                  T.C. Summary Opinion 2004-16



                     UNITED STATES TAX COURT



   SANDRA BROWDA, Petitioner, AND DAVID BROWDA, Intervenor v.
          COMMISSIONER OF INTERNAL REVENUE, Respondent



     Docket No. 17710-02S.            Filed February 12, 2004.


     Sandra Browda, pro se.

     David Browda, pro se.

     Michael E. Melone, for respondent.




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

the provisions of section 7463 of the Internal Revenue Code in

effect at the time that the petition was filed.1   The decision to



     1
        Unless otherwise indicated, all subsequent section
references are to the Internal Revenue Code in effect for the
taxable years in issue, and all Rule references are to the Tax
Court Rules of Practice and Procedure.
                                - 2 -

be entered is not reviewable by any other court, and this opinion

should not be cited as authority.

     Pursuant to the provisions of section 6015, petitioner made

an administrative request for relief from Federal income tax

liabilities for the taxable years 1994, 1995, 1996, 1997, and

1998.    Respondent denied petitioner’s request for relief in a

notice of determination issued on October 11, 2002.    Petitioner

timely filed a petition with this Court under section 6015(e) for

review of respondent’s determination.    Intervenor, petitioner’s

former husband, filed a Notice of Intervention under Rule 325(b)

and opposes such relief.

     The sole issue for decision is whether respondent abused his

discretion in denying petitioner relief from joint and several

liability under section 6015(f).    We hold that he did.

Background

     Some of the facts have been stipulated, and they are so

found.    Petitioner resided in Berkeley, California, at the time

that her petition was filed with the Court.

     Petitioner and intervenor David Browda (intervenor) were

married to each other on March 22, 1970, and had one child, a

daughter, during their marriage.    In or about 1972, petitioner

and intervenor jointly purchased a home in which they resided

throughout their marriage.
                               - 3 -

     Petitioner is a high school graduate who was employed as a

librarian by a law firm during the taxable years in issue.

Petitioner’s employer withheld taxes from her wages, and such

withholding was more than sufficient to pay petitioner’s personal

income tax liabilities.   Intervenor is a college graduate who was

self-employed as a salesman during the taxable years in issue.

Intervenor did not make estimated quarterly tax payments in

respect of his self-employment income; rather, he relied on

petitioner’s excess withholding to satisfy, at least in part, his

personal income tax liabilities.

     Petitioner and intervenor maintained separate bank accounts

throughout their marriage.   Petitioner primarily paid the monthly

expenses related to their daughter.    Intervenor was responsible

for paying most of the household expenses, which included, among

other things, the monthly home mortgage, property taxes, auto

insurance, and household utilities.

     Petitioner and intervenor filed joint Federal and State

income tax returns during their marriage.   Petitioner did not

participate in the preparation of any of their joint tax returns.

Each year petitioner gave her Form W-2, Wage and Tax Statement,

to intervenor who had the tax return prepared by a paid preparer.

Petitioner willingly signed each tax return without meticulous

examination.   Prior to the taxable years in issue, intervenor

paid all income tax balances due with respect to the couple’s
                                - 4 -

jointly filed tax returns.

     Several times during the couple’s marriage, the California

Franchise Tax Board notified petitioner and her employer that her

wages would be subject to garnishment for intervenor’s share of

the unpaid State income taxes reported on their jointly filed

State income tax returns.    On each such occasion, petitioner

notified intervenor of the impending garnishment and intervenor

paid the State income taxes due.

     Petitioner and intervenor filed joint Federal income tax

returns for the taxable years 1994, 1995, 1996, 1997, and 1998.

The tax returns were prepared by a paid income tax return

preparer.   The 1994 tax return was filed on September 23, 1996;

the 1995 tax return was filed on October 21, 1996; and the 1996,

1997, and 1998 tax returns were filed on October 23, 2000.2

After prepayments consisting principally of petitioner’s tax

withholdings, petitioner and intervenor reported the following

balances of tax due on each tax return:3




     2
        The 1994 tax return had no date with petitioner’s
signature. However, intervenor signed the 1994 tax return on
Sept. 17, 1996. Petitioner signed the 1995 tax return on Oct.
14, 1996. The 1996 tax return had no date with petitioner’s
signature. However, intervenor signed the 1996 tax return on
Aug. 31, 1998. Petitioner signed the 1997 return on Aug. 31,
1998. Petitioner signed the 1998 return on Mar. 8, 2000.
     3
         All amounts have been rounded.
                                  - 5 -

                 Year             Amount of Taxes Due1
                 1994                   $1,484
                 1995                    2,397
                 1996                    4,490
                 1997                    7,291
                 1998                    6,727
            1
              Given petitioner’s excess withholdings, these amounts
     relate to intervenor’s self-employment taxes and sec. 1 income
     taxes on intervenor’s self-employment income.

