                  T.C. Summary Opinion 2006-10



                     UNITED STATES TAX COURT



               ANA MARIA RODRIGUEZ, Petitioner v.
          COMMISSIONER OF INTERNAL REVENUE, Respondent



     Docket No. 9409-04S.                Filed January 26, 2006.



     Ana Maria Rodriguez, pro se.

     Thomas M. Newman, for respondent.



     PANUTHOS, Chief Special Trial Judge:    This case was heard

pursuant to the provisions of section 7463 of the Internal

Revenue Code in effect at the time the petition was filed.    The

decision to be entered is not reviewable by any other court, and

this opinion should not be cited as authority.    Unless otherwise

indicated, all section references are to the Internal Revenue
                               - 2 -

Code in effect for the taxable year in issue, and all Rule

references are to the Tax Court Rules of Practice and Procedure.

     Respondent determined a deficiency in petitioner’s Federal

income tax for the taxable year 2001 of $5,831 and a penalty

pursuant to section 6662(a) of $1,009.   After concessions1 by the

parties, the issue for decision is whether respondent abused his

discretion in denying petitioner’s request for relief from joint

and several liability under section 6015(f).

Background

     Some of the facts have been stipulated, and they are so

found.   The stipulation of facts, the second stipulation of

facts, and the attached exhibits are incorporated by this

reference.   At the time of filing the petition, petitioner

resided in Salinas, California.

     Petitioner and Manuel Rodriguez2 were married in June 1999,

and they separated sometime in November 2000.   Petitioner filed

for a divorce in 2004; however that matter was still pending at

the time of trial.   Petitioner was employed as a day care




     1
        Respondent concedes that petitioner is not liable for a
sec. 6662(a) penalty of $1,009.

     Petitioner concedes that she received $13 in interest income
from Wells Fargo Bank in tax year 2001.
     2
        On Aug. 3, 2004, respondent issued to Mr. Rodriguez a
Notice of Filing of Petition and Right to Intervene. Mr.
Rodriguez did not file a notice of intervention.
                               - 3 -

provider, and Mr. Rodriquez was employed as a regional sales

manager.

     During 2001, Mr. Rodriguez participated in gambling

activities and had gambling winnings of $5,503.    Mr. Rodriguez

was a participant in an individual retirement account (IRA), and

in 2001 he received a distribution of $23,363.    There is no

indication in the record that Mr. Rodriguez was 59-1/2 years of

age or older at the time of the distribution.    Petitioner was not

a participant in an IRA.

     Petitioner was responsible for paying the family’s household

finances; Mr. Rodriguez was responsible for the joint tax

returns.   Mr. Rodriguez hired Lydias One Day Tax Service (tax

preparer) to prepare the 2001 tax return.   Petitioner had limited

English proficiency and required an interpreter at trial.

     Petitioner and Mr. Rodriguez filed a joint Form 1040, U.S.

Individual Income Tax Return, for 2001.   The return reported

gambling income of $4,002.   Petitioner and Mr. Rodriguez also

reflected total pension and annuities of $15,500 on Line 16a of

the return; however, the taxable amount was reported as $1,550.

     Petitioner signed the tax return, reviewed the amounts

relevant to her income and deductions, and asked Mr. Rodriguez

and the tax preparer questions regarding Mr. Rodriguez’s income.

     On February 26, 2004, petitioner submitted a Form 8857-SP,

Request for Innocent Spouse Relief, seeking relief from joint and
                               - 4 -

several liability on the 2001 tax return.   On March 29, 2004,

respondent issued to petitioner and Mr. Rodriguez a deficiency

notice for the taxable year 2001.   Respondent determined that

petitioner and Mr. Rodriguez omitted gambling income in the

amount of $1,501 and income in the amount of $21,813 from an IRA

distribution.   On June 7, 2004, petitioner filed a timely

petition with this Court.

     Respondent concedes that petitioner did not have knowledge

that Mr. Rodriguez received gambling income in tax year 2001 in

excess of $4,002.   Accordingly, respondent agrees that petitioner

is entitled to relief from liability for tax on $1,501, the

difference between the actual income received ($5,503) and the

income reported on the tax return ($4,002) pursuant to section

6015(c).

