                   T.C. Summary Opinion 2008-92



                      UNITED STATES TAX COURT



                  JODENE SEAMONS, Petitioner, AND
                  JOHN ALAN DAVIS, Intervenor v.
           COMMISSIONER OF INTERNAL REVENUE, Respondent



     Docket No. 18478-06S.            Filed July 29, 2008.



     Jodene Seamons, pro se.

     John Alan Davis, pro se.

     Heather D. Horton, 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
                                - 2 -

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 petitioner’s request for relief from

joint and several liability with respect to her tax liability for

2004.   Respondent determined that petitioner qualified for relief

from joint and several liability under section 6015(b);

intervenor disagrees.    Thus, the issue for decision is whether

petitioner is entitled to relief from joint and several liability

under section 6015(b).

                             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.     When petitioner filed her

petition, she resided in Arizona.

     Intervenor and petitioner married in May 2001.    At the time

petitioner resided in Phoenix, Arizona, and was employed as a

paralegal.   Intervenor resided in Kingman, Arizona, and was

employed as a college professor.

     Around April/May 2003 intervenor was discharged from his

professorship.   Intervenor received unemployment compensation for

about 2-1/2 months until he was hired by a financial services

company in July 2003.    In November 2003 intervenor sold his

mobile home for $19,000, less commissions.
                                 - 3 -

     On completion of intervenor’s training with the financial

services company, the couple moved to Chino Valley, and he opened

a branch in Prescott, Arizona.     However, intervenor was

terminated from the financial services company in February 2004.

Around February through April 2004 intervenor applied for and

received unemployment compensation from the Arizona Department of

Economic Security (department).    In April 2004 he obtained new

employment and was employed with that company for the remainder

of 2004.

     Around March 2004 petitioner and intervenor began living

separate and apart–-petitioner in Phoenix and intervenor in Chino

Valley and Seligman, Arizona.    The arrangement took a toll on

their relationship, and petitioner filed for divorce in October

2004.   During their divorce settlement conference in December

2004, the couple agreed to file joint Federal and State income

tax returns for 2004.   They also agreed that they would provide

each other with all necessary documentation for the preparation

of the returns, that petitioner would prepare the returns, and

that they would share equally in any refunds or hold each other

harmless for half of any additional income taxes or “costs”.

     Intervenor did not disclose at the divorce settlement

conference (or at anytime thereafter) that he had received

unemployment compensation in 2004.       His unemployment compensation
                                - 4 -

was mailed to his Chino Valley and Seligman residences, while

petitioner’s mail was addressed to her Phoenix residence.

      On or about February 22, 2005, petitioner prepared and filed

their joint Form 1040, U.S. Individual Income Tax Return, for

2004.   Intervenor did not provide petitioner with a Form 1099-G,

Certain Government Payments, showing that he had received

unemployment compensation in 2004.      Petitioner did not report

intervenor’s unemployment compensation on the Form 1040; it

showed a $1,061 overpayment.

      On August 28, 2006, respondent issued a notice of deficiency

to petitioner and intervenor.   Respondent, from third-party payor

records, determined that intervenor had received $2,513 in

unemployment compensation in 2004.      Respondent determined a $625

deficiency.   In response, petitioner filed a timely petition with

the Court and a request for relief from joint and several

liability with the Internal Revenue Service (IRS).      Intervenor

filed a Form 12507, Innocent Spouse Statement, with the IRS and a

notice of intervention with the Court.      Petitioner and respondent

agree that petitioner’s request for relief from joint and several

liability pursuant to section 6015(b) should be granted in full.

                            Discussion

I.   Burden of Proof

      Except as otherwise provided in section 6015, petitioner

bears the burden of proof with respect to her entitlement to
                                - 5 -

relief from joint and several liability.      See Rule 142(a); Alt v.

Commissioner, 119 T.C. 306, 311 (2002), affd. 101 Fed. Appx. 34

(6th Cir. 2004); McClelland v. Commissioner, T.C. Memo. 2005-121

(and cases cited therein).   But petitioner need only persuade the

Court by a preponderance of the evidence.      See Haltom v.

Commissioner, T.C. Memo. 2005-209; McClelland v. Commissioner,

supra.

