                         T.C. Memo. 2011-119



                       UNITED STATES TAX COURT



                  VICKI M. SMITH, Petitioner v.
          COMMISSIONER OF INTERNAL REVENUE, Respondent



     Docket No. 25054-08.                Filed June 2, 2011.



     John W. Nelson, for petitioner.

     Timothy S. Sinnott, for respondent.



             MEMORANDUM FINDINGS OF FACT AND OPINION


     CHIECHI, Judge:    Petitioner filed the petition in this case

in response to a so-called final appeals determination (notice of

determination) concerning petitioner’s request for relief from

joint and several liability under section 60151 for each of her

     1
      All section references are to the Internal Revenue Code in
                                                   (continued...)
                                - 2 -

taxable years 2003 and 2004.    We must decide whether petitioner

is entitled to relief under that section for each of those years.

We hold that she is to the extent stated herein.

                         FINDINGS OF FACT

     Some of the facts in this case have been stipulated and are

so found.

     At the time she filed the petition in this case, petitioner

resided in Indiana.

     Petitioner, who was born in 1961, received a bachelor of

science degree in business administration in 1983 from the

University of Evansville in Evansville, Indiana.    During college,

petitioner took courses in accounting, marketing, statistics,

finance, business administration, and quantitative business

analysis.

     On May 26, 1984, petitioner married Michael Smith (Mr.

Smith).   (We shall sometimes refer to petitioner and Mr. Smith as

the Smiths.)   Mr. Smith, who was 49 years old at the time of the

trial in this case, had taken some college courses but had not

received a college degree.

     During their marriage, the Smiths maintained separate bank

accounts and deposited their respective earnings into their

respective bank accounts.    From the time they married until


     1
      (...continued)
effect at all relevant times. All Rule references are to the Tax
Court Rules of Practice and Procedure.
                                 - 3 -

around March 2007, Mr. Smith handled the family’s financial

affairs, including signing any checks and paying household bills.

     As of the time of the trial in this case, neither petitioner

nor Mr. Smith had filed for divorce, and petitioner did not

intend to file for divorce.   At no time during their marriage did

Mr. Smith abuse petitioner.

     The Smiths have a daughter and a son.    At the time of the

trial in this case, the Smiths’ daughter, who was 21 years old,

was a full-time student at a private university in Illinois,

which was her primary residence.    The Smiths’ daughter stayed

with petitioner only during summers and other school recesses.

During college, the Smiths’ daughter received certain financial

aid for her college education.    In addition, at the time of the

trial in this case petitioner and her family were providing an

unidentified amount of support to the Smiths’ daughter.

     As of the time of the trial in this case, the Smiths’ son,

who was 18 years old and residing with petitioner, was a senior

at a private high school in Indiana and intended to attend a

private university in Ohio.   At that time, the Smiths’ son was

receiving certain financial aid for his high school tuition, and

petitioner was paying approximately $4,000 each school year

towards that tuition.

     From around December 1986 until January or February 2005,

Mr. Smith worked as a patrol officer for the Indianapolis Police
                                - 4 -

Department (police department).   During 2003 and 2004, Mr. Smith

worked as a police officer at least 40 hours each week and often

worked significant amounts of overtime.

     From around 1992 until at least the time of the trial in

this case, petitioner worked for Dow Agro Sciences, L.L.C. (Dow).

As of the time of that trial, petitioner was a customer service

representative for Dow.   During 2003 and 2004, Dow paid peti-

tioner salaries of $35,237.38 and $37,774.05, respectively.

During 2008, Dow paid her a salary of $48,012.

     During 2003 and 2004, petitioner sold certain Mary Kay

products (Mary Kay activity).   During those years, petitioner had

net income from the Mary Kay activity of $3,185 and $650, respec-

tively.

     At all relevant times, petitioner maintained through Dow a

retirement account under section 401(k) (retirement account).

From 1998 through late 2009 or early 2010, petitioner at times

borrowed money from her retirement account in order to pay

certain expenses, including basic living expenses.

     At a time not disclosed by the record during the 1990s,

Mr. Smith began operating an unincorporated business (real estate

business) in which he (1) acquired and operated certain rental

real estate properties in Indianapolis and (2) engaged in so-

called flipping, which involved his purchasing certain proper-

ties, renovating them, and selling them.   Although Mr. Smith’s
                                - 5 -

real estate business was initially successful, it became unprof-

itable at an undisclosed time before 2000, which caused the

Smiths to incur certain obligations and debts.    Because of the

unprofitability of Mr. Smith’s real estate business, around 2000

the Smiths commenced a bankruptcy proceeding.

     In late 2001, Mr. Smith established First Choice Appraisal,

Inc. (First Choice), of which he owned at all relevant times all

of the outstanding stock.    At no time did petitioner have an

ownership interest in First Choice.     At all relevant times, First

Choice was treated for Federal income tax (tax) purposes as an S

corporation.    During 2003 and 2004, Mr. Smith, in addition to

working full time as a patrol officer for the police department,

appraised certain residential real estate in Indiana on behalf of

First Choice.

     At all relevant times, First Choice maintained an unidenti-

fied number of bank accounts (First Choice accounts) into which

Mr. Smith deposited all of the money that First Choice received.

Petitioner did not have access to the First Choice accounts.

     During 2003 and 2004, First Choice maintained an office in

Indianapolis at which Mr. Smith conducted most of its business.

At certain times during those years, Mr. Smith also worked for

First Choice at the Smiths’ residence where he conducted his work

for First Choice primarily on the family’s computer.    A password

was necessary in order to access the First Choice files that
                                - 6 -

Mr. Smith created and maintained on that computer.   Petitioner

did not know that password and did not at any time view those

files.

     During 2003 and 2004, petitioner did not have access to the

books and records or the financial statements of First Choice

that would have made her aware of the respective amounts of net

income that that company was generating during those years.

Petitioner was not involved in the preparation of any tax return

that First Choice filed and was not shown any such return before

or after its filing.

     On a date early in 2003 before April 15, the Smiths filed

jointly Form 1040, U.S. Individual Income Tax Return (Form 1040),

for 2002 (2002 joint return).   In that return, they reported

taxable income of $103,191, showed tax of $21,658, claimed a

withholding tax credit of $6,293, and showed tax due of $15,365.

The Smiths did not pay on or before April 15, 2003, the tax shown

due of $15,365.

     Around August 2003, the Smiths entered into an installment

agreement (2003 installment agreement) with the Internal Revenue

Service (Service) with respect to their unpaid tax for 2002.

Around November 17, 2003, respondent applied a $601.49 overpay-

ment for the Smiths’ taxable year 2000 against their remaining

unpaid tax for 2002.   Pursuant to the 2003 installment agreement,
                               - 7 -

the Smiths made monthly payments to the Service of at least

$1,000 from December 2003 through October 2004.2

     Because of certain activities (discussed below) in which

Mr. Smith engaged on behalf of First Choice while appraising

certain residential real estate, around late 2003 or early 2004

the Federal Bureau of Investigation (FBI) began investigating him

and that company.   In February 2004, the FBI executed a search

warrant on Mr. Smith at the Smiths’ residence and searched it for

about four hours.   During that search, Mr. Smith and the Smiths’

son were present but not petitioner.

