                  T.C. Memo. 2001-318



                UNITED STATES TAX COURT



           TONY D. ISHIZAKI, Petitioner, AND
         RANG SUN PARK ISHIZAKI, Intervenor v.
     COMMISSIONER OF INTERNAL REVENUE, Respondent



Docket No. 11358-99.          Filed December 27, 2001.


     P and I filed a joint 1995 Federal income tax
return. Following examination, R determined that
constructive dividend income from a furniture business
operated by the spouses had been omitted on the 1995
return. After a joint notice of deficiency was issued
to P and I, P filed a petition with this Court not
challenging R’s determinations but seeking relief from
joint and several liability. I subsequently intervened
in the proceeding, disputing P’s entitlement to the
relief sought.

     Held: P has failed to establish his entitlement
to relief from joint and several liability pursuant to
either subsec. (b) or subsec. (c) of sec. 6015, I.R.C.

Joseph E. Diamond, for petitioner.

Mufthiha Sabaratnam, for intervenor.

David R. Jojola, for respondent.
                               - 2 -



              MEMORANDUM FINDINGS OF FACT AND OPINION


     NIMS, Judge:   Respondent determined a Federal income tax

deficiency for petitioners’ 1995 taxable year in the amount of

$64,745.   Respondent also determined an addition to tax of

$16,295 pursuant to section 6651(a)(1) and an accuracy-related

penalty of $12,949 under section 6662(a).   After concessions, the

sole issue for decision is the claim by Tony D. Ishizaki

(petitioner) for relief from joint and several liability for the

deficiency, addition, and penalty determined by respondent.

     Unless otherwise indicated, all section references are to

sections of the Internal Revenue Code of 1986, as amended, and

all Rule references are to the Tax Court Rules of Practice and

Procedure.

                         FINDINGS OF FACT

     At the time of filing his petition in this case, petitioner

provided an address in Montebello, California.    Petitioner’s

educational background consists of a high school education that

continued partially through the tenth grade and approximately 3

months of junior college courses.   Thereafter and throughout all

relevant periods, petitioner has been involved in business

ventures relating to the manufacture and sale of furniture.

Prior to his marriage, petitioner created a company called Tony

Ishizaki Studios which operated in this sector.    Then, in 1986
                                - 3 -

petitioner and intervenor Rang Sun Park Ishizaki (Mrs. Ishizaki)

were married.    Following their marriage, Mrs. Ishizaki joined

petitioner in operating his company, which in about 1989 or 1990

began doing business under the name of Stone Collection.      Stone

Collection, in turn, was succeeded in 1994 by Privilege House,

Inc.    Both petitioner and Mrs. Ishizaki were employed by

Privilege House during 1995, the year at issue.

       The respective roles played by petitioner and Mrs. Ishizaki

in the operation of Stone Collection and Privilege House can be

broadly described as follows.    Petitioner was primarily

responsible for sales management and for research and

development.    Mrs. Ishizaki’s principal responsibilities focused

on financial matters, production scheduling, and office

management.

       Revenues at Privilege House were generated though the sale

to customers of home furnishing items manufactured by the

company.    Petitioner, in his research and development capacity,

worked to design styles that would appeal to customers.      For

those items selected to be offered to customers, Mrs. Ishizaki

created a price list enumerating the intended selling prices.

Petitioner then worked with commissioned salespersons to finalize

sales to customers.    The salespersons would introduce petitioner

to potential buyers as representing Privilege House, and

petitioner would negotiate the final sales price.    Petitioner had
                              - 4 -

authority to offer reasonable discounts, such as 5 or 10 percent,

in order to close sales but would seek the consent of Mrs.

Ishizaki if a buyer requested a more excessive allowance.    When

an order was placed, either petitioner or a salesperson would

write up a sales order reflecting the final price, and the order

would go to Mrs. Ishizaki for processing and placement on the

production schedule.

     Subsequent payment from customers for purchased pieces was

often remitted in the form of checks payable to Privilege House.

During 1995, certain checks received by Privilege House from

customers were cashed at banks and check-cashing facilities,

rather than deposited into the corporation’s bank account.   The

total amount of checks so cashed was approximately $191,800.    The

funds obtained thereby were then used in significant part for

personal expenses of the Ishizakis.   The proceeds of the cashed

checks were reported on neither Privilege House’s 1995 corporate

income tax return nor the Ishizakis’ personal income tax return.