II.   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.    Section 6015(b) provides full or

apportioned relief for an understatement of tax if certain

criteria are satisfied.   See sec. 6015(b)(1) and (2).

      The parties agree that petitioner satisfies the requirements

of section 6015(b)(1)(A), (B), and (E).1     Intervenor asserts,

however, that petitioner knew or had reason to know when she

signed the return that there was an understatement of tax, see

sec. 6015(b)(1)(C), and taking into account all of the facts and

circumstances, it would not be inequitable to hold her liable for


      1
        Petitioner and respondent agree that petitioner satisfies
all five elements of sec. 6015(b)(1)(A)-(E).
                                - 6 -

the understatement, see sec. 6015(b)(1)(D).    Thus, according to

intervenor, petitioner is not entitled to relief from joint and

several liability.

     A.   Knowledge or Reason To Know of the Understatement

     The parties have stipulated that petitioner did not know

that intervenor had applied for and received unemployment

compensation in 2004.    Intervenor testified that he never advised

petitioner that he had applied for or received unemployment

compensation in 2004.    Additionally, the record contains no

evidence establishing that petitioner had actual knowledge that

the Form 1040 contained an understatement when she signed it.

The Court’s analysis, therefore, is governed by whether

petitioner had reason to know of the understatement when she

signed the Form 1040.

     In the Ninth Circuit2 the requesting spouse has reason to

know of an understatement “if a reasonably prudent taxpayer in

her position at the time she signed the return could be expected

to know that the return contained the substantial

understatement.”3    Price v. Commissioner, 887 F.2d 959, 965 (9th


     2
        But for sec. 7463(b), an appeal would lie with the Court
of Appeals for the Ninth Circuit. See sec. 7482(b)(1)(A).
Therefore, the Court follows the law of that circuit. See Golsen
v. Commissioner, 54 T.C. 742, 757 (1970), affd. 445 F.2d 985
(10th Cir. 1971).
     3
        The Court has employed a similar test: whether a
reasonably prudent taxpayer in the requesting spouse’s position,
                                                   (continued...)
                               - 7 -

Cir. 1989) (and cases cited thereat), revg. an Oral Opinion of

the Court; see also Pietromonaco v. Commissioner, 3 F.3d 1342,

1345 (9th Cir. 1993) (extending the Price test to omission of

income cases), revg. T.C. Memo. 1991-361 and T.C. Memo. 1991-472.

     With respect to omission of income cases, in determining

whether the requesting spouse had reason to know of the

understatement when she signed the return, courts also consider

whether the requesting spouse was aware of the circumstances of

the transactions that gave rise to the understatement, not the

tax consequences.   Wiksell v. Commissioner, T.C. Memo. 1994-99,

revd. on other grounds 90 F.3d 1459 (9th Cir. 1996); Pietromonaco

v. Commissioner, T.C. Memo. 1991-361; see also Bokum v.

Commissioner, 94 T.C. 126, 145-146 (1990) (a “taxpayer claiming

innocent spouse status must establish that he or she is unaware

of the circumstances that give rise to * * * [the understatement,

not merely the tax consequences]”), affd. 992 F.2d 1132 (11th

Cir. 1993); Korchak v. Commissioner, T.C. Memo. 2006-185

(applying the knowledge of the circumstances of the transactions

test in the context of a claim for relief under section 6015).

     In determining whether the requesting spouse was aware of

the circumstances of the transactions that gave rise to the


3
 (...continued)
when the requesting spouse signed the return, could be expected
to know that the return contained an understatement or that
further investigation was warranted. Haltom v. Commissioner,
T.C. Memo. 2005-209 (and cases cited therein).
                                   - 8 -

understatement, the Court of Appeals for the Ninth Circuit

examines factors including:       (1) The requesting spouse’s

education level; (2) the requesting spouse’s involvement in their

business and financial affairs; (3) the presence of expenditures

that appear lavish or unusual when compared to their past income

levels, standard of living, and spending patterns; and (4) the

“culpable” spouse’s evasiveness and deceit concerning their

finances.4        Pietromonaco v. Commissioner, 3 F.3d at 1345; Price

v. Commissioner, supra at 965.

