                         T.C. Memo. 2001-21



                       UNITED STATES TAX COURT



    JULIAN O. VON KALINOWSKI AND PENELOPE J. VON KALINOWSKI,
   Petitioners v. COMMISSIONER OF INTERNAL REVENUE, Respondent



     Docket No. 46200-86.                     Filed January 30, 2001.


     Philip R. Linsley, for petitioners.

     David R. Jojola, for respondent.



              MEMORANDUM FINDINGS OF FACT AND OPINION

     VASQUEZ, Judge:    For 1981 and 1982, respondent determined

deficiencies in petitioners’ Federal income taxes and additions

to tax as follows:

                                       Additions to Tax
      Year     Deficiency      Sec. 6653(a)(1) Sec. 6653(a)(2)
                                                        1
      1981      $182,296          $9,114.80
                                                        1
      1982        81,495           4,074.75
          1
             50 percent of interest due on the deficiency for the
          relevant year.
                               - 2 -

After concessions,1 the sole issue for decision is whether

petitioner wife is entitled to relief from joint and several

liability under section 6015(b)(1).2

     Unless otherwise indicated, all section references are to

the Internal Revenue Code in effect for the years at issue, and

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

Procedure.   References to petitioner in the singular are to

Penelope J. Von Kalinowski.

                         FINDINGS OF FACT

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

The stipulation of facts and the attached exhibits are

incorporated herein by this reference.   At the time they filed

their petition with the Court, petitioners were residents of Los

Angeles, California.

     Petitioners jointly filed a Form 1040, U.S. Individual

Income Tax Return, for each of the taxable years at issue.     With

respect to taxable year 1981, petitioners twice filed an amended



     1
        Without considering the application of the relief
provisions of sec. 6015 to petitioner Penelope J. Von Kalinowski,
petitioners concede deficiencies of $179,230 and $81,495 for tax
years 1981 and 1982, respectively. Respondent concedes the
additions to tax under sec. 6653(a)(1) and (a)(2).
     2
        Sec. 6015 was added by sec. 3201(a) of the Internal
Revenue Service Restructuring and Reform Act of 1998, Pub. L.
105-206, 112 Stat. 734. Sec. 6015 is effective with respect to
any tax liability arising after July 22, 1998, and any tax
liability arising on or before July 22, 1998, that is unpaid on
that date.
                               - 3 -

return.   On their 1982 return, petitioners claimed an investment

tax credit in excess of their income tax liability.   Petitioners

accordingly filed joint and separate Forms 1045, Application for

Tentative Refund, in order to apply the excess credit against

their tax liabilities from prior years.3

Background

     Petitioner was born and educated in the United Kingdom.     She

graduated from the London College of Secretaries in 1967, and she

attended Saint Thomas College from 1975 to 1976.   During her

studies at Saint Thomas College, petitioner completed a one

semester course in financial accounting.

     From 1972 until 1978, petitioner was employed by Pfizer

Corp. (Pfizer) to coordinate the provision of secretarial and

administrative services to a team of lawyers that represented the

company in ongoing antitrust litigation.4   While working at

Pfizer, petitioner met her future husband, Julian O. Von

Kalinowski.   An experienced attorney with the firm of Gibson,

Dunn and Crutcher, L.L.P., Mr. Von Kalinowski led the team of

attorneys for whom petitioner provided administrative support.


     3
        In addition to jointly filing Form 1045 seeking a
carryback of the excess investment credit to 1980, petitioners
separately filed Forms 1045 seeking a carryback of the excess
investment credit to 1979 (a tax year which preceded petitioners’
marriage).
     4
        Petitioner’s accounting responsibilities at Pfizer
consisted of limited bookkeeping, which was mostly handled by a
secretary on her behalf.
                               - 4 -

Mr. Von Kalinowski specialized in the fields of antitrust law and

complex litigation, and over the years he has authored legal

treatises on these subjects.   From 1972 to 1973, Mr. Von

Kalinowski served as chairman of the antitrust section of the

American Bar Association.

