                  T.C. Summary Opinion 2011-57



                     UNITED STATES TAX COURT



                   JOHNA MAUDI, Petitioner v.
          COMMISSIONER OF INTERNAL REVENUE, Respondent



     Docket No. 31120-08S.            Filed May 10, 2011.



     George L. Willis, for petitioner.

     Mayah Solh, 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 when the petition was filed.   Pursuant to

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

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

precedent for any other case.   Unless otherwise indicated,

subsequent section references are to the Internal Revenue Code in
                                - 2 -

effect at all relevant times, and all Rule references are to the

Tax Court Rules of Practice and Procedure.

     This proceeding was commenced under section 6015 for review

of respondent’s determination that petitioner is not entitled to

relief from joint and several liability with respect to an

understatement of Federal income tax reported on a joint Federal

income tax return filed for 2002.

                            Background

     Some of the facts have been stipulated and are so found.

The stipulation of facts, the supplemental stipulation of facts,

and the attached exhibits are incorporated herein by this

reference.   Petitioner resided in California at the time the

petition was filed.

     Petitioner was born in Tehran, Iran.    Petitioner was

educated in Iran before moving to Germany in the 1980s.

Petitioner moved to the United States in the early 1990s.     In

October 1994 petitioner was working as a flight attendant in

California when she married Saied Mahammadi (Mr. Mahammadi), also

a native Iranian.   At some later time petitioner began working

entry-level jobs at businesses within the Persian community to

supplement the family income.   In March 2008 petitioner separated

from Mr. Mahammadi and initiated divorce proceedings.    In January

2009 petitioner ceased working and began receiving unemployment

compensation.   As a result of her financial difficulty,
                               - 3 -

petitioner began residing with her daughter.     Although petitioner

has lived in the United States since the early 1990s, her

understanding and use of English is limited.

     During the marriage, Mr. Mahammadi was self-employed as a

singer and entertainer.   He performed at weddings and similar

events in various Persian communities.     Mr. Mahammadi sometimes

traveled for his business.   Petitioner had no role in Mr.

Mahammadi’s business, and he did not share information about his

business activity with petitioner.     At times, Mr. Mahammadi’s

business income from this activity was insufficient to support

the family.

     Throughout the marriage, petitioner and Mr. Mahammadi

maintained separate bank accounts, and petitioner had no access

to Mr. Mahammadi’s accounts or business records.     Household bills

were paid first out of Mr. Mahammadi’s account.     Petitioner paid

bills when Mr. Mahammadi indicated he did not have sufficient

funds.

     Mr. Mahammadi took responsibility for having the joint

Federal income tax return prepared for each year.     In early 2003

petitioner provided Mr. Mahammadi with her 2002 Form W-2, Wage

and Tax Statement, which he then took to the tax preparer, along

with his own records.   When Mr. Mahammadi presented the completed

return to petitioner for her signature, she reviewed the wage and
                                - 4 -

withholding figures against her Form W-2 and signed the return.

The return showed a refund of $326.

       At a date not specified in the record, petitioner was first

alerted to a possible problem with the 2002 return when she and

Mr. Mahammadi received a letter from the Internal Revenue Service

(IRS) notifying them that the return had been selected for

examination.    Petitioner spoke to Mr. Mahammadi at that time, and

he told her he would contact the return preparer and deal with

the examination since it concerned his business.

       Ultimately, the IRS issued a notice of deficiency for 2002,

disallowing Mr. Mahammadi’s claimed business expense deductions

and making computational adjustments to his self-employment tax.

Neither petitioner nor Mr. Mahammadi filed a petition to dispute

the notice of deficiency, and the deficiency was assessed on May

16, 2005.    Throughout the remainder of the marriage, Mr.

Mahammadi periodically showed petitioner checks he was about to

mail to the IRS to demonstrate to her he was paying the amounts

due.

       On October 28, 2005, and March 24, 2006, the IRS issued

Notices of Intent to Levy and Your Right to a Hearing (CDP

notices).    Petitioner received the first CDP notice on January

10, 2006, but did not receive the second CDP notice.    Neither

petitioner nor Mr. Mahammadi requested a CDP hearing.
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     In January 2008 petitioner’s wages were garnished.      On May

28, 2008, the IRS received petitioner’s Form 8857, Request for

Innocent Spouse Relief.    The IRS denied petitioner’s request for

relief.   On July 10, 2008, petitioner mailed to the IRS a Form

12509, Statement of Disagreement, disputing the IRS’

determination to deny petitioner’s request for relief.      On

September 25, 2008, the IRS issued a final Appeals determination

denying petitioner relief because her request was filed more than

2 years after the IRS began collection activity.1      Petitioner

timely filed a petition to dispute the denial of her request for

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 for that year.    Sec. 6013(d)(3); Butler v.

