                           T.C. Memo. 2018-157



                     UNITED STATES TAX COURT



BRIAN BENSON, Petitioner, AND DANNIELLE WELCH-BENSON, Intervenor
       v. COMMISSIONER OF INTERNAL REVENUE, Respondent



    Docket No. 13073-16.                    Filed September 19, 2018.



    Brian Benson, for himself.

    Dannielle Welch-Benson, for herself.

    Karen O. Myrick, for respondent.
                                         -2-

[*2]         MEMORANDUM FINDINGS OF FACT AND OPINION


       MORRISON, Judge: Petitioner seeks relief under section 6015(b), (c), and

(f) from joint and several liability stemming from a joint federal income tax return

he filed with intervenor, his wife, for tax year 2011.1

       His wife owned an S corporation that maintained parking meters and

collected revenue as a subcontractor for the City of St. Louis. The S corporation

fraudulently overbilled the city for its work, including its work in 2011. The S

corporation reported all of its 2011 income--including the income from the fees

attributable to fraudulent overbilling--on its federal income tax return for 2011. In

August 2012, his wife was criminally charged by the U.S. Attorney’s Office for

the overbilling fraud. It was then that petitioner, a pharmaceutical sales

representative, first learned about the overbilling fraud. In October 2012,

petitioner and his wife filed their 2011 return with the IRS. Because his wife

owned the S corporation, they were required to report the S corporation’s income

as pass-through income--and they did so. However, they did not pay the entire

resulting tax liability. On the date the joint return was filed, petitioner had reason


       1
       Unless otherwise indicated, all section numbers refer to sections of the
Internal Revenue Code of 1986, as amended and in effect at all relevant times. All
Rule numbers refer to the Tax Court Rules of Practice and Procedure.
                                          -3-

[*3] to know that his wife would not or could not pay the tax liability reported on

the return because he knew that she had no prospects for earning more money

from the City of St. Louis. In tax years before 2011 it was his wife who had made

the couple’s final federal tax liability payments. In February 2013, his wife went

to prison for the fraud. During her prison term, petitioner filed for divorce. His

wife was released in September 2014. The divorce is still pending; the couple has

split custody of their two sons.

      As we hold below, section 6015(b) and (c) relief is not available to

petitioner because the joint tax liability in this case is not attributable to an

understatement of tax. Further, section 6015(f) relief is not available because

petitioner had reason to know that his wife could not or would not pay the joint

federal tax liability and because of other facts and circumstances, including that

petitioner would not suffer economic hardship if he were to pay the liability.

                                FINDINGS OF FACT

      The parties have stipulated some of the facts. These facts are adopted by the

Court as factual findings. Both petitioner and intervenor (his wife) resided in

Missouri when petitioner filed his petition.

      Petitioner received a bachelor’s degree in biology in 1999. He received a

master’s degree in business administration in 2007 or 2008.
                                       -4-

[*4] Intervenor received a bachelor’s degree in business administration. She

received a master’s degree in human resource management. Intervenor received

both degrees before she married petitioner.

      On June 20, 2005, petitioner and intervenor got married. Intervenor was the

sole owner of Dankar Enterprise, Inc., a subchapter C corporation that she had

started in 1997. Under their prenuptial agreement, petitioner disclaimed any right

to intervenor’s premarriage property that was identified in the agreement, and vice

versa. Intervenor’s Dankar Enterprise stock was identified in the agreement as

part of her premarriage property. Thus, under the prenuptial agreement petitioner

disclaimed any right to the stock of Dankar Enterprise. (As explained later, the

prenuptial agreement was invalidated by a state divorce court in 2016.)

      Petitioner was not involved in the day-to-day operations of Dankar

Enterprise at any time. Nor was he an owner or shareholder of Dankar Enterprise

at any time.

      Starting in 2009, Dankar Enterprise subcontracted to provide day-to-day

street parking meter maintenance and revenue collection services to the City of St.

Louis. By 2011 it had 55 to 60 employees. At intervenor’s direction, the company

submitted false invoices for its subcontracting work. As a result, the company
                                        -5-

[*5] received more payments in 2009, 2010, and 2011, than it was entitled to. The

fraud was unknown to petitioner at the time.

      Petitioner and intervenor generally kept separate bank accounts, including a

personal account and a business account for each spouse. Neither petitioner nor

intervenor used or had access to the other’s personal or business bank account.

Neither petitioner nor intervenor had knowledge of the other’s separate bank

account balances throughout the entire term of the marriage.

      During 2011, petitioner and intervenor maintained a joint bank account for

the payment of household bills. Petitioner generally wrote the checks from the

joint account. The checks were used to pay joint household expenses.

      Each month, Dankar Enterprise deposited some money into the joint bank

account that it reported as wages paid to petitioner for federal tax purposes.

Petitioner did little or no work for Dankar Enterprise. Petitioner had his own job

as a pharmaceutical sales representative.