     Petitioner moved in with Mr. Von Kalinowski in October of

1979, and the couple married on June 29, 1980.5   At the time of

their marriage, petitioner was 32 years of age and Mr. Von

Kalinowski was 64 years of age.   Petitioners remained married at

the time of trial.

Standard of Living

     Both prior to and following the couple’s marriage, Mr. Von

Kalinowski maintained petitioner in what can be reasonably

described as an affluent lifestyle.    Throughout their marriage,

the couple has resided in a townhouse located in Los Angeles,

California (the residence), which Mr. Von Kalinowski purchased in

1979 for $342,290.   At all relevant times, Mr. Von Kalinowski

maintained a membership at the Los Angeles Country Club.    Mr. Von

Kalinowski also made a number of gifts to petitioner around the

time of their marriage.   He allowed petitioner to use one of his

vehicles until he purchased a new BMW automobile for her in 1980.



     5
        Petitioners did not enter into an antenuptial agreement,
nor have they entered into any post-nuptial agreements concerning
their property.
                               - 5 -

Mr. Von Kalinowski gave petitioner an engagement ring and wedding

band in conjunction with their marriage, and shortly thereafter,

he bought her a fur coat costing approximately $4,000.

Petitioners took a number of trips from 1980 to 1983, yet

virtually all of them were related to Mr. Von Kalinowski’s

profession.   The lone exception was a safari vacation to Kenya

which the couple took in either 1982 or 1983.

Petitioner’s Business Endeavors

     Around the time of the couple’s marriage, Mr. Von Kalinowski

expressed his desire that petitioner not work outside of the home

in order that she could accompany him on his extensive business

travels and assist him with his social responsibilities.     The

couple later discussed the possibility of petitioner's starting

her own business in order to accommodate petitioner’s desire to

work in a manner that would allow her to maintain autonomy over

her schedule.

     In 1980, petitioner started Peter Dyer Interiors, a business

through which petitioner imported oil paintings for resale and

provided interior design services.     Peter Dyer Interiors was

operational during 1981 and 1982, and generated net operating

losses of $4,322 and $9,740 during those years, respectively.

     During 1983, petitioner took courses to become a travel

agent.   In 1984, she and a faculty member of the school she

attended started a travel agency known as Windsor Travel.
                               - 6 -

Petitioner and Mr. Von Kalinowski borrowed the funds for

petitioner’s share of the startup costs.    In 1985, petitioner and

Mr. Von Kalinowski bought out petitioner’s co-owner in the travel

agency for approximately $25,000.

     Windsor Travel was operational from 1984 to 1999.    Over this

time period, Mr. Von Kalinowski invested over $500,000 in the

business on behalf of petitioner, and such amounts were used to

fund the operations of the agency.     In 1999, petitioner sold the

assets of Windsor Travel for approximately $25,000 plus a sliding

percentage of revenue generated from the transferred accounts.

Financial Matters

     Petitioner and her husband maintained two bank accounts.

While each of these accounts was titled in the couple’s joint

names, the couple regarded one as petitioner’s checking account

and the other as Mr. Von Kalinowski’s checking account.

Petitioner used the funds in her checking account to pay the

couple’s grocery bills and other personal expenses, and Mr. Von

Kalinowski made periodic deposits into this account for such

purposes.   The bank statements on petitioner’s checking account

were sent to the couple’s residence and received by petitioner.

     The bank statements on Mr. Von Kalinowski’s checking account

were sent to his office and received by his secretary, Gina

Hester.   Ms. Hester served as Mr. Von Kalinowski’s personal

secretary from 1952 until just prior to his retirement in 1985,
                                - 7 -

and she was responsible for handling Mr. Von Kalinowski’s

everyday financial affairs.   For instance, Ms. Hester received

and deposited Mr. Von Kalinowski’s paychecks, she paid all

routine expenses such as insurance payments, mortgage payments,

and she made the payments due on Mr. Von Kalinowski’s outstanding

loans.

     Given the responsibilities undertaken by Ms. Hester,

petitioner’s knowledge of the particulars of her husband’s

finances was limited.   Petitioner, however, was aware that Mr.

