                          T.C. Memo. 2004-176



                        UNITED STATES TAX COURT



                  PHILIP CULLEN, Petitioner v.
          COMMISSIONER OF INTERNAL REVENUE, Respondent



     Docket No. 4741-03.               Filed July 28, 2004.


     Philip Cullen, pro se.

     Horace Crump, for respondent



                MEMORANDUM FINDINGS OF FACT AND OPINION


     WHERRY, Judge:     This proceeding was commenced under section

6015 for review of respondent’s determination that petitioner is

not entitled to relief from joint and several liability for 1999

with respect to a joint tax return filed with Mary Cullen

(Ms. Cullen).    The issues for decision are:     (1) Whether

petitioner is eligible for relief from joint and several
                                 - 2 -

liability under section 6015(b);1 (2) whether petitioner is

eligible for relief from joint and several liability under

section 6015(c); and (3) whether respondent abused his discretion

in denying petitioner’s request for relief from joint and several

liability under section 6015(f).

                          FINDINGS OF FACT

     Some of the facts have been stipulated, and the stipulated

facts and accompanying exhibits are, by this reference,

incorporated in our findings.    At the time the petition in this

case was filed, petitioner resided in Navarre, Florida.

Background

     Petitioner and Ms. Cullen were married but living separately

during the calendar year 1999 and were divorced in September

2000.    During their separation, Ms. Cullen lived in a travel

trailer situated next door to the marital residence.    Petitioner

and Ms. Cullen filed a joint Form 1040, U.S. Individual Income

Tax Return, for the year 1999.

     Although both petitioner and Ms. Cullen have some college-

level education, it was petitioner who collected and organized

the financial records required to prepare their joint Federal

income tax returns during their marriage.    The 1999 tax return



     1
       Unless otherwise indicated, all section references are to
the Internal Revenue Code in effect for the year in issue, and
all Rule references are to the Tax Court Rules of Practice and
Procedure.
                                - 3 -

signed and filed, without duress, by petitioner and Ms. Cullen

was prepared by a professional tax return preparer employed by

petitioner and utilizing information furnished by petitioner.

Ms. Cullen’s Employment

     Ms. Cullen, to the personal knowledge of petitioner at the

time their joint 1999 Federal income tax return was prepared and

filed, had worked for TGY Sitters, Inc. of Pensacola, Florida

(TGY), during 1998 and 1999.   On cross-examination by

respondent’s counsel, petitioner testified and the Court so finds

as follows:

     Q.   Mr. Cullen, did you have actual knowledge that
          your wife worked during 1999?

     A.   Yes, I did.

     Q.   Were you aware that she worked at TGY Sitters?

     A.   I was.

     The Form 1099-MISC, Miscellaneous Income, issued to

Ms. Cullen for 1999 by TGY indicated nonemployee compensation for

that year of $23,603.    However, because petitioner did not have

the Form 1099 and had not been informed by Ms. Cullen of the

exact amount of income she had received from TGY, petitioner did

not take any steps to ensure information concerning such income

was provided to the tax return preparer.   Consequently, this

compensation was not reflected or included in the joint tax

return filed for 1999.
                               - 4 -

Financial Affairs

     During the early years of their marriage, petitioner and

Ms. Cullen maintained a joint bank account with a single

checkbook at Sunshine Bank in Pensacola, Florida.   However,

during 1999, petitioner deposited his monthly income in a

checking account in his name at Regions Bank.   Petitioner also

testified and the Court so finds that during 1999 Ms. Cullen did

not deposit her money into his Regions Bank account.    He assumed

that she had her own separate checking account.

     Petitioner did not benefit from any of Ms. Cullen’s 1999 TGY

income since they did not live together at any time during or

after 1999.   Petitioner was left with all of their joint unpaid

bills when Ms. Cullen moved out of their home, and their divorce

decree did not address who was obligated to pay the 1999 taxes.

As to the tax due on Ms. Cullen’s $23,603 of 1999 income,

petitioner “just assumed that she [Ms. Cullen] was taking care of

her own business”.   He did not, however, verify this because he

contended he “couldn’t get a hold [sic] of her” although she was

living in the trailer next door.

