                  T.C. Summary Opinion 2008-100



                      UNITED STATES TAX COURT



              ROBIN HAYWOOD COURTNEY, Petitioner v.
          COMMISSIONER OF INTERNAL REVENUE, Respondent



     Docket No. 3121-05S.                 Filed August 12, 2008.



     Robin Haywood Courtney, pro se.

     Marshall R. Jones, for respondent.



     WELLS, Judge:   The instant case was heard pursuant to the

provisions of section 74631 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,




     1
      All section references are to the Internal Revenue Code, as
amended, and all Rule references are to the Tax Court Rules of
Practice and Procedure.
                                 -2-

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

case.    In a stand-alone2 petition filed pursuant to section

6015(e), petitioner seeks review of respondent’s notice of

determination denying her relief from joint and several liability

for taxable years 1998, 1999, and 2000.

     The issues we must decide are whether:    (1) For the portion

of the deficiency relating to certain rental property adjustments

for petitioner’s 1998 taxable year,3 petitioner is entitled to

relief pursuant to section 6015(b) or (c); (2) for petitioner’s

1999 and 2000 taxable years, petitioner is entitled to relief

pursuant to section 6015(b) or (c); and (3) for taxable years

1998, 1999, and 2000, respondent abused his discretion in denying

relief to petitioner under section 6015(f).




     2
      Sec. 6015(e) allows a spouse who has requested relief from
joint and several liability on a joint return to petition the
Commissioner’s denial of relief or to petition the Commissioner’s
failure to make a timely determination. Such cases are referred
to as “stand alone” cases, in that they are independent of any
deficiency proceeding. Fernandez v. Commissioner, 114 T.C. 324,
329 (2000).
     3
      The liabilities from which petitioner seeks relief pursuant
to sec. 6015 were assessed for 1998 from a deficiency determined
after an audit of petitioner’s joint return for 1998, and for
1999 and 2000 from taxes shown due on petitioner’s joint returns
for those years but unpaid. For 1998 petitioner signed a waiver
permitting the assessment of the deficiency. Respondent concedes
that petitioner is entitled to relief from joint liability on her
joint tax return for 1998, except for items relating to certain
rental property described below.
                                 -3-

                              Background

     Some of the facts and certain exhibits have been stipulated.

The parties’ stipulations of fact are incorporated in this

Summary Opinion by reference and are found as facts in the

instant case.

     At the time of filing the petition, petitioner resided in

Mississippi.

     Petitioner and her ex-husband (Mr. Courtney) were married

for 14 years.   They have three children.   Their divorce was

finalized on August 21, 2001.    Petitioner and Mr. Courtney filed

joint Forms 1040, U.S. Individual Income Tax Return, for taxable

years 1998, 1999, and 2000.    Petitioner signed a waiver

permitting the assessment of the deficiency for 1998 and signed

each joint return for 1998, 1999, and 2000.    The unpaid balances

with respect to their 1998, 1999 and 2000 income taxes were

$7,501.51, $19,381.61 and $9,088.69, respectively.

     During the years in issue petitioner occasionally worked

part time at her children’s school.    Petitioner attends school

full time at William Carey College.    Petitioner managed the

household accounts, and Mr. Courtney handled the family’s taxes.

     Mr. Courtney worked for Mitchell Sign Co.    In part, Mitchell

Sign Co. compensated Mr. Courtney with company stock.    On May 8,

2001, Mr. Courtney’s stock in Mitchell Sign Co. was liquidated
                                  -4-

for $40,955.79.   Subsequently, Mr. Courtney wrote a check for

$39,489.41 to pay off a loan.

     After being arrested for forging prescriptions for

painkillers during September 2000, Mr. Courtney admitted to

petitioner that he was addicted to prescription painkillers.

Petitioner and Mr. Courtney divorced in August 2001.   At the time

of their divorce petitioner was aware that Mr. Courtney was

recovering from his addiction and had not begun rehabilitation

and thought him to be in an impaired state of mind.

     In the divorce decree Mr. Courtney was obligated by their

child custody and property settlement agreement to indemnify

petitioner for joint and several liabilities at issue.    During

December 2003 petitioner received a notice from her bank that

respondent had frozen her checking account because of the joint

and several liabilities of which she seeks to be relieved in the

instant proceeding.

