                       T.C. Memo. 2001-76



                     UNITED STATES TAX COURT



               FREDIE LYNN CHARLTON, Petitioner v.
          COMMISSIONER OF INTERNAL REVENUE, Respondent

          SARAH K. HAWTHORNE, F.K.A. SARAH K. CHARLTON,
         Petitioner v. COMMISSIONER OF INTERNAL REVENUE,
                           Respondent*



     Docket Nos. 11412-98, 11861-98.    Filed March 27, 2001.


          In Charlton v. Commissioner, 114 T.C. 333 (2000),
     we held that (1) income from Medi-Task, a transcription
     service, is self-employment income attributable to
     Hawthorne (H), Charlton’s (C’s) former spouse;
     (2) expenses related to rental cabins are not
     deductible; and (3) C qualifies under sec. 6015(c),
     I.R.C., for limitation of liability for tax resulting
     from the Medi-Task income. We ordered C and respondent
     (R) to compute C’s liability under sec. 6015(d),
     I.R.C., as part of the Rule 155 computations. After we
     filed our opinion in Charlton v. Commissioner, supra, R
     determined that H is entitled to relief under section
     6015(f). C disagrees with R’s determination.


     *
        This Memorandum Opinion supplements Charlton v.
Commissioner, 114 T.C. 333 (2000).
                                -2-


          Held: deductions related to Medi-Task are
     allocable to H. See sec. 6015(d)(3), I.R.C.

          Held, further, R’s determination that H was
     entitled to relief under sec. 6015(f), I.R.C., was not
     an abuse of discretion.


     Fredie Lynn Charlton, pro se.

     Sarah K. Hawthorne, pro se.

     Carl D. Inskeep, Sheila R. Pattison, Deborah H. Delgado, and

Lewis J. Hubbard, for respondent.



                 SUPPLEMENTAL MEMORANDUM OPINION

     COLVIN, Judge:   This matter is before us to resolve a

dispute arising in the Rule 1551 computations submitted by

petitioner Fredie Lynn Charlton (Charlton) and respondent.

Charlton sought relief under section 6015.2

     Following concessions,3 we must decide the following issues:




     1
        Rule references are to the Tax Court Rules of Practice
and Procedure. Section references are to the Internal Revenue
Code in effect during 1994, except section 6015, which was
enacted in 1998.
     2
        Docket No. 11861-98, the case of Sarah K. Hawthorne,
formerly known as Sarah K. Charlton and now known as Sarah K.
Mayor, was consolidated with this case for trial, briefing, and
opinion.
     3
        The parties agree that the total deficiency is $15,192.
They dispute whether $8,320 of that amount should be allocable to
Charlton, Hawthorne, or jointly to both of them under sec.
6015(d).
                                 -3-

     1.    Whether unclaimed Medi-Task expenses totaling $2,050

are allocable to Hawthorne.    We hold that they are.

     2.    Whether the self-employment tax deduction resulting

from self-employment tax attributable to the unreported Medi-Task

income is allocable to Hawthorne.      We hold that it is.

     3.   Whether respondent’s determination that Hawthorne is

entitled to relief under section 6015(f) was an abuse of

discretion.   We hold that it was not.

                              Background

     Charlton and Hawthorne were married in 1989.      They filed a

joint tax return for 1994 on which they reported income from a

medical transcription business called Medi-Task and deducted

rental cabin expenses.

     Respondent determined a deficiency for 1994 based in part on

unreported Medi-Task income, self-employment tax related to Medi-

Task, a $2,050 deduction for Medi-Task expenses which Charlton

and Hawthorne had not deducted, and rental cabin expense

deductions which respondent denied.

     Charlton and Hawthorne were divorced in 1996.      Hawthorne

received Medi-Task, and Charlton received the rental cabins as a

part of their divorce settlement.

     Charlton and Hawthorne filed petitions disputing

respondent’s determination and alleging that they each qualified

for relief under section 6015.    We held that Medi-Task income was

self-employment income allocable to Hawthorne under sections 6017
                                    -4-

and 1402(a)(5)(A).   See Charlton v. Commissioner, 114 T.C. 333,

337 (2000).   We denied rental cabin deductions because they were

preoperational expenses.   See id. at 338.     We held that Charlton

qualifies for limitation of liability under section 6015(c) to

the extent that the unreported Medi-Task income is allocable to

Hawthorne.    See id. at 340-342.    Charlton improperly netted the

Medi-Task income and expenses petitioners had reported with

expenses of the rental cabins to compute self-employment income.

That error caused a self-employment tax deficiency.     An

additional self-employment tax deficiency occurred because

Charlton and Hawthorne underreported Medi-Task income.       We

accepted respondent’s unopposed suggestion that the parties

allocate items under section 6015(d) as part of the Rule 155

computations.   See id. at 342.

       After we filed our opinion in Charlton v. Commissioner,

supra, respondent determined that Hawthorne is entitled to relief

under section 6015(f).