             1.    Circumstances of the Transaction

     Intervenor asserts that petitioner knew that he was

unemployed in 2004 (the circumstance of the transaction).         Thus,

she had a duty to inquire into whether he had received

unemployment compensation in 2004.         According to intervenor, a

reasonable paralegal with “substantial experience in family law

* * * would believe that a person with sound mind would apply for

and receive unemployment compensation rather than allow the

equity in a small personal residence to dissipate entirely.”




     4
        The Court has employed similar factors: (1) The
requesting spouse’s education level and her business knowledge
and experience; (2) the requesting spouse’s participation in
business affairs or bookkeeping; (3) the nonrequesting spouse’s
openness about their income and business transactions; (4) the
presence of unusual or lavish expenditures; and (5) whether their
standard of living improved significantly during the years in
issue. Laird v. Commissioner, T.C. Memo. 1994-564.
                               - 9 -

     The Court rejects intervenor’s contention that his mere

unemployed status and the fact that he was arguably eligible for

unemployment compensation are the relevant circumstances of the

transaction.   The Court finds that the circumstance of the

transaction was the department’s finding that intervenor was

eligible for unemployment benefits pursuant to Arizona law.     See

Ariz. Rev. Stat. Ann. secs. 23-771, -772, -773 (2004).     But for

the department’s determination that intervenor was eligible for

unemployment benefits, he would not have received any benefits–-

notwithstanding that he was unemployed and was arguably eligible

for such benefits.   See Ariz. Rev. Stat. Ann. secs. 23-771

(listing seven qualifying conditions), -773; see also Braden v.

Commissioner, T.C. Memo. 2001-69 (the Court examines whether the

taxpayer was aware of the “underlying transaction” that produced

the omitted income); Cheshire v. Commissioner, 115 T.C. 183

(2000) (the taxpayer knew of the distribution from her spouse’s

retirement plan and the interest earned on a certain account that

produced the omitted income items), affd. 282 F.3d 326 (5th Cir.

2002); Charlton v. Commissioner, 114 T.C. 333 (2000) (the

underlying circumstance was the spouse’s transcript service that

produced the omitted income item).

     Moreover, the Court has also determined that taxpayers must

have sufficient knowledge of the transaction to permit them to

inquire as to its appropriate tax treatment.   Braden v.
                                 - 10 -

Commissioner, supra (citing Hillman v. Commissioner, T.C. Memo.

1993-151).    Had intervenor provided petitioner with a Form 1099-G

or informed her that he had received unemployment benefits, she

could have inquired about the appropriate tax treatment of the

benefits.    The Court is inclined to agree with petitioner that

“when you are unemployed you’re eligible for lots of things” but

that status and the mere fact that someone might be eligible for

benefits, by themselves, are not determinative under Arizona law.

Without more, such circumstances did not trigger a duty of

inquiry on petitioner’s behalf.

            2.    The Price Factors Applied

     Application of the Price factors to the facts here leads the

Court to the conclusion that petitioner had no reason to know of

the understatement resulting from intervenor’s omission of his

unemployment compensation when she signed the return.      He

received the unemployment compensation when they were living

apart, and his unemployment checks were mailed to his separate

residences.      He did not provide petitioner with a Form 1099-G

showing that he had received unemployment compensation in 2004.

He also failed to disclose during their divorce settlement

conference (or at any other time) that he received unemployment

compensation in 2004.

     The record also supports a conclusion that petitioner’s

involvement in their finances was insufficient to put a
                             - 11 -

reasonable person in her position on notice that the Form 1040

contained an understatement when it was signed.   Additionally,

there is no evidence that their expenditures were unusual or

extravagant or that their overall standard of living

significantly improved during 2004 such as to put a reasonably

prudent person in petitioner’s position on notice when the Form

1040 was signed that intervenor had received and failed to report

his unemployment compensation.   See Mysse v. Commissioner, 57

T.C. 680, 697-700 (1972); Haltom v. Commissioner, T.C. Memo.

2005-209; Barranco v. Commissioner, T.C. Memo. 2003-18; Laird v.

Commissioner, T.C. Memo. 1994-564.    On the record their

expenditures and standard of living appear to be commensurate

with their expenditures and standards of living in prior years.

Thus, the circumstances “were [not] so out-of-whack that they

should have triggered the duty of inquiry” on petitioner’s part.