     At pertinent times and through at least 1996, petitioner and

Mrs. Ishizaki maintained what must be characterized as a

relatively high standard of living.   The couple and their child

resided in a four- to five-bedroom ranch-style home with a

swimming pool in Monterey Park.   They leased the property at a

rate of approximately $1,700 to $1,800 a month and also employed

an individual for about $600 a month to maintain their residence
                                - 5 -

and take care of their daughter.     They purchased $15,000 worth of

furniture for their home in 1996.     They kept at any given time an

average of two to three vehicles, typically leased, which

included a BMW 740, a Toyota Four Runner, a Porsche, and a Honda

NSX.    They also owned a jet ski.   The family generally ate out

several times per week and took vacations, particularly ski

vacations, two to three times per year.     Both spouses bought

expensive clothing and owned watches and jewelry which were kept

in bank safe deposit boxes.    Petitioner primarily used a credit

card for his purchases and then gave the receipts to Mrs.

Ishizaki.    Bill payment and family finances were then handled by

Mrs. Ishizaki.    The couple also maintained a joint checking

account.

       On February 6, 1997, respondent commenced an examination of

Privilege House.    The taxable year under consideration was 1995,

and the examination was begun on the basis of two checks obtained

by the Internal Revenue Service from a check-cashing business.

Revenue Agent Mayra Encarnacion performed the examination and in

connection therewith conducted an interview on June 2, 1997, with

Mrs. Ishizaki and Jane Kim, the accountant for Privilege House

and for the Ishizakis personally.     Ms. Encarnacion asked at the

interview whether all corporate checks were deposited to the

Privilege House account and was initially told that they were.

Subsequently, however, when Ms. Encarnacion raised the
                               - 6 -

possibility of issuing summonses to customers to obtain copies of

checks written to Privilege House, Mrs. Ishizaki provided a list

of cashed checks.   Ms. Encarnacion also met at some point during

the examination with petitioner.

     During 1997, Mrs. Ishizaki filed for separation from

petitioner.   The divorce settlement was not yet finalized at the

time of trial of this case in March of 2001.   In the intervening

period, the record indicates that control of the Privilege House

business shifted between the spouses.   At the time of trial,

petitioner was no longer involved and had begun another furniture

company of his own, operating under the name of Anderson & Daish.

     On March 25, 1999, respondent issued a notice of deficiency

to petitioner and Mrs. Ishizaki.   Therein respondent determined

that petitioners had $191,831 in unreported income for 1995, in

the form of constructive dividends from Privilege House.

Although Mrs. Ishizaki did not petition the Court for

redetermination, petitioner filed his petition in this case on

June 22, 1999.   The petition expresses the alleged errors in the

notice of deficiency as follows:

     4.  The determination of the tax set forth in the said
        notice of deficiency is based upon the following
      errors.
          a. The taxpayer is an innocent spouse and did not
              in any way benefit from the unreported income.
          b. The petitioner does not believe that he signed
              the tax return for that year.

     5.   The facts upon which the petitioner relies, as the
                               - 7 -

         basis of the petitioner’s case, are as follows:
          a. Petitioner’s wife ran the business in question
              and the petitioner did not receive any benefit
              from any funds that were taken from the
              business.
          b. The petitioner has no memory of signing the
              tax return.

Petitioner did not and does not dispute the deficiency, addition

to tax, or penalty as set forth in the notice of deficiency.

(Nor, for that matter, does Mrs. Ishizaki.)    Respondent then

answered, denying and placing in dispute petitioner’s

contentions.

