                        T.C. Memo. 2003-18



                     UNITED STATES TAX COURT



                PATRICIA BARRANCO, Petitioner v.
          COMMISSIONER OF INTERNAL REVENUE, Respondent



     Docket Nos. 819-01, 820-01.    Filed January 21, 2003.


     Neil V. Birkhoff, for petitioner.

     Dustin M. Starbuck, for respondent.



             MEMORANDUM FINDINGS OF FACT AND OPINION

     THORNTON, Judge:   In these consolidated cases, petitioner

seeks relief from joint and several liability under section

6015(b) and (f) with respect to joint returns that she and her

husband filed for 1983 through 1992.1

     1
      References to secs. 6015 and 7491 are to those sections as
added to the Internal Revenue Code by the Internal Revenue
Service Restructuring and Reform Act of 1998 (RRA 1998), Pub. L.
105-206, secs. 3001(a) and 3201, 112 Stat. 726, 734. Unless
                                                    (continued...)
                                  - 2 -

                            FINDINGS OF FACT

     The parties have stipulated some facts, which we incorporate

herein by this reference.     When she petitioned this Court,

petitioner resided in Blacksburg, Virginia, with her husband, Dr.

Salvatore D. Barranco (Dr. Barranco).

I.   Personal History/Household Management

     Petitioner and Dr. Barranco were married during all the

years at issue, as well as up through the trial of this case.

They have three daughters and a son.

     When petitioner married Dr. Barranco in 1961, she was in her

second year of nursing school; he was in medical school.      Since

getting married, she has not received other formal education or

gainfully worked outside the home.

     During the years at issue, Dr. Barranco was a financially

successful orthopedic surgeon in private practice in Blacksburg,

Virginia.     In 1983, he was a 50-percent shareholder of the

medical practice corporation in which he practiced.      During the

remaining years at issue, he was the sole shareholder of the

corporation.      Petitioner was not involved in Dr. Barranco’s

medical practice, and he did not usually discuss it with her.




     1
         (...continued)
otherwise indicated, all other section references are to the
Internal Revenue Code in effect for the years at issue and all
Rule references are to the Tax Court Rules of Practice and
Procedure.
                               - 3 -

     For the first 15 years of the Barrancos’ marriage,

petitioner handled family financial matters, paying the family

bills out of a checking account.    About 1976, Dr. Barranco

assumed a large part of this responsibility and eventually

engaged the services of various accountants to assist him.     He

began having family bills sent directly to his office, where he

would write checks to pay them.    He also began providing

petitioner a monthly “stipend” to cover household expenses such

as for groceries, clothing, and incidentals.    Petitioner might

use any residual amount of the stipends to pay other charges on

her own credit cards.   (Otherwise, Dr. Barranco would pay her

credit card charges along with other family bills.)    During the

years at issue, the stipend ranged from $2,000 to $3,000 a month.

Each year, Dr. Barranco also gave petitioner an additional

monthly stipend payment of like amount to buy Christmas gifts for

their children.

     The Barrancos’ discussions of family finances related

primarily to the adequacy of petitioner’s stipend and, on

occasion, to the financing of the various real estate purchases

discussed below.
                                    - 4 -

II.   The Barrancos’ Major Financial Expenditures

      A.    Real Estate Purchases

      Beginning before and continuing into the years at issue,

petitioner and Dr. Barranco purchased, with funds provided by Dr.

Barranco, various parcels of Virginia real estate, as follows:2

          Date             Property Purchased

      09/1975       5.024 acres in Woodland Hill Estates
      01/1976       Two lakeside lots of undisclosed acreage at
                      Smith Mountain Lake, for about $35,000
      10/1980       9.119 acres in Mountain View Estates
      12/1982       5.000 acres in Woodland Hill Estates
      07/1983       5.050 acres in Woodland Hill Estates
      11/1983       5.020 acres in Woodland Hill Estates

      In 1977, the Barrancos built a vacation home on one of the

lakeside lots at Smith Mountain Lake.       In 1983, they constructed

their primary residence on one of their Woodland Hill Estates

parcels.3

      Initially, the Barrancos held title to all these properties

(both acreage and improvements) as tenants by the entirety.       On

April 21, 1986, Dr. Barranco gave petitioner his interest in all

these properties.

