                  T.C. Summary Opinion 2010-119



                     UNITED STATES TAX COURT



                  ALINA OLIVERA, Petitioner v.
          COMMISSIONER OF INTERNAL REVENUE, Respondent



     Docket No. 5761-09S.               Filed August 18, 2010.



     Alina Olivera, pro se.

     Anna A. Long, for respondent.



     ARMEN, Special Trial Judge:     This case was heard pursuant to

the provisions of section 7463 of the Internal Revenue Code in

effect when the petition was filed.1    Pursuant to section

7463(b), the decision to be entered is not reviewable by any



     1
        Unless otherwise indicated, all subsequent section
references are to the Internal Revenue Code of 1986, as amended,
and all Rule references are to the Tax Court Rules of Practice
and Procedure.
                                - 2 -

other court, and this opinion shall not be treated as precedent

for any other case.

     In a final notice of determination respondent denied

petitioner’s claim for section 6015 relief regarding joint and

several liability arising from the 2003 and 2005 joint Federal

income tax returns filed by petitioner and George Navarrete (Mr.

Navarrete).   According to that notice, petitioner was not

eligible for relief under section 6015(b), (c), or (f).    The

issue for decision is whether petitioner is entitled to relief

from joint and several liability under section 6015.

                              Background

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

found.   We incorporate by reference the parties’ stipulation of

facts, supplemental stipulation of facts, and accompanying

exhibits.   Petitioner resided in the State of California when the

petition was filed.

     Petitioner and Mr. Navarrete were married in May 1997.      They

have two children together.    In May 2007, petitioner and Mr.

Navarrete separated, and they were divorced in November 2007.

The judgment for dissolution of marriage entered by the Superior

Court of California, County of Riverside, includes a marital

settlement agreement (MSA) drafted by petitioner.    By the terms

of the MSA, Mr. Navarrete is to pay one-half of the “IRS Bills
                                - 3 -

2003-2005”, and petitioner is to pay one-half of the “TAX 2003-

2005 IRS obligation.”

     In 1999, both petitioner and Mr. Navarrete became registered

nurses.   Petitioner holds an associate’s degree and a bachelor of

science degree in nursing.    Mr. Navarrete holds an associate’s

degree in nursing.

     Petitioner alleges that throughout their marriage Mr.

Navarrete intimidated her, broke objects, belittled her and the

children, had substance abuse issues, and moved in and out of

treatment facilities for bipolar disorder.    Other than

petitioner’s testimony, the record does not provide evidence

(testimonial or documentary) of these allegations for the years

in issue.2

     During 2003 and 2005, Mr. Navarrete was the primary

breadwinner, working as a registered nurse.    In 2003 petitioner

had a business called On Legal Nurse Consulting, while in 2005

petitioner had a business called Spa2YouNet, a mobile day spa

business.    Petitioner stated that she began each of these

businesses so that she could be home more to provide care for her

young children and to limit the interactions between the children

and Mr. Navarrete.    During 2003 and 2005 petitioner saved


     2
        Petitioner stated that Mr. Navarrete’s substance abuse
(other than alcohol) began in 2006, though “[h]e was starting to
drink before then, but it was out of the house.” Petitioner
obtained a temporary restraining order against Mr. Navarrete in
June 2007.
                                 - 4 -

receipts for expenses related to the businesses and placed them

in folders to be used in the preparation of tax returns.

Petitioner handled most of the financial affairs of the

businesses.

     During 2003 and 2005 petitioner and Mr. Navarrete shared

responsibility for the family’s finances; however, petitioner was

the one who reconciled the bank statements at the end of each

month.

     Petitioner and Mr. Navarrete timely filed their 2003 and

2005 joint Federal income tax returns.    Both returns were

prepared by Mr. Navarrete using tax preparation software.     For

both 2003 and 2005, petitioner provided Mr. Navarette with

receipts for her businesses.   After the returns were completed,

they were at all times available to petitioner for review on the

household computer.

     Attached to the 2003 tax return is a Schedule C, Profit or

Loss From Business, for On Legal Nurse Consulting, of which

petitioner was the proprietor.    The Schedule C reported zero

income and a net loss of $46,242.    Also attached to the return

are two Forms 2106, Employee Business Expenses.    The first Form

2106 bears Mr. Navarrete’s name and claimed unreimbursed employee

business expenses of $10,895 for his occupation as a registered

nurse.   The second Form 2106 bears petitioner’s name and claimed
                               - 5 -

unreimbursed employee business expenses of $2,030 for her

occupation as a registered nurse.

