                        T.C. Memo. 2002-254



                      UNITED STATES TAX COURT



   CRAIG A. PENFIELD, Petitioner, ELENA PARKER, Intervenor v.
          COMMISSIONER OF INTERNAL REVENUE, Respondent



     Docket No. 5389-01.               Filed October 7, 2002.


     Jan R. Pierce, for petitioner.

     Elena Parker, pro se.

     Shirley M. Francis, for respondent.



                        MEMORANDUM OPINION


     PAJAK, Special Trial Judge:    Respondent determined a

deficiency in petitioner’s 1997 Federal income tax in the amount

of $13,666 and a section 6662(a) accuracy-related penalty in the

amount of $1,858.   Only petitioner Craig A. Penfield (petitioner)

has contested this determination.
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     Unless otherwise indicated, section references are to the

Internal Revenue Code in effect for the year in issue, and all

Rule references are to the Tax Court Rules of Practice and

Procedure.

     After a concession by petitioner, this Court must decide

whether petitioner is entitled to relief from liability under

section 6015 with respect to the income tax deficiency and the

section 6662(a) accuracy-related penalty.

     Some of the facts in this case have been stipulated and are

so found.    Petitioner resided in Forest Grove, Oregon, at the

time he filed his petition.

     Petitioner and intervenor Elena Parker (Mrs. Parker) were

married on January 5, 1991.    During their marriage, petitioner

and Mrs. Parker had two children.    In the early years of the

marriage, petitioner earned a living as a church organist and

choir director, a piano teacher, a composer, and a master

locksmith on antique clocks.

     In 1994, petitioner was treated for depression and panic

disorder by Dr. Alan Morgenstern (Dr. Morgenstern), a

psychiatrist.    Dr. Morgenstern referred petitioner to the

Harborview Medical Center (Harborview) in Seattle, Washington. At

Harborview, petitioner was evaluated by Dr. Deborah S. Cowley

(Dr. Cowley).    Dr. Cowley confirmed petitioner’s depression and

panic disorder and recommended treatment.
                                - 3 -

     Petitioner continued to work until 1997.    In 1998,

petitioner was classified as disabled by the Social Security

Administration (SSA), effective as of January 1, 1997.

Petitioner currently receives monthly disability payments of $704

from SSA.   Petitioner also receives $175 per month from SSA for

each of his two children.

     During the taxable year 1997, petitioner and Mrs. Parker

often ate lunch together.    They often went to the bank together.

They opened their bank accounts together.    They talked about

money frequently.    They maintained two joint checking accounts at

the U.S. Bank.   One account was used for household expenses and

the other account was referred to as the “clock account”.

Petitioner and Mrs. Parker also maintained a joint money market

account at the U.S. Bank during 1997.

     Petitioner wrote checks from both the household account and

the clock account.    The household account was the regular

checking account.    The clock account was generally used for a

small business in which petitioner purchased antiques and

collectibles for resale at retail spaces rented by petitioner.

Petitioner used the clock account to deposit amounts received

from the sales of the antiques and collectibles.    Petitioner

handled all the business transactions with respect to this

business which included, among other things, reviewing the clock

account bank statements.    Mrs. Parker only balanced the clock
                                - 4 -

account on a monthly basis.    Petitioner did not report any income

from the sales of his small business on his tax return for 1997

or any other taxable year.

     A number of pension withdrawals were made by petitioner and

Mrs. Parker.   In 1997, Mrs. Parker made an early pension

withdrawal in the amount of $39,577 from Putnam Investments.

(All amounts are rounded.)    An additional pension distribution

was also made from another pension fund of Mrs. Parker during

1997.   Petitioner also received a pension distribution in 1997

from his retirement fund.    Pension distributions totaling $43,783

were deposited in the joint money market account during 1997.

     Petitioner and Mrs. Parker signed and filed a joint Federal

income tax return for the taxable year 1997.    The 1997 return was

prepared by H&R Block.   On the 1997 return, line 16a, Total

pensions and annuities, was left blank.    Petitioner and Mrs.

Parker reported total income of $22,835 on the 1997 return.

     Petitioner and Mrs. Parker divorced on June 13, 1999.

     In the notice of deficiency for the 1997 taxable year,

respondent determined that petitioner and Mrs. Parker had

unreported interest income in the amount of $884, nonemployee

compensation in the amount of $100, royalty income in the amount

of $643, and pension income in the amount of $43,783.