Request for Section 6015 Relief

     Because of the $23,603 of unreported income, respondent

determined an income tax deficiency and statutory additions with

respect to petitioner and Ms. Cullen’s 1999 tax year.   Neither

petitioner nor Ms. Cullen contested the statutory notice of
                                 - 5 -

deficiency, and respondent assessed the tax deficiency and

statutory additions.   Thereafter, petitioner sought relief under

section 6015.   On February 11, 2003, respondent mailed to

petitioner a final notice advising him that his requested section

6015 relief had been denied and that if he wished to contest this

determination, he must file a petition with the U.S. Tax Court

within 90 days.   This Court’s jurisdiction to review petitioner’s

claim for relief is conferred by section 6015(e), which allows a

spouse who has requested relief from joint and several liability

to contest the Commissioner’s denial of relief by filing a timely

petition in this Court.    Petitioner filed a timely petition with

this Court on March 25, 2003.

     On May 22, 2003, respondent filed an answer to petitioner’s

petition and a certification under Rule 325(b), as amplified by

King v. Commissioner, 115 T.C. 118 (2000).    The certification

confirmed that respondent had notified Ms. Cullen that petitioner

had filed a claim for relief from joint and several liability and

that she could intervene.   Despite the notice, Ms. Cullen has not

intervened in this case.

                                OPINION

I.   Contentions of the Parties

     Petitioner contends that he is eligible for relief from

joint and several liability under section 6015(b), (c), or (f)

for the 1999 tax liability and statutory additions.   In essence,
                                - 6 -

petitioner contends:    (1) He is now divorced and did not live

with Ms. Cullen during 1999 or thereafter; (2) the income

responsible for the tax deficiency and statutory additions was

all his wife’s income; (3) while he knew she had TGY income for

1999, she would not tell him the amount of the income; (4) he did

not benefit from the income; and (5) it would be inequitable and

a financial hardship for him to have to pay the tax and statutory

additions due on her income.

      Other than the issue of equity, respondent did not seriously

challenge any of these contentions.      Nevertheless, respondent

argues that petitioner is not eligible for relief under either

section 6015(b) or (c).    Respondent also asserts that there was

no abuse of discretion in denying equitable relief from joint and

several liability for any portion of the unpaid tax or statutory

additions under section 6015(f).      Respondent’s principal basis

for these conclusions is that petitioner, by his own admission,

had actual knowledge of the unreported TGY income at the time the

1999 joint Federal income tax return was signed and filed.

II.   General Rules

      Married taxpayers may normally elect to file a joint Federal

income tax return.    Sec. 6013(a).    After making the election,

each spouse is fully responsible for the accuracy of the return

and jointly and severally liable for the entire tax due for that

year.   Sec. 6013(d)(3); Butler v. Commissioner, 114 T.C. 276, 282
                                   - 7 -

(2000).       A spouse (requesting spouse) may, however, seek relief

from joint and several liability by following procedures

established in section 6015.       Sec. 6015(a).   Except as otherwise

provided in section 6015, petitioner bears the burden of proof.

Rule 142(a); Jonson v. Commissioner, 118 T.C. 106, 113 (2002),

affd. 353 F.3d 1181 (10th Cir. 2003).2

       Section 6015 provides three potential paths of relief from

joint and several liability if certain statutory requirements are

met.       First, section 6015(b)(1) allows for traditional relief

from joint and several liability following the model of former

section 6013(e).       Second, section 6015(c) provides for an

allocation of liability for a deficiency as if the spouses had

filed separate returns.       Third, section 6015(f) confers

discretion upon the Secretary to grant equitable relief in

situations where relief is unavailable under section 6015(b) or

(c).

III. Relief Under Section 6015(b)

       Section 6015(b) provides:

            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;


       2
       Petitioner has not contended that sec. 7491 applies to
this case.
                    - 8 -

          (B) on such return there is an
     understatement of tax attributable to
     erroneous items of 1 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 of 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.

     (2) Apportionment of relief--If an
individual who, but for paragraph (1)(C) would be
relieved of liability under paragraph (1),
establishes that in signing the return such
individual did not know, and had no reason to
know, the extent of such understatement, then such
individual shall be relieved of liability for tax
(including interest, penalties, and other amounts)
for such taxable year to the extent that such
liability is attributable to the portion of such
understatement of which such individual did not
know and had no reason to know.

     (3) Understatement--For purposes of this
subsection, the term “understatement” has the
meaning given to such term by section 6662(d)(A).
                                - 9 -

       “The requirements of section 6015(b)(1) are stated in the

conjunctive.    Accordingly, a failure to meet even one of them

prevents a requesting spouse from qualifying for relief.”       Alt v.