     Attached to the 2005 tax return is a Schedule C for

Spa2YouNet, of which petitioner was the proprietor.   The Schedule

C reported gross receipts of $6,816 and a net loss of $29,207.

Also attached to the return is a Form 2106 on which Mr. Navarrete

claimed unreimbursed employee business expenses of $30,107 for

his occupation as a registered nurse.

     For 2004 petitioner filed a return using the married filing

separately filing status and claiming a minimal Schedule C net

loss.

     In 2006, the Internal Revenue Service selected petitioner’s

2005 joint Federal income tax return for audit, and in early 2007

the audit was expanded to include 2003.   Petitioner actively

participated in the audit of both years whereas Mr. Navarrete

took a more secondary role.   During the audit process, innocent

spouse relief provisions were discussed, but neither petitioner

nor Mr. Navarrete expressed a desire to pursue relief.

Ultimately, petitioner and Mr. Navarrete agreed with the examiner

that they owed a $5,566 deficiency and a $1,473 accuracy-related

penalty for 2003.   On February 21, 2007, petitioner sent

respondent a request for an installment agreement for the 2003

liability, which agreement respondent accepted.
                               - 6 -

     In a notice of deficiency dated May 25, 2007, respondent

determined a deficiency of $4,426 and an accuracy-related penalty

of $885.20 for 2005.   Neither petitioner nor Mr. Navarrete filed

a petition for redetermination.

     For both 2003 and 2005 respondent disallowed deductions

claimed (1) on petitioner’s Schedules C, for car and truck

expenses and other expenses; (2) on the Schedules A, Itemized

Deductions, for gambling losses, mortgage interest, tax

preparation fees, investment expenses, job search expenses, and

union and professional dues; (3) for unreimbursed employee

business expenses; and (4) for educator expenses.   For 2005

respondent disallowed deductions for tuition and fees and self-

employed health insurance expenses.    Respondent also disallowed

the additional child tax credit for 2005.

     On April 8, 2008, petitioner filed a Form 8857, Request for

Innocent Spouse Relief.   On her Form 8857, petitioner admitted

that she signed the income tax returns and did not claim that she

signed them under duress.   Petitioner also admitted on the Form

8857 that at the time she signed the returns she was concerned

about the refund of all income tax withheld, but that Mr.

Navarrete assured her that the returns were accurate.   Finally,

the financial statement on the Form 8857 indicates that

petitioner has no income but incurs expenses in excess of $4,000
                               - 7 -

per month for the maintenance of a household for herself and her

children.

     In the final notice of determination dated January 29, 2009,

respondent denied petitioner’s request for relief under section

6015.

                            Discussion

     In general, spouses may elect to file a joint Federal income

tax return for a year even if one spouse has no obligation to

file a return for that year.   Sec. 6013(a).   After electing to

file a joint Federal income tax return, each spouse is jointly

and severally liable not only for the entire tax due, but also

for any deficiency subsequently determined.    Sec. 6013(d)(3);

Butler v. Commissioner, 114 T.C. 276, 282 (2000).    If certain

requirements are met, however, an individual may be relieved of

joint and several liability under section 6015.    Except as

otherwise provided in section 6015, the taxpayer bears the burden

of proving his or her entitlement to relief.    Rule 142(a); Alt v.

Commissioner, 119 T.C. 306, 311 (2002), affd. 101 Fed. Appx. 34

(6th Cir. 2004).

     There are three types of relief available under section

6015.   In general, section 6015(b) provides full or apportioned

relief from joint and several liability, section 6015(c) provides

proportionate tax relief to divorced or separated taxpayers, and

in certain circumstances section 6015(f) provides equitable
                               - 8 -

relief from joint and several liability if relief is not

available under subsection (b) or (c).

A.   Section 6015(b)

      Under section 6015(b), a requesting spouse may be relieved

of joint and several liability from an understatement of tax to

the extent that the understatement is attributable to the

nonrequesting spouse.   The understatements on petitioner’s joint

returns for 2003 and 2005 are in large part attributable to the

deductions claimed on petitioner’s Schedules C.    With respect to

any understatement attributable to Mr. Navarrete, petitioner must

establish, inter alia, that she did not know and had no reason to

know that there was an understatement.   See sec. 6015(b)(1)(C).

      A spouse seeking relief has reason to know of the

understatement “if a reasonably prudent taxpayer in her position

at the time she signed the return could be expected to know that

the return contained the * * * understatement.”    Price v.