     Around July 7, 2004, the Smiths filed Form 1040 for 2003

(2003 joint return).3   In that return, the Smiths reported, inter

alia, (1) wages of $78,057,4 (2) net income of $3,185 from the

Mary Kay activity, (3) net income of $131,718 from First Choice,

(4) adjusted gross income of $213,048, and (5) taxable income of

$167,235.   In the 2003 joint return, the Smiths (1) showed tax of


     2
      Pursuant to the 2003 installment agreement, in June and
October 2004 the Smiths paid to the Service $2,000 and $1,500,
respectively.
     3
      Mr. Smith hired Jimmie Johnson (Mr. Johnson), a self-em-
ployed tax preparer, to prepare their 2003 joint return. The
Smiths previously had used H&R Block to prepare their tax re-
turns.
     4
      The wages of $78,057 that the Smiths reported in the 2003
joint return consisted of $35,237.38 that Dow paid to petitioner
and $42,820.35 that the police department paid to Mr. Smith
during 2003. We note that the Smiths rounded to the nearest
dollar all amounts that they reported in the respective joint tax
returns that they filed for 2003 and 2004.
                               - 8 -

$37,006 and self-employment tax of $450, (2) claimed a withhold-

ing tax credit of $6,219,5 and (3) showed tax due of $31,680.

     Around July 7, 2004, Mr. Smith gave the 2003 joint return to

petitioner and asked her to sign it.   Although petitioner did not

review that entire return before signing it, she was aware

(1) that First Choice, an S corporation, generated certain income

that was reported in that return and (2) that that return showed

a significant amount of tax due.   Petitioner asked Mr. Smith how

he intended to pay the tax shown due in the 2003 joint return.

Mr. Smith responded that he would pay it from the profits that

First Choice would generate in the following year.

     Petitioner and Mr. Smith signed the 2003 joint return but

did not pay the tax shown due in that return when they filed it

around July 7, 2004.   At the time the Smiths filed the 2003 joint

return, petitioner did not suffer from any physical or mental

illness.

     At a time not disclosed by the record after the Smiths filed

the 2003 joint return, petitioner recommended to Mr. Smith that

he establish a quarterly payment plan with the Service with

respect to any tax estimated to be due on income generated by

First Choice in order to reduce the amount that the Smiths would



     5
      The $6,219 withholding tax credit that the Smiths claimed
in the 2003 joint return consisted of $3,121.66 that Dow withheld
from petitioner’s wages and $3,096.97 that the police department
withheld from Mr. Smith’s wages during 2003.
                                 - 9 -

owe when they filed a tax return in which they reported such

income.    Mr. Smith did not do so.

     From November 2004 to January 2005, the Smiths did not make

the payments required under the 2003 installment agreement.      As a

result, on January 14, 2005, respondent issued a separate Letter

LT11, Final Notice–-Notice of Intent to Levy and Your Notice of a

Right to a Hearing (notice of levy), to petitioner and Mr. Smith

with respect to 2002 and 2003.    Respondent included with the

notice of levy that respondent issued to petitioner, inter alia,

Publication 594, What You Should Know About The IRS Collection

Process.    That publication indicated that so-called innocent

spouse relief might be available to certain taxpayers and di-

rected taxpayers to another publication of the Service discussing

such relief.

     On January 25, 2005, a grand jury for the U.S. District

Court for the Southern District of Indiana (District Court)

indicted Mr. Smith and nine other individuals on charges of

conspiracy to defraud the United States, wire fraud, and money

laundering.6   That indictment alleged that one or more cocon-

spirators of Mr. Smith purchased certain property for low prices

and then sold that property to another coconspirator who pur-



     6
      The indictment against Mr. Smith and the nine other indi-
viduals contained 101 counts. Mr. Smith was indicted on only 2
counts of conspiracy to defraud the United States, 13 counts of
wire fraud, and 1 count of money laundering.
                              - 10 -

chased it for an inflated price (second purchase) and thereafter

failed to make the required mortgage loan payments to the lending

institution that financed the second purchase.   The second

purchase by another coconspirator caused a significant loss to

the lending institution because the property purchased was worth

considerably less than the outstanding mortgage loan.   The

indictment alleged that Mr. Smith provided an inaccurate and

inflated appraisal in order to (1) aid certain of his cocon-

spirators in obtaining financing for the second purchase of the

subject property at an inflated price and (2) appropriate to

himself and his coconspirators the gain realized by the seller in

the second purchase.

     After Mr. Smith was indicted, he was arrested, released on

his own recognizance pending his trial in the District Court, and

suspended in January or February 2005 from the police department.

     Around April 3, 2005, pursuant to the respective notices of

levy issued to petitioner and Mr. Smith, respondent levied

against certain unidentified assets of one or both of them and

credited $2,412.58 against their tax liability for 2002.

     Around April 13, 2005, the Smiths filed Form 1040 for 2004

(2004 joint return).7   In that return, the Smiths reported, inter




     7
      Mr. Johnson, who prepared the Smiths’ 2003 joint return,
also prepared their 2004 joint return.
                              - 11 -

alia, (1) wages of $83,941,8 (2) net income of $650 from the Mary

Kay activity, (3) net income of $133,000 from First Choice,

(4) adjusted gross income of $219,210, and (5) taxable income of

$183,188.   In the 2004 joint return, the Smiths (1) showed tax of

$41,477 and self-employment tax of $91, (2) claimed a withholding

tax credit of $6,740,9 and (3) showed tax due of $35,805.10

     Around April 13, 2005, Mr. Smith gave the 2004 joint return

to petitioner and asked her to sign it.   Although petitioner did

not review that entire return before signing it, she was aware

(1) that First Choice, an S corporation, generated certain income

that was reported in that return and (2) that that return showed

a significant amount of tax due.   Petitioner asked Mr. Smith how

he intended to pay the tax shown due in the 2004 joint return.

Mr. Smith responded that he would pay it from the profits that

First Choice would generate in the following year.

     Petitioner and Mr. Smith signed the 2004 joint return but

did not pay the tax shown due in that return when they filed it



     8
      The wages of $83,941 that the Smiths reported in the 2004
joint return consisted of $37,774.05 that Dow paid to petitioner
and $46,166.76 that the police department paid to Mr. Smith
during 2004.
     9
      The $6,740 withholding tax credit that the Smiths claimed
in the 2004 joint return consisted of $3,544.06 that Dow withheld
from petitioner’s wages and $3,195.74 that the police department
withheld from Mr. Smith’s wages during 2004.
     10
      The tax due shown in the 2004 joint return included an
estimated tax penalty of $977.
                               - 12 -

around April 13, 2005.    At the time the Smiths filed the 2004

joint return, petitioner did not suffer from any physical or

mental illness.

       Around May 16, 2005, pursuant to the respective notices of

levy issued to petitioner and Mr. Smith, respondent levied

against certain unidentified assets of one or both of them and

credited $803.31 against their tax liability for 2002.     Around

March 27, 2006, respondent applied an overpayment of $5,581 for

the Smiths’ taxable year 2005 as credits of $1,388.10 and

$4,192.90 against the amounts that they owed for 2002 and 2003,

respectively.    Around April 15, 2006, respondent applied an

overpayment of $439 for the Smiths’ taxable year 2005 as a credit

against the amount that they owed for 2003.