     Petitioner informed the Internal Revenue Service (IRS)

Appeals officer that she did not think that Mr. Courtney would

pay the joint and several liabilities in issue.   Mr. Courtney

neither coerced petitioner to sign the returns in issue nor

forged petitioner’s signatures to the returns; petitioner

voluntarily signed the returns.

     During 1998 petitioner and Mr. Courtney jointly rented the

residence that had previously served as their home (rental
                                -5-

property).   Petitioner and Mr. Courtney made repairs to the

rental property.   During an examination of petitioner and Mr.

Courtney’s 1998 joint return, adjustments were made with respect

to the tax treatment of their rental property.   Petitioner

collected the rent checks from the tenants of the rental property

and deposited them into petitioner and Mr. Courtney’s joint bank

account.   No records were maintained for the rental property

during 1998.

     During 1998 petitioner and Mr. Courtney leased a residence

which had been the couple’s home and which they jointly owned.

Currently, petitioner owns a home that is unencumbered by a

mortgage and was appraised at approximately $185,000.

     At the present time petitioner is not employed and uses

funds from a student loan, child support payments, and a home

equity loan to pay her bills.

     On July 7, 2003, petitioner filed a timely Form 8857,

Request for Innocent Spouse Relief, for the years in issue

(request).   Respondent denied her request.

     On April 20, 2004, petitioner sent respondent Form 12509,

Statement of Disagreement, in which she included the following as

reasons for her appeal:   Petitioner was unaware of Mr. Courtney’s

prescription painkiller addiction until the time of his arrest;

during this time, Mr. Courtney informed petitioner that his

company’s accounting firm would handle their taxes, but, instead,
                                -6-

Mr. Courtney prepared them himself; and petitioner’s impression

was that Mr. Courtney was not in a proper state of mind to

prepare their tax returns.   Mr. Courtney prepared the 1998 joint

return, and an accounting firm prepared the 1999 and 2000 joint

returns.

     On November 18, 2004, respondent sent petitioner a notice of

determination denying her request.    On February 17, 2005,

petitioner filed a petition seeking review of respondent’s

determination.

                             Discussion

     Generally, spouses filing a joint return are jointly and

severally liable for the accuracy of the return and for the full

tax liability.   Sec. 6013(d)(3).   Section 6015(b), (c), and (f)

provides exceptions to the general rule under certain

circumstances.   Section 6015 applies to liabilities arising after

July 22, 1998, and to liabilities arising on or before July 22,

1998, that remain unpaid as of that date.    See Internal Revenue

Service Restructuring and Reform Act of 1998, Pub. L. 105-206,

sec. 3201, 112 Stat. 734.

     Except as otherwise provided in section 6015, the requesting

spouse bears the burden of proof.     Rule 142(a); Alt v.

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

(6th Cir. 2004).
                                  -7-

Section 6015(b) and (c) Relief for Rental Property Adjustments
for Taxable Year 1998

     Respondent contends that petitioner is not entitled to

relief under section 6015(b) or (c) for the portion of the 1998

deficiency remaining4 because she had knowledge of the items

giving rise to the understatement of tax.

     As to section 6015(b), subsection (b)(1) requires the

Commissioner to grant relief from joint liability if, inter alia,

the requesting spouse establishes that, in signing the joint

return, he or she did not know and had no reason to know that

there was an understatement.   Sec. 6015(b)(1)(C).

     As to section 6015(c), subsection (c)(1) allows

proportionate relief from joint and several liability by

relieving the requesting spouse from liability for items giving

rise to the deficiency that would have been allocable to the

nonrequesting spouse had the spouses filed separate returns.

Relief is not available if the Commissioner demonstrates that the

requesting spouse had actual knowledge, at the time the return

was signed, of any item giving rise to a deficiency (or portion

thereof).   Sec. 6015(c)(3)(C).

     In the instant case, the record shows that petitioner

participated in the management of the rental property and

collected rent checks and deposited them into her and Mr.



     4
      As noted above, respondent concedes that petitioner is
entitled to relief of the 1998 liability, except that portion of
the deficiency relating to the rental property adjustments.
                                -8-

Courtney’s bank account.   On the basis of the record in the

instant case, we conclude that petitioner had actual knowledge of

the item giving rise to the understatement of tax related to the

rental property adjustments when she signed the 1998 return.