     Petitioner filed a Form 8857, Request for Innocent Spouse

Relief.   Respondent denied petitioner’s request for innocent
                                 - 5 -

spouse relief.    Petitioner filed a timely petition and amended

petition with the Court requesting relief for the taxable year at

issue.    Respondent notified Mrs. Parker who filed a notice of

intervention.

       As a general rule, spouses filing a joint Federal income tax

return are jointly and severally liable for all taxes due.      Sec.

6013(d)(3).     However, an exception to such joint and several

liability exists for spouses able to satisfy the statutory

requirements for relief.

       The Internal Revenue Service Restructuring & Reform Act of

1998, Pub. L. 105-206, sec. 3201(a), 112 Stat. 734, expanded the

relief previously available to joint filers by enacting section

6015.    Section 6015 authorizes three avenues of relief from

section 6013(d)(3) joint and several liability:     (1) Section

6015(b)(1) allows a spouse to escape completely joint and several

liability; (2) section 6015(b)(2) and (c) allow a spouse to elect

limited liability through relief from a portion of the

understatement or deficiency; and (3) section 6015(f) confers

upon the Secretary discretion to grant equitable relief in

situations where relief is unavailable under section 6015(b) or

(c).

       Section 6015 provides, in pertinent part, as follows:

SEC. 6015. RELIEF FROM JOINT AND SEVERAL LIABILITY ON JOINT
RETURN.

*           *          *          *          *          *           *
                                 - 6 -


     (b) Procedures for Relief From Liability Applicable to All
Joint Filers.--

          (1) In general.--Under procedures prescribed by the
     Secretary, if--

                  (A) a joint return has been made for a taxable
          year;

               (B) on such return there is an understatement of
          tax attributable to erroneous items of 1 individual
          filing the joint return;

               (C) the other individual filing the joint return
          establishes that in signing the return he or she did
          not know, and had no reason to know, that there was
          such understatement;

               (D) taking into account all the facts and
          circumstances, it is inequitable to hold the other
          individual liable for the deficiency in tax for such
          taxable year attributable to such understatement; and

               (E) the other individual elects (in such form as
          the Secretary may prescribe) the benefits of this
          subsection not later than the date which is 2 years
          after the date the Secretary has begun collection
          activities with respect to the individual making the
          election,

     then the other individual shall be relieved of liability for
     tax (including interest, penalties, and other amounts) for
     such taxable year to the extent such liability is
     attributable to such understatement.

          (2) Apportionment of relief.--If an individual who, but
     for paragraph (1)(C), would be relieved of liability under
     paragraph (1), establishes that in signing the return such
     individual did not know, and had no reason to know, the
     extent of such understatement, then such individual shall be
     relieved of liability for tax (including interest,
     penalties, and other amounts) for such taxable year to the
     extent that such liability is attributable to the portion of
     such understatement of which such individual did not know
     and had no reason to know.

          (3) Understatement.--For purposes of this subsection,
                                - 7 -

      the term "understatement" has the meaning given to such term
      by section 6662(d)(2)(A).

     (c) Procedures To Limit Liability for Taxpayers No Longer
Married or Taxpayers Legally Separated or Not Living Together.--

           (1) In general.--Except as provided in this subsection,
      if an individual who has made a joint return for any taxable
      year elects the application of this subsection, the
      individual's liability for any deficiency which is assessed
      with respect to the return shall not exceed the portion of
      such deficiency properly allocable to the individual under
      section (d).

           (2) Burden of proof.--Except as provided in
      subparagraph (A)(ii) or (C) of paragraph (3), each
      individual who elects the application of this subsection
      shall have the burden of proof with respect to establishing
      the portion of any deficiency allocable to such individual.

           (3) Election.--

                 (A) Individuals eligible to make election.--

                      (i) In general.--An individual shall only be
                 eligible to elect the application of this
                 subsection if–

                           (I) at the time such election is filed,
                      such individual is no longer married to, or
                      is legally separated from, the individual
                      with whom such individual filed the joint
                      return to which the election relates; or

  *          *         *         *         *         *          *

                (C) Election not valid with respect to certain
           deficiencies.--If the Secretary demonstrates that an
           individual making an election under this subsection had
           actual knowledge, at the time such individual signed
           the return, of any item giving rise to a deficiency (or
           portion thereof) which is not allocable to such
           individual under subsection (d), such election shall
           not apply to such deficiency (or portion). This
           subparagraph shall not apply where the individual with
           actual knowledge establishes that such individual
           signed the return under duress.
                                 - 8 -

  *           *        *          *         *         *           *

     (f) Equitable Relief.--Under procedures prescribed by the
Secretary, if--

           (1) taking into account all the facts and
      circumstances, it is inequitable to hold the individual
      liable for any unpaid tax or any deficiency (or any portion
      of either); and

           (2) relief is not available to such individual under
      subsection (b) or (c),

      the Secretary may relieve such individual of such liability.

