Mr. William Jahoda, who had been

convicted of Federal income tax fraud and sentenced to 2 years in

prison.    At the party, and in Mrs. Infelise's presence, Mr.

Infelise and Mr. Jahoda discussed how the gambling activities

would be reorganized during Mr. Jahoda's incarceration.
                                - 3 -


     During the years in issue, Mr. Infelise and Mr. Jahoda

continued to operate and expand their gambling activities.      Mr.

Infelise's income from these activities totaled $368,000,

$135,000, $110,000, $265,500, and $164,500 in 1983, 1984, 1985,

1986, and 1988, respectively.    Mr. Jahoda managed the daily

affairs of the business and reported to Mr. Infelise.    They

employed four men to collect debts and help run the daily

operations.

     During the years in issue, Mrs. Infelise knew that the

Internal Revenue Service (IRS) was investigating Mr. Infelise's

gambling activities.    In 1983, IRS agents searched petitioners'

home and seized cash, a radio scanner, and gambling records.     In

December of 1986, IRS agents investigated Mr. Infelise's gambling

activities and raided Mr. Jahoda's home.    At a dinner following

the raid of Mr. Jahoda's home, Mrs. Infelise was present during a

discussion between her husband and Mr. Jahoda relating to the

effect the raid would have on the business.    During the years at

issue, Mrs. Infelise attended many other business and social

functions with Mr. Infelise's associates.

     During the years in issue, petitioners filed joint Federal

income tax returns.    The income from Mr. Infelise's gambling

activities was not reported on these returns.    In 1992, Mr.

Infelise was convicted for, among other things, the false

preparation and filing of Federal income tax returns relating to
                               - 4 -


the years in issue.   United States v. Infelise, 835 F. Supp.

1466, 1466 n.1 (N.D. Ill. 1993).




                              OPINION

     Generally, spouses that file joint returns are jointly and

severally liable with respect to the tax due.   Sec. 6013(d)(3).

Mrs. Infelise may, however, be relieved from the general rule of

joint and several liability if she establishes, by a

preponderance of the evidence, each of the following:   (1) A

joint Federal income tax return was filed; (2) on the return

there is a substantial understatement of tax attributable to Mr.

Infelise's grossly erroneous items; (3) in signing the return,

she did not know, and had no reason to know, that there was a

substantial understatement; and (4) it would be inequitable to

hold her liable.   Sec. 6013(e)(1); Park v. Commissioner, 25 F.3d

1289, 1292 (5th Cir. 1994), affg. T.C. Memo. 1993-252; Flynn v.

Commissioner, 93 T.C. 355, 359 (1989).

     Mrs. Infelise contends that she did not know, and had no

reason to know, that petitioners understated their income.   The

record, however, controverts Mrs. Infelise's contention.   Mrs.

Infelise knew that, during the years in issue, her husband

operated an extensive gambling business and that the IRS searched

her home for, and in fact seized, items relating to the business.
                                 - 5 -


She regularly attended social functions with Mr. Infelise's

business associates and was present during discussions relating

to her husband's activities.   Mrs. Infelise is a highly

intelligent woman and had reason to know that the joint returns

she signed understated their income.       Accordingly, she is not

entitled to the relief from liability that section 6013(e)

affords.

     To reflect the foregoing,



                                              Decision will be entered

                                         for respondent.