       On September 11, 2006, the District Court commenced the

trial of Mr. Smith and certain of his coconspirators on the

charges in the indictment.    On September 22, 2006, the jury

unanimously found Mr. Smith guilty of each of the counts against

him.    On January 26, 2007, the District Court sentenced Mr. Smith

to 57 months of imprisonment and 5 years of supervised release.

The District Court also ordered Mr. Smith to pay restitution of

$1,086,292.80 to certain lending institutions.     On March 1, 2007,

Mr. Smith reported to the Federal prison at Ashland, Kentucky, to

begin serving his prison sentence.      As of the time of the trial
                               - 13 -

in this case, Mr. Smith was to be released from prison around

October 25, 2010.   As of that time, petitioner expected that

Mr. Smith would return to live with her after his release.

     Around November 1, 2007, petitioner filed Form 8857, Request

for Innocent Spouse Relief (Form 8857), with respect to 2003 and

2004.   Petitioner attached to that form Form 12510, Questionnaire

for Requesting Spouse (Form 12510).     (We shall sometimes refer

collectively to Form 8857 and Form 12510 that petitioner filed

with respect to 2003 and 2004 as petitioner’s innocent spouse

relief request.)    In petitioner’s innocent spouse relief request,

she claimed (1) that she had no reason to believe there was a

problem with the 2003 joint return or the 2004 joint return and

(2) that Mr. Smith handled all of the family finances.     At the

time she filed petitioner’s innocent spouse relief request,

petitioner did not suffer from any physical or mental illness.

     In petitioner’s Form 8857, petitioner claimed total monthly

income of $4,559 consisting of monthly wages of $3,559 and

monthly gifts of $1,000.    In that form, petitioner also claimed

total monthly expenses of $4,534 consisting of:
                              - 14 -

                  Claimed Monthly Expense            Amount
        Federal, State, and local taxes                  $326
        Rent or mortgage                                1,735
        Utilities                                         200
        Telephone                                          60
        Food                                              200
                                                      1
        Car (including car payments and insurance)      1,300
        Medical expenses                                   84
        Life insurance                                     19
        Clothing                                           10
                2
        Tuition                                           600
          Total                                        4,534
     1
       In Form 12510 that petitioner attached to Form 8857 that
she submitted to the Service, petitioner claimed total monthly
car expenses of $1,500 consisting of $1,200 for automobile
payments, $100 for automobile insurance, and $200 for automobile
gas and repairs. The record does not establish why petitioner
claimed $1,300 in Form 8857 and $1,500 in Form 12510.
     2
       The tuition expense that petitioner claimed was for tuition
that she paid to the university that the Smiths’ daughter was
attending.

     Around December 27, 2007, Mr. Smith submitted to respondent

Form 12508, Questionnaire for Non-Requesting Spouse.   In that

form, Mr. Smith claimed that he and petitioner maintained sepa-

rate bank accounts, that petitioner did not have any access to

the First Choice accounts, and that petitioner was not involved

in any of the business or the financial affairs of First Choice.

     On November 19, 2007, respondent issued to petitioner Letter

3661C, Preliminary Determination (preliminary determination),

with respect to petitioner’s request for relief under section

6015 for 2003.   In that letter, respondent determined that
                             - 15 -

petitioner was not entitled to that relief because she did not

file her request for relief within two years of the first collec-

tion activity with respect to 2003.

     Around December 19, 2007, petitioner submitted to respondent

Form 12509, Statement of Disagreement (Form 12509), in response

to respondent’s determination with respect to her request for

relief under section 6015 for 2003 (2007 Form 12509).   In that

form, petitioner stated:

     I was unaware of the attempts from the IRS to collect
     the debt. When I found out, my spouse (Michael) as-
     sured me that the matter was being taken care of.
     Michael was the person who received the mail at our
     house. For many years of our marriage he was responsi-
     ble for all the household expenses. He had a full-time
     job and owned a small business whose tax consequences
     were attached to our personal income tax returns. The
     tax returns were completed by a third party tax profes-
     sional. I had no reason to question or review the
     returns each year, so I signed them in reliance on
     their accuracy.

     My inability to pay this debt only became a matter of
     heightened concern this year after Michael was incar-
     cerated. * * * Michael believed he would be able to
     pay all expenses including any taxes when the investi-
     gation (which turned into a case) was settled. He
     believed [he] would be vindicated, return to work, get
     the money back that was taken from him and be able [to]
     make arrangements to settle any outstanding debt. That
     did not happen. * * * His incarceration has created a
     financial hardship for me, my son and my daughter. I
     have been forced to give up our four bedroom house and
     move to a two bedroom apartment. I cannot make the
     mortgage payment so the house will be foreclosed on
     soon.

     I am now attempting to work to resolve this situation.
     I ask that the IRS grant me Equitable Relief from this
     debt as it was my reasonable belief that my husband was
     taking care of any expenses due from his business
                               - 16 -

     including the taxes. This debt places an extreme
     financial hardship on me and my and [sic] children who
     have already lost our home. This debt places a finan-
     cial strain on the daily care of my children. Please
     also consider the fact that prior to my husband’s
     problems I was fully compliant with the tax laws in
     every year prior and since. As you can see by the data
     provided on Form 12510, this tax debt is more than my
     annual salary.

     This tax debt was not a result of my doings or knowl-
     edge. I relied on my husband and a professional tax
     preparer. I have now been faced with financial ruin
     because of it. I respectfully request that the IRS
     grant me Equitable Relief from this debt.

     An examiner working for the Service (respondent’s examiner)

prepared an examination workpaper dated January 9, 2008 (examina-

tion workpaper) with respect to petitioner’s request for relief

under section 6015 for 2004.   In that workpaper, respondent’s

examiner concluded that petitioner is not entitled to relief

under that section for any portion of the underpayment for that

year.   The examination workpaper stated, inter alia:

                        GENERAL INFORMATION

     Denied - She is liable for part of the UP [underpay-
     ment]. Per tax ran & attribution worksheet they both
     did not have enough taxes withheld from their income to
     pay the bal due. She is liable for $1180 & he is
     liable for $33648. She has no reason to believe he was
     going to pay. She knew there was a bal due & she knew
     they had financial problems because he lost his job &
     his business closed. She also knew there was a bal due
     from the previous yr not paid. It would not cause an
     economic hardship to hold her liable. Her income
     exceeds her expenses by $625 a month. They have not
     been apart 12 months.
                        - 17 -

                   SPOUSE’S RESPONSE

He just talks about she was not involved in his busi-
ness. He does not talk about the balance due.

                  EVALUATION PROCESS

     Year 2004
                      IRC 6015(f)
Liability arose on or after July 22, 1998
Joint return is valid
There is enough information to determine the claim
No OIC accepted

Eligibility factors:
Underpayment of tax - relief is not available under IRC
6015(b) & 6015(c)
Filed a joint return
Claim filed timely
Liability unpaid, or RS [requesting spouse] may have
refundable payments
Not a fraudulent return
No fraudulent transfer of assets
No disqualified assets transferred
The underpaid tax is not solely attributable to the NRS
[nonrequesting spouse]
Attribution:   Per the attribution worksheet they both
               did not have enough taxes withheld from
               their income to pay the balance due.
Partial attribution to the NRS. Continue evaluating
for the portion attributable to the NRS. Deny relief
for the portion attributable to the RS.