Commissioner, 114 T.C. 276, 282 (2000).       In certain

circumstances, however, a spouse who has filed a joint return may

seek relief from joint and several liability under procedures set

forth in section 6015.    Sec. 6015(a).




     1
      On Aug. 3, 2009, respondent filed a status report informing
the Court that respondent had reconsidered petitioner’s claim on
the merits and determined that petitioner was not entitled to
such relief.
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     Under section 6015(a) a spouse may seek relief from joint

and several liability under section 6015(b) or, if eligible, may

allocate liability according to provisions set forth in section

6015(c).   If a taxpayer does not qualify for relief under either

section 6015(b) or (c),2 the taxpayer may seek equitable relief

under section 6015(f).    The Secretary has discretion to grant

equitable relief to a spouse who filed a joint return with an

unpaid liability or to one who has a deficiency (or any portion

of either).    Sec. 6015(f); sec. 1.6015-4(a), Income Tax Regs.

     Except as otherwise provided in section 6015, the taxpayer

bears the burden of proving that he or she is entitled to section

6015 relief.    Rule 142(a); Alt v. Commissioner, 119 T.C. 306, 311

(2002), affd. 101 Fed. Appx. 34 (6th Cir. 2004).    Both the scope

and standard of our review in cases requesting equitable relief

from joint and several income tax liability are de novo.    Porter

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

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

prescribed procedures for determining whether a spouse qualifies

for relief under that subsection.    The applicable provisions are

found in Rev. Proc. 2003-61, 2003-2 C.B. 296.

     The revenue procedure sets forth threshold requirements

before the Commissioner will consider a request for relief under



     2
      The parties have agreed that petitioner is not entitled to
relief under sec. 6015(b) or (c).
                                - 7 -

section 6015(f).    Rev. Proc. 2003-61, sec. 4.01, 2003-2 C.B. at

297.    All requesting spouses must meet seven threshold

requirements:    (i) The requesting spouse filed a joint return for

the taxable year for which he or she seeks relief; (ii) relief is

not available to the requesting spouse under section 6015(b) or

(c); (iii) the requesting spouse applies for relief no later than

2 years after the date of the IRS’ first collection activity

after July 22, 1998, with respect to the requesting spouse; (iv)

no assets were transferred between the spouses as part of a

fraudulent scheme by the spouses; (v) the nonrequesting spouse

did not transfer disqualified assets to the requesting spouse;

(vi) the requesting spouse did not file or fail to file the

return with fraudulent intent; and (vii) absent enumerated

exceptions, the income tax liability from which the requesting

spouse seeks relief is attributable to an item of the individual

with whom the requesting spouse filed the joint return.    This

Court employs those factors when reviewing the Commissioner’s

denial.    Washington v. Commissioner, 120 T.C. 137, 147-152

(2003); see also Schultz v. Commissioner, T.C. Memo. 2010-233.

       Respondent asserts that petitioner fails requirement (iii),

above but otherwise satisfies the threshold requirements.      In

Lantz v. Commissioner, 132 T.C. 131 (2009), this Court

invalidated section 1.6015-5(b)(1), Income Tax Regs., which

imposed the requirement that relief be requested within 2 years
                                - 8 -

of the beginning of collection activities by the IRS.   However,

on June 8, 2010, our decision in that case was reversed by the

Court of Appeals for the Seventh Circuit.   Lantz v. Commissioner,

607 F.3d 479 (7th Cir. 2010).   Nevertheless, at this time in

circuits other than the Third3 and Seventh Circuits, Lantz v.

Commissioner, 132 T.C. 131 (2009), remains the law of this Court.

Pullins v. Commissioner, 136 T.C. ___ (2011); Hall v.

Commissioner, 135 T.C. 374 (2010); Golsen v. Commissioner, 54

T.C. 742, 756-757 (1970), affd. on other issues 445 F.2d 985

(10th Cir. 1971).   As petitioner’s case would be appealable to

the Court of Appeals for the Ninth Circuit were it not a small

tax case, we follow this Court’s Lantz, Hall, and Pullins

Opinions.   Therefore, we conclude that petitioner has satisfied

the threshold requirements.

     Where the requesting spouse satisfies the threshold

requirements of Rev. Proc. 2003-61, sec. 4.01, then Rev. Proc.

2003-61, sec. 4.02, 2003-2 C.B. at 298, sets forth circumstances

in which relief will ordinarily be granted under section 6015(f)

with respect to an underpayment of a properly reported liability.

However, the liability from which petitioner seeks relief is an

understatement and not an underpayment of a properly reported



     3
      The Court of Appeals for the Third Circuit has recently
held the 2-year deadline to be valid. See Mannella v.
Commissioner, 631 F.3d 115 (3d Cir. 2011), revg. 132 T.C. 196
(2009).
                                   - 9 -

liability; therefore Rev. Proc. 2003-61, sec. 4.02, does not

apply.