     After answering the petition, respondent referred the case

to its Examination Division for the purpose of investigating the

merits of petitioner’s entitlement to relief pursuant to section

6015.   Revenue Agent David Guerrero conducted this examination.

He initially spoke with Ms. Encarnacion to gain background

information and then interviewed petitioner.    In addition, during

the period that petitioner’s claim was under consideration,

respondent by letter provided Mrs. Ishizaki with an opportunity

to submit information regarding petitioner’s entitlement to

relief, but Mrs. Ishizaki failed to respond.    Mr. Guerrero began

his evaluation with the requirements of section 6015(b) and, upon

concluding that petitioner was entitled to full relief under that

subsection, did not consider petitioner’s entitlement to relief

under section 6015(c) or 6015(f).   Underlying Mr. Guerrero’s

conclusion was a judgment that the return was a joint return
                                - 8 -

because, although not signed by petitioner, it was signed with

his consent.    Mr. Guerrero then determined that petitioner had no

knowledge or reason to know of the understatement on the basis of

his limited education and alleged lack of involvement in the

financial affairs of the corporation.

     Thereafter, this Court decided King v. Commissioner, 115

T.C. 118 (2000).    In accordance with the holding in that case,

respondent on November 1, 2000, mailed a notice to Mrs. Ishizaki

informing her of her right to intervene in the instant

proceeding.    Mrs. Ishizaki filed a notice of intervention with

the Court on December 19, 2000, wherein she disputed petitioner’s

entitlement to relief under section 6015.

     Trial was held on March 28, 2001, and both petitioner and

Mrs. Ishizaki appeared, were represented by counsel, and offered

testimony.    Following trial, all three parties submitted opening

posttrial briefs; respondent alone filed a reply brief.    The body

of petitioner’s brief cites and discusses only repealed section

6013(e)(1), but a sheet attached to the brief and labeled “POINTS

AND AUTHORITIES IN SUPPORT OF PETITIONER’S CONTENTION HE IS AN

INNOCENT SPOUSE” cites section 6015(b) and enumerates its

requirements.   No mention is made of other provisions of section

6015.   Mrs. Ishizaki and respondent both take the position on

brief that petitioner is not entitled to relief from joint and

several liability.
                                - 9 -



                               OPINION

I.   General Rules

     As a general rule, section 6013(d)(3) provides that “if a

joint return is made, the tax shall be computed on the aggregate

income and the liability with respect to the tax shall be joint

and several.”   An exception to such joint and several liability

exists, however, for spouses able to satisfy the statutory

requirements for relief.

     A.   Prior Law

     Prior to the enactment of the Internal Revenue Service

Restructuring & Reform Act of 1998 (RRA), Pub. L. 105-206, sec.

3201, 112 Stat. 734, section 6013(e) governed the granting or

denial of claims for relief from joint liability.    Section

6013(e) read in part as follows:

          SEC. 6013(e).    Spouse Relieved of Liability in
     Certain Cases.--

                (1) In General.--Under regulations prescribed
           by the Secretary, if--

                     (A) a joint return has been made under
                this section for a taxable year,

                     (B) on such return there is a
                substantial understatement of tax
                attributable to grossly erroneous items of
                one spouse,

                     (C) the other spouse establishes that in
                signing the return he or she did not know,
                and had no reason to know, that there was
                such substantial understatement, and

                      (D) taking into account all the facts
                               - 10 -

                and circumstances, it is inequitable to hold
                the other spouse liable for the deficiency in
                tax for such taxable year attributable to
                such substantial understatement,

     then the other spouse shall be relieved of liability
     for tax (including interest, penalties, and other
     amounts) for such taxable year to the extent such
     liability is attributable to such substantial
     understatement.

The section then went on to impose an additional requirement, in

order for relief to be available, that the understatement exceed

a specified percentage of the income of the spouse who was

seeking such relief.    See sec. 6013(e)(4).

     B.   Present Law

     The RRA revised and expanded the relief available to joint

filers by striking subsection (e) from section 6013 and by

promulgating in its place a new section 6015.    RRA sec. 3201(a),

(e)(1), 112 Stat. 734, 740.    Section 6015 was also given

retroactive effect to the extent that it was made applicable to

any liability for tax arising after July 22, 1998, and to any

liability for tax arising on or before such date but remaining

unpaid as of July 22, 1998.    RRA sec. 3201(g)(1), 112 Stat. 740.