Tier I factors (limited scope):
Taxpayers are currently not divorced, widowed or le-
gally separated, and did not live apart prior to the
claim for at least 12 consecutive months

        Tier I factors (limited scope) not met

Tier II factors:
Taxpayers are currently not divorced, widowed   Against
or legally separated, and did not live apart
prior to the claim for at least 12 consecutive
months
No economic hardship                            Against
Explanation:   The info she provided shows her income
                        - 18 -

               exceeds her expenses by $25 a month but
               she added her daughters college tuition
               of $600 a month as an expenses & after a
               call to her to verify this that [sic] is
               not a basic living expenses so her in-
               come exceeds by $625 a month.
No marital abuse
No poor mental or physical health
No legal obligation established

   Knowledge:
   Background:
      RS - Bachelor of Science in   NRS - Some college
           Business Administration
           Business Admin,
           Finance, Intro Acctg,
           Marketing, Stastics
           [sic]
   Involvement:
      RS - She had her own account NRS - He had his
           that her income was            own account.
           deposited into. They
           had no joint account.
   Lifestyle changes:    No
   NRS’s elusiveness:    No
   Duty to inquire:      She did not review the return
                         before signing it.
   Living arrangements: Lived together all year.
RS had knowledge or reason to know              Against
Explanation:        She knew there was a balance due.
                    She did not have reason to believe
                    he was going to pay it. She knew
                    they had financial problems when he
                    lost his job & his business was
                    shut down. They also owed the year
                    before & have not paid it.
No significant benefit gained.                       For
Explanation:        She did not receive any benefit.
Made a good faith effort to comply with the tax      For
laws
Explanation:        She has been compliant
Unique circumstances: No
Not meeting Tier II factors - deny claim
Tier II consideration:   Based on the above facts it is
                         equitable to hold the RS lia-
                         ble for the balance.
                         She did not have reason to
                               - 19 -

                                believe he was going to pay.
                                It would not cause an economic
                                hardship. They are still
                                married/living together.

                    Tier II factors not met - deny
             Claim denied under IRC 6015(f) - full scope

                             CONCLUSION

     2004 - Denied under 6015(f)
     She is liable for part bal due. She did not have
     reason to believe he was going to pay. It would not
     cause an economic hardship. They are still married/
     living together. She states they have been apart since
     March 2007 but he is just incarcerated which does not
     constitute a separation.

     On January 18, 2008, respondent issued to petitioner a

preliminary determination with respect to her request for relief

under section 6015 for 2004.    In that letter, respondent deter-

mined that petitioner is not entitled to that relief because “you

[petitioner] did not show it would be unfair to hold you respon-

sible.    You did not prove, that at the time you signed the

return, you had reason to believe the tax would be paid.    Also,

the documentation you provided does not prove economic hardship.”

     Around February 8, 2008, petitioner submitted to respondent

Form 12509 in response to respondent’s determination with respect

to her request for relief under section 6015 for 2004 (2008 Form

12509).    That form contained a statement materially identical to

the one that petitioner had included in her 2007 Form 12509.

Petitioner’s 2008 Form 12509 also included the following addi-

tional information with respect to her then current expenses:
                               - 20 -

     Since initially filing for Equitable Relief, it has
     become more clear the magnitude of my monthly expenses.
     They include: Rent $940; Gas & Electricity $150; Food
     $280; Tithes $360; Auto payment $414; Auto Ins. $120;
     Auto License Plates $31; Life Ins. $85; Auto Gas &
     Repairs $200; Medical/Dental Ins. $88; Sears Card $100;
     Loan $452; Clothing $50; Taxes $534; plus co-pays for
     any medical/dental appointments, prescriptions, vision
     exams, glasses and contact lenses, etc.

     While I understand the family contribution of my daugh-
     ter’s college expenses is not considered part of my
     financial hardship, my son is in high school and I have
     varying expenses that relate to that as well (i.e. his
     tuition ~$2,000/yr., books $500/yr., etc.)

     Respondent assigned petitioner’s appeal to an officer

(respondent’s Appeals officer) in respondent’s Appeals Office

(Appeals Office).    While that appeal was pending, petitioner

submitted to the Appeals Office (1) a pay statement dated April

25, 2008, reflecting petitioner’s gross salary (petitioner’s

salary) from Dow and certain amounts that Dow had deducted from

petitioner’s salary for the biweekly pay period April 7 to 20,

2008 (April 2008 pay statement) and (2) a spreadsheet showing

certain of petitioner’s monthly expenses (expenses spreadsheet).

The April 2008 pay statement indicated that petitioner’s monthly

salary was $4,001.   That pay statement showed the following

biweekly amounts that Dow had deducted from petitioner’s salary:
                             - 21 -

                                           Actual     Prorated
                                          Biweekly     Monthly
                   Amount                Deduction   Deduction1
  Federal, State, and local taxes         $284.57      $616.57
  Medical, dental, vision, and
    disability insurance and health
    care reimbursement account               137.86      298.70
  Life insurance                              18.18       39.39
           2
  ESP loan                                   226.09      489.86
  Contribution to petitioner’s
    retirement account                       110.80      240.07
                3
  Miscellaneous                               16.15       34.99
    Total                                    793.65    1,719.58
     1
       For convenience, we have prorated the amount that Dow
deducted from petitioner’s salary in order to determine the
amount that Dow would have deducted each month from petitioner’s
monthly salary.
     2
       The ESP loan represented payments that petitioner made to
her retirement account in order to repay certain loans that she
had made from that account.
     3
       The category “Miscellaneous” included two items identified
on the April 2008 pay statement as “RHCAP” and “HP MBRSHP/SINGL”.
The record does not establish what those two items represented or
why petitioner paid certain amounts with respect to those items.

     In the expenses spreadsheet, petitioner claimed the follow-

ing monthly expenses:
                              - 22 -

                    Claimed Expense            Amount
              Rent                             $940.00
              Gas                               100.00
              Electric                           50.00
              Car payment                       414.06
              Cable                              65.45
              Home telephone                     32.00
              Cellular telephone                130.00
              Automobile--gas                   200.00
              Food                              230.00
                         1
              Sears card                         75.00
              Tithes                            400.00
                  Total                       2,636.51
     1
       As of the time of the trial in this case, petitioner had
paid the balance on her Sears credit card.

     After considering petitioner’s appeal, respondent’s Appeals

officer prepared an appeals case memorandum dated June 27, 2008

(appeals memorandum).   In that memorandum, respondent’s Appeals

officer concluded that petitioner is not entitled to relief under

section 6015 for 2003 or 2004.   The appeals memorandum stated in

pertinent part:11




     11
      In the appeals memorandum, respondent’s Appeals officer
analyzed petitioner’s appeal under the factors set forth in Rev.
Proc. 2000-15, 2000-1 C.B. 447 (Revenue Procedure 2000-15). We
note that Rev. Proc. 2003-61, 2003-2 C.B. 296 (Revenue Procedure
2003-61), superseded Revenue Procedure 2000-15. Revenue Proce-
dure 2003-61 is effective for requests for relief under sec.
6015(f) that were filed on or after Nov. 1, 2003. Id. sec. 7.
Revenue Procedure 2003-61 is applicable in this case because
petitioner filed petitioner’s innocent spouse relief request
around Nov. 1, 2007.
                          - 23 -

                  DISCUSSION AND ANALYSIS

   *        *       *        *       *        *        *

§6015(f)

       Relief is provided for under §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); and relief is not available under
       subsection §6015(b) or (c).