Commissioner, 119 T.C. 306, 313 (2002), affd. ___ Fed. Appx. ___

(6th Cir. 2004).    There is no dispute that petitioner satisfies

subparagraphs (A), (B), and (E) of section 6015 (b)(1).    Nor is

there any doubt that petitioner does not satisfy subparagraph

(C).    Under this requirement, the individual seeking relief under

section 6015(b) must establish “that in signing the return he or

she did not know, and had no reason to know” that there was an

understatement attributable to the erroneous items of the other

spouse.    Sec. 6015(b)(1)(C); Cheshire v. Commissioner, 115 T.C.

183, 192-193 (2000), affd. 282 F.3d 326 (5th Cir. 2002).    Here

petitioner candidly acknowledged that when signing and filing the

joint tax return he knew of his wife’s unreported TGY income.

Consequently, petitioner is ineligible for relief under section

6015(b)(1).

       Notwithstanding the individual’s knowledge or reason to know

of some part of the understatement, section 6015(b)(2) permits

the individual to qualify for relief as to the remainder of the

understatement.    Such relief is available if the individual

establishes that in signing the return he or she did not know,

and had no reason to know, the extent of the understatement.

Sec. 6015(b).    In that case, the individual will be relieved of
                             - 10 -

liability for tax “to the extent that such liability is

attributable to the portion of such understatement of which such

individual did not know and had no reason to know.”    Sec.

6015(b)(2).

     Where a taxpayer seeks to establish a lack of knowledge as

to an item giving rise to an understatement of tax, the taxpayer

must show that he acted as a reasonably prudent person and, where

called for, inquired as to the facts of that item in order to

determine its proper tax treatment.   Stevens v. Commissioner, 872

F.2d 1499, 1505 (11th Cir. 1989), affg. T.C. Memo. 1988-63;

Butler v. Commissioner, 114 T.C. at 284.   Where, as here, a

taxpayer on notice that his spouse had unreported income but not

the exact amount of income, fails to fulfill a “duty of inquiry”,

that taxpayer will ordinarily be charged with either actual or

constructive knowledge of the tax return deficiency.    Hayman v.

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

Memo. 1992-228; Demirjian v. Commissioner, T.C. Memo. 2004-22;

Cohen v. Commissioner, T.C. Memo. 1987-537 (stating that the

provisions providing relief from joint and several liability are

“designed to protect the innocent, not the intentionally

ignorant”); see also sec. 1.6015-3(c)(2)(iv), Income Tax Regs.

(“deliberate effort to avoid learning about the item” may, with

other factors, be tantamount to actual knowledge).
                                - 11 -

      Because the entire tax deficiency in this instance arises as

a result of Ms. Cullen’s unreported TGY income, petitioner knew

or had reason to know of the entire tax deficiency and is,

therefore, ineligible for any relief under section 6015(b)(2).

IV.   Relief Under Section 6015(c)

      Section 6015(c) limits the liability of a taxpayer, such as

petitioner, who is no longer married and who makes the

appropriate election.    In relevant part, section 6015(c)

provides:

           SEC. 6015(c). Procedures To Limit Liability for
      Taxpayers No Longer Married or Taxpayers Legally
      Separated or Not Living Together.--

                     *     *      *   *    *    *    *

                (3) Election.--

                     *     *      *   *    *    *    *

                     (C) Election not valid with respect to
                certain deficiencies.–If the Secretary
                demonstrates that an individual making an
                election under this subsection had actual
                knowledge, at the time such individual signed
                the return, of any item giving rise to a
                deficiency (or portion thereof) which is not
                allocable to such individual under subsection
                (d), such election shall not apply to such
                deficiency (or portion). This subparagraph
                shall not apply where the individual with
                actual knowledge establishes that such
                individual signed the return under duress.

      As noted previously, petitioner had actual knowledge of

Ms. Cullen’s unreported TGY income when the joint tax return for

1999 was signed and filed.     Petitioner also testified on cross-
                               - 12 -

examination that he did not suffer any verbal or physical abuse

from Ms. Cullen.    Thus, the Court concludes that petitioner knew

or had reason to know that there was an understatement of tax on

the 1999 joint tax return; that it was not signed under duress;

and that section 6015(c) relief is not available.   See Jonson v.

Commissioner, 118 T.C. at 115.