      Each month, the pharmaceutical company that employed petitioner

deposited his wages into his personal bank account. Petitioner kept a certain

amount every month in his personal bank account and transferred the rest into the

joint bank account. Each month, intervenor also contributed money to the joint

bank account. The amount varied by month.
                                            -6-

[*6] Petitioner and intervenor had their joint income tax returns prepared by Neil

Packman of Rosenthal, Packman & Co. Petitioner and intervenor gathered their

respective tax documents each year for the preparation of their return. Generally,

intervenor met with Packman to deliver the tax documents relevant to the

preparation of the couple’s joint income tax return. Petitioner met with Packman

on at least one occasion. Before filing the couple’s electronic tax returns,

Packman would send the couple a Form 8879, IRS e-file Signature Authorization.

Once Packman received a Form 8879 signed by both petitioner and intervenor, he

would electronically file the tax return.

      Packman timely filed the joint income tax returns for petitioner and

intervenor for 2005 through 2011. Packman also prepared and timely filed Dankar

Enterprise’s federal tax returns for at least 2005 through 2011.

      Petitioner’s federal income tax returns for 2009 through 2012 were filed as

follows:

                            Year             Filing status

                            2009                  Joint
                            2010                  Joint
                            2011                  Joint
                            2012                  Separate
                                         -7-

[*7] 2009 Joint Return. The joint return for 2009 showed a balance due of

$98,284. On March 7, 2011, respondent issued petitioner and intervenor a notice

of intent to levy to collect the 2009 tax liability. On March 21, 2011, intervenor

contacted respondent and requested an installment agreement under which

petitioner and intervenor would fully pay the balance of the 2009 tax liability by

July 19, 2011. Respondent accepted intervenor’s proposed installment agreement.

On March 23, 2011, intervenor made a small payment against the 2009 tax

liability. On July 28, 2011, intervenor made a second payment against the 2009

tax liability. Intervenor made additional payments through November 2011 and

fully paid the account.

      2010 Joint Return. On October 10, 2011, petitioner and intervenor filed

their 2010 joint income tax return showing a balance due of $51,188. On

December 10, 2011, petitioner and/or intervenor entered into an installment

agreement with respondent for payment of the 2010 tax liability. Petitioner and

intervenor failed to meet the requirements of the installment agreement, and it was

terminated by respondent. On March 19, 2012, respondent issued to petitioner and

intervenor a notice of intent to levy to collect the unpaid tax liability for 2010.

Intervenor made monthly payments between April and June 2012 to fully pay the

2010 balance. As petitioner credibly testified, the funds for the additional
                                         -8-

[*8] payments (i.e., the payments not made through withholding) for both the 2009

and 2010 tax years ultimately came from Dankar Enterprise’s receipts from the

City of St. Louis or from the general contractor.

        On April 11, 2011, respondent accepted Dankar Enterprise’s election to be

treated as an S corporation beginning January 1, 2011. In 2011, petitioner and

intervenor operated a joint venture called BDA Insurance Group, LLC. It filed a

federal partnership income tax return on Form 1065, U.S. Return of Partnership

Income, for 2011. During 2011, intervenor also owned Dankar Realty, Inc., an S

corporation.

        On August 16, 2012, petitioner learned that intervenor was going to be

criminally charged for the overbilling fraud.

        On August 20, 2012, intervenor was charged with fraud. Specifically,

intervenor was alleged to have defrauded the general contractor and the City of St.

Louis by causing Dankar Enterprise to submit false invoices to the general

contractor for work that was not performed. It was alleged that Dankar Enterprise

made sham consulting payments as part of the scheme. In particular it was alleged

that:

        !      Dankar Enterprise made sham consulting payments to an unnamed
               person who had blackmailed intervenor by threatening to reveal that
               Dankar Enterprise was submitting false invoices;
                                           -9-

[*9] !         Dankar Enterprise made sham consulting payments to intervenor; and

      !        at the direction of the Treasurer’s Office of the City of St. Louis,
               Dankar Enterprise made sham consulting payments to a second
               unnamed person.2

The criminal charges were made through the filing of an information with the U.S.

District Court for the Eastern District of Missouri by an Assistant U.S. Attorney.3

On the same day, August 20, 2012, intervenor pleaded guilty to the charges in the

information.

      On October 14, 2012, petitioner and intervenor filed a joint federal income

tax return for 2011. Both petitioner and intervenor authorized Packman to file

their 2011 joint income tax return electronically. On that return petitioner and

intervenor reported they earned wages of $323,464, comprising:

      !        $140,497 of wages paid to petitioner as a pharmaceutical
               representative,

      !        $12,300 paid to petitioner by Dankar Enterprise, and



      2
      This seems to be an allegation that someone in the city treasurer’s office
was operating a kickback scheme.
      3
       To be prosecuted for a felony in federal court, a person must be indicted by
a grand jury. Fed. R. Crim. P. 7(a)(1). However, a person can waive the right to
be indicted, in which case the person may be prosecuted by an information. Fed.
R. Crim. P. 7(b). An information is a statement of the essential facts constituting
the offense charged and is signed by a prosecuting attorney. Fed. R. Crim. P.
7(c)(1).
                                        - 10 -

[*10] !      $170,667 paid to intervenor by Dankar Enterprise.