      Meanwhile, in October 1984, petitioner had purchased in her

own name, with funds that Dr. Barranco had provided, an

additional 100.7 acres of land adjacent to the 29-plus acres they


      2
       Unless otherwise noted in the chart, the record does not
reveal the cost of these properties.
      3
       The record is silent as to the Barrancos’ personal
residence before 1983.
                                - 5 -

had previously acquired in Woodland Hill Estates and Mountain

View Estates.

     In 1985, the mortgage on the Smith Mountain Lake vacation

home was paid off.    In 1989, at an undisclosed cost, the

Barrancos remodeled the vacation home.

     B.   Family Vacations

     In 1984 or 1985, the Barrancos took their son to Scandinavia

for a couple of weeks.    Also during the years at issue, the

Barrancos took three of their children on a bus tour of Italy,

and petitioner and Dr. Barranco took a snow-skiing trip to France

with the Atlanta Ski Club.    In addition, during the years at

issue, Dr. Barranco took a couple of snow-skiing trips to

Switzerland with his son, and he also took annual week-long snow-

skiing vacations in Colorado.

     C.   Daughters’ Weddings

     During the years at issue, each of the Barrancos’ daughters

got married.    Dr. Barranco spent approximately $8,000 to $10,000

on each wedding.    Petitioner helped plan these weddings but did

not know the total cost.

     D.   Gifts

     For each year at issue, petitioner generally spent at least

$500 to $1,000 for Christmas presents on each of the Barrancos’

four children.    Dr. Barranco also made gifts to the children

during the years at issue, including these significant gifts, all
                                  - 6 -

made with petitioner’s knowledge:     In 1982 or 1983, a Fiat sports

car for one daughter; in 1984, a Mazda 626 automobile for another

daughter; in 1985, a horse for one daughter; and in 1988, a Ford

Probe automobile for the son.

     Dr. Barranco’s Christmas gifts to petitioner during the

years at issue included what she describes as “nice jewelry” and

a fox jacket.    His anniversary gifts to her during these years

included a diamond engagement ring and another piece of diamond

jewelry.

     E.    Other Cars and Boats

     Every 2 or 3 years, Dr. Barranco bought petitioner a new

station wagon.    From 1982 until 1987, Dr. Barranco drove a

Porsche automobile provided by his medical practice corporation.

About 1988, he began driving a Mercedes, also provided by his

medical practice corporation.     In 1991, Dr. Barranco bought

himself a Mazda Miata.

     During the mid-1970s, the Barrancos used funds earned by

Dr. Barranco to acquire a boat, titled in both their names.      In

the early 1980s, the Barrancos traded in this boat and, with

funds earned by Dr. Barranco, bought another one, titled only in

petitioner’s name.

     F.    College Tuition

     During each year from 1983 to 1991 inclusive, at least one

of the Barranco children was in college.     (During 5 of the years
                                - 7 -

at issue, two or more of the Barranco children were concurrently

enrolled in college.)    Two of the children attended public

universities out of State, one attended a private university out

of State, and one attended an in-State university.    Dr. Barranco

paid the tuition, room, board, and related fees for each child.

Petitioner knew that Dr. Barranco was paying these expenses,

although she was unaware of the exact amounts.

III.    Dr. Barranco’s Tax Evasion Scheme

       For each year at issue, Dr. Barranco sought to evade income

taxes by diverting income generated by his medical practice.    His

means of this attempted tax evasion was to write checks payable

to various fictitious individuals or organizations set up by his

New York City accountant.    These fraudulent “payments” were then

claimed as deductions on the corporate tax return.    After taking

10 percent of the fraudulent “payments” as a fee, the New York

City accountant would apply the remaining 90 percent of the

proceeds as Dr. Barranco directed, making deposits into checking

accounts and funds that Dr. Barranco could draw from as needed,

or else into an escrow account that Dr. Barranco used for

investment purposes.    Dr. Barranco carried out these acts of tax

evasion without petitioner’s knowledge, consent, or acquiescence.

