                        T.C. Memo. 2003-174



                      UNITED STATES TAX COURT



 DONNA M. ORSINO, Petitioner, and PAUL R. ORSINO, Intervenor v.
          COMMISSIONER OF INTERNAL REVENUE, Respondent



     Docket No. 6313-01.               Filed June 12, 2003.


     Donna M. Orsino, pro se.

     Lorianne D. Masano, for respondent.



             MEMORANDUM FINDINGS OF FACT AND OPINION


     FOLEY, Judge:   By notice dated March 2, 2001, respondent

determined a $4,300 deficiency relating to petitioner and her

former spouse’s 1998 tax year.   The issue for decision is whether
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petitioner is entitled to relief from joint and several liability

pursuant to section 6015(b), (c), or (f).1

                             FINDINGS OF FACT

     Petitioner, a legal secretary and high school graduate, and

Mr. Orsino, who has a degree in bioengineering, married on

September 1, 1968.       During their marriage, petitioner was

responsible for balancing their joint checking account and paying

the monthly bills, and Mr. Orsino was responsible for filing all

of their Federal tax returns.

     Mr. Orsino worked for Betz Dearborne as a water treatment

specialist for several years prior to, and during, 1998.         He quit

his job at Betz Dearborne in April or May 1998, but continued as

a consultant for 4 weeks.       Mr. Orsino also performed water

treatment services for National Engineering & Repair Corp.

(National Engineering) in May and June of 1998 and deposited

compensation received from both companies in the joint checking

account.       Petitioner was aware that Mr. Orsino performed services

for both Betz Dearborne and National Engineering.

     Petitioner and Mr. Orsino separated sometime in July of

1998.       Shortly before their separation, Mr. Orsino’s mother

provided Mr. Orsino with a $6,000 savings bond, which Mr. Orsino


        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 -

redeemed and used the proceeds therefrom to purchase a truck.

Petitioner knew that Mr. Orsino received funds from his mother,

but did not know that Mr. Orsino’s mother gave him a savings bond

or that he held title to the bond.     Petitioner did not benefit

from the proceeds of the savings bond.

     Shortly after their separation, Mr. Orsino told petitioner

that he withdrew all of his 401(k) retirement funds.     He did not

deposit any amounts withdrawn from his 401(k) accounts into the

joint checking account.   Mr. Orsino had not yet reached 59-½

years of age and was not disabled.

     On April 14, 1999, Mr. Orsino delivered to petitioner, for

her signature, their joint return relating to 1998.     Mr. Orsino

placed all attachments (i.e., Forms W-2, Wage and Tax Statement,

and Forms 1099-MISC, Miscellaneous Income) to their joint return

in a sealed envelope, which he instructed her not to open.     The

funds withdrawn from the 401(k) accounts were reported on the

joint return.   Petitioner asked whether the correct amount of

taxes relating to the 401(k) withdrawal were withheld, and Mr.

Orsino assured her that they were.     Petitioner did not open the

sealed envelope containing the attachments, signed the joint

return, and mailed the return to respondent.

     Petitioner and Mr. Orsino divorced on November 1, 1999.

Their marital settlement agreement states: “In the event there

are other debts or obligations that can be deemed to be joint
                                - 4 -

obligations which have not been addressed, that party who

incurred the debt or obligation shall be responsible for payment

thereof.”    The agreement required that Mr. Orsino pay petitioner

$400, monthly, until she recovers the portion of the 401(k)

accounts to which she was entitled.

     Respondent determined that petitioner and Mr. Orsino were

subject to a $2,760 penalty relating to early withdrawal of funds

from Mr. Orsino’s 401(k) accounts and failed to report $1,076 of

savings bond interest and $5,100 of nonemployee compensation.

     On July 5, 2001, respondent notified Mr. Orsino of

petitioner’s claim for section 6015 relief.   On July 30, 2001,

this Court filed Mr. Orsino’s notice of intervention, in which he

contends that petitioner was fully aware of their joint income,

benefited from such income, freely signed their joint returns,

and benefited from the tax refunds they received.   On August 30,

2001, the Court denied a motion by petitioner to dismiss Mr.

Orsino’s notice of intervention.

     Petitioner resided in Sarasota, Florida, when her petition

was filed.

                               OPINION

     Respondent contends that petitioner is not entitled to

section 6015 relief because she had actual knowledge of each item

that gave rise to the deficiency (i.e., compensation, 401(k)
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withdrawal, and savings bond interest), and it would not be

inequitable to hold her liable for the tax.

     In limited situations, taxpayers filing joint Federal income

tax returns may be relieved of joint liability pursuant to

section 6015.    Petitioner is not entitled to relief under section

6015(b) if she had reason to know of the items of income.     Sec.

6015(b)(1)(C).   Similarly, petitioner is not entitled to relief

under section 6015(c) if she had actual knowledge of the item

giving rise to the omitted income.      Sec. 6015(c)(3)(C); Cheshire

v. Commissioner, 115 T.C. 183, 197 (2000), affd. 282 F.3d 326

(5th Cir. 2002).

     We agree with respondent that petitioner had actual

knowledge of Mr. Orsino’s compensation relating to Betz Dearborne

and National Engineering and his 401(k) withdrawal.     Accordingly,

with respect to Mr. Orsino’s compensation and 401(k) withdrawal,

petitioner is not entitled to relief pursuant to section 6015(b)

or (c).

     Petitioner, however, did not have clear awareness of the

interest income relating to the savings bond.      Cf. Cheshire v.

Commissioner, supra at 197 (holding that knowledge of her

husband’s pension withdrawal disqualified the taxpayer from

section 6015 relief even though the taxpayer did not know the tax

consequences of the transaction).    Petitioner was led to believe

that Mr. Orsino received a cash gift from his mother.     She did
                               - 6 -

not know Mr. Orsino received from his mother a bond to which he

held title.   Petitioner had no awareness of the bond’s existence

and, thus, could not have actual knowledge of interest from the

bond.   Petitioner’s contention that she did not have clear

awareness of the item of income relies not on ignorance of the

law, but on ignorance of a material fact.    See id.   Accordingly,

pursuant to section 6015(c), petitioner is relieved of liability

for the tax deficiency attributable to interest from the savings

bond.

     Pursuant to section 6015(f), respondent is granted

discretion to award relief from joint and several liability if

the facts and circumstances indicate that it would be inequitable

to hold the spouse seeking relief liable for the deficiency.     We

conclude that it would not be inequitable to hold petitioner

liable for the deficiency attributable to Mr. Orsino’s

compensation and 401(k) withdrawal.    Petitioner knew of the

omitted income and 401(k) withdrawal, did not establish economic

hardship, and benefited significantly from the omitted

compensation (i.e., funds were deposited into a joint account)

and 401(k) withdrawal (i.e., petitioner is currently receiving

$400 monthly payments as her share of the 401(k) withdrawal).

See Rev. Proc. 2000-15, 2000-1 C.B. 447.    In addition, both Mr.

Orsino and petitioner incurred the tax debt.    Therefore, the

marital settlement agreement does not shift all of the liability
                                 - 7 -

to Mr. Orsino.   Accordingly, respondent’s denial of relief

pursuant to section 6015(f) was not an abuse of discretion.         See

Butler v. Commissioner, 114 T.C. 276 (2000).

     Contentions we have not addressed are irrelevant, moot, or

meritless.

     To reflect the foregoing,



                                         Decision will be entered

                                 under Rule 155.