They reported on a Schedule E, Supplemental Income and Loss, that intervenor

earned $196,821 of pass-through income from Dankar Enterprise.

      Petitioner and intervenor reported a total tax liability on their 2011 return of

$136,947. They also reported they owed a $770 estimated-tax penalty, which

brought the total liability to $137,717. They reported $68,204 in withholdings.

They did not make any payments with the return, which showed an unpaid tax

liability of $69,513. Respondent did not mail a notice of deficiency to petitioner

or intervenor for tax year 2011. Petitioner’s income tax liability for 2011 is the

(partly unpaid) income tax liability reported on the jointly filed income tax return

for 2011.

      On December 13, 2012, intervenor was sentenced to 27 months in prison for

the overbilling fraud. In February 2013, intervenor went to prison. It was then

that petitioner and intervenor first began living apart. While intervenor was in

prison, their two sons resided with petitioner.

      In March 2013, petitioner paid the Missouri state income tax due for 2011.

      Starting with the 2012 tax year, petitioner engaged one of intervenor’s tax

advisers, Alma Scarborough, to prepare his federal income tax returns. Each year

(1) petitioner gathered his own tax documents and mailed them to Scarborough,
                                        - 11 -

[*11] (2) petitioner reviewed his return, (3) Scarborough mailed him a Form 8879

to sign before electronically filing his return, and (4) petitioner signed and

returned the Form 8879 to Scarborough. On October 16, 2013, petitioner filed a

married-filing-separately federal income tax return for 2012 reporting $27,159 in

wage income from Dankar Enterprise. Dankar Enterprise deposited payments,

recorded as petitioner’s wages, into the joint bank account during 2012.

      In July 2014, petitioner filed for a divorce from intervenor. At some point

in 2014, petitioner and intervenor became legally separated.

      In September 2014, intervenor was released from prison. Intervenor did not

move back in with petitioner. From September 2014 petitioner and intervenor

split joint custody of their sons.

      For tax years 2013 and 2014, petitioner did not pay the entire amounts of

tax reported on his returns until respondent issued notices of intent to levy.

      On January 27, 2015, petitioner filed with respondent a Form 8857, Request

for Innocent Spouse Relief, for 2011. He also requested relief from joint liability

for 2012; but because he filed a separate return for 2012, he had no joint liability

from which to be relieved.

      On or about November 13, 2015, respondent preliminarily determined to

grant petitioner full relief from the joint income tax liability for 2011. Also on
                                         - 12 -

[*12] November 13, 2015, respondent mailed to intervenor a letter informing her

that respondent had preliminarily granted petitioner full relief from the joint

income tax liability for 2011. The letter informed intervenor that she had a right to

dispute the preliminary determination.

      On November 16, 2015, intervenor submitted to respondent a Form 12509,

Statement of Disagreement, objecting to the preliminary determination to relieve

petitioner of the joint income tax liability for 2011.

      On March 10, 2016, respondent issued to petitioner a final determination for

2011 fully denying petitioner’s request for relief. Also on March 10, 2016,

respondent notified intervenor of his decision to fully deny petitioner’s request for

relief from the joint income tax liability for 2011.

      On November 1, 2016, the Circuit Court of St. Charles County, the court

handling the divorce proceeding, declared the prenuptial agreement invalid

because it did not disclose the values of any assets and therefore did not evidence

that petitioner and intervenor were aware of the full extent of the rights they were

giving up.

      In November 2017, trial was held. Petitioner and intervenor were still

married at the time of trial. Petitioner continues to work as a pharmaceutical sales

representative.
                                         - 13 -

[*13]                                  OPINION

        In general, a spouse who files a joint federal income tax return is jointly and

severally liable for the entire tax liability. Sec. 6013(d)(3). A spouse may be

relieved of the liability under section 6015. There are three particular mechanisms

under which relief is afforded, found in section 6015(b), (c), and (f), respectively.

Because there is no understatement or deficiency for 2011, neither section 6015(b)

nor (c) relieves petitioner of any portion of the joint liability for 2011. See

Hopkins v. Commissioner, 121 T.C. 73, 88 (2003); see also Block v.

Commissioner, 120 T.C. 62, 66 (2003). Thus, the only mechanism by which

petitioner could be afforded relief is section 6015(f).

        In determining whether petitioner is entitled to section 6015(f) relief we

apply a de novo standard of review. See Porter v. Commissioner, 132 T.C. 203,

210 (2009). This means that we do not defer to respondent’s determination to

deny relief to petitioner. Wilson v. Commissioner, 705 F.3d 980, 992 (9th Cir.

2013), aff’g T.C. Memo. 2010-134. A fortiori we do not defer to respondent’s

preliminary determination, which was to grant relief to petitioner.

        Our determination employs a de novo scope of review. Porter v.

Commissioner, 132 T.C. at 210. This means we hear evidence in addition to the

administrative record compiled by respondent. See Wilson v. Commissioner, 705
                                        - 14 -

[*14] F.3d at 987. Petitioner bears the burden of proving he is entitled to relief.