IV.    The Barrancos’ Tax Returns

       For each year at issue, petitioner and Dr. Barranco filed a

joint Federal income tax return.    On these joint returns, they
                                     - 8 -

reported taxable income and adjusted gross income as indicated

below, omitting certain amounts of gross income as a result of

Dr. Barranco’s tax evasion scheme and thereby giving rise to

additional tax due, as also indicated below:4
                                     Adjusted
                    Taxable          Gross           Gross
                    Income           Income          Income           Additional
     Tax Year       Reported         Reported        Omitted           Tax Due

         1983         $5,678            *            $805,819         $303,565
         1984         78,722            *             553,518          189,632
         1985         32,678            *             643,356          257,847
         1986         47,709            *             521,829          185,239
         1987          8,293          $63,407         600,934          180,925
         1988          6,932           49,881         467,012          106,855
         1989         84,965          124,968         625,858          138,487
         1990        100,375          146,371         593,846          123,920
         1991          –--             57,027         602,499          153,317
         1992        248,397          290,978         464,142           53,938

                     613,749          732,632*      5,878,813        1,693,725

     * For 1983-1986, there is no evidence in the record from which the adjusted
     gross income reported by petitioner and Dr. Barranco can be determined.

     Petitioner neither reviewed these joint income tax returns

nor questioned Dr. Barranco about any entries on them.

V.   Dr. Barranco’s Guilty Plea and Incarceration

     In May 1995, Dr. Barranco pleaded guilty to conspiring to

defraud the Internal Revenue Service and evade taxes with respect

to his medical practice corporation for the years 1983 through

1992 and to willfully evading taxes on omitted taxable income in

excess of $1 million for the years 1987 through 1992.


     4
       As far as the record reveals, on the Barrancos’ originally
filed individual income tax returns for the years at issue, Dr.
Barranco’s medical practice earnings were reported, apparently
incorrectly, on Schedule C, Profit or Loss From Business. These
amounts of reported Schedule C earnings were apparently net of
the fraudulent deductions claimed on the corporate returns for
Dr. Barranco’s medical practice corporation.
                               - 9 -

      In conjunction with his plea arrangement, Dr. Barranco filed

amended individual income tax returns reporting his previously

omitted gross income for the tax years at issue.    Petitioner did

not participate in preparing the amended tax returns filed

pursuant to Dr. Barranco’s plea arrangement.    Only the 1988

amended tax return bears a signature purported to be

petitioner’s.

      In February 1996, Dr. Barranco was sentenced to 27 months’

incarceration, which he began serving in March 1996.    While Dr.

Barranco was incarcerated, his medical practice corporation

continued to pay him a $3,000 monthly salary.

VI.   Petitioner’s Transfer of Property to Children

      As previously discussed, in the 1980s petitioner became the

sole titleholder of several real properties that had been

acquired with funds provided by Dr. Barranco.    These real

properties included about 130 acres in or adjacent to Woodland

Hill Estates, the Barrancos’ primary residence situated therein,

and the Smith Mountain Lake vacation home and lots.    In July

1996, petitioner deeded all these real properties to a newly

established limited liability company that her four children

owned.   In exchange, petitioner received the children’s note in

the principal sum of $617,400, payable at 3-percent interest in

179 equal payments of $1,987.89 each, and a final balloon payment

of $518,532, due August 1, 2011.
                                 - 10 -

       In June 1997, the limited liability company transferred back

to petitioner, for no consideration, the primary residence and

the 5.024-acre Woodland Hill Estates parcel on which it was

situated.

VII.    Dr. Barranco’s Release

       In September 1997, Dr. Barranco was released from prison

after serving 18 months of his 27-month sentence.    He has since

resumed his medical practice.     At the time of trial, he resided

with petitioner in their primary residence.