Commissioner, 887 F.2d 959, 965 (9th Cir. 1989).    Factors to

consider in analyzing whether the spouse had “reason to know” of

the understatement include:   (1) The spouse’s level of education;

(2) the spouse’s involvement in the family’s business and

financial affairs; (3) the presence of expenditures that appear

lavish or unusual when compared to the family’s past levels of

income, standard of living, and spending patterns; and (4) the
                               - 9 -

culpable spouse’s evasiveness and deceit concerning the couple’s

finances.   Id.; Wiener v. Commissioner, T.C. Memo. 2008-230.

      At the time the 2003 and 2005 tax returns were filed,

petitioner was a college graduate.     Petitioner was involved in

the household financial affairs and was primarily responsible for

the financial affairs for her Schedule C businesses.     On the

other hand, petitioner and Mr. Navarrete did not have an

obviously apparent change in lifestyle during the years in issue.

      However, the recitation of the foregoing facts does not end

the required analysis.   Under Price v. Commissioner, supra at

965-966, a taxpayer has reason to know of an understatement if

she has a duty to inquire and fails to satisfy that duty.     The

requesting spouse has a duty to inquire when she knows “enough

facts to put her on notice that such an understatement exists.”

Id.   A tax return claiming a large deduction that significantly

reduces a couple’s tax liability generally puts the taxpayer who

joins in filing a joint return on notice that the return may

contain an understatement.   Wiener v. Commissioner, supra; see

also Levin v. Commissioner, T.C. Memo. 1987-67.     The requesting

spouse is deemed to have constructive knowledge of the

understatement if she fails to inquire.     Price v. Commissioner,

supra at 965-966; see also Von Kalinowski v. Commissioner, T.C.

Memo. 2001-21 (requesting spouse found to possess constructive
                               - 10 -

knowledge of the understatement where income of $370,263 was

offset by losses of $228,133).

     Petitioner did not prepare the tax returns; however, she

provided receipts to Mr. Navarrete to facilitate the completion

of the returns.    And during the audit process petitioner told the

IRS examiner that she reviewed the completed returns and signed

them.    In addition, on her Form 8857 petitioner stated that when

she signed the returns she was uncertain why she and Mr.

Navarrete were receiving such large refunds.

     In contrast, petitioner testified at trial that she did not

review the returns when she signed them.3   However, we are unable

to accept petitioner’s testimony at face value.   See Tokarski v.

Commissioner, 87 T.C. 74, 77 (1986).    We find that when

petitioner signed the returns, she reviewed them, at least in a

cursory fashion, and therefore had a duty to inquire.

     Petitioner’s failure to inquire does not insulate her from

joint and several liability.   See Price v. Commissioner, supra at

965-966; see also Von Kalinowski v. Commissioner, supra.

     Accordingly, petitioner is not entitled to relief from joint

and several liability under section 6015(b).



     3
        When asked at trial whether she trusted Mr. Navarrete to
fill out the tax returns accurately, petitioner stated that “it
wasn’t my priority.” Petitioner explained further that she
“didn’t even review [returns] when they were being prepared [by a
paid preparer] because I trusted it was being prepared
correctly.”
                              - 11 -

B.   Section 6015(c)

      Under section 6015(c), if the requesting spouse is no longer

married to or is legally separated from the spouse with whom she

filed the joint return, the requesting spouse may elect to limit

her liability for a deficiency to that portion of the liability

which is properly allocable to her under section 6015(d).

      At the time petitioner filed her request for relief on April

8, 2008, she and Mr. Navarrete were divorced; therefore,

petitioner was eligible to elect relief under section 6015(c)

when she filed her request.

      Generally, items giving rise to a deficiency on a joint

return are allocated between spouses as if separate returns had

been filed.   Sec. 6015(d)(3)(A); see also sec. 1.6015-3(d)(2),

Income Tax Regs.   Under the flush language of section 6015(a),

any allocation under section 6015(d)(3) is made without regard to

community property laws.   Charlton v. Commissioner, T.C. Memo.

2001-76.

      On the 2003 return respondent disallowed deductions

attributable to petitioner for job search expenses claimed on

Schedule A, car and truck expenses and other expenses claimed on

Schedule C, and unreimbursed employee business expenses claimed

on Form 2106.   Because these deductions are allocable to

petitioner, she is not entitled to section 6015(c) relief with
                                - 12 -

respect to them.   See sec. 6015(d)(3)(A); see also sec. 1.6015-

3(d)(2)(iv), Income Tax Regs.

     Also for 2003 respondent disallowed deductions allocable to

Mr. Navarrete for unreimbursed employee business expenses and

gambling losses.   The remaining deductions disallowed for 2003

for mortgage interest expenses, tax preparation fees, investment

expenses, union and professional dues, and educator expenses are

(consistent with respondent’s view) attributable equally to

petitioner and Mr. Navarrete.