       Threshold Factors under IRC §6015(f)

            A joint return was filed.

            IRC Sections 6015(b) and (c) are not avail-
            able.

            There was a timely application for relief.

            There was no underpayment as of July 22,
            1998.

            There is no evidence of fraudulent transfers
            of assets.

            There is no evidence of disqualified assets
            transferred.

            There was no evidence of a fraudulent joint
            return presented.

       The EO [examining officer] determined that the
       threshold factors of §6015(f) WERE NOT met because
       the taxpayer did not request relief within 2 years
       of the first collection activity for the 2003
       account. She filed for relief November 2007. The
       notice of intent to levy was mailed to each indi-
       vidual January 2005. The taxpayer meets the
       threshold factors for the 2004 tax year because
       collection activities had not yet begun. I agree
       with the examining officer’s determinations. Only
       the 2004 tax year will be considered further.
                   - 24 -

TIER I & TIER II factors of §6015(f)

The taxpayer DOES/DOES NOT qualify under the TIER
I/TIER II factors of §6015(f)

     Following are the circumstances under which
     equitable relief under §6015(f) will ordi-
     narily be granted.

     Tier I

     (1) In cases where a liability reported on a
     joint return is unpaid, equitable relief
     under §6015(f) will ordinarily be granted in
     cases where 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, or has not been a member of the same
     household as the nonrequesting spouse at any
     time during the 12-month period ending on the
     date relief was requested;

          Relevant facts from taxpayer & Govern-
          ment...the taxpayer is still married and
          did not mention any plans to file for
          divorce. Her spouse is incarcerated for
          the next few years in federal prison.

          This element IS NOT satisfied
          because...the taxpayers are married and
          separate living arrangements due to
          imprisonment does not qualify as sepa-
          rate households.

     (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. The
     requesting spouse must establish that it was
     reasonable for the requesting spouse to be-
     lieve that the nonrequesting spouse would pay
     the reported liability. * * * and

          Relevant facts from taxpayer & Govern-
          ment...The taxpayer believed that her
              - 25 -

     husband would be found innocent, rein-
     stated at his job, and their lives would
     return to normal. She signed the 2004
     tax return after he was indicted and had
     been suspended from his job.

     This element IS NOT satisfied
     because...the taxpayer knew that the tax
     liability would not be paid for some
     time due to the criminal proceedings
     that were taking place during 2005. The
     couple was using their savings to pay
     for their personal living expenses and
     his attorney fees.

(c) The requesting spouse will suffer eco-
nomic hardship if relief is not granted. For
purposes of this section, the determination
of whether a requesting spouse will suffer
economic hardship will be made by the Commis-
sioner or the Commissioner’s delegate, and
will be based on rules similar to those pro-
vided in §301.6343-1(b)(4) of the Regulations
on Procedure and Administration * * *

     Relevant facts from taxpayer & Govern-
     ment...The taxpayer is trying to change
     the family’s standard of living so that
     her income is enough to pay their basic
     living expenses. She has moved from the
     family home to an apartment because she
     could not afford the mortgage payment.
     The taxpayer is experiencing economic
     hardship with or without this tax lia-
     bility.

     This element IS satisfied because...the
     taxpayer is suffering an economic hard-
     ship and is unable to pay her basic
     living expenses at the present time.

Tier II

The Secretary may grant equitable relief
under §6015(f) if, taking into account all
the facts and circumstances, it is inequita-
ble to hold the requesting spouse liable for
all or part of the unpaid liability or defi-
              - 26 -

ciency. The following is a partial list of
the positive and negative factors that will
be taken into account in determining whether
to grant full or partial equitable relief
under §6015(f). 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. The list is not
intended to be exhaustive.

(1) Factors that favor relief.

The factors weighing in favor of relief in-
clude, but are not limited to, the following:

(a) Marital status. The requesting spouse is
separated (whether legally separated or liv-
ing apart) or divorced from the nonrequesting
spouse.

     Relevant facts from taxpayer & Govern-
     ment...The taxpayer is still married and
     did not mention any plans to file for
     divorce. Her spouse is incarcerated for
     the next few years in federal prison.

     This element IS NOT satisfied
     because...the taxpayers are married and
     separate living arrangements due to
     imprisonment does not qualify as sepa-
     rate households.

(b) Economic hardship. The requesting spouse
would suffer economic hardship (within the
meaning of section 4.02(1)(c) of this revenue
procedure) if relief from the liability is
not granted.

     Relevant facts from taxpayer & Govern-
     ment...The taxpayer is trying to change
     the family’s standard of living so that
     her income is enough to pay their basic
     living expenses. She has moved from the
     family home to an apartment because she
     could not afford the mortgage payment.
              - 27 -

     The taxpayer is experiencing economic
     hardship with or without this tax lia-
     bility.

     This element IS satisfied because...the
     taxpayer is suffering an economic hard-
     ship and is unable to pay her basic
     living expenses at the present time.

(c) Abuse. The requesting spouse was abused
by the nonrequesting spouse, but such abuse
did not amount to duress.

     Relevant facts from taxpayer & Govern-
     ment...the taxpayer was not abused by
     her spouse.

     This factor does not favor relief be-
     cause...there is no evidence or allega-
     tion of abuse.

(d) No knowledge or reason to know. In the
case of a liability that was properly re-
ported but not paid, the requesting spouse
did not know and had no reason to know that
the liability would not be paid. * * *

     Relevant facts from taxpayer & Govern-
     ment...The taxpayer believed that her
     husband would be found innocent, rein-
     stated at his job, and their lives would
     return to normal. She signed the 2004
     tax return after he was indicted and had
     been suspended from his job.

     This element IS NOT satisfied
     because...the taxpayer knew that the tax
     liability would not be paid for some
     time due to the criminal proceedings
     that were taking place during 2005. The
     couple was using their savings to pay
     for their personal living expenses and
     his attorney fees.

(e) Nonrequesting spouse’s legal obligation.
The nonrequesting spouse has a legal obliga-
tion pursuant to a divorce decree or arrange-
              - 28 -

ment to pay the outstanding liability. This
will not be a factor weighing in favor of
relief if the requesting spouse knew or had
reason to know, at the time the divorce de-
cree or agreement was entered into, that the
nonrequesting spouse would not pay the lia-
bility.

     Relevant facts from taxpayer & Govern-
     ment...The taxpayer is still legally
     married to her spouse and does not plan
     to divorce him at this time.

     The factor does not favor relief
     because...there is no legal obligation
     from a divorce decree that the spouse is
     to pay the liability.

(f) Attributable to nonrequesting spouse.
The liability for which relief is sought is
solely attributable to the nonrequesting
spouse.

     Relevant facts from taxpayer & Govern-
     ment...The taxpayer is liable for a
     small portion of the liability since her
     withholding credits were not enough to
     cover her share of the tax liability.
     The majority of the tax due is credited
     to the taxpayer’s spouse.

     This factor favors relief because...a
     substantial portion of the tax liability
     is her spouse’s responsibility.

(2) Factors weighing against relief.

The factors weighing against relief include,
but are not limited to, the following:

(a) Attributable to the requesting spouse.
The unpaid liability or item giving rise to
the deficiency is attributable to the re-
questing spouse.