Haltom v. Commissioner, supra; see also Juell v. Commissioner,

T.C. Memo. 2007-219; Kling v. Commissioner, T.C. Memo. 2001-78.

     The Court rejects intervenor’s contention that he did not

inform petitioner that he had received unemployment compensation

because he did not know that it was taxable.5   Not only is his

knowledge irrelevant, but intervenor, a former college professor


     5
        The Court notes that Ariz. Rev. Stat. Ann. sec. 23-792
(2004) provides that at the time of filing a claim for
unemployment benefits, the individual shall be informed that
unemployment benefits are subject to Federal income tax, and he
may elect to have the tax withheld.
                               - 12 -

who taught business classes, worked for a financial services

company, and had opened a branch for the company, should have

known that his unemployment compensation was taxable.

     The Court can examine other factors relevant to the issue

before it.   See Pietromonaco v. Commissioner, 3 F.3d at 1345;

Price v. Commissioner, 887 F.2d at 965.    Petitioner and

intervenor were directed by their divorce decree to file a joint

return and to provide all necessary documentation to each other.

Respondent contends that a “reasonably prudent person in

Petitioner’s position [when she signed the return] would believe

that the return was correct in order to truly finalize the

divorce.”    Simply put, the Court agrees, and this factor weighs

in petitioner’s favor.

     Intervenor contends that it was not reasonable for

petitioner to believe that he “‘had sufficient funds with which

to support himself * * * [in 2004 and implicitly give up

unemployment compensation since he had relied on unemployment

compensation in 2003].’”6   Respondent, on the other hand,

contends that a “reasonably prudent person in Petitioner’s

position [when she signed the return] would not [have assumed]




     6
        Petitioner testified that she suggested that intervenor
might want to look into unemployment compensation in 2003 in
order to meet his child support obligations, but she cannot
recall whether he did or whether he had received unemployment
compensation in 2003.
                               - 13 -

that Intervenor had applied for unemployment when Intervenor had

money to support himself.”

     Respondent’s argument is persuasive.    Intervenor had sold

his mobile home in November 2003 for about $19,000, less

commissions, before becoming unemployed in February 2004.

Intervenor received $28,326 as compensation for services in

2004.7    He was unemployed for less than 3 months, a relatively

short period.    Considering that the amounts are comparable, it

would be reasonable for a prudent person in petitioner’s position

when the return was signed to believe that he could have

supported himself with the sale proceeds for the short time in

which he was diligently searching for employment rather than

obtain unemployment compensation.

     B.    Inequity of Respondent’s Grant of Relief to Petitioner

     The two most often cited factors for determining whether it

would be inequitable to hold a requesting spouse liable for a

deficiency are whether:    (1) The requesting spouse received

significant benefit, Pietromonaco v. Commissioner, 3 F.3d at 1347

(and cases cited thereat); and (2) the failure to report the

correct tax liability results from the nonrequesting spouse’s

concealment, overreaching, or other wrongdoing, Alt v.

Commissioner, 119 T.C. at 314.


     7
        Intervenor received $2,675 for January through February
and $25,651 for April through December 2004.
                              - 14 -

     Although the parties have stipulated that petitioner

received no benefit from the unemployment compensation,

intervenor contends that she received a benefit to the extent

that it was used to pay her last month’s rent at the “Chino

Valley apartment”.   But normal support is generally not

considered a significant benefit.     Pietromonaco v. Commissioner,

3 F.3d at 1347 (and cases cited thereat).      Moreover, the record

supports a conclusion that petitioner did not receive any benefit

from intervenor’s unemployment compensation:     he received it

after they had started living apart, and she paid most, if not

all, of their living expenses during their marriage, while his

income was used to satisfy his obligations.     As to the second

factor, the Court has found that intervenor concealed his receipt

of the unemployment compensation.

     The Court finds that it would be inequitable to hold

petitioner liable for the deficiency attributable to intervenor’s

omission of his unemployment compensation; therefore, section

6015(b)(1)(D) is satisfied.   The Court also finds, by a

preponderance of the evidence, that petitioner has satisfied the

requirements of section 6015(b)(1) and she is entitled to relief

from joint and several liability.

     To reflect the foregoing,

                                      Decision will be entered for

                                 petitioner.