VIII.    Petitioner’s Request for Administrative Relief

       On or about June 3, 1999, petitioner submitted to respondent

a Form 8857, Request for Innocent Spouse Relief, requesting

relief from joint and several liability for the tax years 1983

through 1992 for additional tax that was not shown on the joint

tax returns that she and Dr. Barranco had originally filed.    On

October 20, 2000, respondent issued petitioner a notice of

determination denying the requested relief for the 1988 tax year.

On that same date, with respect to all the remaining tax years at

issue (i.e., 1983-87 and 1989-92), respondent issued petitioner a

notice of deficiency, determining therein that petitioner’s

taxable income for those years should be increased to include the

income diverted through Dr. Barranco’s tax evasion scheme.
                                - 11 -

                                OPINION

     For 1988, petitioner has filed a stand-alone petition

pursuant to section 6015(e)(1) contesting respondent’s final

determination denying her claim for relief from joint and several

liability for that year.    For all other years at issue,

petitioner seeks relief from joint and several liability by

raising the matter as an affirmative defense in her petition for

redetermination invoking this Court’s deficiency jurisdiction

pursuant to section 6213(a).    For all years at issue in these

consolidated cases, petitioner requests relief from joint and

several liability under subsections (b) and (f) of section 6015.5

I.   Statutory Background

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

return are jointly and severally liable for the full tax

liability.   Sec. 6013(d)(3).   Section 6015 contains various

exceptions to this general rule.    Section 6015(b) provides as

follows:

          SEC. 6015(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;




     5
       Sec. 6015 applies to any tax liability that was unpaid as
of July 22, 1998. RRA 1998 sec. 3201(g), 112 Stat. 740.
                             - 12 -

                    (B) on such return there is an
               understatement of tax attributable to
               erroneous items of one 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.

     Failure to meet any of the section 6015(b)(1) requirements

precludes the granting of relief.   In the instant cases, the

parties dispute the following two requirements:   (1) Whether

petitioner knew or had reason to know of the understatements when

signing the joint returns for the tax years at issue, and (2)

whether it is inequitable to hold petitioner liable for the tax
                              - 13 -

deficiencies attributable to the understatements.6   Petitioner

bears the burden of proof.   See Rule 142(a); Grossman v.

Commissioner, 182 F.3d 275, 279 (4th Cir. 1999), affg. T.C. Memo

1996-452.7

II.   Actual or Constructive Knowledge

      To qualify for relief under section 6015(b), petitioner must

establish that she did not know and had no reason to know that on

the joint returns there were understatements of tax attributable

to Dr. Barranco’s omitted medical practice income.   See sec.

6015(b)(1)(C).

      We are convinced that petitioner had no actual knowledge of

the understatements.   Accordingly, we focus on the issue of

whether she had reason to know of the understatements.


      6
       Respondent also argues that petitioner is ineligible for
relief under sec. 6015 with respect to the 1988 tax year, because
she signed the 1988 amended return with Dr. Barranco.
Consequently, respondent contends, there is no 1988
understatement within the meaning of sec. 6015(b)(1)(B).
Petitioner disputes that she signed the 1988 amended return.
Because we decide that petitioner has failed to satisfy other
statutory requirements for relief under sec. 6015(b), it is
unnecessary to reach this issue, and we do not.
      7
      Effective for court proceedings arising in connection with
examinations commencing after July 22, 1998, if certain
requirements are met, sec. 7491(a) shifts the burden of proof to
the Commissioner. RRA 1998 sec. 3001(a), 112 Stat. 726.
Petitioner has neither alleged that sec. 7491(a) applies nor
established that the preconditions to its applicability have been
met. Moreover, because sec. 6015(b)(1)(C) specifically requires
the relief-seeking spouse to establish that he or she did not
have actual or constructive knowledge of the understatement, the
provisions of sec. 7491(a) are inapplicable with respect to this
issue. See sec. 7491(a)(3).
                              - 14 -

     A 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 an understatement or that further investigation

was warranted. * * *   The spouse seeking relief has a ‘duty of

inquiry’.”   Butler v. Commissioner, 114 T.C. 276, 283-284 (2000)

(citations omitted).