Consequently, we hold that petitioner fails to satisfy the

requirements of section 6015(b)(1)(C) for the portion of the

deficiency relating to the rental property adjustments for

taxable year 1998.   Likewise, as to section 6015(c), we hold that

petitioner is not entitled to relief on the portion of the

deficiency relating to the rental property adjustments for

taxable year 1998.   See sec. 6015(c)(3)(C).

Section 6015(b) and (c) Relief for Taxable Years 1999 and 2000

     Subsections (b) and (c) of section 6015 do not apply to

taxable year 1999 or 2000 because there was neither an

understatement nor a deficiency in either taxable year as defined

by section 6015(b) and (c).   The liabilities for taxable years

1999 and 2000 arose from unpaid taxes shown on the joint returns5

for those years and assessed by respondent.




     5
      While petitioner contended at trial that she did not sign
the joint returns, that contention is contradicted by the
stipulated Form 8857, which includes petitioner’s admission that
she signed the returns. She also admitted at trial that her
recollections could be erroneous. We also note that at trial
petitioner admitted that, at the time she signed the returns, she
had reason to know that the tax liabilities would not be paid.
                                -9-

Section 6015(f) Relief for Rental Property Adjustments for
Taxable Year 1998 and for Taxable Years 1999 and 2000

     If relief is not available under section 6015(b) or (c), the

requesting spouse may seek equitable relief under section

6015(f).   Sec. 6015(f)(2); Butler v. Commissioner, 114 T.C. 276,

287-292 (2000).

     Pursuant to the discretionary authority granted in section

6015(f), the Commissioner has prescribed procedures, set forth in

Rev. Proc. 2003-61, 2003-2 C.B. 296, for determining whether a

spouse qualifies for equitable relief for joint and several

liability.   In order to qualify for relief under section 6015(f),

the requesting spouse must satisfy certain threshold conditions

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

Petitioner satisfies those threshold conditions.6

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

additionally provides that equitable relief will ordinarily be

granted as to unpaid liabilities if each of three elements is

satisfied.   Those elements relate to:   (1) Marital status, (2)

knowledge or reason to know, and (3) economic hardship.

     Because petitioner and Mr. Courtney were divorced at the

time petitioner filed her request for relief, she meets the



     6
      Rev. Proc. 2003-61, 2003-2 C.B. 296, supersedes Rev. Proc.
2000-15, 2000-1 C.B. 447, effective for requests for relief filed
on or after Nov. 1, 2003, and for requests for relief pending on
Nov. 1, 2003, for which no preliminary determination letter has
been issued as of that date. Rev. Proc. 2003-61, secs. 6 and 7,
2003-2 C.B. at 299.
                                -10-

marital status criterion of Rev. Proc. 2003-61, sec. 4.02.

Respondent contends that petitioner does not qualify for relief

pursuant to the knowledge or reason to know and economic hardship

criteria of Rev. Proc. 2003-61, sec. 4.02, for the following

reasons:    (1) At the time she signed the returns, petitioner knew

or had reason to know that the taxes would not be paid, and (2)

petitioner will not suffer economic hardship if relief is not

granted.

       We agree with respondent that petitioner knew or had reason

to know when she signed the returns that the taxes would not be

paid.    Petitioner’s signatures on the returns constitute

constructive knowledge of the amounts shown on the returns as

due.    See Park v. Commissioner, 25 F.3d 1289, 1299 (5th Cir.

1994), affg. T.C. Memo. 1993-252; see also Hayman v.

Commissioner, 992 F.2d 1256, 1262 (2d Cir. 1993), affg. T.C.

Memo. 1992-228.    Moreover, petitioner was aware of the reported

tax liabilities when she signed the returns.   As noted above, at

trial petitioner admitted that at the time she signed the

returns, she had reason to know that the tax liabilities would

not be paid.    Accordingly we hold that petitioner knew or should

have known that the tax returns for 1998, 1999, and 2000 reported

unpaid liabilities and that Mr. Courtney would not pay those

liabilities.
                               -11-

     We also agree with respondent that petitioner will not

suffer economic hardship if relief is not granted.   The

Commissioner is directed to base his determination of whether a

requesting spouse will suffer economic hardship on rules similar

to those provided in section 301.6343-1(b)(4), Proced. & Admin.