Von Kalinowski made investment decisions on their joint behalf,

and she allowed him to do so without seeking her approval.

Husband’s Tax Shelter Investments

     Respondent determined the deficiencies for the years at

issue based on the distributive shares of the following

partnerships:   Diversified Investments Group (Diversified),

Capricorn Company (Capricorn), and Pisces Company (Pisces)

(collectively, the tax shelter investments).   Mr. Von Kalinowski

invested approximately $10,000 in Diversified upon the suggestion

of a law partner and following a meeting with Diversified’s

promoter.   Mr. Von Kalinowski did not consult petitioner with

respect to this investment.

     Mr. Von Kalinowski became interested in Capricorn and Pisces

(the partnerships) when another law partner introduced him to an

individual named Togo Tanaka.   In addition to being a member of
                               - 8 -

the local Rotary club, Mr. Tanaka was represented to be a member

of the board of governors of the Federal Reserve Bank of San

Francisco.   Mr. Tanaka in turn introduced Mr. Von Kalinowski to

Philip Siriani, a businessman who had contacts with a local bank

willing to finance the investment in the partnerships.   Mr.

Tanaka’s position in the community and Mr. Siriani’s apparent

business and political contacts supplied a measure of credence to

the financial benefits and tax advantages purportedly offered by

the partnerships.   Mr. Von Kalinowski was further assured of the

partnerships’ legitimacy when informed that a former U.S. senator

was also investing.6

     Near the end of 1981, Mr. Von Kalinowski purchased limited

partnership interests in the partnerships.   He financed the

investment through a $140,000 bank loan secured by the couple’s

residence.   Although the residence was titled in Mr. Von

Kalinowski’s individual name and constituted his separate

property, both Mr. Von Kalinowski and petitioner executed the

deed of trust in favor of the bank.7

     Petitioner had limited, if any, knowledge of her husband’s



     6
        Former U.S. Senator S.I. Hayakawa is listed as a limited
partner on Capricorn’s certificate of limited partnership.
     7
        Presumably, the bank required petitioner’s signature on
the deed of trust to protect its security interest from any
spousal claims which petitioner may have had against the property
under California property law.
                                 - 9 -

investments in the tax shelter investments.     Not only did Mr. Von

Kalinowski not consult petitioner prior to investing, he did not

discuss the investments with her during the tax years at issue.

The Schedules K-1, Partner’s Share of Income, Credits, Deduction,

etc., issued by the partnerships to Mr. Von Kalinowski were sent

to his home address.   It was petitioner’s general practice,

however, not to open mail addressed to her husband.        Upon

receipt, Mr. Von Kalinowski would forward the Schedules K-1 to

his accountant.

Preparation of Income Tax Returns

     The tax returns for the years at issue were prepared by

Stanley Breitbard, a certified public accountant with the firm of

Price Waterhouse.   As a means of compiling the information

necessary to prepare the couple’s return, Price Waterhouse sent

various informational schedules to Mr. Von Kalinowski for

completion.   These schedules were completed by Ms. Hester on Mr.

Von Kalinowski’s behalf.8    Petitioner compiled the tax

information relating to her sole proprietorship and forwarded

such information to the accountant.

     After the return was completed, either Mr. Breitbard or

someone from his office would review it with Mr. Von Kalinowski.

Mr. Von Kalinowski would then take the return home for

petitioner’s signature.     Petitioner consistently executed the


     8
        Mr. Von Kalinowski’s business address was used for each
of the returns at issue because the couple’s tax records were
maintained there.
                              - 10 -

returns at issue without reviewing their contents.   At no point

did petitioner request an explanation of the returns prior to

signing them.

     Each of the returns at issue was signed by Mr. Breitbard on

behalf of Price Waterhouse as the paid preparer.   Mr. Breitbard

did not highlight for Mr. Von Kalinowski any potential problems

with respect to the tax benefits claimed from the tax shelter

investments, and Mr. Von Kalinowski believed the returns to be

correctly prepared when he signed them.