See Porter v. Commissioner, 132 T.C. at 210 (citing Rule 142(a)).

      Section 6015(f) provides that under procedures prescribed by respondent, if,

taking into account all the facts and circumstances, it is inequitable to hold an

individual liable for any unpaid tax or any deficiency and relief is not available to

such individual under subsection (b) or (c), respondent may relieve such

individual of liability. As directed by section 6015(f), respondent has issued a

revenue procedure to guide his employees in determining whether a taxpayer is

entitled to such equitable relief from joint and several liability. Rev. Proc. 2013-

34, 2013-43 I.R.B. 397, modifying and superseding Rev. Proc. 2003-61, 2003-2

C.B. 296. Rev. Proc. 2013-34, supra, provides a three-step analysis for

respondent’s personnel to follow in evaluating requests for equitable relief under

section 6015(f). The Court consults this analysis when reviewing respondent’s

denial of relief. See Washington v. Commissioner, 120 T.C. 137, 147-152 (2003).

Rev. Proc. 2013-34, sec. 4.01, 2013-43 I.R.B. at 399, lists threshold conditions

that must be met before respondent will grant any equitable relief under section

6015(f); Rev. Proc. 2013-34, sec. 4.02, 2013-43 I.R.B. at 400, lists three elements

that, if met, require respondent to grant “streamlined” relief when the threshold

conditions are met; and Rev. Proc. 2013-34, sec. 4.03, 2013-43 I.R.B. at 400, sets
                                         - 15 -

[*15] forth seven nonexclusive factors that respondent will consider in

determining whether equitable relief should be granted when the threshold

conditions are met but streamlined relief is not available because of the

nonsatisfaction of any of the three elements.

1.    The threshold conditions

      Rev. Proc. 2013-34, sec. 4.01, sets forth threshold conditions that must be

satisfied before respondent will consider a request for equitable relief under

section 6015(f). There is no dispute that petitioner satisfies all the threshold

conditions except the following condition: “The income tax liability from which

the requesting spouse seeks relief is attributable (either in full or in part) to an item

of the nonrequesting spouse or an underpayment resulting from the nonrequesting

spouse’s income.” Rev. Proc. 2013-34, sec. 4.01(7). We need not determine

whether this threshold condition is met; even if it is met, petitioner is not entitled

to equitable relief, as we explain below.

2.    The three requirements for streamlined relief

      Rev. Proc. 2013-34, sec. 4.02, states that when the threshold conditions of

section 4.01 are met, the requesting spouse qualifies for a streamlined

determination of relief under section 6015(f) if the following three requirements

are met:
                                         - 16 -

[*16] !      the requesting spouse is no longer married to, or is separated from,
             the nonrequesting spouse at the time respondent makes his
             determination;

      !      the requesting spouse will suffer economic hardship if relief is not
             granted; and

      !      in an underpayment case, the requesting spouse had no knowledge or
             reason to know when the return was filed that the nonrequesting
             spouse would not or could not pay the tax liability reported on the
             joint tax return.

See Rev. Proc. 2013-34, sec. 4.02. All three requirements must be met in order for

the requesting spouse to qualify for a streamlined determination. Id. We discuss

each of these infra parts 2.a, 2.b, and 2.c, respectively.

      a.     Marital status

      Petitioner was separated from intervenor when respondent made his

determination. The first requirement--marital status--is met.

      b.     Economic hardship

      The second requirement is that the requesting spouse will suffer economic

hardship if relief is not granted. Id. sec. 4.03(2)(b). “[E]conomic hardship exists

if satisfaction of the tax liability in whole or in part will cause the requesting

spouse to be unable to pay reasonable basic living expenses.” Id. In determining

whether the requesting spouse will suffer economic hardship, respondent is to

consider the requesting spouse’s current income and expenses and the requesting
                                       - 17 -

[*17] spouse’s assets; furthermore, respondent is to base his determination on

rules similar to section 301.6343-1(b)(4), Proced. & Admin. Regs. Rev. Proc.

2013-34, sec. 4.03(2)(b). Section 301.6343-1(b)(4), Proced. & Admin. Regs.,

provides that in determining a reasonable amount for basic living expenses,

respondent is to consider any information provided by the taxpayer (i.e., the

requesting spouse), including:

      The amount reasonably necessary for food, clothing, housing
      (including utilities, home-owner insurance, home-owner dues, and the
      like), medical expenses (including health insurance), transportation,
      current tax payments (including federal, state, and local), alimony,
      child support, or other court-ordered payments, and expenses
      necessary to the taxpayer’s production of income (such as dues for a
      trade union or professional organization, or child care payments
      which allow the taxpayer to be gainfully employed) * * *

Respondent will consider that the requesting spouse would suffer economic

hardship if two tests are met: (1) either (a) the requesting spouse’s income is

below 250% of the federal poverty level or (b) the requesting spouse’s monthly

income exceeds the requesting spouse’s reasonable basic monthly living expenses

by $300 or less and (2) the requesting spouse does not have assets from which the

requesting spouse can make payments toward the tax liability and still meet

reasonable basic living expenses. Rev. Proc. 2013-34, sec. 4.03(2)(b). If these

two tests are not met, respondent considers all facts and circumstances in
                                          - 18 -