     On the 2005 return respondent disallowed deductions

attributable to petitioner for car and truck expenses claimed on

Schedule C and for self-employed health insurance expenses.

Petitioner’s gross receipts were also increased by an amount not

reported on her Schedule C.   Because these items are allocable to

petitioner, she is not entitled to section 6015(c) relief with

respect to them.   See sec. 6015(d)(3)(A); see also sec. 1.6015-

3(d)(2)(iii) and (iv), Income Tax Regs.

     For 2005 respondent disallowed a deduction allocable to Mr.

Navarrete for unreimbursed employee business expenses.     The

remaining deductions disallowed for 2005 for tuition and fees and

educator expenses are (consistent with respondent’s view)

attributable equally to petitioner and Mr. Navarrete.

     An election under section 6015(c) is ineffective with

respect to any portion of a deficiency if the Commissioner proves
                              - 13 -

by a preponderance of the evidence that the requesting spouse had

actual knowledge, when signing the return, of an item giving rise

to a deficiency that is otherwise allocable to the nonrequesting

spouse.   Sec. 6015(c)(3)(C); Hopkins v. Commissioner, 121 T.C.

73, 86 (2003).4   In cases involving erroneous deductions, a

spouse is deemed to have actual knowledge of an item giving rise

to a deficiency if she had actual knowledge of the factual

circumstances that made the deduction unallowable.   King v.

Commissioner, 116 T.C. 198, 204 (2001).   Actual knowledge of the

tax laws or legal consequences of the operative facts is not

required.   Id.; Cheshire v. Commissioner, 115 T.C. 183, 196-197

(2000), affd. 282 F.3d 326 (5th Cir. 2002).

     We find that petitioner had actual knowledge, when signing

the returns, of the items allocable to Mr. Navarrete giving rise

to the deficiencies.   Although petitioner alleges that she did

not review the returns, she made at least a cursory review of

them.

     In addition, petitioner had actual knowledge of the factual

circumstances making unallowable both the deductions attributable

solely to Mr. Navarrete and those attributable equally to


     4
        The requirement that a taxpayer not have actual knowledge
of an item is eliminated where the taxpayer signs the return
under duress. Sec. 6015(c)(3)(C). At trial petitioner alleged
that she signed the returns under duress; however, on her Form
8857 petitioner did not indicate that she signed the returns
under duress. Based on the record as a whole, we find that
petitioner did not sign the returns under duress.
                                 - 14 -

petitioner and Mr. Navarrete.     For example, at trial petitioner

stated that neither she nor Mr. Navarrete was an educator during

the years in issue and that she did not think she or Mr.

Navarrete would have incurred unreimbursed employee business

expenses as registered nurses.

      Accordingly, petitioner is not entitled to section 6015(c)

relief.

C.   Section 6015(f)

      Section 6015(f) permits relief from joint and several

liability where “it is inequitable to hold the individual liable

for any unpaid tax or any deficiency (or any portion of either)”.

Sec. 6015(f)(1).    We review de novo petitioner’s entitlement to

equitable relief under section 6015(f).     See Porter v.

Commissioner, 132 T.C. 203, 210 (2009).

      Pursuant to section 6015(f), the Commissioner has prescribed

revenue procedure guidelines to help IRS employees determine

whether a requesting spouse is entitled to relief from joint and

several liability.     See Rev. Proc. 2003-61, 2003-2 C.B. 296,

modifying and superseding Rev. Proc. 2000-15, 2000-1 C.B. 447.

The Court consults these guidelines when reviewing the IRS’

denial of relief.      See Washington v. Commissioner, 120 T.C. 137,

147-152 (2003).

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

297-298, a requesting spouse must satisfy seven conditions
                             - 15 -

(threshold conditions) before the Commissioner will consider a

request for relief under section 6015(f).     The threshold

conditions of this section are stated in the conjunctive, and

each condition must be satisfied to be eligible for relief under

section 6015(f).   Id.

     As relevant herein Rev. Proc. 2003-61, sec. 4.01(7), 2003-2

C.B. at 297-298, provides that the income tax liability from

which the requesting spouse seeks relief must be attributable to

an item of the nonrequesting spouse, unless one of four

enumerated exceptions applies.   Petitioner is, therefore, not

entitled to relief under section 6015(f) for the items

attributable solely to her unless one of the enumerated

exceptions applies.