     In deciding whether a spouse had reason to know of an

understatement, a key factor is the extent to which family

expenditures, of which the spouse had knowledge, exceeded

reported income.   See Estate of Jackson v. Commissioner, 72 T.C.

356, 361 (1979); Hammond v. Commissioner, T.C. Memo. 1990-22,

affd. 938 F.2d 185 (8th Cir. 1991).8   Other relevant factors

include the spouse’s education level; her involvement in the

family’s business and financial affairs; the presence of lavish

or unusual expenditures as compared to the family’s past income

levels, income standards, and spending patterns; and the culpable

spouse’s evasiveness and deceit concerning the couple’s finances.

See Butler v. Commissioner, supra at 284.

     Although petitioner did not review the joint returns before

signing them, she is charged with knowledge of their contents.



     8
       Cases interpreting former sec. 6013(e) “remain instructive
as to our analysis of whether a taxpayer ‘knew or had reason to
know’ of an understatement pursuant to new section 6015(b).”
Butler v. Commissioner, 114 T.C. 276, 283 (2000).
                                - 15 -

See Hayman v. Commissioner, 992 F.2d 1256, 1261 (2d Cir. 1993),

affg. T.C. Memo. 1992-228; Terzian v. Commissioner, 72 T.C. 1164,

1170 (1979).   Petitioner is thus deemed to have known, for

example, the amounts of taxable income and adjusted gross income

reported on the joint returns.    Although the record does not

reveal with specificity the total amount of adjusted gross income

the Barrancos reported over the 10 years at issue, it does reveal

that the total amounts reported were understated by $5,878,813.

The annual shortfalls ranged from a low of $464,142 (in 1992) to

a high of $805,819 (in 1983).    For the years 1987-92 (the only

years for which the record reveals the amounts of gross income

reported on the Barrancos’ joint returns), the omitted gross

income exceeded the amounts of reported adjusted gross income by

an annual average of over 670 percent.    On the basis of the

limited evidence in the record, it appears that the pattern of

underreporting for the years 1983-86 was similar.9

     What became of these large amounts of omitted income?      From

the limited evidence in the record, we can only conclude that

they were used largely to finance the Barrancos’ substantial



     9
       The Barrancos’ 1987-92 joint returns reported total
adjusted gross income of $732,632 and omitted gross income of
$3,354,291. The record does not contain the Barrancos’ 1983-86
joint returns or otherwise reveal the amount of adjusted gross
income they reported for those years. The record does indicate,
however, that for those years the Barrancos reported total
taxable income of $164,787, while omitting gross income of
$2,524,522.
                              - 16 -

family expenditures during the years at issue.10   These

expenditures included, in addition to the basic living expenses

required for the Barrancos to live what Dr. Barranco described as

a “nice life”:   The purchase of over 110 acres; the construction

of their primary residence; the payoff of the mortgage on their

vacation home after about 8 years; the remodeling of their

vacation home; several European vacations; college tuition, room,

and board for each of their four children; weddings for their

three daughters; diamond jewelry; and the Barrancos’ purchase of

several cars and a boat for themselves, as well as at least three

cars and a horse for their children.




     10
       The only direct evidence that petitioner offered on this
score came from Dr. Barranco’s testimony. Although Dr. Barranco
testified that none of the omitted income was used to benefit the
family, his testimony fails to account for the disposition of at
least $4,890,932 of omitted income. More particularly, Dr.
Barranco testified that 10 percent of the $5,878,813 of omitted
income (i.e., about $587,881) went to the New York City
accountant and that the remaining 90 percent (i.e., about
$5,290,932) was placed--

     in checking accounts and funds that I   could draw from
     if I needed it, and an escrow type of   account which
     could be used for investment purposes   and it was
     available. So it was an account that    was there. If it
     was needed, I could tap into it.

Dr. Barranco testified that when the authorities uncovered his
tax evasion scheme, there was $400,000 or $450,000 in the escrow
account which was seized pursuant to the criminal investigation.
Assuming, for sake of argument, that this representation is true,
it means that at least $4,840,932 ($5,290,932 minus $450,000) of
the omitted income is unaccounted for.
                              - 17 -

     Petitioner was aware of all these expenditures.    Although

she may not have been aware of the exact dollar amounts of some

of these expenditures, we believe she was generally aware of what

things cost.   After all, she had managed the family’s personal

finances for the first 15 years of the Barrancos’ marriage.