     Relevant facts from taxpayer & Govern-
     ment...The taxpayer is liable for a
              - 29 -

     small portion of the liability since her
     withholding credits were not enough to
     cover her share of the tax liability.
     The majority of the tax due is credited
     to the taxpayer’s spouse.

     This factor does not weigh against re-
     lief.

(b) Knowledge, or reason to know. A request-
ing spouse knew or had reason to know of the
item giving rise to a deficiency or that the
reported liability would be unpaid at the
time the return was signed. This is an ex-
tremely strong factor weighing against re-
lief. Nonetheless, when the factors in favor
of equitable relief are unusually strong, it
may be appropriate to grant relief under
§6015(f) in limited situations where a re-
questing spouse knew or had reason to know
that the liability would not be paid, and in
very limited situations where the requesting
spouse knew or had reason to know of an item
giving rise to a deficiency.

     Relevant facts from taxpayer & Govern-
     ment...The taxpayer believed that her
     husband would be found innocent, rein-
     stated at his job, and their lives would
     return to normal. She signed the 2004
     tax return after he was indicted and had
     been suspended from his job.

     This factor weighs against relief.

(c) Significant benefit. The requesting
spouse has significantly benefited [sic]
(beyond normal support) from the unpaid lia-
bility or items giving rise to the
deficiency. See § 1.6013-5(b).

     Relevant facts from taxpayer & Govern-
     ment...The taxpayer and her family were
     paying normal living expenses and the
     attorney fees with savings after her
     spouse was suspended without pay from
     his job.
              - 30 -

     This factor does not weigh against re-
     lief.

(d) Lack of economic hardship. The request-
ing spouse will not experience economic hard-
ship (within the meaning of section
4.02(1)(c) of this revenue procedure) if
relief from the liability is not granted.

     Relevant facts from taxpayer & Govern-
     ment...The taxpayer is trying to change
     the family’s standard of living so that
     her income is enough to pay their basic
     living expenses. She has moved from the
     family home to an apartment because she
     could not afford the mortgage payment.
     The taxpayer is experiencing economic
     hardship with or without this tax lia-
     bility.

     This factor does not weigh against re-
     lief.

(e) Noncompliance with federal income tax
laws. 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 or years to which the request
for relief relates.

     Relevant facts from taxpayer & Govern-
     ment...The taxpayer and her spouse have
     filed and paid their tax liabilities for
     the 2005 and 2006 tax years.

     This factor does not weigh against re-
     lief.

(f) Requesting spouse’s legal obligation.
The requesting spouse has a legal obligation
pursuant to a divorce decree or agreement to
pay the liability.

     Relevant facts from taxpayer & Govern-
     ment...the taxpayer is still legally
     married to her spouse and does not plan
     to divorce him at this time.
                              - 31 -

                     This factor does weigh against relief.

          No additional factors were presented by the tax-
          payer that would favor relief.

     Taking into account all the facts and circumstances in
     this case, there are hazards that would be faced by
     both sides should the case be heard at US Tax Court.
     In an effort to settle both tax years, I offered to
     relieve her of his liability for the 2004 tax year.
     She has not accepted the offer.

     Because the taxpayer did not establish that it would be
     inequitable to hold her liable for the 2003 and 2004
     tax years, I am recommending that the examiner’s posi-
     tion should be sustained. The taxpayer does not meet
     the statutory requirements for the 2003 tax year and
     has not proven her case regarding the 2004 tax year.

     On July 11, 2008, respondent issued to petitioner the notice

of determination.   In that notice, respondent denied petitioner’s

request for relief under section 6015 for each of 2003 and 2004.

With respect to 2003, the notice of determination stated in

pertinent part:

     You [petitioner] did not file your request timely. IRC
     section 6015 requires innocent spouse claims to be
     filed no later than two years after we start collection
     activity against you. Our records show the date that
     the IRS first initiated collection activity against you
     by sending you a due process notice was 1/15/2005.

With respect to 2004, the notice of determination stated in per-

tinent part:   “The information we have available does not show

you meet the requirements for relief.”

     As of April 30, 2010, the Smiths owed a balance of

$50,051.55 with respect to 2003.   As of that date, the Smiths

owed a balance of $59,545.28 with respect to 2004.
                                - 32 -

     At the trial in this case, petitioner claimed that certain

of her monthly expenses had changed (revised monthly expenses)

since she submitted petitioner’s innocent spouse relief request

and the expenses spreadsheet.    The revised monthly expenses that

petitioner claimed at trial consisted of:

                Claimed Monthly Expense              Amount
        Rent                                          $1,080
        Electric                                          90
        Cable                                            120
                  1
        Telephone                                        187
        Automobile, life, and renter’s insurance         127
     1
       At the time of the trial in this case, petitioner had
disconnected her landline home telephone service. At that time,
petitioner and her children had only cellular telephone service.

     As of the time of the trial in this case, petitioner had a

monthly salary of $4,001 and monthly expenses of $4,004 consist-

ing of:12




     12
      For convenience, we have rounded petitioner’s monthly
expenses to the nearest dollar.
                                - 33 -

                        Monthly Expense               Amount
          Federal, State, and local taxes               $617
          Rent                                         1,080
          Electric                                        90
          Gas                                            100
          Telephone                                      187
          Cable                                          120
          Car (including car payments and gasoline)      614
          Automobile, life, and renter’s insurance       127
          Food                                           230
          Medical expenses (including insurance,
            dental, vision, and disability)             299
          Retirement account loan payment               490
          Clothing                                       50
            Total                                     4,004

     As of the time of the trial in this case, petitioner had

complied with the tax laws for each taxable year after 2003 and

2004.

                                OPINION

     The parties’ only dispute is whether petitioner is entitled

to relief under section 6015(f) for her taxable year 2004.13


     13
      Petitioner concedes that she is not entitled to relief
under sec. 6015(b) or (c) for 2003 or 2004. On brief, petitioner
also concedes that, because an appeal in this case would normally
lie in the U.S. Court of Appeals for the Seventh Circuit, she is
not entitled to relief under sec. 6015(f) for 2003 under Lantz v.
Commissioner, 607 F.3d 479 (7th Cir. 2010), revg. 132 T.C. 131
(2009), which we shall follow, see Golsen v. Commissioner, 54
T.C. 742, 757 (1970), affd. 445 F.2d 985 (10th Cir. 1971), even
though we disagree with it, see Pullins v. Commissioner, 136 T.C.
___ (2011); Hall v. Commissioner, 135 T.C. 374 (2010). In Lantz,
the Court of Appeals upheld the validity of sec. 1.6015-5(b)(1),
Income Tax Regs., which requires that a requesting spouse file a
request for relief no more than two years after the Commissioner
of Internal Revenue (Commissioner) first begins collection
activity with respect to the year for which relief is requested.
                                                   (continued...)
                                - 34 -

Petitioner bears the burden of proving that she is entitled to

relief under that section.    See Rule 142(a); Jonson v. Commis-

sioner, 118 T.C. 106, 113 (2002), affd. 353 F.3d 1181 (10th Cir.

2003).

       Section 6015(f) provides:

       SEC. 6015.   RELIEF FROM JOINT AND SEVERAL LIABILITY ON
                    JOINT RETURN.