      Except as otherwise provided in section 6015, petitioner

bears the burden of proof.   Rule 142(a).   Although section

7491(a) may operate in specified circumstances to place the

burden on the Commissioner, subsection (a)(3) of that section

provides that the burden-shifting does not apply “to any issue if

any other provision of this title provides for a specific burden

of proof with respect to such issue.”    Section 6015(b)(1)(C)

expressly requires the spouse electing relief to establish that

he or she did not know or have reason to know of the

understatement.   Section 6015(c)(2) and (c)(3)(C) explicitly

place the burden of proof on respondent to establish that the

requesting spouse had knowledge of the item giving rise to the

deficiency.

      We point out at this juncture that in deciding whether

petitioner has carried his burden of proof, witness credibility

is an important consideration.    See Ishizaki v. Commissioner,

T.C. Memo. 2001-318.   We are not required to accept petitioner’s
                                 - 9 -

uncorroborated or self-serving testimony.     Tokarski v.

Commissioner, 87 T.C. 74, 77 (1986).     Although petitioner

disputed some of Mrs. Parker's statements, we found Mrs. Parker

to be a credible witness.   Petitioner was not credible.      Our

evaluation of their testimony is founded upon "the ultimate task

of a trier of the facts--the distillation of truth from falsehood

which is the daily grist of judicial life."     Diaz v.

Commissioner, 58. T.C. 560, 564 (1972). Accordingly, our analysis

below is based primarily on, and limited by, what could be

reliably drawn from the totality of the evidence and testimony.

     First, we consider whether petitioner is entitled to relief

under section 6015(b)(1).   To be entitled to relief under section

6015(b)(1), petitioner must satisfy all of the requirements of

subparagraphs (A) through (E).    There is no dispute that

petitioner satisfies subparagraphs (A) and (E).

     We begin our discussion with subparagraph (C).       Section

6015(b)(1)(C) requires that the requesting spouse did not know,

or have reason to know, of the erroneous tax return item.       For

purposes of section 6015(b) relief, petitioner only contends to

lack knowledge with respect to Mrs. Parker’s pension

distributions.   Respondent contends that petitioner knew, or had

reason to know, of Mrs. Parker’s pension distributions and,

therefore, fails to satisfy the requirement of subparagraph (C).

     When the substantial understatement of tax liability is
                              - 10 -

attributable to an omission of income from the joint return, the

spouse’s knowledge or reason to know of the underlying

transaction which produced the income is sufficient to preclude

relief under section 6015(b)(1).   Cheshire v. Commissioner, 115

T.C. 183, 192-193 (2000), affd. 282 F.3d 326 (5th Cir. 2002).     In

Cheshire, the taxpayer knew about the entire amount of retirement

distributions even though she did not know the distributions were

taxable.

     Petitioner and Mrs. Parker met with a financial adviser from

U.S. Bank regarding their pension accounts.   Petitioner testified

that he “had always had that concern [that their pension assets

were not insured by the Federal Deposit Insurance Corporation

(FDIC)]”.   Petitioner talked about this subject frequently.    Mrs.

Parker testified that petitioner requested that the pension

distributions be made because the pension funds were “not

protected by the FDIC”.   He persisted in pressing the point

until, as Mrs. Parker stated, he “bugged” her to make the pension

withdrawals even though there was no other reason to do so.     Yet,

petitioner claims he did not know about the pension fund in

question, when Mrs. Parker’s pension funds were withdrawn at his

insistence.   Petitioner’s knowledge of Mrs. Parker’s pension

distributions is bolstered by the fact that, like the pension

distribution made in the taxable year from petitioner’s own

pension fund, Mrs. Parker’s pension distributions were deposited
                               - 11 -

in the joint money market account.

     Petitioner did not contend that he did not have access to

the joint money market account or the monthly money market

account statements.    Petitioner only claimed that he “never

looked at [the money market account]” monthly statements.

Contradicting that allegation is the fact that shortly after

filing the 1997 return and upon learning that Mrs. Parker was

considering divorce, petitioner, his sister Barbara Snyder (Mrs.