Throughout the years at issue, she managed the monthly stipend

that she used to pay for the family’s groceries, clothing, and

incidental expenses.   She also maintained her own credit card

account.   She participated in discussions with Dr. Barranco about

their sizeable real estate acquisitions.   She had completed a

year of nursing school.

     It is true that petitioner was excluded from Dr. Barranco’s

business affairs and was unaware of his fraudulent tax scheme.

These considerations weigh in petitioner’s favor.   Nevertheless,

in light of the totality of facts and circumstances, petitioner

has failed to convince us that a reasonably prudent person in her

position at the time she signed the return for each year at issue

would not have had reason to know that the family expenditures

greatly exceeded reported income.

     For example, in 1988 the Barrancos reported adjusted gross

income of $49,881, omitting gross income of $467,012.    That same

year, petitioner received from Dr. Barranco monthly stipends

totaling at least $26,000 to cover household expenses and

Christmas gifts.   In order for the Barrancos to have subsisted on
                              - 18 -

the $49,881 of adjusted gross income reported on the 1988 joint

return, the remaining $23,881 would have had to cover all the

other expenditures the Barrancos made that year:   Basic living

expenses not covered by the monthly stipend (e.g., mortgage

payments, insurance, and taxes); tuition, room, and board

expenses associated with two of their children’s college

attendance (one of whom was at a private university); the

$8,000–$10,000 wedding expenses for one of their daughters; a

Ford Probe for their son; and all the other items that allowed

the Barrancos to “live well”, as petitioner states on brief.      We

are unpersuaded that a reasonably prudent person in petitioner’s

position would have thought that the $49,881 of gross income

reported on the Barrancos’ joint return was sufficient to cover

all these expenditures.   The record does not suggest that the

Barrancos had available to them resources other than the omitted

income to support their lifestyle.

     On brief, petitioner contends that the Barrancos’ lifestyle

was not lavish or unusual, but it was simply the “lifestyle of a

hard-working orthopedic surgeon’s family.”   In support of this

contention, petitioner states on brief that “orthopedic surgeons

generally do have very good incomes”.   Therein lies the rub.

Although the Barrancos were enjoying the lifestyle of a “hard-

working orthopedic surgeon’s family” during the years at issue,

Dr. Barranco and petitioner were reporting much less than the
                               - 19 -

“very good incomes” that orthopedic surgeons might generally be

expected to earn to support such a lifestyle.   On the basis of

all the evidence, we believe that petitioner should have been

aware of this discrepancy.

     Petitioner testified that after Dr. Barranco commenced his

medical practice (sometime well before 1983), their lifestyle

“kept getting better and better” because he “was making more

money * * * as far as I was concerned”.   Yet in 1983, the

Barrancos’ reported income dropped precipitously, we surmise, for

in that year their joint return omitted $805,819 of gross

income.11   As previously discussed, petitioner is charged with

knowledge of the amounts of income reported on the joint returns.

See Hayman v. Commissioner, 992 F.2d at 1261; Terzian v.

Commissioner, 72 T.C. at 1170.

     The pattern persisted for the next 9 years:   the Barrancos’

joint returns continued to omit very large amounts of gross

income even as their lifestyle kept getting “better and better”.

They acquired parcels of real property substantially greater than

the amounts they had acquired before the tax years at issue; they



     11
       The record does not reveal how much gross income the
Barrancos reported for any year before 1983. The evidence does
indicate, however, that Dr. Barranco’s tax evasion activities
commenced in 1983, at a time when the Barrancos’ lifestyle had
been steadily improving. Accordingly, we infer that in 1983
there was a falling off in the Barrancos’ reported income more or
less commensurate with the $805,819 of gross income that was
omitted from the Barrancos’ 1983 joint return.
                               - 20 -

constructed their personal residence and remodeled their vacation

home; they paid college expenses for four children; they

vacationed in Europe several times; and they bought numerous new

cars for themselves and their children.