[*18] determining whether the requesting spouse would suffer economic hardship

if relief is not granted. Id. As explained infra part 2.b.i, we find that petitioner’s

current income is $12,717 per month, which is far in excess of 250% of the federal

poverty level. And, as explained infra part 2.b.ii, we find that petitioner’s

reasonable basic living expenses are $10,184, which means his monthly income

exceeds his reasonable basic monthly living expenses by $2,533. Therefore,

petitioner does not meet the first test. It is unnecessary to determine whether

petitioner has assets from which he can make payments toward the tax liability and

still meet reasonable basic living expenses, i.e., the second test. After considering

all facts and circumstances, we conclude that petitioner would not suffer economic

hardship if he is not relieved of the joint liability.

              i.     Petitioner’s current monthly income is $12,717.

       Petitioner credibly testified that his current annual salary is $133,000 and

that he earns an additional $7,000 of annual bonuses. He also credibly testified

that he receives $1,050 per month in installment payments from the previous sale

of a business. Petitioner’s position on brief is that he earns $10,833 per month.

But it is unclear how he calculated this amount. And it is contradicted by his

testimony. We conclude that petitioner’s current monthly income is $12,717 =

($140,000/12) + $1,050.
                                        - 19 -

[*19]         ii.   Petitioner’s reasonable basic living expenses are $10,184 per
                    month.

                    (1)   $1,069 for food and personal care

        The preprinted Form 8857 lists various categories of expenses and

subcategories within each category.

        One category is food and personal care. The subcategories for this category

are: food, housekeeping supplies, personal care products and services, and

clothing and clothing services. Petitioner’s Form 8857 claimed a total of $1,350

in the subcategories of the food-and-personal-care category. On brief, respondent

contends that $1,069 is the maximum allowed in the food-and-personal-care

category, citing as authority section 301.6343-1(b)(4), Proced. & Admin. Regs.

Respondent does not contend that the actual amount of expenses in this category is

less than $1,069. Therefore, we consider respondent to have conceded that the

amount in this category is $1,069. Petitioner’s brief makes no response to

respondent’s argument that the expenses in this category are limited to $1,069.

We consider petitioner to have conceded that the amount is limited to $1,069.

Petitioner’s brief states that the amount of expenses in this category is $700, but

we believe that this is a miscalculation. We do not consider that petitioner has

conceded that the appropriate amount is only $700.
                                         - 20 -

[*20] We conclude that petitioner has $1,069 in monthly expenses in this

category.

                    (2)    Zero for transportation

      The transportation category has two subcategories: (1) auto loan/lease

payment, gas, insurance, licenses, parking, maintenance, etc. and (2) public

transportation. Petitioner stated on his Form 8857 that he had $250 in the first

subcategory and did not state that he had any expenses in the second. Petitioner

credibly testified that he owns no car, that he uses a company car, and that he has

no car expenses. In his brief he did not claim that he had any expenses in the

transportation category.

      Petitioner has conceded that he has no expenses in the transportation

category. Furthermore, the evidence shows that he had none. We conclude that

petitioner has zero in monthly expenses in this category.

                    (3)    $2,975 for house and utilities

      For the category for house and utilities, petitioner claimed on his Form 8857

the following amounts in the subcategories: $1,975 for rent or mortgage; $100 for

real estate taxes and insurance; $700 for electric, oil, gas, water, trash, etc; $150

for telephone and cell phone; and $150 for cable and internet. Respondent’s brief

supplied no reasons for disagreeing with the amounts of the expenses reported on
                                        - 21 -

[*21] the Form 8857. Therefore, we consider respondent to have conceded these

amounts.4 The exception is the $100 for real estate taxes and insurance. Petitioner

credibly testified that he no longer owns a home and that therefore he does not pay

taxes or insurance on a house. In his brief he did not claim that he had any

expenses in the subcategory for real estate taxes and insurance. He has therefore

conceded that he has no expenses in the subcategory for real estate taxes and

insurance. Furthermore, the evidence shows that he had no expenses in the

subcategory for real estate taxes and insurance. We conclude that petitioner has

zero in monthly expenses in the subcategory for real estate taxes and insurance.

      We conclude that petitioner has $2,975 of expenses in the category for

house and utilities, comprising $1,975 for rent or mortgage; $700 for electric, oil,

gas, water, trash, etc.; $150 for telephone and cell phone; and $150 for cable and

internet.

                   (4)    Zero for medical

      The category for medical on the Form 8857 is composed of two

subcategories: health insurance premiums and out-of-pocket expenses. In

petitioner’s brief, he claims that he has $600 in expenses in the medical category.


      4
      Although petitioner testified his rent was $2,000, we gather he was
rounding up from $1,975, the amount on the Form 8857.
                                      - 22 -

[*22] However, he does not point to any evidence of this amount. Nor are we

aware of any such evidence in the record.

      We conclude that petitioner has zero in expenses in this category.

