                         T.C. Memo. 2006-4



                      UNITED STATES TAX COURT



                 JUDITH A. MADDEN, Petitioner v.
          COMMISSIONER OF INTERNAL REVENUE, Respondent



     Docket No. 17104-04.                Filed January 5, 2006.



     Donald L. Herskovitz, for petitioner.

     Michele A. Yates, for respondent.



             MEMORANDUM FINDINGS OF FACT AND OPINION


     JACOBS, Judge:   Respondent determined that petitioner is not

entitled to relief from joint liability under section 6015(f)1

for $141,302 of unpaid Federal income tax for 2000 that



     1
      Unless otherwise specified, section references are to the
Internal Revenue Code.
                                 - 2 -

petitioner reported on a joint return filed with her husband,

David R. Sturges.   Petitioner filed a petition under section

6015(e)(1) seeking review of respondent’s determination.    We must

decide whether respondent abused his discretion in denying

petitioner such relief.

                           FINDINGS OF FACT

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

The stipulation of facts and the attached exhibits are

incorporated herein by this reference.

     When the petition in this case was filed, petitioner resided

in Carlisle, Massachusetts.    Petitioner and Mr. Sturges have been

married since 1977.   Mr. Sturges has never abused petitioner.

Petitioner and Mr. Sturges have two daughters.    The younger

daughter graduated from high school in May 2000 and began college

that September.

     Petitioner has a bachelor’s degree in art history and a

master’s degree in biology.    Petitioner is 64 years old and

unemployed.

     Petitioner was not employed outside the home for most years

after she married Mr. Sturges.    She had no earnings subject to

withholding for Social Security from 1980 to 1985, 1991 to 1994,

and 1998 to the present.    She had earnings subject to withholding

for Social Security of $3,084 in 1986, $2,060 in 1987, $129 in
                               - 3 -

1989, $6,885 in 1990, $2,795 in 1995, $4,419 in 1996 and $32,796

in 1997.

     During 2000, petitioner was self-employed as a systems

developer, operating under the name of Nikken Distributorship.

In 2000, Nikken Distributorship had gross receipts of $500 and

incurred $450 of business expenses which petitioner reported on

Schedule C, Profit or Loss from Business, of the joint return.

     Before and for part of 2000, Mr. Sturges worked for Cisco

Systems Sales & Services, Inc. (Cisco), as a software engineer.

Mr. Sturges terminated his employment with Cisco in 2000.

     Mr. Sturges began working as a software engineer for Tiburon

Networks, Inc. (Tiburon), after he left Cisco.   Tiburon was an

affiliate of Nortel Networks, a Canadian telecommunications

company.   Tiburon paid Mr. Sturges wages of $31,286.40 in 2000.

Tiburon also gave Mr. Sturges options to purchase 192,000 shares

of Tiburon stock over a 3-year period.

     During his employment with Cisco, Mr. Sturges acquired stock

options to purchase Cisco stock.   From 1997 until he terminated

his employment in 2000, Mr. Sturges exercised a small number of

options each month.   When Mr. Sturges left Cisco, Cisco required

him to exercise (or lose) his remaining Cisco stock options.

     Petitioner and Mr. Sturges engaged Paine Webber, a

professional financial advisement firm, to assist and advise them

with respect to the exercise of the Cisco stock options.    Mr.
                               - 4 -

Sturges exercised all of the Cisco stock options.    He sold some

of the Cisco stock acquired from the exercise of the stock

options and retained the rest in a Paine Webber joint margin

account.   Petitioner and Mr. Sturges believed the retained Cisco

stock would be a conservative investment that would increase in

value.   At the time the options were exercised, Cisco stock was

selling for approximately $64 per share.

     A portion of the proceeds from the sale of the Cisco stock

acquired from the exercise of the stock options was invested in

stock of biotechnology companies.   The biotechnology stock was

held in a separate Paine Webber joint account.

     The exercise of the Cisco stock options generated

$1,596,461.44 of employment income to Mr. Sturges.   Petitioner

informed Paine Webber that she wanted to put aside sufficient

funds to pay the tax liability resulting from the exercise of the

Cisco stock options.

     Petitioner and Mr. Sturges withdrew $68,000 from their joint

Paine Webber account in September 2000.    They used the money for

home improvements and their daughter’s tuition.