       We believe that the ostensible falling off of the Barrancos’

reported income in 1983 and subsequent years was so great, and

the discrepancy between their reported income and their ever-

improving lifestyle so pronounced, as to reasonably put

petitioner on notice of the need to make further inquiry.    Cf.

Price v. Commissioner, 887 F.2d 959, 965-966 (9th Cir. 1989).

       Petitioner argues that she had no constructive knowledge of

the omitted income because she never reviewed the tax returns

before signing them.    Petitioner, however, “cannot be excused for

her failure to review a return she signed under penalties of

perjury, even though it was her habit all during her married life

to sign any document her husband asked her to sign.”    Terzian v.

Commissioner, supra at 1170.

       In sum, petitioner has failed to establish that a reasonably

prudent person in her position at the time she signed any of the

joint returns could not be expected to know that they contained

understatements or that further investigation was warranted.

III.    Section 6015(b)(1)(D) Equity Analysis

       Notwithstanding our foregoing conclusions, if we were to

assume, for sake of argument, that petitioner had neither actual
                               - 21 -

nor constructive knowledge of the understatements, her claim for

relief pursuant to section 6015 must still fail.   As discussed

below, the evidence indicates that pursuant to section

6015(b)(1)(D) it would not be inequitable to hold petitioner

liable for the deficiencies attributable to the understatements

in question.

     A material factor that informs our analysis under section

6015(b)(1)(D) is whether there has been a “significant benefit to

the spouse claiming relief”.   Jonson v. Commissioner, 118 T.C.
106, 119 (2002) (citing Hayman v. Commissioner, supra at 1262).12

     Petitioner alleges that she did not benefit from the

understatements in question.   On brief, petitioner states:   “The

money that should have been paid to the Internal Revenue Service

* * * was taken by * * * [Dr. Barranco’s] accountant or was * * *

eventually seized.”   Petitioner, however, fails to account for at

least $655,844 of the $1,693,725 total understatements.13


     12
       The “equity” test of sec. 6015(b)(1)(D) is virtually
identical to the “equity” test of former sec. 6013(e)(1)(D);
therefore, cases interpreting former sec. 6013(e)(1)(D) inform
our analysis pursuant to sec. 6015(b)(1)(D). Jonson v.
Commissioner, 118 T.C. 106, 119 (2002).
     13
       As previously noted, Dr. Barranco testified that his
accountant withheld 10 percent (i.e., approximately $587,881) of
the $5,878,813 of income omitted during the 10 years at issue and
that an estimated $400,000 or $450,000 was seized from his
investment accounts pursuant to the criminal investigation of his
tax fraud. The understatements for the years at issue total
$1,693,725. Thus, Dr. Barranco’s testimony fails to account for
at least $655,844 of the total understatements ($1,693,725 minus
($587,881 plus $450,000)).
                                                    (continued...)
                              - 22 -

      We have previously concluded that the Barrancos’ lifestyle

during the years at issue was in all probability financed in

significant part by income omitted from the joint returns.    Money

being fungible, it follows, in the absence of contrary evidence,

that their lifestyle was also financed, directly or indirectly,

by the understatements.

      For each year at issue, petitioner enjoyed the lifestyle

afforded, directly or indirectly, by the tax savings, and

petitioner thereby benefited from the tax savings.   More

particularly, in 1986 Dr. Barranco gave petitioner his interest

in:   (1) Their personal residence, which they constructed in

1983; (2) more than 29 acres underlying or adjacent to their

personal residence; and (3) their lakeside vacation home.14     In


      13
           (...continued)
     In doing these mathematics, we give petitioner the benefit
of the doubt by assuming, without deciding, that the accounted-
for omitted income (i.e., the $587,881 paid to the accountant and
the $400,000 or $450,000 allegedly seized from Dr. Barranco’s
investment accounts) should be counted entirely against the
understatements.