     Whereas section 6013(e) had offered only a single avenue of

relief, based on a spouse’s lack of knowledge or reason to know

of a substantial understatement, section 6015 authorizes three

types of relief.   Subsection (b) provides a form of relief

available to all joint filers and similar to, but less

restrictive than, that previously afforded by section 6013(e).
                                - 11 -

Subsection (c) permits a taxpayer who has divorced or separated

to elect to have his or her tax liability calculated as if

separate returns had been filed.    Subsection (f) confers

discretion upon respondent to grant equitable relief, based on

all facts and circumstances, in cases where relief is unavailable

under subsection (b) or (c).    As relevant to the present matter,

section 6015 provides the following:

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

          (a) In General.--Notwithstanding section
     6013(d)(3)--

               (1) an individual who has made a joint return
          may elect to seek relief under the procedures
          prescribed under subsection (b); and

               (2) if such individual is eligible to elect
          the application of subsection (c), such individual
          may, in addition to any election under paragraph
          (1), elect to limit such individual’s liability
          for any deficiency with respect to such joint
          return in the manner prescribed under subsection
          (c).

     Any determination under this section shall be made
     without regard to community property laws.

          (b) Procedures for Relief From Liability
     Applicable to All Joint Filers.--

               (1) In general.--Under procedures prescribed
          by the Secretary, if--

                       (A) a joint return has been made for a
                  taxable year;

                       (B) on such return there is an
                  understatement of tax attributable to
                  erroneous items of one individual filing the
                  joint return;
                        - 12 -

               (C) the other individual filing the
          joint return establishes that in signing the
          return he or she did not know, and had no
          reason to know, that there was such
          understatement;

               (D) taking into account all the facts
          and circumstances, it is inequitable to hold
          the other individual liable for the
          deficiency in tax for such taxable year
          attributable to such understatement; and

               (E) the other individual elects (in such
          form as the Secretary may prescribe) the
          benefits of this subsection not later than
          the date which is 2 years after the date the
          Secretary has begun collection activities
          with respect to the individual making the
          election,

     then the other individual shall be relieved of
     liability for tax (including interest, penalties,
     and other amounts) for such taxable year to the
     extent such liability is attributable to such
     understatement.

          (2) Apportionment of relief.--If an
     individual who, but for paragraph (1)(C), would be
     relieved of liability under paragraph (1),
     establishes that in signing the return such
     individual did not know, and had no reason to
     know, the extent of such understatement, then such
     individual shall be relieved of liability for tax
     (including interest, penalties, and other amounts)
     for such taxable year to the extent that such
     liability is attributable to the portion of such
     understatement of which such individual did not
     know and had no reason to know.

          *    *    *    *    *    *    *

     (c) Procedures To Limit Liability for Taxpayers No
Longer Married or Taxpayers Legally Separated or Not
Living Together.--

          (1) In general.--Except as provided in this
     subsection, if an individual who has made a joint
     return for any taxable year elects the application
                   - 13 -

of this subsection, the individual’s liability for
any deficiency which is assessed with respect to
the return shall not exceed the portion of such
deficiency properly allocable to the individual
under subsection (d).

     (2) Burden of proof.--Except as provided in
subparagraph (A)(ii) or (C) of paragraph (3), each
individual who elects the application of this
subsection shall have the burden of proof with
respect to establishing the portion of any
deficiency allocable to such individual.

     (3) Election.--

          (A) Individuals eligible to make
     election.--

               (i) In general.--An individual
          shall only be eligible to elect the
          application of this subsection if--

                    (I) at the time such election
               is filed, such individual is no
               longer married to, or is legally
               separated from, the individual with
               whom such individual filed the
               joint return to which the election
               relates; or

                    (II) such individual was not a
               member of the same household as the
               individual with whom such joint
               return was filed at any time during
               the 12-month period ending on the
               date such election is filed.

     *    *    *       *   *   *   *

          (C) Election not valid with respect to
     certain deficiencies.--If the Secretary
     demonstrates that an individual making an
     election under this subsection had actual
     knowledge, at the time such individual signed
     the return, of any item giving rise to a
     deficiency (or portion thereof) which is not
     allocable to such individual under subsection
     (d), such election shall not apply to such
                                 - 14 -

                  deficiency (or portion). This subparagraph
                  shall not apply where the individual with
                  actual knowledge establishes that such
                  individual signed the return under duress.