                   (5)   $6,140 for expenses in the “other” category.

      The last category on Form 8857 is “other” expenses. The subcategories in

this “other” category are the following: child and dependent care; caregiver

expenses; income tax withholding; estimated tax payments; term life insurance

premiums; retirement contributions (employer required); retirement contributions

(voluntary); union dues; unpaid state and local taxes (minimum payment); student

loans (minimum payment); court-ordered debt payments (i.e., child support); and

miscellaneous.

                         (a)   $900 for child and dependent care expenses

      Respondent concedes that petitioner has $900 in expenses in the

subcategory for child and dependent care.

                         (b)   $100 for caregiver expenses

      Respondent concedes that petitioner has $100 in expenses in the

subcategory for caregiver expenses.
                                        - 23 -

[*23]                       (c)   $3,350 for income tax withholding

        Petitioner’s brief does not quantify the amount he claims is withheld for

income tax. Respondent contends that petitioner has $3,350 of expense in this

subcategory. This amount roughly corresponds to actual withholding for 2015 and

2016. We hold that the amount is $3,350.

                            (d)   Zero for estimated tax payments

        Although petitioner claimed $100 in this subcategory, his brief concedes

that this amount is zero.

                            (e)   Zero for retirement contributions (employer
                                  required)

        Petitioner did not claim an amount in this subcategory on his Form 8857 or

in his brief.

                            (f)   Zero for retirement contributions (voluntary)

        Petitioner contends that he has $650 of expenses for voluntary retirement

contributions. However, petitioner has not shown that his voluntary contributions

to his retirement plan are a condition of his continued employment. They are not

basic living expenses. See Rev. Proc. 2013-34, sec. 4.03(2)(b) (adopting section

301.6343-1(b)(4), Proced. & Admin. Regs.); see also Yancey v. Commissioner,
                                       - 24 -

[*24] T.C. Memo. 2017-59, at *21 (no economic hardship because requesting

spouse could withdraw from section 401(k) plan).

                         (g)    Zero for union dues

       Petitioner did not claim an amount in this subcategory on his Form 8857 or

in his brief.

                         (h)    Zero for unpaid state and local taxes (minimum
                                payment)

       Petitioner did not claim an amount in this subcategory on his Form 8857 or

in his brief.

                         (i)    $190 for student loans (minimum payment)

       Respondent concedes that this amount is $190.

                         (j)    $1,200 for court-ordered debt payments (i.e., child
                                support)

       Respondent concedes that this amount is $1,200.

                         (k)    $150 for miscellaneous

       Petitioner claimed that he had $150 of miscellaneous expenses on his Form

8857. Respondent’s brief agrees that $150 is the appropriate amount. On brief,

petitioner contends that he has miscellaneous expenses of $2,500 of credit card

expenses and $350 for “childrens’ activities”. Petitioner does not point to

evidence of these amounts. And we cannot be sure that these amounts were not
                                        - 25 -

[*25] counted in other categories or subcategories. We conclude that petitioner

has $150 of miscellaneous expenses.

      c.     Reason to know

      As to the third requirement (i.e., no reason to know about the

underpayment), we find that when the 2011 return was filed petitioner had reason

to know that the tax liability reported on the return would not, and could not, be

paid by intervenor. See Rev. Proc. 2013-34, sec. 4.02(3)(a), 4.03(2)(c)(ii). The

liabilities reported on the couple’s joint returns, up to and including tax year 2011,

had been prepaid in part by withholding from petitioner’s wages. This left

substantial unpaid balances, which intervenor eventually paid (except for the

unpaid balance for the 2011 tax year). For tax years 2009 and 2010, these

payments--made through installment agreements and under threats of levies--were

made a year after each respective return was filed. As petitioner testified, the

ultimate source of the money intervenor used to make these payments was Dankar

Enterprise’s receipts from the City of St. Louis or from the general contractor.

(Intervenor appears to have accessed Dankar Enterprise’s profits by having

Dankar Enterprise (1) pay wages to her and petitioner and (2) pay consulting fees

to her.) On August 16, 2012, petitioner learned that intervenor would be charged

with fraud. On August 20, 2012, the charges were made through an information,
                                        - 26 -

[*26] and intervenor pleaded guilty. On October 14, 2012, petitioner and

intervenor filed their joint return for 2011. The return reported a pre-payment tax

liability of $137,717, which, reduced by $68,204 of payments, resulted in an

unpaid tax liability of $69,513. Petitioner testified that intervenor was unable to

pay this remaining amount because the City of St. Louis and the general contractor

stopped paying Dankar Enterprise after she was charged with fraud. Petitioner

had reason to know that intervenor was unable to pay the remaining tax liability at

the time they filed the return. Therefore he had reason to know that intervenor

would not, or could not, pay the $69,513 unpaid balance.