     Cisco issued Mr. Sturges a Form W-2, Wage and Tax Statement,

for 2000 reporting wages of $1,683,886.77 that included Mr.

Sturges’s income from his exercise of the stock options.   The

Form W-2 reported that $464,291.46 was withheld for Federal

income taxes.
                               - 5 -

     Petitioner and Mr. Sturges received a combined income of

$1,714,931 during 2000.

     The price of Cisco stock declined, and by late December 2000

Paine Webber informed petitioner and Mr. Sturges that the price

of Cisco shares had dropped to $34 or $35, precipitating a margin

call.   Petitioner and Mr. Sturges sold some of the Cisco shares

to pay the margin call.   Petitioner and Mr. Sturges held the

remaining Cisco shares.   Petitioner and Mr. Sturges lost most of

the funds invested in the stock.

     Petitioner and Mr. Sturgis own a four-bedroom, 2½-bath

residence.   Before April 2001, a mortgage on the residence dated

December 15, 1998, secured a $377,550 debt.   In April 2001,

petitioner and Mr. Sturges refinanced the residence.   The new

mortgage secured a debt of $358,000.

     In April 2001, petitioner’s accountant informed petitioner

that her and Mr. Sturges’s 2000 Federal income tax would exceed

the amount withheld by Cisco by approximately $141,000.

Petitioner called both Cisco and Paine Webber because she thought

there was an error regarding the amount withheld and/or set aside

to pay taxes.

     Petitioner and Mr. Sturges filed for an automatic extension

to August 15, 2001, to file their 2000 return.   They filed a

joint Form 1040, U.S. Individual Income Tax Return, for 2000 on

August 15, 2001.   On the 2000 return, they reported a total tax
                               - 6 -

of $614,205, payments of $472,903, and $141,302 due with the

return. Petitioner and Mr. Sturges did not remit the $141,302

with the return.   Mr. Sturges attached to the return a letter

advising the Internal Revenue Service (IRS) that he would be

filing a Form 656, Offer in Compromise, and a Form 433-A,

Collection Information Statement for Individuals.

     Petitioner and Mr. Sturges attached to the joint return a

document entitled “Section 83(b) Election” pursuant to which Mr.

Sturges elected to include the value of 190,167 shares of Tiburon

restricted stock in his gross income for 2000, the year the stock

was transferred to him.   The document stated that each share had

a value of 30 cents on October 23, 2000, the date the shares were

transferred to him, and that Mr. Sturges had paid $57,050.10 for

the stock.

     By August 2001, petitioner and Mr. Sturges had approximately

$13,000 remaining in their Paine Webber accounts.   When

petitioner signed the 2000 return, she and Mr. Sturges did not

have $141,302 to pay the tax shown as owed on the return.   She

discussed the unpaid tax liability with Mr. Sturges.   Mr. Sturges

told petitioner that he did not have the money to pay the

outstanding tax because he had “entrusted” all the funds to Paine

Webber but that he had enough Tiburon options to cover the tax

liability.
                               - 7 -

     Petitioner and Mr. Sturges filed an offer-in-compromise in

an attempt to compromise their 2000 tax liability for $1 on

October 22, 2001.   On January 17, 2002, petitioner informed the

revenue officer who was considering the offer-in-compromise that

she had unsuccessfully tried to refinance the residence in order

to raise the money to pay the tax.     On January 23, 2002, with the

offer-in-compromise still under consideration, petitioner and Mr.

Sturges borrowed $115,000, increasing the mortgage debt to

$477,000.   They used the borrowed funds to pay the debt on their

credit cards and their daughter’s college tuition.    The IRS

rejected the offer-in-compromise on or about April 23, 2002.

     On June 19, 2002, petitioner filed a Form 8857, Request for

Innocent Spouse Relief, and petitioner and Mr. Sturges filed

separate offers in compromise offering to compromise their 2000

tax liability for $200 and $1,000, respectively.    The offers in

compromise were rejected on August 19, 2002.

     On August 9, 2002, respondent sent petitioner a letter

acknowledging receipt of petitioner’s request for innocent spouse

relief and providing information on the claim process.

Respondent included Publication 971, Innocent Spouse Relief,

which explained the requirements for relief in detail, and a

questionnaire to be completed by petitioner.    The letter also

informed petitioner that respondent was required to inform Mr.