Contents of Tax Returns

     Mr. Von Kalinowski’s distributive share of income from his

law firm for the 1981 and 1982 taxable years was $391,474 and

$291,348, respectively.   In addition, the legal treatises which

Mr. Von Kalinowski authored generated gross income of $65,171 and

$78,915 for the 1981 and 1982 tax years, respectively.

     The tax shelter investments generated combined losses of

$368,675 for the 1981 tax year.   For the 1982 tax year, the

combined partnership losses were $228,133.   Furthermore, in 1982

the tax shelter investments generated an investment income tax

credit of $13,616 with respect to which petitioners filed the

Forms 1045.

Petitioners’ Current Financial Status

     Throughout the term of their marriage, petitioners have

utilized income received by Mr. Von Kalinowski for their joint
                               - 11 -

support.   Mr. Von Kalinowski retired from his law firm in 1985 at

the age of 68.    During the years 1995 through 1999, his

retirement income from the firm averaged $280,000.    During this

same time period, Mr. Von Kalinowski’s royalty income derived

from his legal treatises averaged $147,000 annually.    Lastly, Mr.

Von Kalinowski receives an annual pension from the Naval Reserve

of $17,138.9

     Petitioner is currently employed as the executive vice

president of the Museum of Flying in charge of development.     Her

annual salary is $70,000.

     Mr. Von Kalinowski maintains a $1 million life insurance

policy of which petitioner is the designated beneficiary.     While

Mr. Von Kalinowski’s pension income from the law firm terminates

upon his death, his royalty income from the treatises continues

at 60 percent of its current rate for a period of 15 years

following his death.   Petitioner is the beneficiary of such

royalty income.

                               OPINION

A.   Statutory Background

     Section 6013(a) provides that spouses may elect to file a



     9
        Part of Mr. Von Kalinowski’s income must be applied
toward alimony obligations in favor of his first wife. During
1999, Mr. Von Kalinowski paid alimony in the amount of $47,577.
He is currently obligated to pay his ex-wife $3,233 per month,
plus one-half of his pension from the Naval Reserve.
                                - 12 -

joint Federal income tax return.     If a husband and wife file a

joint return, the tax is computed on their aggregate income and

the liability with respect to such tax is joint and several.      See

sec. 6013(d)(3).     Section 6015, however, provides various means

by which a spouse can be relieved of this joint and several

obligation.     Petitioner makes her claim for such relief pursuant

to section 6015(b)(1).

     To qualify for statutory relief from joint and several

liability under section 6015(b)(1), a taxpayer must establish

that:     (1) A joint return was made under section 6013, see sec.

6015(b)(1)(A); (2) there was an understatement of tax

attributable to erroneous items of the other spouse, see sec.

6015(b)(1)(B); (3) at the time of signing the return, the spouse

seeking relief did not know and had no reason to know of such

understatement, see sec. 6015(b)(1)(C); and (4) taking into

account all the facts and circumstances, it is inequitable to

hold the spouse seeking relief liable for the deficiency in tax

attributable to the understatement, see sec. 6015(b)(1)(D).10

     The requirements of section 6015(b)(1) are stated in the

conjunctive.     Accordingly, a failure to meet any one of them

prevents a spouse from qualifying for the relief offered therein.


     10
        As a procedural matter, a spouse seeking relief under
sec. 6015(b) must also submit the claim for relief within 2 years
of the date on which the Secretary begins collection activities
with respect to such spouse. See sec. 6015(b)(1)(E).
                              - 13 -

We have found that petitioners filed a joint return for each of

the years in issue, and respondent concedes that there was an

understatement of tax attributable to Mr. Von Kalinowski.

Accordingly, we shall address whether petitioner lacked actual

and constructive knowledge of the understatements as required by

section 6015(b)(1)(C) as well as whether it is inequitable to

hold petitioner liable for the understatements as required by

section 6015(b)(1)(D).   Petitioner carries the burden of proof as

to each of these elements.   See Rule 142(a).

