                       T.C. Memo. 2011-230



                      UNITED STATES TAX COURT



                 THERESA M. KARAM, Petitioner v.
          COMMISSIONER OF INTERNAL REVENUE, Respondent



     Docket No. 14274-09.               Filed September 26, 2011.



     Stephen J. Dunn, for petitioner.

     Alicia A. Mazurek, for respondent.



             MEMORANDUM FINDINGS OF FACT AND OPINION


     HAINES, Judge:   The issue for decision is whether petitioner

is entitled to relief from joint and several liability under
                                - 2 -

section 6015(f)1 for taxes reported on joint Federal income tax

returns for 1999, 2000, and 2001 (years at issue).

                          FINDINGS OF FACT

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

The stipulation of facts, together with the attached exhibits, is

incorporated herein by this reference.    At the time petitioner

filed her petition, she resided in Michigan.

     Petitioner has been married to James Karam (Dr. Karam) since

1980.    Petitioner and Dr. Karam (together the Karams) have four

sons:    Joseph Karam, age 28; Paul Karam, age 26; Daniel Karam,

age 22; and Mark Karam, age 19.    Daniel and Mark Karam are

undergraduates at Hope College in Holland, Michigan.    Paul Karam

is a graduate student at Carnegie Mellon University in

Pittsburgh, Pennsylvania, and Joseph Karam is a licensed attorney

living at home with the Karams.

     Dr. Karam is a self-employed dentist who has owned and

operated his own dental practice since 1985.    Petitioner is a

college graduate who in or about 2003 earned a Ph.D. in

educational psychology from Wayne State University.    Petitioner

has been employed by the Centerline Public Schools since February




     1
      Unless otherwise indicated, all section references are to
the Internal Revenue Code, as amended and in effect at all
relevant times, and all Rule references are to the Tax Court
Rules of Practice and Procedure. Amounts are rounded to the
nearest dollar.
                                - 3 -

1981.    She is currently employed as director of special services

and earns an annual salary of $102,000.

     The Karams filed joint Federal income tax returns from the

time of their marriage through 2001.    For all tax years after

2001, petitioner filed her Federal income tax returns as married

filing separately.2

     Dr. Karam hired Theodore C. Schumann, P.C., C.P.A. d.b.a.

Dental Business Services, Inc. (Schumann firm), to prepare the

Karams’ Federal income tax returns for the years at issue.     The

Schumann firm prepared joint returns and delivered them to the

Karams in 2002.   Attached to each return was a Post-it note

saying “sign here”.   Petitioner followed the instructions on the

Post-it notes and signed the returns.    Aside from the Post-it

notes, petitioner had no contact with the Schumann firm.    The

1999 and 2000 returns were filed on September 23, 2002, and the

2001 return was filed on October 7, 2002.

     The 1999 joint return reported a total tax of $79,328, a

withholding credit of $11,495, and a tax liability of $69,833.

The 2000 joint return reported a total tax of $75,229, a

withholding credit of $13,151, and a tax liability of $64,907.

The 2001 joint return reported a total tax of $74,346, a

withholding credit of $14,106, and a tax liability of $62,562.



     2
      Respondent stipulates that petitioner has been in
compliance with the income tax laws since 2001.
                               - 4 -

The withholding credit listed on each return is an amount taken

from petitioner’s salary.   The tax liability listed on each

return is attributable to Dr. Karam’s dental practice income.

     Petitioner sued the Schumann firm for malpractice for

failing to disclose the consequences of filing a joint tax return

and obtained a judgment for $150,000.   After the payment of

expenses associated with the suit, petitioner was left with

approximately $100,000 in net proceeds.   Petitioner offered that

$100,000 to respondent as part of an offer-in-compromise for her

1999, 2000, and 2001 tax liabilities.   The offer-in-compromise

included a $20,000 deposit.   Respondent rejected the offer-in-

compromise and kept the $20,000 to apply against petitioner’s tax

liabilities.