Sturges that petitioner had requested relief and that a separate
                                - 8 -

questionnaire was being sent to Mr. Sturges.   Petitioner and Mr.

Sturges completed their respective questionnaires and returned

them to respondent.

     On November 18, 2002, petitioner and Mr. Sturges filed

another offer-in-compromise offering to compromise their 2000 tax

liability for $1,000.   That offer was rejected on January 15,

2003.

     On February 19, 2003, respondent issued petitioner a

preliminary determination letter informing her that respondent

was denying her relief from liability because she had not

established (1) that she believed at the time she signed the

joint return that the taxes would be paid or (2) that she would

suffer economic hardship.    Petitioner appealed that determination

to the IRS Appeals Office.

     In April 2003, petitioner and Mr. Sturges borrowed an

additional $150,000 that was secured by a second mortgage on the

residence.   They used the borrowed funds to pay the debt on their

credit cards and their daughter’s college tuition.

     The Appeals Officer assigned to petitioner’s request sent

petitioner an initial contact letter on July 11, 2003.   The

Appeals Officer sent a notice to Mr. Sturges on August 1, 2003.

The Appeals Officer corresponded with petitioner and her

representative over the next several months.   In June 2004, the
                                 - 9 -

Appeals Officer issued petitioner a final notice of determination

denying her relief from liability.

     Petitioner and Mr. Sturges own land in Colorado, and they

are income beneficiaries of a charitable remainder trust.

Petitioner and Mr. Sturges created and funded the charitable

remainder trust in December 1999.    Petitioner and Mr. Sturges are

entitled to 5 percent of the value of the trust property

annually.   The remainder goes to the “education system” of the

Commonwealth of Massachusetts.    The record does not contain any

information as to the amount contributed to the charitable

remainder trust in 1999.

     Petitioner owns a three-bedroom, single-bath house in mid-

State New York that she inherited from her parents.   Petitioner

rents the property for an amount equal to the expenses related to

maintaining the property.   There is no mortgage on the property.

     Mr. Sturges has earned approximately $115,000 each year for

the past several years.

     Petitioner and Mr. Sturges have filed Federal income tax

returns and paid all taxes owed for all years since 2000.

                              OPINION

     Petitioner requested relief under section 6015(f) from

liability for the payment of the tax reported on the 2000 joint

return but not paid when the return was filed.   Respondent
                              - 10 -

determined that petitioner was not entitled to the requested

relief.

     If a taxpayer’s request for relief under section 6015(f) is

denied, the taxpayer may petition this Court (pursuant to section

6015(e)(1)) for a review of the determination.   Ewing v.

Commissioner, 118 T.C. 494, 497-507 (2002).   To prevail,

petitioner must prove that respondent’s denial of equitable

relief from joint liability under section 6015(f) was an abuse of

discretion.   See Jonson v. Commissioner, 118 T.C. 106, 125

(2002), affd. 353 F.3d 1181 (10th Cir. 2003); Cheshire v.

Commissioner, 115 T.C. 183, 198 (2000), affd. 282 F.3d 326 (5th

Cir. 2002); Butler v. Commissioner, 114 T.C. 276, 291-292 (2000).

     Section 6015(f) provides:

          SEC. 6015(f). Equitable Relief.–-Under procedures
     prescribed by the Secretary, if–-

               (1) taking into account all the facts and
          circumstances, it is inequitable to hold the
          individual liable for any unpaid tax or any
          deficiency (or any portion of either); and

               (2) relief is not available to such
          individual under subsection (b) or (c),

     the Secretary may relieve such individual of such
     liability.

In the instant case, the parties agree that petitioner is not

entitled to relief under section 6015(b) or (c), and therefore

section 6015(f)(2) is satisfied.   They disagree over whether

petitioner is entitled to relief under section 6015(f)(1).
                               - 11 -

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

prescribed guidelines in Rev. Proc. 2000-15, 2000-1 C.B. 447,

that are to be used in determining whether it would be

inequitable to hold a requesting spouse liable for all or part of

the liability for any unpaid tax or deficiency.    The requesting

spouse must satisfy seven conditions (threshold conditions)

before the Commissioner will consider a request for relief under

section 6015(f).    Rev. Proc. 2000-15, sec. 4.01, 2000-1 C.B. at

448.    Respondent agrees that in this case those threshold

conditions are satisfied.