            (f) Equitable Relief.–-Under procedures pre-
       scribed by the Secretary, if--

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

                 (2) relief is not available to such individ-
            ual under subsection (b) or (c), the Secretary may
            relieve such individual of such liability.

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

scribed procedures in Revenue Procedure 2003-61 that are to be

used in determining whether it would be inequitable to find the

requesting spouse liable for part or all of the underpayment of

tax.    That revenue procedure lists seven threshold conditions

(threshold conditions) which must be satisfied before the Commis-




       13
      (...continued)
Lantz v. Commissioner, supra at 486. Petitioner filed Form 8857
more than two years after respondent first began collection
activity with respect to 2003.
                              - 35 -

sioner will consider a request for relief under section 6015(f).

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

     Petitioner concedes that she does not satisfy all of the

threshold conditions with respect to the portion of the underpay-

ment for 2004 that is attributable to herself.    See Rev. Proc.

2003-61, sec. 4.01(7).   On the record before us, we find that

petitioner is not entitled to relief under section 6015(f) for

that portion.

     The parties agree that petitioner satisfies all of the

threshold conditions with respect to the portion of the underpay-

ment for 2004 that is attributable to Mr. Smith.    Where the

requesting spouse satisfies the threshold conditions, section

4.02(1) of Revenue Procedure 2003-61 sets forth the circumstances

under which the Commissioner ordinarily will grant relief to that

spouse under section 6015(f) in a case, like the instant case,

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

Petitioner concedes that she does not qualify for relief under

section 4.02(1) of Revenue Procedure 2003-61.    Instead, she

relies on section 4.03 of that revenue procedure in support of

her claim for relief under section 6015(f).

     Section 4.03 of Revenue Procedure 2003-61 sets forth the

following factors that are to be considered in determining

whether a requesting spouse is entitled to relief under section

6015(f):   (1) Whether the requesting spouse is separated or
                                - 36 -

divorced from the nonrequesting spouse (marital status factor);

(2) whether the requesting spouse would suffer economic hardship

if not granted relief (economic hardship factor); (3) whether the

requesting spouse knew or had reason to know that the nonre-

questing spouse would not pay the tax liability (knowledge

factor); (4) whether the nonrequesting spouse has a legal obliga-

tion to pay the outstanding tax liability pursuant to a divorce

decree or agreement (legal obligation factor); (5) whether the

requesting spouse received a significant benefit from the item

giving rise to the deficiency (significant benefit factor); and

(6) whether the requesting spouse has made a good faith effort to

comply with the tax laws for the taxable years following the

taxable year to which the request for such relief relates (com-

pliance factor).14    Rev. Proc. 2003-61, sec. 4.03(2)(a), 2003-2

C.B. at 298-299.     In making our determination under section


     14
      Other factors that may be considered under Revenue Proce-
dure 2003-61 are (1) whether the nonrequesting spouse abused the
requesting spouse (abuse factor) and (2) whether the requesting
spouse was in poor mental or physical health (mental or physical
health factor) when he or she signed the tax return (return) or
when he or she requested relief. Rev. Proc. 2003-61, sec.
4.03(2)(b), 2003-2 C.B. at 298. In the event (1) the nonrequest-
ing spouse abused the requesting spouse or (2) the requesting
spouse was in poor mental or physical health when he or she
signed the return or when he or she requested relief, the abuse
factor or the mental or physical health factor, as the case may
be, will be taken into account. Id. However, where, as here,
(1) the nonrequesting spouse did not abuse the requesting spouse
and (2) the requesting spouse was not in poor mental or physical
health when she signed the return or when she requested relief,
those factors are not taken into account. Id.
                              - 37 -

6015(f), we shall consider those factors and any other relevant

factors.   No single factor is to be determinative in any particu-

lar case, and all factors are to be considered and weighed

appropriately.

     With respect to the marital status factor, the parties agree

that the Smiths remained married as of the time of the trial in

this case.

     With respect to the economic hardship factor,15 respondent


     15
      In determining whether a requesting spouse will suffer
economic hardship, sec. 4.02(1)(c) of Revenue Procedure 2003-61
requires reliance on rules similar to those provided in sec.
301.6343-1(b)(4), Proced. & Admin. Regs. That regulation gener-
ally provides that an individual suffers an economic hardship if
the individual is unable to pay his or her reasonable basic
living expenses. Sec. 301.6343-1(b)(4), Proced. & Admin. Regs.,
provides in pertinent part:

          (ii) Information from taxpayer.--In determining a
     reasonable amount for basic living expenses the direc-
     tor 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);

                                                    (continued...)
                              - 38 -

argues that petitioner “merely testified that she had the ex-

penses listed in her brief, but did not provide any substantia-

tion of those expenses.”   We reject respondent’s argument.   In

addition to her testimony, which we found to be credible, peti-

tioner submitted (1) Form 8857 in which she claimed certain

expenses, (2) the 2008 Form 12509 in which she provided addi-

tional information about her monthly expenses, (3) the April 2008

pay statement detailing certain expenses that Dow deducted from

her wages, and (4) the expenses spreadsheet in which she detailed

certain of her expenses.   In evaluating petitioner’s request for

relief, neither respondent’s examiner nor respondent’s Appeals

officer maintained that petitioner was not entitled to relief

because she failed to substantiate her claimed expenses.   In

fact, respondent’s Appeals officer relied on those claimed

expenses in reaching the conclusion in the appeals memorandum




     15
      (...continued)
             (C) The cost of living in the geographic area
     in which the taxpayer resides;

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

             (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 economic hardship and brings to the attention
     of the director.
                               - 39 -

that petitioner was “experiencing economic hardship with or

without this tax liability.”

     We have found that as of the time of the trial in this case

petitioner had (1) a monthly salary of $4,001 and (2) monthly

expenses of $4,004 exclusive of certain expenses that petitioner

argues should be included as part of her basic living expenses16

and certain other expenses that respondent argues should be

excluded as part of her basic living expenses.17   Thus, we have

     16
      Petitioner argues that her claimed monthly expense for
food (i.e., $230) is unreasonably low and significantly less than
the monthly expense for food (i.e., $537) set forth in the
national standards (Service’s national standards) that the
Service uses in determining whether a taxpayer is suffering an
economic hardship. Petitioner also asserts that she is entitled
to use the monthly expenses set forth in the Service’s national
standards for “Food, Clothing and Other Items”. We need not and
shall not address whether petitioner is entitled to use those
monthly expenses. That is because, without including in peti-
tioner’s basic living expenses the monthly expenses set forth in
the Service’s national standards for “Food, Clothing and Other
Items”, we have found that petitioner’s monthly expenses exceed
her monthly salary.
     17
      Respondent argues that cable television, tithes to peti-
tioner’s church, and certain contributions to petitioner’s
retirement account do not constitute reasonable basic living
expenses. We need not and shall not address whether tithes to
petitioner’s church and certain contributions to petitioner’s
retirement account constitute reasonable basic living expenses.
That is because, without including in petitioner’s reasonable
basic living expenses those tithes and those contributions, we
have found that petitioner’s monthly expenses exceed her monthly
salary. We have included $120 for cable television in peti-
tioner’s reasonable basic living expenses. In doing so, we have
rejected respondent’s argument that “petitioner’s cable expense
of $120.00 is not a reasonable basic living expense”. Even if we
were to exclude cable television from petitioner’s reasonable
basic living expenses, petitioner’s monthly salary would exceed
                                                   (continued...)
                               - 40 -

found that petitioner’s monthly expenses exceeded her monthly

salary.