      Petitioner argues on brief that although he was aware that there was a

$69,513 unpaid balance when the return was filed, he thought that intervenor

would pay the balance because she had paid the balances for prior tax years. Thus,

he contends, he “had no reason to believe the 2011 tax bill would not be paid by

* * * [intervenor].” He contends that he was not aware that the couple had

initially failed to timely pay their tax liabilities for 2009 and 2010. We need not

determine whether petitioner thought that the 2009 and 2010 tax liabilities were

timely paid. The tax liability for year 2011 was entirely different. When

petitioner and intervenor filed the 2011 tax return, petitioner had reason to know
                                        - 27 -

[*27] that Dankar Enterprise would no longer be a source of funds for intervenor

and that intervenor could not and would not pay the unpaid tax liability.

      Rev. Proc. 2013-34, sec. 4.03(2)(c)(ii), states that “[a] reasonable

expectation of payment will be presumed if the spouses submitted a request for an

installment agreement to pay the tax reported as due on the return.” See id. sec.

4.02(3)(a) (cross-referencing section 4.03(2)(c)(ii)). Petitioner argues that he

should be presumed to have had a reasonable expectation that intervenor would

pay the 2011 liability because she had paid the 2009 and 2010 liabilities through

installment agreements. However, no installment agreement was submitted to pay

the 2011 liability. Therefore, petitioner cannot benefit from this presumption.

      Petitioner also argues that the conversion of Dankar Enterprise from a C

corporation to an S corporation resulted in an unanticipated increase in the

couple’s joint tax liability for 2011 compared to prior years. As a C corporation

Dankar Enterprise was taxable on its own income, and intervenor was not taxable

on Dankar Enterprise’s income. See sec. 11(b). When Dankar Enterprise became

an S corporation effective 2011, its income was attributed to intervenor, its sole

shareholder. See sec. 1366(a)(1), (c). It appears that when Dankar Enterprise

changed from C to S status in 2011, intervenor partially avoided the potential

increase in personal tax liability by eliminating the payment of fake consulting
                                        - 28 -

[*28] income that had been reported on her Schedules C, Profit or Loss From

Business, for prior years. Despite this change, however, the joint tax liability still

increased for tax year 2011. These points can be illustrated by the chart below:

          Major sources of income reported for petitioner and intervenor
                                                         Tax year

  Source of income as reported           2009             2010             2011
 Income reported by Dankar
  Enterprise as C corporation
  in 2009 and 2010; as S
  corporation in 2011                 $182,846          $152,686         $196,821
 Petitioner’s wages from
  pharmaceutical sales                 130,688           121,793           140,497
 Petitioner’s wages from
  Dankar Enterprise                       1,000           18,400            12,300
 Intervenor’s wages from                 Not in
  Dankar Enterprise                      record           76,597           170,667
 Total wages reported by both
  petitioner and intervenor            155,340           216,791           323,464
 Intervenor’s Schedule C fees
  for consulting services              230,000           154,403           -0-
 Taxable distributions from             -0-               -0-               -0-
  Dankar Enterprise to                                                 (It was an S
  intervenor                                                           corporation
                                                                            for this
                                                                              year.)
                                        - 29 -

 [*29]
 Intervenor’s pass-through              -0-                -0-          $196,821
  income from Dankar                (It was a C        (It was a C
  Enterprise as S corporation        corporatio       corporation
                                      n for this            for this
                                          year.)              year.)
 Taxable income (includes
  other items of income and
  loss not listed in the rows
  above)                              408,734             380,327        529,801
 Tax (not including estimated
  tax penalty)                        106,335              93,840        136,947

While it may be true that the conversion from C to S status caused an increase in

the joint income tax liability, this increase was not unanticipated when petitioner

signed the 2011 return in October 2012. The pass-through income from Dankar

Enterprise was reported on the 2011 joint return, it was included in the joint

taxable income reported on the return, and it was reflected in the tax reported on

the return. As petitioner testified, he saw that there was a $69,513 balance on the

return and that this liability was unpaid. He knew that intervenor had paid the

unpaid balances from prior years using the revenue from her business, Dankar

Enterprise. He also knew that after the criminal charges these revenues would not

be available to her to pay the unpaid 2011 balance.
                                         - 30 -

[*30] Petitioner also argues that he did not know about intervenor’s fraudulent

scheme involving Dankar Enterprise’s false invoices. We believe he did not know

about the scheme. However, the relevant question is whether he knew or had

reason to know that the tax liability reported on the 2011 return would not and

could not be paid by intervenor. See Rev. Proc. 2013-34, sec. 4.02(3)(a). We hold

that he knew or had reason to know that the tax liability reported on the 2011

return would not and could not be paid by intervenor.

       Finally, Rev. Proc. 2013-34, sec. 4.02(3)(a), states:

       If the nonrequesting spouse * * * maintained control over the
       household finances by restricting the requesting spouse’s access to
       financial information, and because of the * * * financial control, the
       requesting spouse was not able to * * * question the payment of the
       taxes reported as due on the joint return or challenge the
       nonrequesting spouse’s assurance regarding payment of the taxes, for
       fear of the nonrequesting spouse’s retaliation, then the * * * financial
       control will result in this factor being satisfied even if the requesting
       spouse knew or had reason to know * * * that the nonrequesting
       spouse would not pay the tax liability.