I.     Factors

       Where the requesting spouse fails to qualify for relief

under Rev. Proc. 2003-61, sec. 4.02, the IRS may nevertheless

grant relief under Rev. Proc. 2003-61, sec. 4.03, 2003-2 C.B. at

298.       The Court’s analysis with respect to the nonexhaustive list

of factors in Rev. Proc. 2003-61, sec. 4.03, is below.

       A.      Marital Status

       The IRS will take into consideration whether the requesting

spouse is divorced or separated (whether legally separated or

living apart) from the nonrequesting spouse.4      Rev. Proc. 2003-

61, sec. 4.03(2)(a)(i), 2003-2 C.B. at 298.      We look to

petitioner’s marital status at the time of trial in applying de

novo review.       See Wilson v. Commissioner, T.C. Memo. 2010-134.

At the time of trial petitioner was divorced.      This factor weighs

in favor of relief.       See id.; see also McKnight v. Commissioner,

T.C. Memo. 2006-155 (divorce weighs in favor of relief under Rev.

Proc. 2003-61, supra).

       B.      Economic Hardship

       The IRS will take into consideration whether the requesting

spouse will suffer economic hardship if relief is not granted.



       4
      Respondent concedes that petitioner was either separated or
divorced at the time of her request for relief.
                                - 10 -

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

Generally, economic hardship exists if collection of the tax

liability will cause the taxpayer to be unable to pay reasonable

basic living expenses.    Butner v. Commissioner, T.C. Memo. 2007-

136.

       Petitioner was unemployed at the time of trial and credibly

testified that her unemployment compensation would end within

2 to 3 months.    Petitioner asserted that she had no income other

than unemployment compensation.    The bank records reflect that

petitioner expended all of her monthly receipts.

       In documents relating to the divorce, petitioner listed a

car, some household furnishings, and her bank account as assets.

There is no evidence that petitioner had any assets other than

those items listed in the divorce documents.

       At the time of trial petitioner lived with her daughter, who

helped to support petitioner.    Petitioner provided some evidence

as to household expenditures; however, she has not established

the amount of household expenses for which she was responsible.

We have insufficient information with respect to the precise

details of petitioner’s living expenses.

       We cannot conclude with certainty that petitioner will be

unable to pay reasonable living expenses if the tax is collected.

We find generally that petitioner was in a precarious financial

situation at the time of trial.    Petitioner had been unemployed
                                - 11 -

for more than a year at the time of trial, had no savings, and

maintained a low standard of living by residing with her daughter

and sharing expenses.    We conclude the economic hardship factor

is neutral.   See Washington v. Commissioner, 120 T.C. at 149-150;

see also Bozick v. Commissioner, T.C. Memo. 2010-61.

     C.     Knowledge or Reason To Know

     The IRS will also consider whether the requesting spouse did

not know or had no reason to know of the item that gave rise to

the deficiency.    Rev. Proc. 2003-61, sec. 4.03(2)(a)(iii)(B),

2003-2 C.B. at 298.     As is relevant here, the IRS will consider

any deceit or evasiveness of the nonrequesting spouse, the

requesting spouse’s involvement in the household’s finances, and

any lavish or unusual expenditures compared with past spending

levels in determining whether the requesting spouse had reason to

know of the items giving rise to the liability.     Id. sec.

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

     As previously stated, petitioner had no role in Mr.

Mahammadi’s business or its finances.     Petitioner’s role in the

household finances was related only to payment of some of the

bills.    Petitioner did not have a joint account with Mr.

Mahammadi or knowledge of Mr. Mahammadi’s income.    Petitioner

knew Mr. Mahammadi did not consistently have sufficient business

income to pay household expenses.    Respondent has not alleged
                                - 12 -

that petitioner and Mr. Mahammadi made any lavish or unusual

expenditures.

     A taxpayer who signs a return is generally charged with

constructive knowledge of its contents.     Hayman v. Commissioner,

992 F.2d 1256, 1262 (2d Cir. 1993), affg. T.C. Memo. 1992-228.

In establishing that she had no reason to know, the

taxpayer must show that she was unaware of the circumstances that

gave rise to the error and not merely unaware of the tax

consequences.     Bokum v. Commissioner, 94 T.C. 126, 145-146

(1990), affd. 992 F.2d 1132 (11th Cir. 1993); Purcell v.

Commissioner, 86 T.C. 228, 237-238 (1986), affd. 826 F.2d 470,

473-474 (6th Cir. 1987).

     A cursory review of the return would have revealed Mr.

Mahammadi’s reported gross receipts and claimed business expense

deductions.     However, a review of these items on the return would

not necessarily have revealed that Mr. Mahammadi’s claimed

business expense deductions were overstated.    Mr. Mahammadi did

not share with petitioner any information about his business

activity, and she had no knowledge or reason to know of the

actual amounts of business expenses Mr. Mahammadi incurred.