II.   Preliminary Matters

      A.   Burden of Proof

      We begin with a threshold observation regarding burden of

proof.     In general, the Commissioner’s determinations are

presumed correct, and the taxpayer bears the burden of proving

otherwise.     Rule 142(a).   Although recently enacted section 7491

may operate in specified circumstances to place the burden on the

Commissioner, the statute is effective only for court proceedings

that arise in connection with examinations commencing after July

22, 1998.     RRA sec. 3001(c), 112 Stat. 727.   With respect to the

case at bar, the parties have stipulated that the examination of

Privilege House which led to the constructive dividends pertinent

here began on February 6, 1997, the record is bereft of any other

evidence that would require applicability of section 7491, and

petitioner has at no time so argued.      We therefore are satisfied

that petitioner bears the burden of establishing his entitlement

to relief from joint and several liability under the general

rules.

      Furthermore, we pause to observe that section 7491(a)(3)

provides that the burden-shifting provisions referenced above do

not apply “to any issue if any other provision of this title

provides for a specific burden of proof with respect to such
                              - 15 -

issue.”   Section 6015(b)(1)(C) expressly requires the spouse

electing relief to establish that he or she did not know or have

reason to know of the understatement, and section 6015(c)(2)

explicitly places the burden of proof on the electing spouse to

establish the portion of any deficiency allocable to him or her.

However, because such provisions do not appear to specifically

account for all requisite elements set forth in section 6015, we

in exercise of caution do not rely solely thereon.

     We also point out at this juncture that in deciding whether

petitioner has carried his burden of proof, witness credibility

is an important consideration.   Moreover, we are under no

obligation to accept uncorroborated and self-serving testimony.

Tokarski v. Commissioner, 87 T.C. 74, 77 (1986).     In this

connection, we note that, having evaluated demeanor and content,

we found the credibility of both petitioner and Mrs. Ishizaki to

be questionable at best.   Their testimony tended to be

nonspecific, inconsistent, and patently self-serving, such that

the trial at times had a decided “he said, she said” flavor.

Accordingly, our analysis below is based primarily on, and

limited by, what could be reliably drawn from the totality of the

evidence and testimony, rather than by accepting in their

entirety the statements of either spouse at face value.
                              - 16 -

     B.   Joint Return

     As a second preliminary matter, we deal briefly with the

issue of whether petitioner and Mrs. Ishizaki filed a joint

return for 1995 within the meaning of section 6015.   While

statements in the petition can be read to argue that the return

at issue was not a proper joint return of petitioner and Mrs.

Ishizaki, and testimony indicates that Mrs. Ishizaki signed

petitioner’s name to the document, we conclude that petitioner

has conceded any contention in this regard.   The statement of

“POINTS AND AUTHORITIES” attached to petitioner’s brief includes

the following:   “In this case the IRS has taken the position that

a joint return has been filed and the petitioner accedes to that

position due to his allowing his former spouse to have control

over all of his finances and taxes during the term of the

marriage.”   Petitioner also states in the body of his brief:

“The parties stipulated that they filed a joint tax return for

1995 satisfying Sec. 6013(e)(1)(A).”   Thus, although former

section 6013(e) is not at issue, and petitioner’s

characterization is more explicit than the language used in the

parties’ stipulations, it is clear that no question of filing

status is being advanced.   We therefore turn to whether

petitioner is eligible for relief from the joint and several

liability otherwise following from the joint return filed.
                                - 17 -

III.   Section 6015(b)

       As previously mentioned, the two statutory bases for relief

specifically referenced in petitioner’s submissions are former

section 6013(e) and section 6015(b).     Since section 6013(e) has

been repealed and is no longer available to petitioner, and since

section 6015(b) is considered to have replaced the analogous

section 6013(e), we view the statements made by petitioner in

connection with either of the two statutes in light of the

current requirements of section 6015(b).    In addition, we note

that cases interpreting former section 6013(e) remain instructive

in our analysis of the parallel requisites of section 6015(b).

Butler v. Commissioner, 114 T.C. 276, 283 (2000).

       Having previously concluded that a joint return satisfying

section 6015(b)(1)(A) was filed for 1995, we focus first on the

second requirement set forth in section 6015(b).    Section

6015(b)(1)(B) mandates that the understatement of tax be

attributable to erroneous items of the nonrequesting spouse.    A

similar attribution provision was contained in former section

6013(e)(1)(B) and has been construed by this and other courts.