B.   Relation Between Sec. 6015(b)(1) and Former Sec. 6013(e)

     Before delving into the particulars of section 6015(b)(1),

we pause to note its relation to former section 6013(e).    In

1971, Congress enacted section 6013(e) in order to correct

perceived grave injustices resulting from the imposition of joint

and several liability.   See S. Rept. 91-1537, at 2 (1970), 1971-1

C.B. 606, 607; see also Act of Jan. 12, 1971, Pub. L. 91-679,

sec. 1, 84 Stat. 2063 (enacting sec. 6013(e)), as amended by the

Deficit Reduction Act of 1984, Pub. L. 98-369, sec. 424, 98 Stat.

494, 801.   Section 6013(e), as amended, provided that a spouse

could be relieved of joint and several liability if the spouse

proved that:   (1) A joint income tax return was filed; (2) the

return contained a substantial understatement of tax attributable

to grossly erroneous items of the other spouse; (3) in signing

the return, the relief-seeking spouse did not know, and had no
                               - 14 -

reason to know, of the substantial understatement; and (4) under

the circumstances it is inequitable to hold the relief-seeking

spouse liable for the substantial understatement.

     For many taxpayers, relief under section 6013(e) was

difficult to obtain.   In order to make such relief more

accessible, Congress repealed section 6013(e) and enacted a new

provision (section 6015) in 1998 as part of the Internal Revenue

Service Restructuring and Reform Act of 1998, Pub. L. 105-206,

sec. 3201(a), 112 Stat. 734.   See H. Conf. Rept. 105-599, at 249

(1998).   The newly enacted section provides three avenues of

relief, one of which is section 6015(b)(1).    See Cheshire v.

Commissioner, 115 T.C. 183, 189 (2000).    While section 6015(b)(1)

is a modified version of former section 6013(e), none of the

differences are relevant to the present litigation.   Accordingly,

in analyzing the provisions of section 6015(b)(1) in the present

context, we shall make use of case law interpreting identical

provisions under former section 6013(e).   See Butler v.

Commissioner, 114 T.C. 276, 283 (2000) (noting that cases

interpreting former section 6013(e) remain instructive as to the

analysis of whether a taxpayer knew or had reason to know of an

understatement pursuant to section 6015(b)).

C.   Actual or Constructive Knowledge–-Sec. 6015(b)(1)(C)

     Pursuant to section 6015(b)(1)(C), petitioner must establish

that she did not know and further had no reason to know of the
                                - 15 -

understatement in tax on the joint returns which she filed with

her husband.    In the context of an understatement resulting from

deductions claimed in error, the United States Court of Appeals

for the Ninth Circuit (the circuit where an appeal of this

decision would lie) interpreted this requirement as follows:      “It

requires a spouse seeking relief to establish that she did not

know and did not have reason to know that the deduction would

give rise to a substantial understatement.”    Price v.

Commissioner, 887 F.2d 959, 963 (9th Cir. 1989), revg. an oral

opinion of this Court; see also Hayman v. Commissioner, 992 F.2d

1256, 1261 (2d Cir. 1993), affg. T.C. Memo. 1992-228; Stevens v.

Commissioner, 872 F.2d 1499, 1505 (11th Cir. 1989), affg. T.C.

Memo. 1988-63.

       We are satisfied that petitioner lacked actual knowledge of

the understatement.    We therefore turn to whether petitioner had

reason to know of the understatement.

       A spouse has “reason to know” of the understatement if a

reasonably prudent taxpayer in his or her position at the time of

signing the return could be expected to know that the return

contained the understatement.    Price v. Commissioner, supra at

965.    Factors to be considered in determining 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
                              - 16 -

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 culpable spouse’s evasiveness and deceit

concerning the couple’s finances.   See Hayman v. Commissioner,

supra at 1261; Price v. Commissioner, supra at 965.

     1.   Facts Supporting a Finding that Petitioner Lacked
          Constructive Knowledge of Understatement

     On one hand, certain of the above-mentioned factors indicate

that petitioner did not have reason to know of the understatement

of tax contained in the couple’s 1981 and 1982 tax returns.