     At the time petitioner signed the returns, she and Dr. Karam

were paying a number of large expenses, including a monthly

mortgage payment and private school tuition for all four of their

children.   Public school students in petitioner’s community had

scored well on tests, but it was important to petitioner that her

sons attend private schools as the curricula at those schools

promoted values that petitioner and her husband deemed important.

The income from Dr. Karam’s dental practice was used to pay the

children’s tuition, the mortgage, and household bills and to

support Dr. Karam’s aunt.   Petitioner’s salary was used to pay
                                 - 5 -

her Ph.D. expenses, support her mother, and pay various general

household expenses.

     On March 18, 2009, petitioner filed Form 8857, Request for

Innocent Spouse Relief, with respondent seeking innocent spouse

relief under section 6015(b), (c), and (f) for 1999, 2000, and

2001.     On May 18, 2009, respondent issued a notice of final

determination denying petitioner’s request for relief under

section 6015(b), (c), and (f).     Petitioner timely filed a

petition with this Court on June 11, 2009, for determination of

whether petitioner qualifies for relief under section 6015(f).

Petitioner did not petition this Court for relief under section

6015(b) or (c).     Dr. Karam was notified of the pendency of this

proceeding and of his right to intervene, but chose not to

intervene.

                               OPINION

        We must decide whether respondent erred in denying

petitioner relief from unpaid joint tax liabilities for the years

at issue.     Petitioner argues that she believed her husband would

pay their tax liabilities and that it is inequitable to hold her

liable when the underpayments were attributable to her husband.

        The Commissioner has the discretion to relieve a spouse of

joint liability if, taking into account all the facts and

circumstances, it is inequitable to hold that spouse liable for

any deficiency or unpaid tax.     Sec. 6015(f); sec. 1.6015–4(a),
                                 - 6 -

Income Tax Regs.   This Court has jurisdiction to determine

whether a taxpayer qualifies for relief under section 6015(f).

Sec. 6015(e).

     We begin with the scope of review, the standard of review,

and the burden of proof.    Respondent urges us to review the case

for abuse of discretion.    To do so, however, would be to reject

our previous holdings that the scope of review and the standard

of review are de novo.     Porter v. Commissioner, 132 T.C. 203

(2009); Porter v. Commissioner, 130 T.C. 115 (2008).     The spouse

requesting relief generally bears the burden of proof.     See Rule

142(a); Alt v. Commissioner, 119 T.C. 306, 311 (2002), affd. 101

Fed. Appx. 34 (6th Cir. 2004).

     The Commissioner has outlined procedures the Commissioner

will follow in determining whether a requesting spouse qualifies

for equitable relief under section 6015(f).    See Rev. Proc.

2003–61, 2003–2 C.B. 296.    The requesting spouse must meet seven

threshold conditions before the Commissioner will consider a

request for relief.   Id. sec. 4.01, 2003–2 C.B. at 297.    The

parties agree that petitioner has met the preliminary

requirements for relief.3


     3
      One of the seven threshold conditions requires that the
requesting spouse apply for relief no later than 2 years after
the date of the Service’s first collection activity with respect
to the requesting spouse. Rev. Proc. 2003-61, sec. 4.01(3),
2003-2 C.B. 296, 297. Respondent in his opening brief argued
that petitioner had failed to meet this threshold condition. On
July 25, 2011, the Internal Revenue Service (IRS) issued Notice
                                                   (continued...)
                                - 7 -

I.   Safe Harbor for Section 6015(f) Relief

     We now turn to whether petitioner satisfies the three

conditions of a safe harbor under section 6015(f) that the

Commissioner has established.   See Gonce v. Commissioner, T.C.

Memo. 2007–328; Billings v. Commissioner, T.C. Memo. 2007–234;

Rev. Proc. 2003–61, sec. 4.02, 2003–2 C.B. at 298.    Equitable

relief will ordinarily be granted if the requesting spouse

fulfills all three conditions of the safe harbor.    The first

condition is that the requesting spouse be no longer married to,

or be legally separated from, the nonrequesting spouse at the

time she filed the request for innocent spouse relief.