As regards the pertinent legal standard, the Court of Appeals for

the Fifth Circuit has stated:    “where omitted income is generated

by the performance of substantial services by one spouse, that

income should be attributed to that spouse for purposes of
                               - 18 -

section 6013(e)(1).”    Allen v. Commissioner, 514 F.2d 908, 913

(5th Cir. 1975), affg. in part and revg. in part on other grounds

and remanding 61 T.C. 125 (1973).

     This Court then applied the foregoing principle in Grubich

v. Commissioner, T.C. Memo. 1993-194, to a situation bearing

marked resemblance to that now before us and also involving the

omission of income generated by a business.   In Grubich v.

Commissioner, supra, Mr. and Mrs. Grubich operated The Original

Christmas Store, which sold holiday decorations and gift items.

Mr. Grubich handled the financial and administrative side of the

business.   Id.   Mrs. Grubich handled the artistic and decorative

side, creating merchandise displays and selecting inventory.       Id.

We characterized the situation as follows:

          Although petitioner may not have understood how
     Mr. Grubich handled the financial and tax affairs of
     The Original Christmas Store, and even though it was
     Mr. Grubich who fraudulently omitted the items of gross
     income from the gross receipts reported on the Schedule
     C of their returns, there is overwhelming evidence that
     the gross income itself (rather than its omission) was
     attributable to the joint efforts and activities of Mr.
     and Mrs. Grubich. * * *

          Petitioner, along with her former husband,
     actively and substantially participated in the business
     activity that generated the omitted income. Therefore,
     the substantial understatements were attributable to
     grossly erroneous items of both Mr. Grubich and
     petitioner. [Id.]

Furthermore, because there was “nothing in the record that would

enable us to make an allocation of the relative value of

petitioners’ respective services”, we concluded:   “Inasmuch as
                              - 19 -

petitioner has not shown what part of the omitted income was

attributable to Mr. Grubich, she has failed to satisfy the

requirements of section 6013(e)(1)(B).”   Id.

     As was the case in Grubich v. Commissioner, supra,

petitioner here actively and substantially participated in the

Privilege House business which generated the unreported income.

In fact, it was petitioner, not Mrs. Ishizaki, who was involved

in making and closing the sales which actually produced revenue

for Privilege House.   Petitioner even testified at one point “I

worked 24 hours a day, seven days a week, because she said,

‘We’re going to go broke if you don’t sell more furniture.’”

While we do not opine regarding the truth of this statement in

its entirety, it at least stands for the proposition that

petitioner played, and does not dispute that he so played, an

important role in generating Privilege House sales.   Furthermore,

because there is nothing in the record that would enable us to

allocate sales between the spouses based on the relative value of

their services to the enterprise, we cannot determine the

respective amounts of income attributable to each.    Accordingly,

since petitioner has failed to establish that any portion of the

understatement is attributable solely to erroneous items of Mrs.

Ishizaki, he has failed to prove that he satisfies the criteria

for relief under section 6015(b).
                             - 20 -

     Moreover, although the foregoing failure to meet the

attribution prong of section 6015(b)(1)(B) is a sufficient basis

on which to deny relief under that subsection, we point out for

the sake of completeness that other requisites of section 6015(b)

are equally unfulfilled on the facts before us.   In particular,

section 6015(b)(1)(C) mandates that the requesting spouse have

had neither knowledge nor reason to know of the understatement at

the time the return was signed.   A requesting spouse is

considered to have reason to know in this context if a reasonably

prudent taxpayer in his or her position, at the time the return

was signed, could be expected to know that the return contained

an understatement or that further investigation was warranted.

Butler v. Commissioner, supra at 283.    Hence, the spouse seeking

relief has a “duty of inquiry”.   Id. at 284.   In applying the

foregoing “reason to know” standard, factors considered relevant

include:

     (1) The alleged innocent 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 income levels, income standards, and
     spending patterns; and (4) the culpable spouse’s
     evasiveness and deceit concerning the couple’s
     finances. [Id.]