     In determining the $1,693,725 amount of understatements, we
have assumed (consistent with petitioner’s position in this
proceeding), but have not decided, that she did not sign the 1988
amended return.
      14
       Both petitioner and Dr. Barranco testified that Dr.
Barranco made these transfers to protect his property interests
from potential malpractice claimants. Respondent argues that
under Virginia law, because petitioner and Dr. Barranco formerly
held the real estate as tenants by the entirety, these properties
would have been exempt from the claims of creditors who did not
have joint judgments against petitioner and Dr. Barranco. See
Rogers v. Rogers, 512 S.E.2d 821, 822 (Va. 1999) (citing
Vasilion v. Vasilion, 66 S.E.2d 599 (Va. 1951)). We need not
                                                     (continued...)
                                   - 23 -

1984, petitioner also acquired--with funds provided by Dr.

Barranco--over 100 acres.        Contrary to petitioner’s suggestion on

brief, we do not believe that such items represented mere “normal

support”.        On the basis of all the evidence, we conclude that

petitioner significantly benefited from the understatements in

tax.    See Clevenger v. Commissioner, T.C. Memo. 1986-149 (holding

it was not inequitable to deny relief under former section

6013(e) where understatements improved a couple’s jointly owned

home, sole title to which the relief-seeking taxpayer received in

a divorce settlement), affd. 826 F.2d 1379 (4th Cir. 1987); see

also Estate of Krock v. Commissioner, 93 T.C. 672, 681 (1989)

(requiring specific facts regarding lifestyle expenditures, asset

acquisitions, and dispositions of tax savings to prove no

significant benefit); Von Kalinowski v. Commissioner, T.C. Memo.

2001-21 (receiving $500,000 over 15 years was a significant

benefit); French v. Commissioner, T.C. Memo. 1996-38 (rejecting

the taxpayer’s argument that $150,000 in certificates of deposit

sourced to understatement “merely amounted to normal support”

where the taxpayer could not account for how it was spent).

       Moreover, since Dr. Barranco’s release from prison, he has

resided with petitioner in the Barrancos’ primary residence (of



       14
            (...continued)
decide this hypothetical issue of Virginia law. Whatever Dr.
Barranco’s motives might have been in making the transfers, the
fact remains that he made them. Furthermore, petitioner clearly
benefited from these transfers, as illustrated by her subsequent
transfer of the properties to her children in 1996, in return for
their note to her in the principal sum of $617,400.
                                - 24 -

which petitioner was sole owner at the time of trial) and has

resumed his medical practice, which is the couple’s primary

source of income.   Petitioner “continues to enjoy the lifestyle

and financial security that are largely attributable to her

husband’s assets and income.”    Von Kalinowski v. Commissioner,

supra; see Lauer v. Commissioner, T.C. Memo. 1994-579.    On the

basis of all the evidence, we conclude that denial of relief from

joint and several liability will not result in economic hardship

for petitioner.    There is no suggestion in the record of spousal

abuse or duress.    These considerations support our conclusion

that it would not be inequitable to deny petitioner the requested

relief from joint and several liability.

      Accordingly, we hold that petitioner is not entitled to

relief under section 6015(b).

IV.   Relief Under Section 6015(f)

      Petitioner contends that respondent abused his discretion in

denying her request for relief from joint and several liability

under section 6015(f).

      Where relief is unavailable to an individual under section

6015(b), the Secretary may provide relief under section 6015(f)

if “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)”.    Sec. 6015(f).

Essentially the same language appears in the equities test of

section 6015(b)(1)(D).    Butler v. Commissioner, 114 T.C. at 291.

Having concluded, in light of all the facts and circumstances,
                              - 25 -

that it is not inequitable to deny petitioner the requested

relief under section 6015(b)(1)(D), it follows that respondent

did not abuse his discretion in denying relief under section

6015(f).   See Alt v. Commissioner, 119 T.C. ___ (2002).

     In reaching our holdings, we have considered all arguments

the parties have made.   Arguments not addressed herein we have

concluded are irrelevant or without merit.

     To reflect the foregoing,


                                         Decisions will be entered

                                    for respondent.