     Petitioner concedes that she had knowledge of a $15,500

distribution, but she did not know that the actual amount of the

distribution was $23,363.   Respondent concedes that petitioner is

entitled to section 6015(c) relief from liability for tax on

$7,863, the difference between the actual distribution ($23,363),

and the distribution reflected on the tax return ($15,500).

     Petitioner asserts that she is entitled to relief under

section 6015(f) because Mr. Rodriguez was responsible for

preparing their tax return and he chose the tax preparer.

Petitioner asserts that she did not know of Mr. Rodriguez’s total
                                - 5 -

gambling winnings or the amount of the distribution from Mr.

Rodriguez’s IRA account.    Petitioner also asserts that she has no

knowledge of the tax laws.

     Respondent asserts that petitioner, who was granted relief

under section 6015(c), is not entitled to additional relief under

section 6015(f) from liability for tax on the $4,002 gambling

income and $15,500 IRA distribution, primarily because she had

actual knowledge of both amounts.     At trial, respondent asserted

that petitioner could not be considered for relief under section

6015(f), since she had been granted partial relief under section

6015(c).   In a supplemental memorandum respondent conceded that

petitioner could be considered for relief under such

circumstances.    Nevertheless, respondent asserts that, taking

into consideration all the factors under section 6015(f),

petitioner is not entitled to relief.

                           Discussion

     Generally, married taxpayers may elect to file a joint

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

election, each spouse is jointly and severally liable for the

entire tax due.    Sec. 6013(d)(3).   A spouse may seek relief from

joint and several liability under section 6015.     A spouse may

qualify for relief from liability under section 6015(b), or, if

eligible, may allocate liability under section 6015(c).     In

addition, if relief is not available under section 6015(b) or
                                 - 6 -

(c), an individual may seek equitable relief under section

6015(f) to the extent that relief is not available under section

6015(b) or (c).    Fernandez v. Commissioner, 114 T.C. 324, 329-331

(2000); Butler v. Commissioner, 114 T.C. 276, 287-292 (2000).

Except as otherwise provided in section 6015, petitioner bears

the burden of proof.    Rule 142(a); Alt v. Commissioner, 119 T.C.

306, 311 (2002), affd. 101 Fed. Appx. 34 (6th Cir. 2004).

     A prerequisite to granting relief under section 6015(b) or

(c) is the existence of a tax deficiency.    Sec. 6015(b)(1)(B) and

(c)(1); Block v. Commissioner, 120 T.C. 62, 65-66 (2003).       Here,

after an examination of the joint return, respondent determined a

deficiency of $5,831.

     Petitioner sought and was granted partial relief by

respondent under section 6015(c).    As previously indicated,

petitioner was granted relief from liability for tax on:    (1)

$1,501 (the difference between the gambling income reported of

$4,002 and the gambling income received of $5,503), and (2)

$7,863 (the difference between the IRA distribution reflected of

$15,500 and the IRA distribution received of $23,363).

Petitioner claims that she is entitled to equitable relief under

section 6015(f).

     Section 6015(f) provides:

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

          (1) taking into account all the facts and
                                - 7 -

     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.

     We have jurisdiction to review respondent’s denial of

petitioner’s request for equitable relief under section 6015(f).

Fernandez v. Commissioner, supra at 329-331.    We review such

denial of relief to decide whether respondent abused his

discretion by acting arbitrarily, capriciously, or without sound

basis in fact.   Jonson v. Commissioner, 118 T.C. 106, 125 (2002),

affd. 353 F.3d 1181 (10th Cir. 2003).    Our review is not limited

to respondent’s administrative record.     Ewing v. Commissioner,

122 T.C. 32, 44 (2004).

     Petitioner is not entitled to relief under section 6015(f)

as to the gambling income.    Petitioner is entitled to be

considered for relief under section 6015(f)(1) where there is an

unpaid tax or deficiency.    The $4,002 of gambling income was

reported on the return as income, and petitioner and Mr.