       Where, as here, the requesting spouse satisfies the

threshold conditions, Rev. Proc. 2000-15, sec. 4.02(1), 2000-1

C.B. at 448, sets forth the circumstances under which relief

under section 6015(f) will ordinarily be granted in a case where

a liability is reported in a joint return but not paid.      Relief

under section 6015(f) will be granted for an unpaid tax liability

reported on a joint return if all of the following elements are

satisfied:

            (a) At the time relief is requested, the
       requesting spouse is no longer married to, or is
       legally separated from, the nonrequesting spouse * * *;

            (b) At the time the return was signed, the
       requesting spouse had no knowledge or reason to know
       that the tax would not be paid. * * *; and

            (c) The requesting spouse will suffer economic
       hardship if relief is not granted. * * *
                               - 12 -

     Petitioner does not satisfy all of the elements because she

remains married to, and is not separated from, Mr. Sturges.

Consequently, she does not qualify for relief under Rev.

Proc. 2000-15, sec. 4.02(1).

     In cases where the threshold conditions have been satisfied

but the requesting spouse does not qualify for relief under Rev.

Proc. 2000-15, sec. 4.02(1), equitable relief may be granted

under section 6015(f) if, taking into account all facts and

circumstances, it is inequitable to hold the requesting spouse

liable.   Rev. Proc. 2000-15, sec. 4.03, 2000-1 C.B. at 448.

     Rev. Proc. 2000-15, sec. 4.03, 2000-1 C.B. at 448-449, lists

positive and negative factors that the Commissioner will take

into account in determining whether to grant equitable relief

under section 6015(f).   Rev. Proc. 2000-15, sec. 4.03(1), 2000-1

C.B. at 448-449, lists the following six factors as weighing in

favor of granting relief for an unpaid liability:   (1) The

requesting spouse is separated or divorced from the nonrequesting

spouse; (2) the requesting spouse will suffer economic hardship

if relief is denied; (3) the requesting spouse was abused by the

nonrequesting spouse; (4) the requesting spouse did not know or

have reason to know at the time the return was signed that the

reported liability would be unpaid; (5) the nonrequesting spouse

has a legal obligation pursuant to a divorce decree or agreement

to pay the unpaid liability; and (6) the unpaid liability is
                              - 13 -

attributable to the nonrequesting spouse.   Rev. Proc. 2000-15,

sec. 4.03(2), 2000-1 C.B. at 449, lists the following six factors

as weighing against granting relief for an unpaid liability:     (1)

The unpaid liability is attributable to the requesting spouse;

(2) the requesting spouse knew or had reason to know at the time

the return was signed that the reported liability would be

unpaid; (3) the requesting spouse significantly benefited (beyond

normal support) from the unpaid liability; (4) the requesting

spouse will not suffer economic hardship if relief is denied; (5)

the requesting spouse has not made a good faith effort to comply

with Federal income tax laws in the tax years following the tax

year to which the request for relief relates; and (6) the

requesting spouse has a legal obligation pursuant to a divorce

decree or agreement to pay the unpaid liability.   In addition,

Rev. Proc. 2000-15, sec. 4.03, 2000-1 C.B. at 448, states:      “No

single factor will be determinative of whether equitable relief

will or will not be granted in any particular case.   Rather, all

factors will be considered and weighed appropriately.”

     Furthermore, the list of aforementioned factors is not

intended to be exhaustive.   In deciding whether respondent’s

determination that petitioner is not entitled to relief under

section 6015(f) was an abuse of discretion, we consider evidence

relating to all the facts and circumstances.
                                - 14 -

     In accordance with the above, we will consider each of the

factors enumerated in Rev. Proc. 2000-15, sec. 4.03.    We will

also consider whether any additional facts alleged by the parties

affect the analysis of whether respondent abused his discretion

in denying petitioner equitable relief under section 6015(f).

A.   Neutral Factors

     We consider many of the factors to be neutral, weighing

neither in favor of nor against granting petitioner relief.

     1.     Marital Status

     Petitioner is still married and living with Mr. Sturges.

Consequently, this factor does not apply.    See Ewing v.

Commissioner, 122 T.C. 32, 46 (2004).