IV.   Relief Under Section 6015(f)

      This Court has jurisdiction to review the denial of

equitable relief.    Fernandez v. Commissioner, 114 T.C. 324, 328-

329 (2000); Butler v. Commissioner, supra at 292.    The Court’s

precedent indicates it reviews respondent’s denial of relief to

determine whether respondent abused his discretion by acting

arbitrarily, capriciously or without sound basis in fact.    Ewing

v. Commissioner, 122 T.C. 32, 39 (2004); Butler v. Commissioner,

supra at 287-292.   Petitioner has failed to make that showing

here.

      Section 6015(f) provides as follows:

           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.
                                  - 13 -

        As discussed above, petitioner satisfies the requirement of

section 6015(f)(2) that relief is not available under subsection

(b) or (c).       We turn then to the equitable test of section

6015(f)(1).

        Pursuant to the authority granted in section 6015(f),

respondent has prescribed “procedures” to use in determining

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

factors listed in those procedures have been applied by this

Court.       Washington v. Commissioner, 120 T.C. 137, 147-152 (2003).

At the time that petitioner filed his petition, March 25, 2003,

those procedures were found in Rev. Proc. 2000-15, 2000-1 C.B.

447.3       Rev. Proc. 2000-15, sec. 4.01, 2000-1 C.B. at 448, lists

seven threshold conditions that must be satisfied before

respondent will consider a request for relief under section

6015(f).       The threshold conditions are as follows:

             (1) The requesting spouse filed a joint return for
        the taxable year for which relief is sought;

             (2) Relief is not available to the requesting
        spouse under [section] 6015(b) or 6015(c);


        3
       Respondent’s determination was subject to Rev. Proc. 2000-
15, 2000-1 C.B. 447, because it was in effect when respondent’s
Appeals officer evaluated petitioner’s request and when
respondent issued the notice of determination. Rev. Proc. 2000-
15, supra, superseded Notice 98-61, 1998-2 C.B. 756, effective
Jan. 18, 2000. Rev. Proc. 2003-61, 2003-32 I.R.B. 296 (Aug. 11,
2003), superseded Rev. Proc. 2000-15, 2000-1 C.B. 447, for
requests for relief under sec. 6015(f) pending on Nov. 1, 2003,
for which no preliminary determination letter had been issued as
of that date, and for requests for relief filed on or after that
date.
                               - 14 -

          (3) The requesting spouse applies for relief no
     later than two years after the date of the Service’s
     first collection activity after July 22, 1998, with
     respect to the requesting spouse;

          (4) * * * the liability remains unpaid. * * *

          (5) No assets were transferred between the spouses
     filing the joint return as part of a fraudulent scheme
     by such spouses;

          (6) There were no disqualified assets transferred
     to the requesting spouse by the nonrequesting spouse.
     If there were disqualified assets transferred to the
     requesting spouse by the nonrequesting spouse, relief
     will be available only to the extent that the liability
     exceeds the value of such disqualified assets. For
     this purpose, the term “disqualified asset” has the
     meaning given such term by section 6015(c)(4)(B); and

          (7) The requesting spouse did not file the return
     with fraudulent intent.

Respondent did not contest that petitioner met the seven

threshold conditions.

     Rev. Proc. 2000-15, sec. 4.02, 2000-1 C.B. at 448, then

provides that, where a reported joint return liability is unpaid,

relief under section 6015(f) will ordinarily be granted if three

tests are satisfied.    That section is not applicable here,

however, since the unpaid tax liability was not reported on the

filed 1999 joint tax return.

     If relief under section 4.02 of the revenue procedure is not

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

provides factors that the Commissioner will consider in deciding

whether to grant relief under section 6015(f).
                              - 15 -

     Rev. Proc. 2000-15, sec. 4.03(1) and (2), 2000-1 C.B. at

448, establishes a partial list of four positive factors which,

if present, the Commissioner weighs in favor of relief and, if

absent, are treated as negative factors.   This section of the

revenue procedure also lists two other positive factors which, if

present, weigh in favor of relief and if absent, are neutral and

two additional negative factors which, if present, weigh against

granting relief and, if absent, are neutral.   One of these

“solely negative” factors, however, has been interpreted by this

Court also to carry positive weight if absent, such that we in

essence view five factors as being either positive or negative.

Ewing v. Commissioner, supra at 45; Ferrarese v. Commissioner,

T.C. Memo. 2002-249.