First, petitioner had no role in the couple’s finances beyond

making payments for household expenses.   All other matters were

the responsibility of her income-producing counterpart, a

responsibility which he in turn delegated to his personal

secretary.   While Mr. Von Kalinowski did not seek to hide any

financial information from petitioner, the two simply did not

discuss such matters beyond mere generalities.    In keeping with

this general practice, petitioner was at no time aware of her

husband’s participation in the tax shelter investments.

     Second, as reflected in the findings of fact, petitioners

maintained a reasonably affluent lifestyle both prior to their

marriage and during the years which followed.    Petitioner

testified that she did not experience a change of lifestyle

during the tax years at issue, and we find her testimony credible

in this regard.   We are satisfied that nothing about petitioners’
                               - 17 -

standard of living or spending habits would have alerted her to

the fact that her and her husband’s tax obligations were not

being accurately reported.

     2.   Facts Supporting a Finding That Petitioner Possessed
          Constructive Knowledge of Understatement

     While certain considerations in this case support a finding

that petitioner lacked constructive knowledge of the

understatement, others support a contrary conclusion.    Petitioner

is not unsophisticated in financial matters.    She is an educated

woman, and her studies included a course in financial accounting.

Petitioner worked for a number of years prior to her marriage,

presumably receiving paychecks, paying bills, and filing income

tax returns.   Furthermore, during the tax years at issue,

petitioner ran her own sole proprietorship.    Although not a large

enterprise, petitioner’s experience was certainly sufficient to

provide her an understanding of what it meant for a business to

incur a profit or a loss.    With respect to her business,

petitioner prepared the tax information necessary to be included

on the tax return.

     3.   Duty of Inquiry

     The facts supporting a conclusion that petitioner possessed

constructive knowledge of the understatement become increasingly

persuasive in light of the information that was included on the

tax returns which petitioner executed.    Although petitioner did

not review the returns prior to signing them, she is charged with
                               - 18 -

knowledge of their contents.    See Hayman v. Commissioner, supra

at 1262; Terzian v. Commissioner, 72 T.C. 1164, 1170 (1979).

Petitioner is thus deemed to have known that, in 1981, the tax

shelter investments resulted in losses totaling $368,675 compared

to her husband’s law firm and royalty income of $456,645.

Similarly, petitioner is charged with knowledge that her

husband’s 1982 income from such sources of $370,263 was offset by

tax shelter losses of $228,133.    “Tax returns setting forth large

deductions, such as tax shelter losses offsetting income from

other sources and substantially reducing * * * the couple’s tax

liability, generally put a taxpayer on notice that there may be

an understatement of tax liability.”    Hayman v. Commissioner,

supra at 1262; see also Levin v. Commissioner, T.C. Memo. 1987-

67.    We find that the size of the losses claimed on the return

should have alerted petitioner to question their legitimacy.11

       Where a spouse has a duty to inquire as to the legitimacy of

a deduction, the failure to satisfy such duty may result in

constructive knowledge of the understatement being imputed to

her.    See Price v. Commissioner, 887 F.2d at 965; see also Levin

v. Commissioner, supra.    A spouse cannot obtain relief from joint



       11
        The investment tax credits generated by the tax shelter
investments and carried back by petitioners to prior tax years
(including years prior to their marriage) with respect to which
petitioners filed joint and separate Forms 1045 would seemingly
have provided petitioner with an additional justification to seek
more information regarding the investments.
                              - 19 -

liability in a deduction case “‘by simply turning a blind eye

to–-by preferring not to know of–-facts fully disclosed on a

return, of such a large nature as would reasonably put such

spouse on notice that further inquiry would need to be made’”.

Price v. Commissioner, supra at 965 (quoting Levin v.

Commissioner, T.C. Memo. 1987-67).     Petitioner made no inquiry as

to the validity of the deductions.     Her duty of inquiry thus went

unfulfilled.   Accordingly, we hold that petitioner possessed

constructive knowledge of the understatement for purposes of

section 6015(b)(1)(C).