Petitioner at the time she filed her innocent spouse relief

request was still married to Dr. Karam.   In fact, as of the time

of trial petitioner remained married to Dr. Karam.    Thus,

petitioner does not satisfy this condition.   Accordingly,

petitioner does not qualify under the safe harbor, and we need

not consider the other two conditions.


     3
      (...continued)
2011-70, 2011-32 I.R.B. 135, stating that the IRS will no longer
apply the 2-year limit to file for innocent spouse relief imposed
by sec. 1.6015-5(b)(1), Income Tax Regs. Further, Notice 2011-
70, supra, stated that in any case in litigation in which the IRS
has denied a request for innocent spouse relief under sec.
6015(f) as untimely, the IRS will take appropriate action in the
case as to the timeliness issue consistent with the position
announced in the notice. We ordered the parties to file
supplemental briefs discussing the effect of Notice 2011-70,
supra, on the current status of this case. Respondent filed a
supplemental brief abandoning his argument regarding the
untimeliness of petitioner’s request for equitable relief under
sec. 6015(f).
                                 - 8 -

II.   Balancing Test for Determining Whether Section 6015(f)
      Equitable Relief Would Be Appropriate

      When a requesting spouse fails to satisfy the safe harbor

conditions, the Commissioner may determine through a balancing

test whether equitable relief is appropriate.     The Commissioner

has listed factors the Commissioner considers in determining

whether a taxpayer qualifies for relief.     See Rev. Proc. 2003–61,

sec. 4.03, 2003–2 C.B. at 298.     The factors include whether the

requesting spouse:     (1) Is separated or divorced from the

nonrequesting spouse, (2) would suffer economic hardship if

relief were denied, (3) had knowledge or reason to know that the

nonrequesting spouse would not pay the income tax liability, (4)

received significant economic benefit from the unpaid income tax

liability, (5) complied with income tax laws in years after the

year at issue, (6) was abused by the nonrequesting spouse, and

(7) was in poor health when signing the return or requesting

relief; and whether the nonrequesting spouse had a legal

obligation to pay the outstanding tax liability.     Id. sec.

4.03(2).   The list is nonexhaustive, and no single factor is

determinative.   Id.    We address each of the factors in turn.

      A.   Marital Status

      We first consider marital status.    This factor weighs in

favor of the requesting spouse if she is separated or divorced

from the nonrequesting spouse.     Id. sec. 4.03(2)(i).   As of the
                                 - 9 -

time of trial, petitioner remained married to Dr. Karam.     This

factor weighs against relief.

     B.      Economic Hardship

     The second factor is whether the requesting spouse would

suffer economic hardship if relief were denied.     A denial of

section 6015(f) relief imposes economic hardship if it prevents

the requesting spouse from being able to pay her reasonable basic

living expenses.     Butner v. Commissioner, T.C. Memo. 2007-136;

sec. 301.6343–1(b)(4)(i), Proced. & Admin. Regs.     Reasonable

basic living expenses are based on the taxpayer’s circumstances

but do not include amounts needed to maintain a luxurious

standard of living.     Sec. 301.6343–1(b)(4)(i), Proced. & Admin.

Regs.     Relevant circumstances include the taxpayer’s age, ability

to earn an income, number of dependents, and status as a

dependent.     Sec. 301.6343–1(b)(4)(ii)(A), Proced. & Admin. Regs.

The amount of property available to satisfy the taxpayer’s

expenses is also considered.     Butner v. Commissioner, supra; sec.

301.6343–1(b)(4)(ii)(D), Proced. & Admin. Regs.

     Petitioner is the director of special services for the

Centerline Public Schools, where she earns an annual salary of

$102,000.     Petitioner testified that she receives about $8,000

per month in gross income of which about $2,800 is withheld for

taxes and another $160 is withheld for healthcare premiums.