Snyder), and petitioner’s brother-in-law withdrew approximately

$69,000 from the joint money market account without Mrs. Parker’s

knowledge.    This amount included the total pension distributions

of $43,783 deposited in the joint money market account during

1997.    Upon learning of the withdrawal, Mrs. Parker filed suit

against all three individuals.    As a result of the lawsuit, Mrs.

Parker was able to retrieve nearly $58,948 of the withdrawn

funds.    The division of those funds was later settled in the

divorce proceedings.    Mrs. Parker received $40,000, and

petitioner received $18,948.

     Petitioner contends his mental health problems prevented him

from being involved in and understanding financial matters.

However, during 1997, petitioner continued to maintain his small

business.    On December 19, 1996, petitioner and Mrs. Parker

obtained a loan in the amount of $12,200 and deposited the

proceeds in the clock account used for his small business to pay
                              - 12 -

off a credit card debt.   Prior to filing their 1997 return,

petitioner and Mrs. Parker received tax advice from Mrs. Snyder.

Mrs. Snyder had previously worked in a bank and had a financial

background.

     Petitioner’s claim of lack of knowledge is uncorroborated.

Nothing in the record in this case persuades us that petitioner

lacked knowledge of Mrs. Parker’s pension distributions.     Based

on the record, we conclude that petitioner knew about Mrs.

Parker’s pension distributions that gave rise, in part, to the

understatement of the 1997 tax and therefore, petitioner fails to

satisfy the requirement of section 6015(b)(1)(C).   Accordingly,

it is unnecessary to consider the remaining requirements of

section 6015(b)(1).   We sustain respondent’s determination that

petitioner is not entitled to relief under section 6015(b)(1).

Moreover, because we conclude that petitioner knew of Mrs.

Parker’s pension distributions in their entirety, he is not

entitled to apportionment of relief under section 6015(b)(2).

     In general, section 6015(c) allows proportionate tax relief

through allocation of the deficiency between individuals who

filed a joint return and are no longer married, or who are

legally separated, or who have been living apart for preceding 12

months.   However, such allocation is not permitted if the

Secretary demonstrates that the requesting spouse had actual

knowledge, at the time the return was signed, of any item giving
                               - 13 -

rise to a deficiency (or portion thereof) which is not allocable

to such spouse.   Sec. 6015(c)(3)(C).

     In this case, the items contested by petitioner giving rise

to the deficiency which are not allocable to petitioner are Mrs.

Parker’s pension distributions.    There is no dispute that

petitioner satisfies section 6015(c)(3)(A)(i) because he and Mrs.

Parker were no longer married when petitioner filed his petition.

The question remains whether petitioner had actual knowledge, at

the time the joint return was signed, of “any item giving rise to

a deficiency (or portion thereof)”.     Sec. 6015(c)(3)(C).

     Petitioner contends that he was unaware of Mrs. Parkers’s

pension distributions.    Respondent contends that petitioner knew

of Mrs. Parker’s pension distributions and, accordingly, cannot

obtain relief under section 6015(c).

     The knowledge requirement of section 6015(c) does not

require the requesting spouse to possess knowledge of the tax

consequences arising from the item giving rise to the deficiency.

Cheshire v. Commissioner, supra at 194.     However, in the case of

omitted income, the requesting spouse “must have an actual and

clear awareness of the omitted income.”     Id. at 195.   We have

observed that the applicable standard under section 6015(c) is

the requesting spouse’s “actual subjective knowledge” and

indicated that it may be established by circumstantial evidence

in an appropriate case.    Culver v. Commissioner, 116 T.C. 189,
                                - 14 -

197 & n.3 (2001).   Section 6015(c)(3)(C) does not require actual

knowledge on the part of the requesting spouse as to whether the

entry on the return is or is not correct.       Id.   Respondent bears

the burden of proving that the requesting spouse had actual

knowledge.    Sec. 6015(c)(3)(C).   This Court has held that the

level of respondent’s burden is a preponderance of the evidence.

Culver v. Commissioner, supra at 196.

     For the reasons stated above, we conclude that petitioner

had actual knowledge of Mrs. Parker’s pension distributions.

Accordingly, the benefits of section 6015(c) are unavailable to

petitioner.

     Finally, petitioner requests that the Court grant him relief

from the tax and penalty under section 6015(f).       Respondent

argues that he did not abuse his discretion in denying

petitioner’s claim for relief under section 6015(f) because

petitioner did not satisfy the criteria for relief provided in

Rev. Proc. 2000-15, 2000-1 C.B. 447 (the revenue procedure).

