                   T.C. Summary Opinion 2008-19



                      UNITED STATES TAX COURT



                    EMILY VELEZ, Petitioner v.
           COMMISSIONER OF INTERNAL REVENUE, Respondent



     Docket No. 23682-05S.            Filed February 25, 2008.



     Emily Velez, pro se.

     Jeremy L. McPherson, for respondent.



     DEAN, Special Trial Judge:   This case was heard pursuant to

the provisions of section 7463 of the Internal Revenue Code in

effect when the petition was filed.   Pursuant to section 7463(b),

the decision to be entered is not reviewable by any other court,

and this opinion shall not be treated as precedent for any other

case.   Unless otherwise indicated, subsequent section references
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are to the Internal Revenue Code as amended, and all Rule

references are to the Tax Court Rules of Practice and Procedure.

     This case arises from a request for relief under section

6015(f) with respect to petitioner’s joint income tax liabilities

for 1996 and 1997.   No notices of deficiency were issued.

Petitioner filed Form 8857, Request for Innocent Spouse Relief

(And Separation of Liability and Equitable Relief), seeking

equitable relief under section 6015(f) for each year.   Respondent

determined that petitioner was not entitled to relief under

section 6015(f) for either year.

     The issue for decision is whether respondent abused his

discretion when he denied petitioner’s request for relief under

section 6015(f) for 1996 and 1997.

                            Background

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

The stipulation of facts and the exhibits received into evidence

are incorporated herein by reference.    At the time the petition

was filed, petitioner resided in California.

     During the years at issue, petitioner’s former husband,

David Velez (Dr. Velez), was a physician.   Petitioner, trained as

a registered nurse, did not work outside of the home until 1997.

Dr. Velez was sued by a patient in 1994 and as a result was

dismissed from his employment.
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     On January 25, 1995, in an attempt to protect themselves

from a judgment in the lawsuit, petitioner and Dr. Velez filed

for bankruptcy under chapter 7 of the Bankruptcy Code, 11 U.S.C.

sections 701-784 (2000).    They received a discharge of

dischargeable debts on May 25, 1995.    Because of the ongoing

lawsuit against him, Dr. Velez was forced to accept a series of

lower paying positions and was eventually unemployed.      He started

a consulting business to provide income for his family.

     During the years 1996 through 1999, Dr. Velez handled the

family finances, hiring and submitting information to a certified

public accountant for preparation of their annual income tax

returns.

     Petitioner and Dr. Velez timely filed a joint Federal income

tax return for 1996 reporting tax due of $13,084.    The return was

filed without remittance.    All of the income reported on the

return was attributable to Dr. Velez.    When petitioner signed the

return for 1996, she was aware that the return was being filed

without remittance.   Dr. Velez told petitioner that the return

was being filed without remittance because he did not have the

money to pay the tax.   Dr. Velez, however, told petitioner that

he anticipated obtaining a job in the “medical field” in the

“near future” and that he was attempting to work out a payment

agreement with the Internal Revenue Service (IRS).
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     Several years before 1996, Dr. Velez was diagnosed as having

contracted, and received treatment for, hepatitis C, but his

illness remained dormant until 1997.

     On March 19, 1997, petitioner and Dr. Velez filed a chapter

13 bankruptcy petition.   The bankruptcy court granted a discharge

on March 17, 1998, and as a consequence, Bank of America was

allowed to foreclose on petitioner’s personal residence.     In

April 1997, petitioner took a job at Waremart, Inc., to help

support her family.

     Dr. Velez’s health started to decline rapidly in 1998, and

he would be unable to work in 1999 and 2000.     The University of

California at Davis offered Dr. Velez a position as a forensic

resident in 1998 at a salary close to what he had been making

before the lawsuit.   But he was advised by his doctor that he

would not be capable of performing his duties without a liver

transplant.   Dr. Velez applied for a transplant, but petitioner’s

health insurer denied the request.     Without the benefit of a

transplant, Dr. Velez was forced to decline the employment offer

from the University of California at Davis.

