                        T.C. Memo. 2003-274



                      UNITED STATES TAX COURT



               ISAAC BARANOWICZ AND LORA D. BARAN,
          f.k.a. LORAINE D. BARANOWICZ, Petitioners v.
           COMMISSIONER OF INTERNAL REVENUE, Respondent



     Docket Nos. 15515-84, 25399-86, Filed September 22, 2003.
                 41668-86.



     Steven D. Blanc, for petitioner Isaac Baranowicz.

     Lora D. Baran, pro se.

     Gary S. Stirbis, for respondent.



             MEMORANDUM FINDINGS OF FACT AND OPINION

     SWIFT, Judge:   In these consolidated cases, the parties have

stipulated deficiencies in petitioners’ Federal income taxes for

1979, 1980, 1981, and 1982 as follows:
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                  Year                  Deficiency
                  1979                   $ 7,662
                  1980                    13,123
                  1981                    22,834
                  1982                    16,069


The parties have also stipulated that these deficiency amounts

constitute substantial underpayments of tax attributable to tax-

motivated transactions under section 6621(c),1 and that there are

no additions to tax due from petitioners for 1980, 1981, and 1982

under section 6653(a)(1) and (2).

     The issue for decision is whether petitioner Lora D. Baran

(Lora) is entitled to relief from joint and several liability

from the above deficiencies and additional interest, which relate

to investments in equipment leasing partnerships.


                           FINDINGS OF FACT

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

     At the time the petitions were filed, petitioners resided in

Los Angeles, California.

     Lora did not graduate from high school.         Lora earned an

associate’s degree in art, but she never completed a 4-year

college degree.    In 1966, petitioners married.       Between 1969 and

1979, Lora was employed at various times as a clerical employee

at banks and as a legal secretary.      In 1979, with the arrival of



     1
        Unless otherwise indicated, all section references are to
the Internal Revenue Code in effect for the years in issue.
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petitioners’ son, Lora ceased employment outside the home and

became a housewife and mother.    Between 1980 and 1984, Lora also

attended college courses pertaining to interior decorating and

design.   Lora has no training in finance, tax, accounting, or

business.

     Early in petitioners’ marriage, petitioner Isaac Baranowicz

(Isaac) attended college and earned a bachelor’s degree, master’s

degree, and a certified public accountant (C.P.A.) license.    In

1968, Isaac began working for an accounting firm in which, by

1975, he had become a partner.    In 1978, Isaac formed I.B.

Management, Inc. (the firm), to establish his own accounting and

financial planning firm.   Isaac, as sole owner and a board member

of the firm, made Lora the secretary of the firm, but Lora’s only

responsibility as secretary was to sign the minutes of the firm’s

board meetings.

     During petitioners’ marriage, Isaac handled all family

financial matters.   Because of Isaac’s education and experience,

Lora relied on and trusted Isaac to handle properly the family’s

finances.   Isaac managed and handled the family’s checkbooks,

retirement accounts, and other investments.    When a financial

matter required Lora’s signature, Isaac instructed Lora where to

sign, and Lora did so without question.

     Through one of Isaac’s clients, Isaac was introduced to

certain equipment leasing partnerships.    Isaac invested in
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several of these partnerships.   Isaac generally withdrew funds

from a joint bank account owned by Lora and himself to make the

partnership investments, but the investments were made only in

the name of Isaac.   Upon referral by Isaac, some of Isaac’s

clients also invested in the equipment leasing partnerships.

Isaac charged these clients fees for his advice relating to the

investments.

     Specifically regarding Isaac’s investments in the equipment

leasing partnerships, Lora relied on Isaac’s accounting and tax

expertise.   Occasionally, Isaac provided Lora with general

information about the equipment leasing partnership investments

he made.   Lora was not familiar with the tax opinions that were

associated with the promotion of the equipment leasing

partnership investments and did not understand the “at risk”

rules of the Internal Revenue Code.

     Petitioners timely filed their joint Federal income tax

returns for 1979, 1980, 1981, and 1982.   Isaac prepared these

income tax returns and instructed Lora to sign the returns.    In

each of these tax returns, Isaac claimed deductions for interest

expense and partnership losses relating to the equipment leasing

partnerships.   Lora signed the tax returns even though she did

not understand the equipment leasing partnership transactions or

how they were reported on the tax returns.
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     In February of 1985, petitioners separated, and on

October 13, 1987, their divorce became final.   In the divorce

decree, several of the investments previously held only in

Isaac’s name were designated as owned by Isaac and Lora jointly,

including the equipment leasing partnership investments giving

rise to the stipulated deficiencies.