     The list of factors is not intended to be exhaustive.     Other

factors may be considered, and no one factor is necessarily

conclusive.   Nonetheless, some factors are more important than

others.   An important factor, absent other unusually strong

countervailing factors, may, when all factors are weighed

appropriately, dictate the ultimate result.

     As interpreted by this Court, the five positive or negative

factors, as pertinent here, are:   (i) The requesting spouse would

or would not suffer economic hardship if relief were denied; (ii)

the unpaid tax liability is or is not attributable to the

requesting spouse; (iii) the requesting spouse had or did not
                              - 16 -

have reason to know of the item giving rise to the deficiency;

(iv) the requesting spouse did or did not significantly benefit

beyond mere support from the unpaid liability or the taxable

income which created it; and (v) the nonrequesting spouse had or

did not have a legal obligation (per the divorce decree) to pay

the tax liability (provided that, if neither spouse has the

specified obligation, this factor is neutral).

     The two additional potentially positive factors are:   (i)

Whether the requesting spouse is divorced or separated from the

nonrequesting spouse and (ii) whether the requesting spouse was

abused by the nonrequesting spouse.    The additional potentially

negative factor is whether the requesting spouse has made a good

faith effort to comply with Federal income tax laws following the

taxable year for which relief is requested.

     In this case, factors in petitioner’s favor include that he

is divorced, that the liability is solely attributable to his

former spouse’s unreported income, and that he did not

significantly benefit from the unreported income.   The other

factors are not helpful to petitioner.

     Economic hardship, for instance, is defined as inability to

meet reasonable basic living expenses.   Sec. 301.6343-1(b)(4),

Proced. & Admin. Regs.   Although petitioner introduced some

evidence that payment of the tax would cause him economic

hardship in light of his claimed $9,600 annual income and
                               - 17 -

obligation to pay his and Ms. Cullen’s nontax debts incurred

prior to their divorce, he introduced no evidence as to his

current assets and/or net worth.   Other than 3 months of bank

statements in 2003, petitioner likewise introduced no evidence of

his basic living expenses or other current debts that would show

he could not pay his current reasonable basic living expenses.

Although petitioner testified that he had a fixed income for 2003

of approximately $800 per month, the bank statements reflect

monthly deposits of between $950 and $1,050.    The record does not

explain the source of the additional deposited funds or the

apparent discrepancies of $150 to $250 per month in petitioner’s

deposits versus his claimed monthly income.    Petitioner’s

inconsistency on this point further weighs against him.    See

Ogonoski v. Commissioner, T.C. Memo. 2004-52.

     The other three factors are neutral to petitioner.    There

was no spousal abuse,   the decree of divorce did not assign the

legal obligation to pay the Federal income tax at issue to either

spouse, and there was no evidence introduced at trial that

petitioner had not made a good faith effort to comply with the

Federal tax laws after 1999.

     Of the factors weighing against relief, the most important

is present here and is the primary reason we deny petitioner’s

requested relief.   That factor is petitioner’s actual knowledge,

when signing under penalty of perjury and filing the joint tax
                                - 18 -

return, that it did not include or otherwise report taxable

income for 1999 earned by his wife from TGY.    The Court rejects

as not credible petitioner’s testimony that he could not contact

his wife, despite the fact she lived next to him in the travel

trailer and signed their joint tax return, to find out either the

amount of her TGY income or whether she had reported it to their

tax return preparer.

     Section 6013(d)(3) explicitly provides that “if a joint

return is made, the tax shall be computed on the aggregate income

and the liability with respect to the tax shall be joint and

several.”   The filing of a joint return may afford taxpayers

significant benefits in the form of lower taxes than would be the

case if they elected to file separately.    Therefore, unless

relief is authorized by section 6015, each spouse should be held

liable for the tax due on a joint tax return.    In some cases,

this Court may afford section 6015(f) relief even though the

requesting spouse had knowledge of the tax deficiency or failure

to pay the tax when the return was signed and filed.    See, e.g.,

Foor v. Commissioner, T.C. Memo. 2004-54 (concluding that a

multitude of favorable factors overcame the taxpayer’s knowledge

that the tax shown due would not be paid); Rev. Proc. 2000-15,

sec. 4.02, 2000-1 C.B. at 448 (specifying that no single factor

is determinative).     However, petitioner’s favorable facts in this

case are not sufficient to establish an abuse of respondent’s
                               - 19 -

discretion.   The Court shall sustain respondent’s determination

denying section 6015 relief.

     To reflect the foregoing,


                                         Decision will be entered

                                    for respondent.