     On August 27, 1999, petitioner and Dr. Velez filed their

joint Federal income tax return for 1997.     The return was filed

without remittance of the $1,990 tax shown to be due.     Of the

$25,658 of total income reported on the 1997 tax return, $8,465

consisted of petitioner’s wages and the balance was income of Dr.
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Velez.   The $96 of Federal withholding tax reported on the 1997

income tax return was tax withheld from petitioner’s wages.

Petitioner was aware when she signed the return for 1997 that it

would be filed without remittance.     Dr. Velez told petitioner

that he did not have the money to pay the tax.

     Dr. Velez never received a liver transplant, and his health

continued to decline.   He died on November 19, 2000.    As a result

of the two bankruptcies in 1995 and 1997 and his inability to

earn income after 1997, Dr. Velez had no assets at the time of

his death.

     Petitioner filed a Request for Innocent Spouse Relief (And

Separation of Liability and Equitable Relief), including a

“Statement of Facts”, and Form 12510, Questionnaire for

Requesting Spouse.

     The parties agree that:   (a) Petitioner did not receive

significant benefit, beyond normal support, from the unpaid

income tax liabilities for 1996 and 1997; (b) Dr. Velez did not

abuse petitioner; (c) petitioner is not in poor mental or

physical health; (d) petitioner has made a good faith effort to

comply and has complied with the income tax laws in the taxable

years following 1997; (e) and petitioner would not suffer

“economic hardship”, as defined in section 301.6343-1(b)(4),

Proced. & Admin. Regs., if she were required to pay the

outstanding joint income tax liabilities for 1996 and 1997.
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     Petitioner reported wage income of $83,085 for 2005 and

$89,354 for 2006.   A total tax liability of approximately

$5,007.83 remains unpaid for 1996, and approximately $2,872.41

remains unpaid for 1997.

                             Discussion

     Except as otherwise provided in section 6015, petitioner

bears the burden of proof with respect to her entitlement to

relief under section 6015.   See Rule 142(a); Alt v. Commissioner,

119 T.C. 306, 311 (2002), affd. 101 Fed. Appx. 34 (6th Cir.

2004).

Joint and Several Liability and Section 6015 Relief

     Section 6013(d)(3) provides that if a joint return is filed,

the tax is computed on the taxpayers’ aggregate income, and

liability for the resulting tax is joint and several.      See also

sec. 1.6013-4(b), Income Tax Regs.     But the IRS may relieve a

taxpayer from joint and several liability under section 6015 in

certain circumstances.

     To obtain relief from joint and several liability, a spouse

must qualify under section 6015(b) or, if eligible, allocate

liability under section 6015(c).   In addition, if relief is not

available under section 6015(b) or (c), a spouse may seek

equitable relief under section 6015(f).     Fernandez v.

Commissioner, 114 T.C. 324, 329-331 (2000); Butler v.

Commissioner, 114 T.C. 276, 287-292 (2000).
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     Relief under section 6015(b) or (c) is premised on the

existence of a deficiency or an understatement of tax.    Sec.

6015(b)(1)(B) and (c)(1); Washington v. Commissioner, 120 T.C.

137, 145 (2003); Block v. Commissioner, 120 T.C. 62, 65-66

(2003).   This case does not involve a deficiency or an

understatement of tax, and relief under section 6015(b) and (c)

is not available to petitioner.

     Petitioner takes an “alternative position” in which she

argues that she is entitled to allocate liability under section

6015(f) in a manner analogous to section 6015(c) relief for a

deficiency or underpayment.   She bases her argument on language

in H. Conf. Rept. 105-599, at 250 (1998), 1998-3 C.B. 747, 1004,

that indicates that a proposed Senate amendment to H.R. 2676,

105th Cong., 2d Sess., sec. 3201 (1998), would have allowed

allocation in underpayment cases.   As the report makes clear,

however, that amendment was not accepted.    H. Conf. Rept. 105-

599, supra at 251, 1998-3 C.B. at 1005.    The Court must follow

the statute as written, not as it might have been written.