     On audit of petitioners’ joint Federal income tax returns

for 1979, 1980, 1981, and 1982, respondent determined

deficiencies in petitioners’ Federal income taxes, based largely

on the disallowance of claimed interest expense and partnership

losses relating to two of the equipment leasing partnerships.

Specifically, respondent determined that the partnership losses

claimed with respect to the equipment leasing partnerships were

not allowable because petitioners did not establish that the

alleged partnership transactions constitute bona fide, arm’s-

length transactions, entered into at fair market value, that such

transactions were entered into for profit, or that such

transactions had any economic substance.   Respondent also

determined that the claimed interest expense deductions relating

to the equipment leasing partnerships were not allowable because

petitioners had not shown that the claimed expenses arose from a

bona fide debtor-creditor relationship.

     On July 12, 2000, Lora filed a Form 8857, Request for

Innocent Spouse Relief, with regard to the above income tax
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deficiencies for 1979 through 1982.       On July 24, 2000, before

respondent replied to Lora’s request for relief, Lora filed an

amended petition, specifically requesting relief under section

6015(b) and (c) from joint and several liability.       On July 9,

2001, respondent determined Lora was entitled to relief from

joint and several liability under section 6015(c) for each year

in issue.   Isaac disputes respondent’s determination that Lora is

entitled to relief from joint and several liability.


                                OPINION

     Taxpayers filing joint Federal income tax returns are

generally jointly and severally liable for all taxes due.       Sec.

6013(d)(3).   Relief from joint liability is available in limited

circumstances under section 6015.    Sec. 6015(b), (c), (f).     Lora

claims she is entitled to relief from joint and several liability

under section 6015(b) and (c).    Lora makes no claim for equitable

relief under section 6015(f).

     Generally, relief is available under section 6015(c) with

respect to taxpayers who are divorced, legally separated, or

living apart from the spouse with whom he or she filed a joint

income tax return for the year in issue.       Such relief is

available only to taxpayers who establish that the items giving

rise to the deficiency are allocable to the former spouse.

Relief is not available where respondent establishes that a

taxpayer had actual knowledge of the items allocable to the
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former spouse.   Sec. 6015(c) and (d); Culver v. Commissioner, 116

T.C. 189, 194 (2001).   In the context of a disallowed deduction,

“actual knowledge” under section 6015(c) requires proof that the

spouse seeking relief had actual knowledge of the factual

circumstances which made the item disallowable as a deduction.

Mora v. Commissioner, 117 T.C. 279, 292 (2001); King v.

Commissioner, 116 T.C. 198, 204 (2001).

     Isaac argues that the investments in the equipment leasing

partnerships were allocable to Lora and himself and that Lora had

actual knowledge of those investments.    As a consequence, Isaac

contends that Lora should not be entitled to relief under section

6015(c).   Lora argues that the investments in the equipment

leasing partnerships were allocable to Isaac and that she lacked

actual knowledge of the underlying circumstances resulting in the

disallowance of the deductions relating to these investments.

Lora contends, and respondent has determined, that she meets the

requirements for relief from joint liability under section

6015(c).

     We conclude that the equipment leasing partnership

transactions are allocable to Isaac.    Isaac made these

investments in his name only.   Isaac was a C.P.A.   Isaac actively

sought out the investments, and he marketed the investments to

his own clients.
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     On the evidence before us, we conclude Lora did not have

actual knowledge of the underlying circumstances resulting in the

disallowance of the deductions related to the equipment leasing

partnership investments.   Isaac sought out these equipment

leasing partnership investments.   Lora was a homemaker, mother,

and part-time student of interior decorating.    Lora was only

generally familiar with the existence of the investments in the

equipment leasing partnerships.    Isaac invested in the equipment

leasing partnerships in his own name, and Isaac, independently of

Lora, used the information relating to those investments in

preparation of the joint income tax returns.    Lora relied on

Isaac’s professional experience as a C.P.A. in signing the joint

income tax returns.   Based on all the facts before us, we agree

with Lora and respondent that Lora did not have actual knowledge

of the underlying equipment leasing partnership transactions

giving rise to the stipulated deficiencies, and, therefore, that

Lora is entitled to relief from joint liability under section

6015(c) for the years in issue.

     Herein, we need not address arguments regarding whether Lora

is entitled to relief under section 6015(b).    Other arguments

made by petitioners that are not specifically addressed have been

considered and rejected.
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Based on the foregoing,


                                       Appropriate decisions

                                  will be entered.