Petitioner also pays $1,300 per month in COBRA premiums to
                                - 10 -

provide her two oldest sons with health care.     The remainder of

her income is used to pay for utilities, groceries, clothing,

auto insurance, medical co-pays, doctor visits, and other living

expenses for her children.     What little money petitioner has

remaining at the end of the month she sends to her children to

help pay for gas and other expenses.     Petitioner’s husband pays

the family’s remaining living expenses, including the mortgage,

cell phone bills, some groceries, some utilities, and the

children’s college tuition.

     Petitioner failed to offer evidence to substantiate that her

entire month salary was spent on reasonable basic living

expenses.   All this Court has to go on is petitioner’s self-

serving testimony that she has no money left at the end of the

month to satisfy her tax liabilities.     Even if we were to believe

petitioner’s testimony that she spends her entire monthly salary,

we do not find that payment of petitioner’s adult children’s

living expenses is a reasonable basic living expense.

     Additionally, in 2008 petitioner received a $150,000

judgment against Theodore C. Schumann and the Schumann firm from

a malpractice suit.     Petitioner’s net proceeds from the judgment

amounted to $80,000.4    Petitioner has failed to account for how

     4
      Petitioner’s answering brief filed with this Court suggests
that the net proceeds from petitioner’s lawsuit amounted to
$100,000. This amount was offered to respondent in an offer-in-
compromise. As part of the offer-in-compromise, petitioner
                                                   (continued...)
                               - 11 -

the remaining $80,000 from her judgment was spent or is being

spent.

     We agree that petitioner may not have the means to pay all

the tax liabilities at once.   We believe, however, that she can

meet her basic living expenses while making periodic payments

against her tax liabilities.   We find that petitioner has the

means to make monthly payments to reduce the tax liabilities and

that denying her claim for relief will not impose an economic

hardship on her.   This factor weighs against relief.

     C.   Knowledge or Reason To Know That Nonrequesting Spouse
          Would Not Pay Liability

     A third factor focuses on whether the requesting spouse knew

or had reason to know that the nonrequesting spouse would not pay

the tax liability.

     Respondent argues that it was unreasonable for petitioner to

think that Dr. Karam would pay the tax liabilities when she

signed the returns at issue.   We agree.   From the beginning of

her marriage until 2001, petitioner had filed joint returns with

Dr. Karam.   These joint returns would generally show taxes due

and owing.   For instance, the Karams’ 1997 return showed tax due

of $48,063 and their 1998 return showed tax due of $46,664.

Petitioner testified that her husband always paid their tax

     4
      (...continued)
offered a $20,000 deposit. Respondent rejected the offer-in-
compromise but kept the $20,000 deposit, leaving petitioner with
$80,000 of net proceeds from the judgment.
                               - 12 -

liabilities and therefore she assumed he would do the same for

the years at issue.

     The Karams filed their 1999, 2000, and 2001 joint Federal

income tax returns all in 2002.    As a result of filing three

returns in a single year, the Karams suddenly faced a very large

total tax liability.    The liabilities from these three returns

totaled $197,352 plus interest and penalties.    Given the large

amount of taxes due in 2002 and petitioner’s knowledge of the

family finances, we find it unreasonable for her to have believed

her husband would pay the liabilities.

     Petitioner’s testimony showed that she was very involved in

the family’s finances and was well aware of her husband’s

financial obligations and thus of his inability to pay a large

tax bill.   Petitioner and her husband each paid a portion of the

family’s expenses.    Dr. Karam was responsible for paying major

expenses, including the mortgage, the children’s tuition, and the

household bills.   Moreover, Dr. Karam was helping to take care of

his aunt.   Petitioner’s salary paid her Ph.D. expenses and

certain household expenses.    Petitioner also helped pay her

mother’s basic living expenses because her mother’s income was

limited and she did not qualify for State health insurance.