Petitioner argues that intervenor restricted his access to information about Dankar

Enterprise. Even if the information was restricted, petitioner did not show that he

feared intervenor’s retaliation. Therefore this requirement is not treated as

satisfied.
                                        - 31 -

[*31] Petitioner is therefore not eligible for streamlined relief under Rev. Proc.

2013-34, sec. 4.02.

3.    Factors considered in granting or denying equitable relief

      Rev. Proc. 2013-34, sec. 4.03, states that equitable relief under section

6015(f) may be granted if, taking into account all the facts and circumstances, it

would be inequitable to hold the requesting spouse responsible for all or part of

the liability. In making the decision, respondent weighs a number of factors,

including, but not limited to, the requesting spouse’s (1) marital status, (2)

possible economic hardship if relief is not granted, (3) knowledge or reason to

know that the tax liability would or could not be paid, (4) legal obligation to pay

the outstanding federal income tax liability, (5) receipt of a significant benefit

from the unpaid income tax liability, (6) compliance with income tax laws, and (7)

mental or physical health at the time of filing.

      a.     Marital status

      This factor weighs in favor of relief if the requesting spouse was no longer

married to, or was separated from, the nonrequesting spouse when respondent

made his determination. Rev. Proc. 2013-34, sec. 4.03(2)(a). Petitioner was

separated from intervenor when respondent made his determination. This factor

weighs in favor of relief.
                                        - 32 -

[*32] b.      Economic hardship

       No economic hardship would result from requiring petitioner to pay the

joint tax liability. See supra part 2.b. This factor is therefore neutral as to whether

relief should be granted. See Rev. Proc. 2013-34, sec. 4.03(2)(b).

       c.     Knowledge or reason to know of intervenor’s inability to pay

       It was not reasonable for petitioner to believe that intervenor would or could

pay the tax liability shown on the 2011 return. See supra part 2.c. Therefore this

factor weighs against relief. See Rev. Proc. 2013-34, sec. 4.03(2)(c)(ii).

       d.     Legal obligation

       A legal obligation in a divorce decree or other legally binding agreement

regarding tax liability will weigh in favor of relief, if the nonrequesting spouse is

to pay, or against relief, if the requesting spouse is to pay. Rev. Proc. 2013-34,

sec. 4.03(2)(d). Petitioner’s and intervenor’s divorce decree is not final, and there

is no other legally binding agreement regarding tax liability. Therefore, this factor

is neutral.

       e.     Significant benefit

       This factor concerns whether the requesting spouse significantly benefited

from the unpaid income tax liability. Rev. Proc. 2013-34, sec. 4.03(2)(e), states

that a significant benefit is any benefit in excess of normal support and that if the
                                        - 33 -

[*33] requesting spouse enjoys the benefits of a lavish lifestyle, such as owning

luxury assets and taking expensive vacations, this factor will weigh against relief.

This factor does not weigh against relief in this case. Petitioner did not receive

any benefit in excess of normal support. Nor did he live a lavish lifestyle.

      Rev. Proc. 2013-34, sec. 4.03(2)(e), states that this factor will weigh in

favor of relief only if the nonrequesting spouse significantly benefited from the

unpaid tax and the requesting spouse had little or no benefit. We believe that

petitioner benefited from the unpaid 2011 tax liability. Although it was intervenor

who customarily made the final payments for previous tax years, and therefore

benefited from not paying the balance of the 2011 tax liability, petitioner’s

financial status was intertwined with intervenor’s. The two shared a joint bank

account into which intervenor directed money. Therefore this factor does not

weigh in favor of relief.

      We conclude that this factor is neutral.

      f.     Tax compliance

      Whether petitioner was in compliance for tax years after 2011 will weigh

for or against relief. See Rev. Proc. 2013-34, sec. 4.03(2)(f)(iii). Although

petitioner timely filed his returns for the years following 2011, he did not timely
                                          - 34 -

[*34] pay his income tax liabilities for 2013 and 2014 and did not make a good-

faith effort to do so.

       This factor weighs against relief.

       g.     Mental or physical health

       Petitioner has not shown he was in poor physical or mental health at the

time the 2011 return was filed. See Rev. Proc. 2013-34, sec. 4.02(2)(g). This

factor is neutral.

4.     Conclusion

       Weighing all the facts and circumstances, we are not persuaded that it

would be inequitable to deny petitioner relief from joint and several liability under

section 6015(f) for tax year 2011. The marital-status factor favors relief. Two

factors (knowledge or reason to know and tax compliance) weigh against relief.

The remaining factors (economic hardship, legal obligation, significant benefit,

and mental or physical health) are neutral. Considering that petitioner had reason

to know that intervenor would not or could not pay the tax liability reported on the

2011 return, and in the absence of economic hardship, we conclude that it would

not be inequitable to deny petitioner relief under section 6015(f) for tax year 2011.

       Petitioner is not entitled to relief under section 6015(b), (c), or (f). Our

decision will therefore favor respondent.
                                  - 35 -

[*35] To reflect the foregoing,


                                                 Decision will be entered for

                                           respondent.