     We conclude that petitioner had no knowledge or reason to

know that the business expense deductions claimed were either

erroneous or overstated.    See Phemister v. Commissioner, T.C.
                                - 13 -

Memo. 2009-201.    This factor weighs in favor of relief.   Rev.

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

     D.   Nonrequesting Spouse’s Legal Obligation

     The IRS will also consider whether the nonrequesting spouse

has a legal obligation to pay the outstanding income tax

liability pursuant to a divorce decree or agreement.      Id. sec.

4.03(2)(a)(iv), 2003-2 C.B. at 298.      Petitioner’s divorce decree

does not reference any tax liability.     This factor is neutral.

See Schultz v. Commissioner, T.C. Memo. 2010-233 (failure to show

a nonrequesting spouse’s legal obligation to pay the tax renders

this factor neutral under Rev. Proc. 2003-61, supra).

     E.   Significant Benefit

     The IRS will consider whether the requesting spouse received

significant benefit beyond normal support from the item giving

rise to the deficiency.    Rev. Proc. 2003-61, sec. 4.03(2)(a)(v),

2003-2 C.B. at 299.

     Respondent has not argued and there is no evidence

indicating that petitioner received a significant benefit as a

result of the items giving rise to the deficiency.     Therefore,

the Court concludes that this factor weighs in favor of relief.

See Magee v. Commissioner, T.C. Memo. 2005-263 (lack of

significant benefit weighs in favor of relief under Rev. Proc.

2003-61, supra).
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     F.   Compliance With Federal Tax Laws

     The IRS will take into consideration whether the requesting

spouse has made a good-faith effort to comply with the Federal

tax laws in the succeeding years.   Rev. Proc. 2003-61, sec.

4.03(2)(a)(vi), 2003-2 C.B. at 299.     Respondent concedes that

petitioner has filed all required Federal income tax returns.

However, respondent also asserts that petitioner has not complied

with Federal tax laws because there remain outstanding balances

for 2003, 2004, and 2008.   The deficiencies for 2003 and 2004

arise partially or wholly out of Mr. Mahammadi’s disallowed

business expense deductions.   As with the 2002 liability,

petitioner first became aware that Mr. Mahammadi had not

satisfied the 2003 and 2004 deficiencies when her wages were

garnished in 2008.    The IRS granted partial relief under section

6015 for 2003 and 2004, and the balance reflects the amounts for

which petitioner was not granted relief.5    Petitioner’s 2008

Federal income tax return showed tax due, but she made no payment

with the return.   As indicated, petitioner’s wages were garnished

in 2008, and she became unemployed in January 2009.     Petitioner

asserts these events caused her to be unable to pay the tax shown

on the 2008 return.




     5
      The record does not reveal the details of the relief
granted to petitioner for 2003 and 2004.
                                - 15 -

       We conclude petitioner has made a good-faith attempt to

comply with Federal tax laws.    This factor weighs in favor of

granting relief.    See Hardin v. Commissioner, T.C. Memo. 2009-

115.

       G.   Abuse

       The IRS will also consider whether the nonrequesting spouse

abused the requesting spouse.    Rev. Proc. 2003-61, sec.

4.03(2)(b)(i), 2003-2 C.B. at 299.       The presence of abuse is a

factor favoring relief, and a history of abuse may mitigate the

requesting spouse’s knowledge or reason to know.       Id.

       Petitioner has not alleged that she was abused by Mr.

Mahammadi at any time.    This is a neutral factor.    See id.; see

also Magee v. Commissioner, supra.

       H.   Mental or Physical Health

       The IRS will take into consideration whether the requesting

spouse was in poor mental or physical health on the date she

signed the return or at the time relief was requested.       Rev.

Proc. 2003-61, sec. 4.03(2)(b)(ii), 2003-2 C.B. at 299.

       Petitioner did not claim that she was in poor mental or

physical health on the date she signed the return or at the time

the relief was requested; therefore, this factor is neutral. See

id.; see also Magee v. Commissioner, supra.
                               - 16 -

II.   Conclusion:   Weight of the Factors

      Of the factors listed in Rev. Proc. 2003-61, sec. 4.03, four

favor relief (marital status, lack of knowledge or reason to

know, good faith effort to comply with tax laws, and lack of

significant benefit), none weigh against relief, and four are

neutral (economic hardship, nonrequesting spouse’s legal

obligation, spousal abuse, and mental or physical health).     After

considering and weighing all the factors, we find it would be

inequitable to hold petitioner liable for the 2002 tax liability

which is attributable to Mr. Mahammadi’s income.     Accordingly, we

hold that petitioner is entitled to relief from joint and several

liability for 2002 under section 6015(f).

      To reflect the foregoing,


                                            Decision will be entered

                                     for petitioner.