     Section 6015(f) confers discretion on the Secretary (and the

Secretary has delegated that discretion to respondent) to grant

innocent spouse relief to an individual who cannot obtain relief

under section 6015(b) or (c).    This relief is available if,

taking into account all the facts and circumstances, it is

inequitable to hold the individual liable for any unpaid tax or

deficiency (or portion of either).       Sec. 6015(f)(1).
                              - 15 -

     We review respondent’s denial of equitable relief to

petitioner under an abuse of discretion standard.     Cheshire v.

Commissioner, 115 T.C. at 198; Butler v. Commissioner, 114 T.C.

276, 292 (2000).   Petitioner bears the burden of proving that

respondent abused respondent’s discretion in denying him relief

under section 6015(f).   Jonson v. Commissioner, 118 T.C. 106, 125

(2002).

     In accordance with section 6015(f), respondent has provided

the revenue procedure to be used in determining whether an

individual qualifies for relief under that section.     Where, as is

the case here, the requesting spouse satisfies the threshold

conditions set forth in section 4.01 of the revenue procedure,

section 4.03, applicable to a relief-seeking spouse in

petitioner’s situation, provides that equitable relief may be

granted under section 6015(f) “if, taking into account all the

facts and circumstances, it is inequitable to hold the requesting

spouse liable for all or part of the unpaid liability or

deficiency.”   The revenue procedure provides a partial list of

positive and negative factors which respondent is to take into

account in considering whether respondent will grant an

individual full or partial equitable relief under section

6015(f).   No single factor is to be determinative in any

particular case, all factors are to be considered and weighed

appropriately, and the list of factors is not intended to be
                              - 16 -

exhaustive.

     The revenue procedure provides a partial list of factors

that weigh in favor of equitable relief.   Petitioner primarily

relies on the economic hardship factor.

     In determining whether a requesting spouse will suffer

economic hardship, the revenue procedure refers to rules similar

to those provided in section 301.6343-1(b)(4), Proced. & Admin.

Regs.   That regulation generally provides that an individual

suffers an economic hardship if the individual is unable to pay

his or her reasonable basic living expenses.

     Petitioner receives disability payments of $704 per month

from SSA.   Petitioner also receives $175 per month for each of

his two children from SSA.   Petitioner also receives $356 of food

stamps each month and an energy assistance subsidy.   Petitioner’s

only evidence of his basic living expenses was his testimony of a

monthly mortgage of $107, home insurance of $72, monthly

utilities of about $203, monthly car expenses of approximately

$100, monthly medical expenses of approximately $23, and monthly

prescription expenses of approximately $116.   Petitioner

presented no other evidence as to the amounts of claimed

expenses.

     The revenue procedure also provides a partial list of

factors applicable to petitioner that weigh against equitable

relief.   The only items contested by petitioner giving rise to

the deficiency which are not allocable to petitioner are Mrs.
                              - 17 -

Parker’s pension distributions.   As stated above, we find that

petitioner had knowledge of Mrs. Parker’s pension distributions.

Petitioner also received a significant benefit from Mrs. Parker’s

pension distributions.   Shortly after the pension distributions

were deposited in the joint money market account, petitioner

withdrew almost all of the money market account funds.     Although

petitioner was required to return some of the withdrawn funds, he

ultimately received a portion of the funds in the divorce

settlement.   Additionally, since the taxable year 1997,

petitioner has not complied with all Federal tax laws.

Petitioner testified that he had never reported any sales or

income from the small business he has continued to maintain.

     Petitioner also failed to establish economic hardship.

Despite petitioner’s claim of monthly income limited to $704 from

SSA, petitioner continued to maintain his small business of

selling antiques and collectibles.     At trial, respondent provided

evidence that from September of 1998 through November of 2001,

petitioner purchased over 190 items totaling more than $22,000

from just one Internet bidding service.    Petitioner claims he did

not receive some of the items.    Even if we reduce the amount by

25 percent, $16,500 is a substantial expense.

     Under the facts and circumstances presented in this case, we

hold that respondent did not abuse his discretion in denying

equitable relief to petitioner under section 6015(f) with respect

to the unreported income items or the section 6662(a) accuracy-

related penalty.
                               - 18 -

     Although petitioner put most of the determinations in the

notice of deficiency into issue, petitioner addressed only the

section 6015 issue and did not otherwise address the correctness

of the determinations.    Accordingly, having resolved the section

6015 issue against him, we deem the determinations in the notice

of deficiency conceded.

     To reflect the foregoing,



                                          Decision will be entered

                                     for respondent.