     The only exception relevant to petitioner’s case applies if

the requesting spouse establishes that he or she was the victim

of abuse before the time the return was signed and that fear of

retaliation prevented the requesting spouse from challenging the

treatment of items on the return.   See id.    Abuse is not limited

to physical abuse and may include verbal and mental abuse.

Nihiser v. Commissioner, T.C. Memo. 2008-135.     An allegation of

abuse, however, requires substantiation, or at least specificity.

Id.; see also, e.g., Downs v. Commissioner, T.C. Memo. 2010-165

(finding no abuse when reported incidents of claimed abuse,

harassment, and stalking occurred after the years in issue); Fox
                                - 16 -

v. Commissioner, T.C. Memo. 2006-22 (weighing abuse as a positive

factor where a police report corroborated the requesting spouse’s

claim of assault); Knorr v. Commissioner, T.C. Memo. 2004-212

(finding no abuse where the requesting spouse provided only

generalized claims of physical and emotional abuse); Collier v.

Commissioner, T.C. Memo. 2002-144 (finding no abuse in absence of

specific details).

     In the instant case, corroboration supporting petitioner’s

claim of abuse by Mr. Navarrete indicates only that abuse

occurred sometime after the returns at issue were signed.      See

Downs v. Commissioner, supra.    Therefore, we are unable to

conclude that petitioner has satisfied all of the threshold

requirements necessary for relief under section 6015(f) for those

items attributable solely to her.

     However, petitioner has satisfied the threshold conditions

with respect to those items attributable solely to Mr. Navarrete

and, consistent with respondent’s conclusions, for one-half of

those items attributable equally to petitioner and Mr. Navarrete.

Therefore, petitioner may still be eligible for relief under

section 6015(f) for these items.

     Rev. Proc. 2003-61, sec. 4.03(2), 2003-2 C.B. at 298-299,

contains a nonexclusive list of factors, based on the facts and

circumstances, that the Commissioner will consider in determining

whether to grant equitable relief under section 6015(f).    The
                              - 17 -

nonexclusive list of factors includes:   (1) Whether the

requesting spouse is separated or divorced from the nonrequesting

spouse; (2) whether the nonrequesting spouse would suffer

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

requesting spouse knew or had reason to know of the

understatement; (4) whether the nonrequesting spouse had a legal

obligation to pay the outstanding tax liability pursuant to a

divorce decree or agreement; (5) whether the requesting spouse

received a significant benefit from the nonpayment of the tax

liability; and (6) whether the requesting spouse has made a good

faith effort to comply with the tax laws for the tax years

following the year to which the request for such relief relates.

Id. sec. 4.03(2)(a), 2003-2 C.B. at 298.

     Several factors favor granting petitioner relief under

section 6015(f).   Petitioner and Mr. Navarrete were divorced when

petitioner filed her request for relief.   Petitioner has

established that she would suffer economic hardship if relief is

not granted.   Petitioner has complied with Federal income tax

laws in the years following the taxable years for which she seeks

relief.   On the other hand, the knowledge factor weighs against

granting relief.

     In addition, Rev. Proc. 2003-61, sec. 4.03(2)(b), 2003-2

C.B. at 299, lists two positive factors that the Commissioner

will consider in favor of granting relief if present.   Those
                                - 18 -

factors are:   (1) Whether the nonrequesting spouse abused the

requesting spouse, and (2) whether the requesting spouse was in

poor mental or physical health when signing the return or

requesting relief.

     As we have previously found, petitioner has not proven abuse

before the time that the returns were signed.     In addition,

petitioner did not assert or demonstrate that she was in poor

mental or physical health when signing the returns or requesting

relief.   Therefore, these factors are neutral.

     On balance, we conclude that it would be inequitable to hold

petitioner liable for the tax liabilities arising from the 2003

and 2005 joint Federal income tax returns that are either (1)

attributable solely to Mr. Navarrete or (2) Mr. Navarrete’s

portions of the liabilities that are attributable equally to

petitioner and Mr. Navarrete.    Accordingly, for 2003 and 2005

petitioner is entitled to partial relief from joint and several

liability under section 6015(f) for those items attributable

solely to Mr. Navarrete and for one-half of those items

attributable equally to petitioner and Mr. Navarrete.

                            Conclusion

     We have considered all of the arguments made by the parties,

and, to the extent that we have not specifically addressed them,

we conclude that they are unpersuasive.
                             - 19 -

     Finally, we observe that our holding does not preclude

petitioner from requesting a collection alternative, such as an

installment agreement, offer-in-compromise, or currently not

collectible status.

     To reflect the foregoing,


                                        Decision will be entered

                                   under Rule 155.