Rodriguez received a refund based on the fact that withholding

exceeded the tax reported on the return.    Thus, petitioner cannot

be considered for equitable relief as to the gambling income

under section 6015(f) since there is not an unpaid tax or

deficiency with respect to this item.
                               - 8 -

     Petitioner can be considered for relief under section

6015(f) as to the amount of the IRA distribution omitted from the

return resulting in a deficiency.   The $15,500 distribution was

reflected on the return; however, only $1,550 of that amount was

reported as the taxable amount.   As indicated, petitioner was

granted relief under section 6015(c) as to the difference between

the IRA distribution reflected on the return ($15,500) and the

actual amount of the IRA distribution ($23,363).   The difference

is $7,863.   Petitioner now seeks additional relief on the

difference between the amount reflected on the return as a

distribution ($15,500), and the amount reported on the return as

income ($1,550), the difference of $13,950.

     The Commissioner has prescribed procedures for determining

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

procedures set forth in Rev. Proc. 2000-15, 2000-1 C.B. 447, have

been superseded by Rev. Proc. 2003-61, 2003-2 C.B. 296.3     Rev.

Proc. 2003-61, sec. 4.01, 2003-2 C.B. 297, sets forth seven

threshold conditions that must be satisfied.   Respondent agrees

that all the threshold conditions have been met.




     3
        Rev. Proc. 2003-61, 2003-2 C.B. 296, which supersedes
Rev. Proc. 2000-15, 2000-1 C.B. 447, is effective for requests
for relief filed on or after Nov. 1, 2003, or requests for relief
pending on Nov. 1, 2003, for which no preliminary determination
letter has been issued as of Nov. 1, 2003. The request for
relief was submitted on Feb. 25, 2004.
                                - 9 -

     Once the seven threshold conditions are satisfied, Rev.

Proc. 2003-61, sec. 4.03,4 provides factors to consider in

determining whether to grant equitable relief.     Petitioner

satisfies the threshold provisions; therefore, we consider the

factors in Rev. Proc. 2003-61, sec. 4.03(2)(a) and (b) to decide

whether respondent abused his discretion in denying equitable

relief under section 6015(f).

Rev. Proc. 2003-61, Sec. 4.03(2)(a)

     (i) Marital status.    This factor weighs in favor of relief

if the requesting spouse and the nonrequesting spouse are

divorced, legally separated, or living apart.     Petitioner and Mr.

Rodriguez are married but have maintained separate households

since November 2000.    This factor weighs in favor of granting

relief to petitioner.

     (ii) Economic hardship.    A taxpayer might experience

economic hardship if he or she is unable to pay basic reasonable

living expenses.   Sec. 301.6343-1(b)(4)(i), Proced. & Admin.

Regs.    It is the taxpayer’s burden to show both that the expenses

qualify and that the expenses are reasonable.      Monsour v.

Commissioner, T.C. Memo. 2004-190.      Petitioner has provided no

evidence that she would be unable to pay basic living expenses if

she is held liable for the deficiency.     There is no evidence that



     4
        We need not consider Rev. Proc. 2003-61, sec. 4.02, 2003-
2 C.B. at 298, since that section relates to “underpayments”.
                              - 10 -

petitioner would suffer economic hardship upon denial of relief.

This factor weighs against granting petitioner relief.

     (iii)   Knowledge or reason to know.   In the case of an

income tax liability that arose from a deficiency, the fact that

the requesting spouse did not know and had no reason to know of

the item giving rise to the deficiency is a factor in favor of

granting relief.   Rev. Proc. 2003-61, sec. 4.03(2)(a)(iii)(B).

By contrast, the fact that the requesting spouse knew or had

reason to know of the item giving rise to the deficiency is a

factor weighing against relief.   Id.   This factor is not weighed

more heavily than other factors; however, it is a strong factor

weighing against relief.   Petitioner must establish that she did

not know and had no reason to know about Mr. Rodriguez’s IRA

distribution.

     In evaluating whether a spouse had reason to know of an

item, Rev. Proc. 2003-61, supra, provides that we may consider

the spouse’s level of education, any deceit or evasiveness, the

spouse’s degree of involvement in business and household

financial matters, and her business or financial expertise.