     Here, the return at issue was signed on August 12, 1996, and

reported total income of $108,547.    As of that date, the evidence

regarding petitioner’s knowledge in general and the majority of

the above factors in particular is in many respects inconsistent
                               - 21 -

and lacking in credibility.    It can be drawn from the record that

petitioner’s educational background and involvement in family

financial affairs were relatively limited.    However, the couple’s

accountant did testify that it was her practice to speak to both

spouses in preparing the annual return, so petitioner likely had

some familiarity with family finances.    In addition, petitioner’s

involvement in the family business, as well as similar furniture

ventures, was extensive.    It is also apparent that the family

maintained a standard of living sufficiently high to at least

call into question its sustainability for three persons on the

level of income reported.    There is also little to suggest that

Mrs. Ishizaki was intentionally evasive or deceitful with respect

to the couple’s finances.    Rather, it seems more probable that

petitioner simply chose in many instances to turn a blind eye to

the source of the funds paying the bills for a lifestyle in which

he willingly participated.

     Furthermore, the testimony in this case which probes the

status of petitioner’s knowledge hardly buttresses petitioner’s

protestations of innocence.    For example, during direct

examination, petitioner first testified as follows:

     Q    Okay. During 1995, there’s evidence that there
     were checks from customers of Privilege House that were
     cashed and not deposited to Privilege House. When did
     you find out about that?

     A    When Mayra visited me.
                               - 22 -

     Q    Did you have any idea whether or not there was any
     unreported income in either the company called
     Privilege House or your personal tax return, up until
     that date?

     A    No. I was not aware of it until after she filed
     for the divorce, when I started finding discoveries.

     Q    Did you know that checks were being cashed
     occasionally from Privilege House?

     A    After 1997 when she filed and I took over the
     business on August 15th of ’97, that’s when I started
     finding out.

     Then, later during the direct examination, petitioner gave

the following testimony:

     Q    Did you ever find out that there was a great deal
     of cash available in the--either under the control of
     you or Rang Ishizaki?

     A    At which part of time.

     Q    Any time?

     A    Any time, yes.

     Q    When was that?

     A     She discussed to me about cash thing on the money,
     1996.

     Q    She told you about the cash in 1996?

     A    Correct.    She said, “I want you to go to the
     bank.”

     Q    Okay.   Who told you, “I want you to go to the
     bank.”?

     A    Jane Kim and Rang.

     Q    And what were you supposed to do at the bank?
                               - 23 -

     A    Oh, they give me a check and they told me to go to
     the bank and cash the check, so she can pay the
     vendors.

     Q    Okay.   So you--

     A    To get a discount.

     Q    So you went and cashed a check.

     A    Correct, sir.

     Q    And what did you do with the cash?

     A    I gave it to her.

     Q    And how much was that check?

     A    Sometimes 2,000, sometimes 4,000.

     Q    How many times did you do this?

     A    Less than ten times.

     Q    Okay.   Were these checks written from Privilege
     House?

     A    No, sir.   Those checks were a customer’s check.

     Q    Okay. And what--and when you went and cashed
     those checks, what did you do with the cash?

     A    The check, Jane Kim told me to go to a Center Bank
     Manager and see him. And I went to see this man and I
     give him the check, he signs it, then I go to the
     teller and get the cash, and I give it to her.

     Then on cross-examination and in response to an inquiry

regarding petitioner’s visits to the family’s safe deposit boxes,

he testified:

     Q    Okay. Was there ever any money in the safety
     deposit box?

     A    At the time ’96, yes.

     Q    How do you know that?
                               - 24 -


     A    ’96 I saw the money there.

     Q    You saw the money there.      How much was there?

     A    At the highest I ever saw it was $180,000.00.

     Q    Okay. And how did you verify that there was
     $180,000 there?

     A    She told me that’s our savings.

     Finally, toward the latter part of cross-examination,

petitioner added the following testimony regarding the cash

transactions:

     Q    Oh, okay. At any time did you go to a check
     cashing place and cash checks?

     A    Yes, at the bank, at the Sahaen Bank.

     Q    The Sahaen Bank?

     A    Yes.

     Q    This is Sahaen Bank, but not a check cashing
     place, you didn’t go to a private check cashing place?

     A    Check cashing place.    One time, one or two times.

     Q    And this was you voluntarily went?

     A    No.    She told me to go there.

     Q    Okay. And the--can you remember the amounts of
     money that you cashed at any given time?