     The IRS may relieve an individual from joint and several

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

facts and circumstances, it is inequitable to hold the taxpayer

liable for any unpaid tax or deficiency and she does not qualify

for relief under section 6015(b) or (c).
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Standard for Review

     The Court reviews the IRS’s denial of innocent spouse relief

under section 6015(f) for abuse of discretion.      See Butler v.

Commissioner, supra at 292.     Under the abuse of discretion

standard, the Court must determine whether the IRS exercised its

discretion arbitrarily, capriciously, or without sound basis in

fact when it denied the requested relief.     Id.   The Court’s

review is limited, and the Court cannot substitute its judgment

for that of the IRS and determine whether in the Court’s opinion

it would have granted relief.    See Patton v. Commissioner, 116

T.C. 206 (2001); Collectors Training Inst., Inc. v. United

States, 96 AFTR 2d 2005-6522, at 2005-6526, 2005-2 USTC par.

50,626, at 89,727 (N.D. Ill. 2005) (stating that an abuse of

discretion “‘means something more than’ the court’s belief that

it would ‘have acted differently if placed in the circumstances

confronting the’” Appeals officer (quoting Johnson v. J.B. Hunt

Transp., Inc., 280 F.3d 1125, 1131 (7th Cir. 2002))).

Guide for Exercise of Discretion

     To guide IRS employees in exercising their discretion, the

Commissioner has issued revenue procedures that list the factors

they should consider; the Court also uses these factors when

reviewing the IRS’s denial of relief.    See Washington v.

Commissioner, supra at 147-152; Rev. Proc. 2003-61, 2003-2 C.B.
                                - 9 -

296, modifying and superseding Rev. Proc. 2000-15, 2000-1 C.B.

447.

       Rev. Proc. 2003-61, sec. 4.01, 2003-2 C.B. at 297, begins

with a list of seven threshold conditions that a taxpayer must

satisfy in order to qualify for relief under section 6015(f).

Respondent concedes that petitioner satisfies each of the seven

threshold conditions.

       A requesting spouse who satisfies all of the applicable

threshold conditions may be relieved of all or part of the

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

facts and circumstances, the IRS determines that it would be

inequitable to hold the requesting spouse liable for the income

tax liability.    Rev. Proc. 2003-61, sec. 4.01.

       To qualify for relief under Rev. Proc. 2003-61, sec. 4.02,

2003-2 C.B. at 298, the requesting spouse must:    (1) No longer be

married to, be legally separated from, or not have been a member

of the same household as the nonelecting spouse at any time

during the 12-month period ending on the date of the request for

relief;    (2) have had no knowledge or reason to know when he or

she signed the return that the nonelecting spouse would not pay

the tax liability; and (3) suffer economic hardship if relief is

not granted.    See Rev. Proc. 2003-61, sec. 4.02(1), 2003-2 C.B.

at 298.
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     Petitioner’s husband passed away on November 19, 2000, and

petitioner’s request for relief was received on May 22, 2003.

Condition 1 is satisfied.

     The Court has reviewed the evidence and concludes that

petitioner has not shown that, at the time she signed the returns

at issue, she had no knowledge or reason to know that her late

husband would not pay the liabilities reported on the joint

returns for 1996 and 1997.

     When she signed the 1996 tax return, she knew that her

husband was unemployed and that he had told her he did not have

any money to pay the tax liability.    Dr. Velez was also still

embroiled in a lawsuit brought by a patient, the threat of which

had caused him and petitioner to file for bankruptcy in January

of 1995.   Although Dr. Velez told petitioner that he “was

attempting to work out a payment agreement” with the IRS, “a

reasonable belief that taxes would be paid must at minimum

incorporate a belief that funds would be on hand within a

reasonably prompt period of time.”     See Banderas v. Commissioner,

T.C. Memo. 2007-129.   Petitioner does not meet all of the

required conditions for relief under Rev. Proc. 2003-61, sec.