See also Price v. Commissioner, 887 F.2d 959, 965 (9th Cir. 1989)

(factors to consider whether a spouse knew or had reason to know

of a substantial understatement include spouse’s level of

education, spouse’s involvement in family’s business and

financial affairs, presence of expenditures that appear lavish or
                             - 11 -

unusual when compared to the family’s past levels of income,

standard of living, and spending patterns, and culpable spouse’s

evasiveness and deceit concerning couple’s finances).

     Petitioner’s level of education was not made a part of the

record; however, given her limited English proficiency, her

understanding of the tax return was likely somewhat limited.

     Petitioner was responsible for paying the household

expenses, and taking care of her three daughters, while Mr.

Rodriguez was responsible for preparing the couple’s tax returns.

We conclude that petitioner was at least somewhat experienced in

financial matters and in running a household.   Petitioner also

had some control over financial matters because she asked the tax

preparer at Lydia’s Tax Service questions regarding certain items

relating to Mr. Rodriguez’s income.   Petitioner also testified

that she tried to understand the amounts included on the return.

     The record does not reflect a difference in petitioner’s

lifestyle, or the presence of expenditures that appear lavish or

unusual in comparison to the family’s past levels of income.

Petitioner’s standard of living and spending patterns reflect

those of someone attempting to raise three daughters as a single

parent on one income.

     While petitioner testified that she was unaware of the

amount of the IRA distribution, we note that she has previously

been granted relief to the extent of the amount not reflected on
                                - 12 -

the return.    The amount of $15,500 was reflected on the return as

a pension distribution.    It appears that the actual reporting of

$1,550 of income was an error made by the preparer.     Given that

the $15,500 was reflected on the return, we conclude that

petitioner knew or had reason to know of the pension

distribution.    Hayman v. Commissioner, 992 F.2d 1256, 1262 (2d

Cir. 1993), affg. T.C. Memo. 1992-228; Levin v. Commissioner,

T.C. Memo. 1987-67.

     (iv)    Nonrequesting spouse’s legal obligation.   There was no

legal obligation pursuant to a divorce decree or agreement.       This

factor is neutral.

     (v) Significant benefit.    A significant benefit is a benefit

in excess of normal support.    Sec. 1.6015-2(d), Income Tax Regs.

Petitioner did not live with her husband during the year in

issue.   She worked as a nanny, and there is no evidence that

petitioner received any benefit beyond normal support from Mr.

Rodriguez.    This factor is neutral.

     (vi)    Compliance with income tax laws.   The question is

whether the taxpayer has made a good faith effort to comply with

tax laws in tax years subsequent to the years for which relief is

requested.    This factor is neutral as there is no evidence that

petitioner has either failed to comply with or fully complied

with tax obligations.
                              - 13 -

Rev. Proc. 2003-61, Sec. 4.03(2)(b)

     This subsection lists factors that if present will weigh in

favor of equitable relief, but if not present, will not weigh

against relief.   The factors are (i) whether the nonrequesting

spouse abused the requesting spouse, and (ii) whether the

requesting spouse was in poor mental or physical health.    Neither

of these factors is present in this case, and accordingly they

have no effect on the outcome.

Additional Factors

     Petitioner argues that she lacked knowledge regarding the

tax laws as the basis why she should be granted relief.    We have

held that where a taxpayer relies on a professional tax preparer,

it is not inequitable to make either spouse liable because the

error is based on a misunderstanding of the tax laws.     McCoy v.

Commissioner, 57 T.C. 732, 735 (1972).

     On the basis of our examination of the facts and

circumstances in this case, including the factors set forth in

Rev. Proc. 2003-61, sec. 4.03, 2003-2 C.B. 298, we conclude that

respondent did not abuse his discretion by acting arbitrarily,

capriciously, or without sound basis in fact in denying

petitioner’s request for equitable relief under section 6105(f).
                            - 14 -

    Reviewed and adopted as the report of the Small Tax Case

Division.

    To reflect the foregoing,


                                     Decision will be entered

                                under Rule 155.