     We have consistently found that a requesting spouse’s

knowledge of the couple’s financial difficulties deprives the

requesting spouse of reason to believe that her spouse will pay
                              - 13 -

the tax liability.   Stolkin v. Commissioner, T.C. Memo. 2008–211;

Gonce v. Commissioner, T.C. Memo. 2007-328; Butner v.

Commissioner, T.C. Memo. 2007-136.     Petitioner’s knowledge of the

family finances and the family’s obligations should have put her

on notice that Dr. Karam would not pay the tax liabilities.

     Petitioner relies on Wilson v. Commissioner, T.C. Memo.

2010-134, in arguing that her lack of business sophistication

contributed to her failure to know or have reason to know that

the taxes in controversy would not be paid.     Wilson is

distinguishable from the instant case.    Unlike the requesting

spouse in Wilson who did not have an education beyond high

school, petitioner is highly educated.    At the time petitioner

signed the 1999, 2000, and 2001 returns, she had obtained an

undergraduate degree and was working on a Ph.D.

     We find that petitioner had reason to know at the time she

signed the returns that her husband would not pay the joint tax

liabilities.   This factor weighs against relief.

     D.   Nonrequesting Spouse’s Legal Obligation To Pay
          Liability

     A fourth consideration is whether the nonrequesting spouse

had a legal obligation to pay the tax liability.    Dr. Karam does

not have a legal obligation to pay the outstanding income tax

liabilities pursuant to a divorce decree or other agreement.

Therefore, respondent determined that this factor is neutral, and

we have no information to find otherwise.
                              - 14 -

     E.    Economic Benefit From Items Giving Rise to Liability

     A fifth consideration is whether the requesting spouse

received significant benefit from the unpaid income tax liability

or item giving rise to the deficiency.       A significant benefit for

purposes of section 6015(f) is any benefit in excess of normal

support.   Sec. 1.6015–2(d), Income Tax Regs.      A significant

benefit may be direct or indirect.     Id.

     Petitioner sent her four children to expensive private

elementary and high schools, even though public school students

in her community scored well on tests.       Having her sons attend

private school was important to petitioner because of the values

those schools promoted.   The income from Dr. Karam’s dental

practice (i.e., the items which caused the tax liabilities) paid

for the children’s private school tuition.       Additionally, Dr.

Karam’s dental practice income covered all household expenses

other than the groceries and clothing paid for by petitioner.

Having Dr. Karam pay the household expenses allowed petitioner to

use her salary to pay her Ph.D. expenses.       The facts and

circumstances presented strongly suggest that petitioner received

a significant benefit from the items giving rise to the income

tax liabilities.   This factor also weighs against relief.

     F.    Subsequent Compliance With Income Tax Laws

     A sixth consideration is whether the requesting spouse made

a good faith effort to comply with income tax laws in subsequent
                               - 15 -

years.    Respondent stipulates that petitioner has been in

compliance with the income tax laws since 2001.    Therefore, this

factors weighs in favor of relief.

     G.    Abuse by Nonrequesting Spouse

     Petitioner did not allege that there was any abuse when she

signed the returns.    Therefore, respondent determined that this

factor is neutral, and we have no information to find otherwise.

     H.     Poor Health When Signing Return or Requesting Relief

     Petitioner did not allege that she was in poor health when

she signed the return or when she requested relief.    Therefore,

respondent determined that this factor is neutral, and we have no

information to find otherwise.

III. Conclusion

     In summary, one factor weighs in favor of relief, four

factors weigh against relief, and three factors are neutral.

After weighing the testimony and evidence in this fact-intensive

and nuanced case, we hold petitioner is not entitled to relief

from joint and several liability for the joint income tax for

each of the years at issue.

     In reaching our holdings, we have considered all arguments

made, and, to the extent not mentioned, we conclude that they are

moot, irrelevant, or without merit.
                        - 16 -

To reflect the foregoing,


                                  Decision will be entered

                             for respondent.