4.02(1).

     Where the requesting spouse fails to qualify for relief

under Rev. Proc. 2003-61, sec. 4.02, the IRS may nevertheless

grant relief under Rev. Proc. 2003-61, sec. 4.03, 2003-2 C.B. at
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298.    Rev. Proc. 2003-61, sec. 4.03, contains a nonexhaustive

list of factors that the IRS will consider and weigh when

determining whether to grant equitable relief under section

6015(f):     (1) Marital status, (2) economic hardship, (3) whether

the requesting spouse did not know and had no reason to know that

the nonrequesting spouse would not pay the income tax liability,

(4) the nonrequesting spouse’s legal obligation, (5) significant

benefit, (6) compliance with income tax laws, (7) abuse, and (8)

mental or physical health.      The Court has reviewed respondent’s

application of these factors to the facts and circumstances of

this case.

       1.   Marital Status

       Respondent will take into consideration whether the

requesting spouse is separated or divorced from the nonelecting

spouse.     Rev. Proc. 2003-61, sec. 4.03(2)(a)(i), 2003-2 C.B. at

298.

       Dr. Velez was deceased before petitioner’s request for

relief.     This factor weighs in favor of relief.   See Banderas v.

Commissioner, supra.

       2.   Economic Hardship

       Economic hardship applies if satisfaction of the tax

liability in whole or in part “will cause an individual taxpayer

to be unable to pay his or her reasonable basic living expenses.”

Sec. 301.6343-1(b)(4)(i), Proced. & Admin. Regs.     The
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Commissioner will determine a reasonable amount for basic living

expenses that will vary according to the unique circumstances of

the individual taxpayer.    See Rev. Proc. 2003-61, sec.

4.03(2)(a)(ii), 2003-2 C.B. at 298. (referring to Rev. Proc.

2003-61, sec. 4.02(1)(c) (citing section 301.6343-1(b)(4)(i),

Proced. & Admin. Regs.)).

     Petitioner agrees that she would not suffer economic

hardship, as that term is defined in section 301.6343-1(b)(4)(i),

Proced. & Admin. Regs., if she were required to pay the joint tax

liability.   Petitioner, however, citing Washington v.

Commissioner, 120 T.C. 137 (2003), takes the position that

respondent’s use of that regulation to determine economic

hardship is itself an abuse of discretion.

     Petitioner, it seems, has misread Washington.       The Court in

Washington recognized that the Commissioner has adopted

guidelines “As directed by section 6015(f)” to use when

considering whether a taxpayer qualifies for relief under that

provision.   Id. at 147.    The Court in fact used the

Commissioner’s guidelines1 in reviewing the Washington case.      See



     1
      Rev. Proc. 2003-61, 2003-2 C.B. 296, supersedes Rev. Proc.
2000-15, 2000-1 C.B. 447, as used in Washington v. Commissioner,
120 T.C. 137 (2003). The guidelines set forth in Rev. Proc.
2003-61, supra, are effective for requests for relief filed on or
after Nov. 1, 2003, and for requests for relief pending as of
Nov. 1, 2003, for which no preliminary determination letter was
issued as of Nov. 1, 2003. Rev. Proc. 2003-61, sec. 7, 2003-2
C.B. at 299.
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also Jonson v. Commissioner, 118 T.C. 106, 125-126 (2002), affd.

353 F.3d 1181 (10th Cir. 2003).   What the Court did not do in

Washington was agree with the Commissioner’s conclusion that the

taxpayer had “offered no evidence to show that she would suffer

an economic hardship if relief were denied.”    Washington v.

Commissioner, supra at 149.