No payments were submitted with any of the tax returns.4

Petitioner knew that there was a balance of tax due with respect

to each filed tax return.

     Petitioner and intervenor were legally separated on October

29, 1999.

     In 2000, petitioner notified intervenor that her 1999 tax

refund in the amount of $921 had been applied by respondent

toward the prior years’ unpaid joint tax liabilities.           On August

2, 2000, intervenor sent petitioner a check for $921 to reimburse

her for her 1999 tax refund.5

     Petitioner and intervenor sold their jointly owned home in

2000.    No portion of the sale proceeds was applied to the

outstanding tax liabilities in issue.


     4
        During 1997 and 1998, intervenor made tax payments to
respondent toward the 1994 tax liability which totaled $778. A
$250 payment was also made with respect to the 1996 tax liability
at the time a Form 4868, Application for Automatic Extension of
Time To File U.S. Individual Income Tax Return, was filed for the
1996 taxable year.
     5
        Petitioner did not learn that her 1999 tax refund had
been applied by respondent toward the prior years’ unpaid joint
tax liabilities before signing any of the tax returns for the
taxable years in issue.
                               - 6 -

     Petitioner and intervenor were divorced in 2001.

     On October 1, 2001, petitioner submitted to respondent a

Form 8857, Request for Innocent Spouse Relief, requesting section

6015 relief.   Petitioner lived apart from intervenor during the

12-month period preceding her request.

     On November 5, 2001, petitioner submitted to respondent a

completed Innocent Spouse Questionnaire and related attachments.

     On November 14, 2001, respondent received from intervenor a

Form 12507, Innocent Spouse Statement, and a Form 12508, Innocent

Spouse Information Request.

     On March 11, 2002, respondent sent a preliminary letter to

petitioner notifying her that she was not entitled to relief

under section 6015.

     In April 2002, petitioner submitted to respondent a Form

12509, Statement of Disagreement.   Petitioner also submitted a

Form 433-A, Collection Information Statement for Wage Earners and

Self-Employed Individuals.

     On October 11, 2002, respondent issued a notice of

determination advising petitioner that she was not entitled to

relief under section 6015.

Discussion

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

return are jointly and severally liable for all taxes shown on

the return or found to be owing.    Sec. 6013(d)(3); Cheshire v.
                                 - 7 -

Commissioner, 115 T.C. 183, 188 (2000), affd. 282 F.3d 326 (5th

Cir. 2002).   However, relief from joint and several liability is

available to certain taxpayers under section 6015.     There are

three types of relief available under section 6015:     (1) Section

6015(b)(1) provides full or apportioned relief from joint and

several liability; (2) section 6015(c) provides proportionate tax

relief to divorced or separated taxpayers; and (3) section

6015(f) provides equitable relief from joint and several

liability in certain circumstances if neither section 6015(b) nor

(c) is available.

     Petitioner concedes that she is not eligible for relief

under either section 6015(b) or (c).     Petitioner has instead

requested equitable relief under section 6015(f).

     Section 6015(f) provides:

          SEC. 6015(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.

     We review respondent’s denial of equitable relief to

petitioner after a trial de novo and under an abuse of discretion

standard.   Ewing v. Commissioner, 122 T.C.       (2004); Cheshire
                               - 8 -

v. Commissioner, supra at 198; Butler v. Commissioner, 114 T.C.
276, 292 (2000).   Petitioner bears the burden of proving that

respondent’s denial of equitable relief under section 6015(f) was

an abuse of discretion.   Rule 142(a); Alt v. Commissioner, 119

T.C. 306, 311 (2002); Jonson v. Commissioner, 118 T.C. 106, 113

(2002), affd. 353 F.3d 1181 (10th Cir. 2003).   Petitioner must

demonstrate that respondent exercised his discretion arbitrarily,

capriciously, or without sound basis in fact or law.   Jonson v.

Commissioner, supra at 125; Woodral v. Commissioner, 112 T.C. 19,

23 (1999).

     As directed by section 6015(f), the Commissioner has

prescribed procedures to be used in determining whether the

requesting spouse qualifies for relief from joint and several

liability under section 6015(f).   These procedures are set forth

in Revenue Procedure 2000-15, 2000-1 C.B. 447 (the revenue

procedure).6   Where, as here, the requesting spouse satisfies the

threshold conditions,7 section 4.02(1) of the revenue procedure

sets forth the circumstances under which respondent ordinarily

will grant relief to that spouse under section 6015(f) in a case

like the instant case where a liability is reported on a joint

return but not paid.   Subject to limitations not applicable here,


     6
        As relevant herein, Rev. Proc. 2000-15, sec. 3, 2000-1
C.B. 447, 448, is applicable with respect to any liability for
tax arising after July 22, 1998, or any liability for tax arising
on or before July 22, 1998, that was unpaid on that date.
     7
        Respondent concedes that petitioner has satisfied the
threshold conditions of Rev. Proc. 2000-15, sec. 4.01, supra.
                               - 9 -

section 4.02(1) of the revenue procedure provides that equitable

relief will ordinarily be granted if all of the following

elements are satisfied:

          (a) At the time relief is requested, the
     requesting spouse * * * has not been a member of the
     same household as the nonrequesting spouse at any time
     during the 12-month period ending on the date relief
     was requested;

          (b) At the time the return was signed, the
     requesting spouse had no knowledge or reason to know
     that the tax would not be paid. The requesting spouse
     must establish that it was reasonable for the
     requesting spouse to believe that the nonrequesting
     spouse would pay the reported liability. * * *; and

          (c) The requesting spouse will suffer economic
     hardship if relief is not granted. For purposes of
     this section, the determination of whether a requesting
     spouse will suffer economic hardship will be made by
     the Commissioner or the Commissioner’s delegate, and
     will be based on rules similar to those provided in
     section 301.6343-1(b)(4) of the Regulations on
     Procedure and Administration. [Rev. Proc. 2000-15, sec.
     4.02(1), 2000-1 C.B. at 448]

     Respondent concedes that petitioner lived apart from

intervenor during the 12-month period preceding the date of her

request for equitable relief and that petitioner will suffer

economic hardship if relief is not granted.

     A.   Knowledge or Reason To Know

     The relevant knowledge in the case of a reported but unpaid

liability is whether when the return was signed, the taxpayer

knew or had reason to know “that the tax would not be paid.”    Id.
                              - 10 -

sec. 4.02(1)(b).   Accordingly, we must consider whether, “taking

into account all the facts and circumstances”, sec. 6015(f)(1),

petitioner knew or had reason to know that intervenor would not

pay the taxes on intervenor’s self-employment income shown as due

on the tax returns for the taxable years in issue.

     Petitioner contends that she had no knowledge that any of

the unpaid joint tax liabilities would not be paid by intervenor.

Petitioner did know that there were income taxes due for each of

the taxable years in issue when she signed each tax return.

However, petitioner testified that “[Intervenor] said that he

would take care of the [taxes] due, as my taxes were taken out of

my paycheck and none were taken out of his.   And he did pay the

taxes.   He paid the taxes for most of the years.”   Having

observed petitioner’s appearance and demeanor at trial, we find

her testimony to be honest, forthright, and credible.    In

addition, petitioner’s testimony is corroborated by the fact that

intervenor did generally pay the tax balances due as a result of

intervenor’s self-employment income as reported on the couple’s

jointly filed income tax returns.   Accordingly, we conclude that

petitioner had no knowledge that intervenor would not pay the

taxes due on the tax returns filed for the taxable years in

issue.

     Petitioner likewise contends that she had no reason to know

that intervenor would not pay those tax liabilities.    Petitioner
                              - 11 -

and intervenor maintained separate checking accounts at all times

during their marriage.   Intervenor was responsible for paying the

vast majority of the household expenses, including the monthly

mortgage payment, property taxes, automobile insurance, and

household utilities.   It was intervenor’s practice for petitioner

to provide him with her Forms W-2 and then for intervenor to have

their tax returns prepared by a paid return preparer.    Although

petitioner signed the tax returns and was aware of any taxes due,

intervenor assured petitioner that he would pay the tax

liabilities.   In fact, intervenor had paid any taxes due for the

taxable years prior to the taxable years in issue.

Additionally, intervenor also made several tax payments with

respect to the tax balances due for the 1994 and 1996 taxable

years.

     The taxes due for the taxable years in issue were

attributable to intervenor’s self-employment earnings.    As such,

intervenor reimbursed petitioner for her 1999 tax refund which

was applied by respondent to the couple’s outstanding joint tax

liabilities.   Additionally, on several occasions during their

marriage petitioner’s wages were subject to garnishment from the

California Franchise Tax Board regarding intervenor’s share of

the couple’s outstanding liability.    Intervenor handled these

matters and paid any necessary State income taxes due to prevent

petitioner’s wages from being garnished.    Finally, the record
                             - 12 -

suggests that the taxes due for the taxable years in issue were

not paid because of an unexpected downturn in intervenor’s

business that persisted over an extended period.   Accordingly, on

the record before us, we conclude that petitioner did not have

reason to know that the income taxes for the taxable years in

issue would not be paid by intervenor.

     B.   Conclusion

     Based on our review of all the facts and circumstances, we

hold that petitioner is entitled to relief under section 6015(f)

and that respondent’s denial of relief was an abuse of

discretion.

     Reviewed and adopted as the report of the Small Tax Case

Division.

     To reflect the foregoing,

                                         Decision will be entered

                                   for petitioner.