     Respondent argues that the balance in petitioner’s retire-

ment account, which as of the time of the trial in this case was

approximately $75,000, “could be used to pay a significant

portion of the liabilities.”   Respondent’s argument ignores that

petitioner concedes that she is liable for the Smiths’ tax

liability for 2003, which as of April 30, 2010, was $50,051.55.18

Respondent’s argument also ignores that petitioner has at times

borrowed money from her retirement account in order to pay

certain expenses, including basic living expenses.   We believe

that she will be required to continue to borrow from her retire-

ment account in order to meet certain of those basic living

expenses.




     17
      (...continued)
her monthly expenses by only $117 and would not change our
finding below with respect to the economic hardship factor.

     In the alternative, respondent argues that “at best, [peti-
tioner’s cable expense] would fall under ‘other’ or ‘miscella-
neous’ items of the National Standards petitioner relies upon and
would not be a separate allowable expense.” Respondent’s argu-
ment is not clear. In any event, we have not included in deter-
mining petitioner’s reasonable basic living expenses any of the
monthly expenses set forth in the Service’s national standards
for “Food, Clothing and Other Items”, see supra note 16, and we
need not and shall not address respondent’s alternative argument.
     18
      The tax liability for 2003 continues to accrue interest
until paid. See sec. 6601.
                              - 41 -

     On the record before us, we find that petitioner has carried

her burden of establishing that she would suffer economic hard-

ship if relief under section 6015(f) were not granted with

respect to the portion of the underpayment for 2004 that is

attributable to Mr. Smith.

     With respect to the knowledge factor, petitioner must

establish that it was reasonable for her to believe that

Mr. Smith would pay the tax shown due in the 2004 joint return.

See Rev. Proc. 2003-61, sec. 4.02(1)(b), 4.03(2)(a)(iii), 2003-2

C.B. at 298.

     Respondent argues that “Based on Mr. Smith’s legal difficul-

ties and loss of employment * * * petitioner knew or had reason

to know that Mr. Smith would not pay those [tax] liabilities with

the return or in a reasonably prompt time.”19   Petitioner coun-

ters that she had no reason to believe that the tax shown due in

the 2004 joint return would not be paid.   That is because,

according to petitioner, it was reasonable for her to believe

     19
      Respondent’s argument that petitioner must believe that
the tax would be paid in a reasonably prompt time is based on
Banderas v. Commissioner, T.C. Memo. 2007-129. In Banderas, we
held that in order for a belief that a liability would be paid to
be reasonable the requesting spouse must believe that the funds
to pay the liability would be on hand within a reasonably prompt
time. Respondent contends that that holding in Banderas is wrong
and that the requesting spouse must believe that the tax would be
paid by the later of the date on which the return was filed or
the date on which the tax is due to be paid. We need not revisit
our holding in Banderas as respondent invites us to do because,
as discussed below, even under that holding we sustain respon-
dent’s argument with respect to the knowledge factor.
                             - 42 -

Mr. Smith when he told her that he would pay that amount out of

the profits generated by First Choice in the following year.

Petitioner contends that at the time she signed the 2004 joint

return

     her husband’s business, 1st Choice Appraisal (“1st
     Choice”), was coming off of an impressive year in 2003
     where it had total income of $131,718. Given that its
     total income in 2004 was $133,000, sufficient income
     was being produced to pay the tax liability. Moreover,
     although the indictment against Michael Smith had been
     filed on January 25, 2005, the trial against him did
     not commence until September 11, 2006, over one year
     after petitioner signed the 2004 return. Moreover, the
     jury verdict against Mr. Smith was not returned until
     January 17, 2007. Thus, although there was perhaps
     cause for concern at the time the return was filed, the
     full extent of Mr. Smith’s legal problems was not yet
     apparent to petitioner when she signed the return.
     [Cross-refs. omitted.]

     On the record before us, we reject petitioner’s argument.

We have found that around April 13, 2005, petitioner and

Mr. Smith signed the 2004 joint return.   We have also found that

at that time petitioner was aware that (1) around 2000 the Smiths

commenced a bankruptcy proceeding; (2) early in 2003 before

April 15, the Smiths filed the 2002 joint return in which they

showed tax of $21,658, claimed a withholding tax credit of

$6,293, and showed tax due of $15,365; (3) the Smiths did not pay

on or before April 15, 2003, the tax shown due in the 2002 joint

return of $15,365; (4) around August 2003 the Smiths entered into

the 2003 installment agreement; (5) around July 7, 2004, (a) the

Smiths filed the 2003 joint return in which they showed tax due
                             - 43 -

of $31,680 and (b) petitioner was aware that that return showed a

significant amount of tax due; (6) the Smiths did not include any

payment with the 2003 joint return when they filed it around July

7, 2004; (7) from November 2004 to January 2005 the Smiths did

not make the payments required under the 2003 installment agree-

ment; (8) on January 25, 2005, a grand jury for the District

Court indicted Mr. Smith on 16 counts; and (9) in January or

February 2005 Mr. Smith was suspended from the police department.

     On the record before us, we find that it was not reasonable

for petitioner to believe at the time she signed the 2004 joint

return around April 13, 2005, that First Choice would generate

profits in the following year sufficient to pay the tax shown due

in that return.20

     On the record before us, we find that petitioner has failed

to carry her burden of establishing that she reasonably believed

that the tax shown due in the 2004 joint return would be paid on

or before the date on which that tax was due.   On that record, we

further find that petitioner has failed to carry her burden of

establishing that she reasonably believed that the funds to pay

the tax shown due in the 2004 joint return would be available



     20
      We thus reject petitioner’s contention that the instant
case is materially similar to Downs v. Commissioner, T.C. Memo.
2010-165. We find Downs to be materially distinguishable from
the instant case and petitioner’s reliance on that case to be
misplaced.
                               - 44 -

within a reasonably prompt time.21   On the record before us, we

find that petitioner has failed to carry her burden of establish-

ing that she did not know and had no reason to know that the tax

shown due in the 2004 joint return would not be paid.

     With respect to the legal obligation factor, the parties

agree that there is no divorce decree or other agreement that

obligates Mr. Smith to pay the portion of the underpayment that

is attributable to him.

     With respect to the significant benefit factor, the parties

agree that petitioner did not receive a significant benefit

beyond normal support from the portion of the underpayment

attributable to Mr. Smith.

     With respect to the compliance factor, the parties agree

that petitioner has complied with the tax laws for all years

after 2004.

     Based upon our examination of the entire record before us,

we find that petitioner has carried her burden of establishing

that it would be inequitable to hold her liable for the portion

of the underpayment for 2004 that is attributable to Mr. Smith.

On that record, we further find that petitioner has carried her

burden of establishing that she is entitled to relief under

section 6015(f) for that portion of that underpayment.



     21
          See supra note 19.
                             - 45 -

     We have considered all of the contentions and arguments of

the parties that are not discussed herein, and we find them to be

without merit, irrelevant, and/or moot.

     To reflect the foregoing and the concessions of petitioner,


                                      Decision will be entered

                                under Rule 155.