     2.     Economic Hardship

     An analysis of economic hardship under Rev. Proc. 2000-15,

supra, is conducted using rules similar to those under section

301.6343-1(b)(4), Proced. & Admin. Regs., and focuses on the

requesting spouse’s inability to pay reasonable basic living

expenses.    Rev. Proc. 2000-15, sec. 4.02(1)(c).   Section

301.6343-1(b)(4)(ii), Proced. & Admin. Regs., provides that the

Commissioner will evaluate a requesting spouse’s claim of

economic hardship by considering any information offered by the

requesting spouse that is relevant to the determination,

including, but not limited to, the amount reasonably necessary

for basic living expenses and the requesting spouse’s income,
                              - 15 -

assets and liabilities, age, ability to earn, and responsibility

for dependents.

     Petitioner is 64 years of age and has been unemployed for

many years.   Because Massachusetts is not a community property

State, Cooley v. Commissioner, 27 B.T.A. 986, 988 (1933), affd.

75 F.2d 188 (1st Cir. 1935); Richman v. Richman, 555 N.E.2d 243,

664 (Mass. App. Ct. 1990), petitioner is not the owner of any of

Mr. Sturges’s earnings.   Her only income is her share of the

income (the amount of which is unknown) from the charitable

remainder trust.   Petitioner and Mr. Sturges are still married,

however, and Mr. Sturges continues to support petitioner.

     Petitioner owns the New York house she inherited from her

parents and has assets that she owns jointly with Mr. Sturges;

i.e., the residence and the land in Colorado.   Those assets are

available for payment of the tax liability.

     Petitioner asserts that since 2001 her family’s expenses

have exceeded their income by $3,500 each month.   She testified

that she has used her credit cards to make up the difference and

that at the time of the trial she had $30,000 of credit card

debt.   She testified that at the time of the trial there was only

$15,000 remaining in the charitable remainder trust.

     Petitioner testified that a four-bedroom, 2½-bath house in

her neighborhood sold for approximately $940,000 in April or May

2005.   She asserts that her residence, subject to mortgages
                               - 16 -

totaling $620,000, has a value between $850,000 and $950,000.

Petitioner also testified that she placed the New York property

on the market for $82,000 during the summer and fall of 2001, but

she did not receive any firm offers.    Petitioner claims that her

net worth is approximately $50,000.

     Petitioner did not produce bank records, property tax

assessments, real estate appraisals, the listing agreement for

the New York property, or any other evidence to support her

testimony.    Neither Mr. Sturges nor any representative from Paine

Webber or Cisco testified at the trial.   The only record from

Paine Webber is a one-page statement for August 2001 that shows

petitioner and Mr. Sturges having an account with a value of

$13,439.34.   Petitioner offered no evidence other than her own

testimony that (1) there is only $15,000 remaining in the

charitable remainder trust, (2) monthly expenses exceed Mr.

Sturges’s monthly income by $3,500, (3) petitioner and Mr.

Sturges’s residence has a value of less than $950,000, (4) the

unencumbered New York house has a value of less than $82,000, and

(4) the land in Colorado has a value of $20,000.   In the absence

of corroborating evidence, we are not required to accept, and do

not accept, petitioner’s self-serving testimony.   See Tokarski v.

Commissioner, 87 T.C. 74, 77 (1986).

     Consequently, we conclude that petitioner has failed to

carry her burden of proving that requiring her to pay the
                               - 17 -

liabilities from which she seeks relief would result in economic

hardship within the meaning of section 301.6343-1(b)(4), Proced.

& Admin. Regs.    Because petitioner has failed to establish that

she will suffer economic hardship, we conclude that this factor

does not weigh in favor of granting her relief.

     The fact that petitioner has failed to establish that she

will suffer economic hardship, however, does not necessarily

establish that she will not suffer economic hardship.   It is not

clear from the record that petitioner will not suffer economic

hardship if she is not relieved of her liability to pay the tax.

Consequently, this factor does not weigh against granting

petitioner relief.   Economic hardship is a neutral factor in this

case.

     3.    Abuse by Nonrequesting Spouse

     Petitioner was not abused by Mr. Sturges, and she does not

assert that Mr. Sturges coerced her into executing the 2000 joint

return.   This factor does not weigh in favor of granting relief

to petitioner.    See Ewing v. Commissioner, 122 T.C. at 46;

Washington v. Commissioner, 120 T.C. 137, 149 (2003).