     A    Between I think three, four thousand, or seven or
     eight thousand. Nothing above ten thousand.

     Q    Nothing above. And what would you do with the
     money when you get it?

     A    I would give it back to her.
                              - 25 -

     Q     Uh-huh.

     A    Then she records everything and she tells me, come
     in the office. Then sometimes she told me to--she will
     give me the money and go see a vendor. Go say, hello,
     and give him this bag.

     Hence, as can be seen from the above excerpts, petitioner’s

testimony regarding the timing and extent of his awareness of the

check cashing activity and its proceeds is fraught with

inconsistencies and ambiguities.    For example, petitioner stated

that he first learned of the check cashing activity when visited

by Ms. Encarnacion, which would indicate a date at some time

after the initial interview on June 2, 1997.    He then testified

that he participated repeatedly in the check cashing activity in

1996 and that he saw cash totaling $180,000 in a safe deposit box

during 1996.   He also vacillated on the amounts, times, and

locations of his participation.    In addition, Mrs. Ishizaki

proceeded to testify that petitioner saw monthly sales reports

for Privilege House and that the couple discussed company and

family finances throughout their marriage.    Moreover, petitioner

was admittedly involved in negotiating many of the furniture

sales made by Privilege House and knew the prices at which items

were sold to customers.   Given that the return at issue was not

signed until August of 1996, we are unable to say on this record

that petitioner did not at that point have sufficient reason to

know of unreported income to at minimum invoke a duty to inquire

further.
                               - 26 -

       Furthermore, based on these circumstances, we in any event

would be hard pressed to conclude that it would be inequitable to

hold petitioner liable for the deficiency, as is required under

section 6015(b)(1)(D).    All indications are that the Ishizakis

shared equally in the lifestyle funded by the cash transactions.

The facts at bar simply do not present the type of disadvantage

and unfairness contemplated by the section 6015(b) criteria.    We

hold that petitioner is not entitled to relief under subsection

(b).

IV.    Section 6015(c)

       Although it would not appear that petitioner has ever

specifically advanced an argument under section 6015(c),

respondent on brief has addressed this issue.    We thus say a few

words on the topic in order to more fully address the points

raised by the litigants.    As a threshold consideration, a

requesting spouse is entitled to seek relief under subsection (c)

only if at the time of the request the spouses are divorced,

legally separated, or have been living apart for the preceding 12

months.    Here, because the record before us fails to establish

that petitioner meets even these preliminary criteria, we can

afford him no relief under section 6015(c).

       Petitioner’s request for relief in this case was made

through the vehicle of his petition filed on June 22, 1999.    As

regards divorce, legal separation, or separate habitation in
                              - 27 -

relation to that date, the evidence suggests the following.

First, the record indicates that the Ishizakis’ divorce

settlement was not final even as of the time of trial in March of

2001.   Mrs. Ishizaki testified “we not finalize our divorce

situation yet, such as asset and debts, we haven’t finalized”,

and she cited an upcoming May court appearance.   The record also

contains a schedule of assets and debts filed as part of the

divorce proceedings which is dated March 15, 1999, further

showing that formalities were in fact ongoing at least several

months into the 1999 year.

     Second, there is a complete absence of any documentary

evidence or testimony that would raise the inference of a legal

separation, much less the date thereof.

     Third, the record likewise fails to establish with any

degree of certainty that petitioner and Mrs. Ishizaki were not

members of the same household at any time throughout the 1-year

period preceding June 22, 1999.   Mrs. Ishizaki mentioned that she

had moved frequently during the pending divorce, but offered no

timeframes or dates.   Petitioner stated that separation was filed

for on February 14, 1997, and alluded to a temporary apartment in

late 1996, but he, too, was silent with respect to the critical

time period.   We therefore simply are not in a position to guess

whether petitioner and Mrs. Ishizaki might have
                             - 28 -

cohabited at any time during their lengthy divorce proceedings.

Hence, we hold that petitioner has failed to show that he is

eligible to seek relief under section 6015(c).

     Lastly, we note that because no party has either mentioned

or discussed section 6015(f), we do not consider the question of

relief pursuant to subsection (f) to be properly before the

Court, and we decline to address it further.

     To reflect the foregoing,



                                        Decision will be entered

                                   for respondent.