Regs.   That regulation provides the following:

           (4) Economic hardship.–- (i) General rule.-- * * * This
           condition applies if satisfaction * * * will cause an
           individual taxpayer to be unable to pay his or her
           reasonable basic living expenses. The determination of
           a reasonable amount for basic living expenses will be
           made by the director and will vary according to the
           unique circumstances of the individual taxpayer.
           Unique circumstances, however, do not include the
           maintenance of an affluent or luxurious standard of
           living.

                (ii) Information from taxpayer.--In
           determining a reasonable amount for basic living
           expenses the director will consider any
           information provided by the taxpayer including --

                (A) The taxpayer’s age, employment
           status and history, ability to earn, number
           of dependents, and status as a dependent of
           someone else;

                (B) the amount reasonably necessary for food,
           clothing, housing (including utilities, home-owner
           insurance, home-owner dues, and the like), medical
           expenses (including health insurance),
           transportation, current tax payments (including
           federal, state, and local), alimony, child
           support, or other court-ordered payments, and
           expenses necessary to the taxpayer’s production of
           income (such as dues for a trade union or
           professional organization, or child care payments
           which allow the taxpayer to be gainfully
           employed);

                (C) The cost of living in the geographic area
           in which the taxpayer resides;
                             -12-

                (D) The amount of property exempt from levy
           which is available to pay the taxpayer’s expense;

                (E) Any extraordinary circumstances such as
           special education expenses, a medical catastrophe,
           or natural disaster; and

                (F) Any other factor that the taxpayer claims
           bears on the economic hardship and brings to the
           attention of the director.

It is the taxpayer’s burden to demonstrate that her expenses

qualify as basic living expenses and that those expenses are

reasonable.   Monsour v. Commissioner, T.C. Memo. 2004-190.

     Petitioner filed a joint tax return in 2003 with her current

spouse on which they reported their adjusted gross income as

$71,623.   Petitioner estimated the amount of monthly household

income at $5,083, which includes $1,733 in child support.

Petitioner indicated that the child support may be reduced.

Petitioner estimated the amount of monthly costs at $5,113.     For

2003 petitioner’s stated monthly expenses include the following:

                Monthly Expenses

           Mortgage payments                  $1,070.67
           Food                                  600.00
           Utilities                             297.30
           Telephone                             129.03
           Automobile insurance                  190.00
           Gasoline and oil changes              400.00
           Medical                               521.47
           Life insurance
           Clothing                              300.00
           Childcare
             Subtotal                          3,508.47
                                -13-

                      Other Expenses

          Credit card/installment payments      $500.00
          Cable/internet                          95.00
          Cell phones                            194.52
          Personal care                          145.69
          School expenses                        121.19
          Extra curricular activities             40.00
          Charitable contributions               508.33
            Subtotal                           1,604.73

              Total                           $5,113.20

     Respondent asserts that of these expenses $3,815 accounts

for reasonable basic living expenses and petitioner would not

suffer economic hardship to satisfy the liabilities.

     Respondent contends that petitioner does not satisfy the

economic hardship factor because the balances due on petitioner’s

tax liabilities are less than the equity in her house and because

petitioner’s divorce agreement provides her with recourse against

Mr. Courtney for any joint liability collected from her.

     Currently, petitioner is attending school full time.   The

stocks that Mr. Courtney acquired while at Mitchell Sign Co. were

soon after liquidated and used by Mr. Courtney to pay off a loan.

As last appraised before trial, petitioner’s unencumbered home is

worth approximately $185,000.   At trial petitioner conceded that

the home is in a very nice area, that she is in the process of

getting ready to sell her home, and that selling the home would

free up money with which to pay bills.

     We conclude that satisfaction of the tax liabilities in

issue will not cause petitioner to be unable to pay reasonable
                                 -14-

basic living expenses.   Although petitioner is not currently

employed, petitioner admitted at trial that there is sufficient

equity in her home to satisfy the liabilities.    Thus, we conclude

that petitioner would not suffer economic hardship if relief were

not granted.

     We conclude that petitioner does not satisfy each of the

three elements and, thus, does not qualify for relief pursuant to

Rev. Proc. 2003-61, sec. 4.02.