     4.   Requesting Spouse’s or Nonrequesting Spouse’s Legal
          Obligation

     Because petitioner and Mr. Sturges are not separated or

divorced, this factor does not weigh in favor of or against

granting relief to petitioner.    See Abelein v. Commissioner, T.C.

Memo. 2004-274.
                                - 18 -

     5.   Noncompliance With Federal Income Tax Laws in
          Subsequent Years

     Petitioner and Mr. Sturges have filed Federal income tax

returns and paid all taxes owed since 2000.       This factor does not

weigh against granting relief to petitioner.       See Ewing v.

Commissioner, 122 T.C. at 46-47.

B.   Factor Weighing in Favor of Granting Relief:      Attribution of
     Unpaid Liability

     Respondent acknowledges that the liability for which relief

is sought is attributable to Mr. Sturges.       This factor weighs in

favor of granting petitioner relief for the unpaid liability.

C.   Factors Weighing Against Granting Relief

     1.   Significant Benefit

     Petitioner did not purchase expensive jewelry, drive a

luxurious car, wear designer clothes, or take expensive

vacations.   Petitioner and Mr. Sturges, however, withdrew $68,000

from the joint Paine Webber account in September 2000.       They used

the money to pay for their daughter’s tuition and some home

improvements.   We think that $68,000 used for those purposes is a

significant benefit to petitioner.       Consequently, this factor

weighs against granting relief to petitioner.

     2.   Knowledge or Reason To Know Factor

     In the case of a liability that was reported but not paid,

the fact that the requesting spouse did not know and had no

reason to know that the liability would not be paid is a factor
                                  - 19 -

weighing in favor of granting relief.      Rev. Proc. 2000-15, sec.

4.03(1)(d), 2000-1 C.B. at 449.      By contrast, the fact that the

requesting spouse knew or had reason to know that the reported

liability would be unpaid is a strong factor weighing against

relief.    Id. sec. 4.03(2)(b).

     When petitioner signed the 2000 joint return in August 2001,

$13,000 remained in the Paine Webber account.      Petitioner knew

that she and Mr. Sturges did not have funds available at that

time to pay the $141,302 tax liability shown as unpaid on the

return.

     We do not think that petitioner honestly believed that Mr.

Sturges could pay the tax from proceeds from the Tiburon options.

The section 83(b) election attached to the return states that Mr.

Sturges paid $57,050.10 (30 cents per share) for 190,167 shares

of Tiburon restricted stock on October 23, 2000.      Petitioner

produced no evidence that the stock had increased in value since

the purchase date.   Petitioner testified that by October 2001

Tiburon was failing and that in November 2001 Mr. Sturges left

Tiburon.

     Petitioner and Mr. Sturges attached to the return a

statement signed by Mr. Sturges that he would be filing an offer-

in-compromise.   Petitioner and Mr. Sturges filed their first

offer-in-compromise offering to compromise their 2000 tax

liability for $1 on October 22, 2001.      We conclude that
                               - 20 -

petitioner knew when she signed the 2000 joint return that the

unpaid tax of $141,302 would not be paid.

     This factor weighs against granting relief to petitioner.

     3.   Other Facts

     We consider additional facts that affect the analysis of

whether respondent abused his discretion in denying petitioner

equitable relief under section 6015(f).     We find it significant

that petitioner and Mr. Sturges refinanced the residence on two

occasions after they filed the joint return and submitted offers

in compromise.    They used the $265,000 proceeds from those loans

to pay credit card debt and their daughter’s tuition.    We do not

think that taxpayers should be allowed to favor other creditors

over the Government and then claim that equity requires that they

be relieved of their obligations to pay the debt to the

Government.   We find that using the proceeds from the refinancing

of the residence to pay other creditors weighs heavily against

granting petitioner the requested relief.

D.   Conclusion

     After considering all of the facts and circumstances, we

find that it would not be inequitable to hold petitioner liable

for payment of the tax.   We conclude that respondent did not

abuse his discretion in denying petitioner equitable relief from

joint and several liability under section 6015(f).
                        - 21 -

To reflect the foregoing,


                                 Decision will be entered for

                            respondent.