D.   The Equities–-Sec. 6015(b)(1)(D)

     Even had petitioner satisfied the knowledge requirement

under section 6015(b)(1)(C), she would have failed to qualify for

relief from joint and several liability by reason of section

6015(b)(1)(D).   Pursuant to section 6015(b)(1)(D), a spouse

seeking relief under section 6015(b)(1) must establish that it is

inequitable to hold him or her liable for the deficiency

attributable to the understatement.    This determination must be

made based upon due consideration of all the facts and

circumstances.   See sec. 1.6013-5(b), Income Tax Regs.   For

reasons discussed below, we find that the imposition of joint and

several liability in this case is not inequitable.

     Petitioner’s principal argument regarding the equities in

this case is grounded in the possibility that her husband will
                              - 20 -

not satisfy the conceded deficiencies.   Petitioner notes that

“Although [Mr. Von Kalinowski] may have the income and assets to

pay the liability there is no assurance that he will do so.”

From this, petitioner concludes that she will suffer “substantial

future hardship” if she is not relieved of the liability.   The

hardship which petitioner describes is contingent upon (a) Mr.

Von Kalinowski's not satisfying the deficiencies during his

lifetime, and (b) Mr. Von Kalinowski's passing away and

disinheriting petitioner.   We do not believe that this

hypothetical hardship is sufficient to satisfy the requirements

of section 6015(b)(1)(D).   Rather, the statute requires that the

taxpayer demonstrate that the imposition of joint and several

liability is inequitable in present terms.

     As things presently stand, petitioner and Mr. Von Kalinowski

remain married.   The two have not separated, and petitioner has

not been left by her husband to “face the music”.   Instead,

petitioner continues to enjoy the lifestyle and financial

security that are largely attributable to her husband’s assets

and income.   Simply put, petitioner has not been deserted in the

sense foreseen by the legislators who enacted the predecessor to

the section 6015(b)(1) relief from joint liability.   See Hayman

v. Commissioner, 992 F.2d at 1263; Meyer v. Commissioner, T.C.

Memo. 1996-400; Prince v. Commissioner, T.C. Memo. 1995-368.

     Petitioner also contends that she did not significantly
                                - 21 -

benefit from the tax savings generated by the understatement.

Whether the relief-seeking spouse has significantly benefited

from the understatement in tax is a factor to be considered in

weighing the equities.    See sec. 1.6013-5(b), Income Tax Regs.

Transfers of property to the relief-seeking spouse are relevant

in determining the existence of a significant benefit, and such

transfers are not limited to the tax years to which the

understatement relates.     See id.   Mr. Von Kalinowski testified

that he contributed approximately $500,000 to petitioner’s travel

agency over the course of the 15-year period in which the

business was operational.    These contributions were of obvious

benefit to petitioner, and the amount of such transfers renders

petitioner’s argument that she did not significantly benefit from

the tax savings unpersuasive.

     Finally, a factor which may be taken into account in

weighing the equities is whether the failure to report the

correct tax liability in this case resulted from concealment,

overreaching, or other wrongdoing on the part of the spouse not

seeking relief.   See Hayman v. Commissioner, supra at 1262; McCoy

v. Commissioner, 57 T.C. 732, 735 (1972).     No such untoward

circumstances are present in this case.     Rather, the

understatement in tax is attributable to a mistaken belief on the

part of Mr. Von Kalinowski as well as his accountant as to the

legitimacy of the tax shelter deductions.     Under these

circumstances, we perceive no inequity in holding both spouses to
                               - 22 -

joint and several liability.   See Bokum v. Commissioner, 992 F.2d

1132, 1135 (11th Cir. 1993), affg. 94 T.C. 126 (1990); McCoy v.

Commissioner, supra at 735.

E.   Conclusion

     Petitioner is not entitled to relief from joint and several

liability pursuant to section 6015(b)(1) as she has failed to

satisfy the requirements of section 6015(b)(1)(C) and (D).

     To reflect the stipulations of settled issues and our

determination herein,

                                         Decision will be entered

                                    under Rule 155.