     Where the requesting spouse fails to qualify under Rev.

Proc. 2003-61, sec. 4.02, then Rev. Proc. 2003-61, sec. 4.03,

2003-2 C.B. at 298-299, contains a nonexclusive list of factors,

based on the facts and circumstances, that the Commissioner will

take into account in determining whether to grant equitable

relief.   Those factors are:   (1) Marital status; (2) economic

hardship; (3) knowledge or reason to know that the nonrequesting

spouse would not pay the liability; (4) nonrequesting spouse’s

legal obligation; (5) significant benefit; and (6) compliance

with income tax laws.    Id. sec. 4.03(2)(a).

     The first factor, the marital status factor, pertains to

whether the couple is married, separated, or divorced.   See id.

sec. 4.03(2)(a)(i).   Petitioner and Mr. Courtney were divorced

August 21, 2001.   The marital status factor weighs in favor of

granting relief.
                                -15-

     The second factor, the economic hardship factor, pertains to

whether the requesting spouse will suffer economic hardship if

relief from joint and several liability is not granted.     See id.

sec. 4.03(2)(a)(ii).   The economic hardship test under this

section is the same test as that under Rev. Proc. 2003-61, sec.

4.02(1)(c).   As stated above, we have concluded that petitioner

will not suffer economic hardship if relief is not granted.    The

economic hardship factor weighs against granting relief.

     The third factor, knowledge or reason to know, is whether at

the time petitioner signed the returns she had knowledge or

reason to know that the tax liabilities reported on the returns

would not be paid.   See id. sec. 4.03(2)(a)(iii).    The knowledge

or reason to know test under this section is the same test as

that under Rev. Proc. 2003-61, sec. 4.02(1)(b).    As stated above,

we have concluded that petitioner knew and had reason to know

that the liabilities in issue might not be paid.     The knowledge

or reason to know factor weighs against granting relief.

     The fourth factor is the nonrequesting spouse’s legal

obligation to pay pursuant to a divorce decree or agreement.    See

id. sec. 4.03(2)(a)(iv).    Petitioner and Mr. Courtney’s agreement

contained in their divorce decree requires Mr. Courtney to

indemnify petitioner for the joint and several liabilities in

issue in the instant case.   The legal obligation factor weighs in

favor of granting relief.
                                -16-

     The fifth factor, significant benefit, relates to whether

the nonrequesting spouse significantly benefits from the unpaid

tax liability.    See id. sec. 4.03(2)(a)(v).   Respondent concedes

that petitioner did not significantly benefit from the unpaid

liability, and the record does not indicate otherwise.    Thus,

petitioner did not benefit significantly from the couple’s

failure to pay the income tax liabilities for the years in issue,

and this factor weighs in favor of granting relief.

     The sixth factor, compliance with income tax laws, relates

to whether the requesting spouse has made a good faith effort to

comply with income tax laws in the taxable years after the tax

years in issue.   See Rev. Proc. 2003-61, sec. 4.03(2)(a)(vi).

Respondent concedes petitioner’s compliance in filing subsequent

tax returns, which weighs in favor of granting relief.

     In addition, Rev. Proc. 2003-61, sec. 4.03(2)(b), 2003-2

C.B. at 299, lists two positive factors that the Commissioner

will consider in favor of granting equitable relief if present.

Those factors are:   (1) Whether the nonrequesting spouse abused

the requesting spouse (the abuse factor); and (2) whether the

requesting spouse was in poor mental or physical health when

signing the return or requesting relief (the mental or physical

health factor).

     As to the abuse factor, Mr. Courtney did not abuse

petitioner.   As to the mental or physical health factor,
                                 -17-

petitioner did not assert or demonstrate that she was in poor

mental or physical health when requesting relief or signing the

return.   Therefore, these factors are inapplicable.

     In sum, on the basis of our examination of the entire record

before us, we conclude that petitioner has failed to carry her

burden of showing that she is entitled to relief under section

6015(f) with respect to the portion of the liability relating to

the rental property adjustments for taxable year 1998 or for the

liabilities for 1999 and 2000.

     We have considered all of the contentions and arguments of

the parties that are not discussed herein, and we conclude that

they are without merit, irrelevant, or moot.

     To reflect the foregoing,


                                             Decision will be entered

                                        for respondent.