     The taxpayer in Washington showed not only that her assets

were meager, but also that she had to support a family of three

at a “near poverty-level existence” (in her case, around

$15,020).   Id. at 150 n.7.   The Court did not hold, as petitioner

mistakenly concludes, that “only taxpayers with income at the

poverty level” will qualify as suffering economic hardship.     The

regulation provides that the Commissioner will consider “any

information provided by the taxpayer” that is relevant to the

determination, including, but not limited to, the factors listed

in the regulation.   See sec. 301.6343-1(b)(4)(ii), Proced. &

Admin. Regs.   The Court found as a fact in Washington that the

taxpayer, on the record in that case, would suffer economic

hardship if not relieved of liability.   The Court finds that

determining economic hardship by reference to section 301.6343-

1(b)(4)(i), Proced. & Admin. Regs., is not arbitrary, capricious,

or without sound basis in fact and is therefore not an abuse of

discretion.
                               - 14 -

     Since petitioner agrees that she would not suffer economic

hardship, as that term is defined in section 301.6343-1(b)(4)(i),

Proced. & Admin. Regs., if she were required to pay the joint tax

liability, the Court finds that this factor weighs against

relief.

     3.   Knowledge or Reason To Know

     The IRS will also consider whether the requesting spouse did

not know or had no reason to know that the nonelecting spouse

would not pay the liability.   Rev. Proc. 2003-61, sec.

4.03(2)(a)(iii)(A), 2003-2 C.B. at 298.   In the case of a

properly reported but unpaid liability, the relevant knowledge is

whether the taxpayer knew or had reason to know when the return

was signed that the tax would not be paid.   See Washington v.

Commissioner, supra at 151; see also Feldman v. Commissioner,

T.C. Memo. 2003-201, affd. 152 Fed. Appx. 622 (9th Cir. 2005).

      The Court has found for respondent on this factor.

Therefore, this factor weighs against relief.   See Beatty v.

Commissioner, T.C. Memo. 2007-167 (applying Rev. Proc. 2003-61

and finding that knowledge or reason to know weighs against

relief); Fox v. Commissioner, T.C. Memo. 2006-22 (same); cf. Levy

v. Commissioner, T.C. Memo. 2005-92 (applying Rev. Proc. 2000-15

and stating that lack of knowledge weighs in favor of relief

while knowledge or reason to know weighs against relief).
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     4.   Nonrequesting Spouse’s Legal Obligation

     This factor weighs in favor of the requesting spouse where

the nonrequesting spouse has a legal obligation to pay the

outstanding income tax liability pursuant to a divorce decree or

an agreement.    Rev. Proc. 2003-61, sec. 4.03(2)(a)(iv), 2003-2

C.B. at 298.    There was no agreement which imposed a legal

obligation on Dr. Velez to pay the outstanding income tax

liabilities.    This is a neutral factor.

     5.   Significant Benefit

     Where the requesting spouse significantly benefited (beyond

normal support) from the unpaid income tax liability, this is a

factor against granting equitable relief.    Rev. Proc. 2003-61,

sec. 4.03(a)(v), 2003-2 C.B. at 299.

     The facts and circumstances here show and the parties agree

that petitioner did not receive any significant benefits, beyond

normal support, from the failure to pay the tax.    The Court

concludes that this factor is neutral.

     6.   Compliance With Income Tax Laws

     Petitioner was in compliance with her income tax

obligations.    This factor favors relief.   See Chou v.

Commissioner, T.C. Memo. 2007-102.

     7.   Presence of Abuse and Mental or Physical Health

     The parties agree that there was no abuse of petitioner, and

she has no mental or physical health problems.    The absence of
                             - 16 -

these factors will not weigh against equitable relief.   See Rev.

Proc. 2003-61, sec. 4.03(2)(b), 2003-2 C.B. at 299.

     There are two factors weighing for and two factors weighing

against relief for petitioner.   It is also clear from the record

that petitioner was the victim of cruel circumstances.   Although

the Court might not have denied relief in this case, the Court

cannot conclude on this record that the IRS exercised its

discretion arbitrarily, capriciously, or without sound basis in

fact when it denied the requested relief under section 6015(f).

     Reviewed and adopted as the report of the Small Tax Case

Division.


                                         Decision will be entered

                                    for respondent.