                             Discussion

     Respondent contends that the tax on Medi-Task income and the

increase in self-employment tax attributable to the unreported

Medi-Task income are allocable to Hawthorne, and that the

deficiency to the extent that it was attributable to denied

rental cabin deductions is allocable to Charlton.     Charlton

contends that deductions for $2,050 of unclaimed Medi-Task
                                         -5-

expenses and for self-employment tax related to Medi-Task are

allocable jointly to Hawthorne and Charlton.

A.   Whether the $2,050 of Unclaimed Medi-Task Expenses Are
     Allocable Solely to Hawthorne

     Charlton contends that the unclaimed Medi-Task expenses are

allocable both to him and Hawthorne.           We disagree.   Items giving

rise to a deficiency on a joint return are allocated to the

individuals filing the return in the same manner as if the

individuals had filed separate returns.           See sec. 6015(d)(3)(A);

Internal Revenue Service Restructuring and Reform Act of 1998,

Pub. L. 105-206, sec. 3201, 112 Stat. 734; H. Conf. Rept. 105-

599, at 250-251 (1998), 1998-3 C.B. 747, 1004-1005.           “The

allocation of business deductions is expected to follow the

ownership of the business.”         S. Rept. 105-174, at 57 (1998),

1998-3 C.B. 537, 593.        Thus, Medi-Task deductions are allocable

solely to Hawthorne because only she owned Medi-Task.

     Section 6015(d) provides that only “items giving rise to the

deficiency” are allocated as if the individuals had filed

separate returns for the taxable year.           See sec. 6015(d)(3)(A).4


     4
         Sec. 6015(d)(3)(A) provides:

     (d)   Allocation of deficiency.
           For purposes of subsection (c)--

             *         *        *         *      *      *      *

          (3) Allocation of items giving rise to the
     deficiency.--For purposes of this subsection --

                 (A)       In general.    Except as provided in
                                -6-

Charlton contends that the unclaimed Medi-Task deductions are not

“items giving rise to the deficiency” because unclaimed

deductions reduce, and do not cause, a deficiency.   Charlton

points out that we said in Charlton v. Commissioner, supra at

341, that “The only Medi-Task item causing a deficiency in this

case is omitted income.”

     Consistent with the requirement that we allocate items under

section 6015(c) as if the spouses had filed separate returns, see

section 6015(d)(3)(A), we believe “items giving rise to the

deficiency” include items that affect the calculation of the

deficiency.   We conclude that the unclaimed Medi-Task deductions

are “items giving rise to the deficiency” for purposes of section

6015(d) and that the separate return rule applies under section

6015(d)(3)(A).

     Married individuals who file separate returns must each

report their own income and deductions.5   See Commissioner v.

Culbertson, 337 U.S. 733, 739-740 (1949) (“income must be taxed

to him who earns it”); Deputy v. duPont, 308 U.S. 488, 493-494

(1940) (taxpayer must deduct own expense and not that of




          paragraphs (4) and (5), any item giving rise to a
          deficiency on a joint return shall be allocated to
          individuals filing the return in the same manner
          as it would have been allocated if the individuals
          had filed separate returns for the taxable year.
     5
        See discussion of married individuals filing separate
returns, 4 Bittker & Lokken, Federal Taxation of Income, Estates
and Gifts, par. 111.3.2, at 111-64 and 111-65 (2d ed. 1992).
                                 -7-

another).    If Hawthorne had filed a separate return, Hawthorne

could have deducted Medi-Task expenses because she owned Medi-

Task and because Charlton may not deduct Hawthorne’s business

expenses.    See Deputy v. duPont, supra; Bennett Land Co. v.

Commissioner, 70 T.C. 904, 908 (1978).     Hawthorne could have

deducted Medi-Task expenses because she used Medi-Task income,

all of which is allocated to Hawthorne, to pay Medi-Task’s

expenses.    See Johnson v. Commissioner, T.C. Memo. 1980-9

(husband cannot deduct taxes or mortgage interest that he paid on

a house that his wife owned where the mortgage was her obligation

and he was liable for the debt only as a guarantor), affd. 652

F.2d 54 (2d Cir. 1981); Finney v. Commissioner, T.C. Memo. 1976-

329 (the spouse providing funds may deduct interest paid on

jointly owned property).

     Charlton contends that one-half of the Medi-Task deductions

are attributable to him under Texas community property laws.      We

disagree.    Allocation under section 6015(d)(3) is made without

regard to community property laws.     See sec. 6015(a) (flush

language).

     We conclude that the $2,050 of unclaimed Medi-Task expenses

are allocable to Hawthorne under section 6015(d)(3)(A).

B.   Whether the Self-Employment Tax Deduction Relating to Medi-
     Task Is Allocable Solely to Hawthorne

     Charlton contends that the self-employment tax relating to

Medi-Task is allocable solely to Hawthorne, but that the
                                  -8-

resulting self-employment tax deduction is allocable both to him

and Hawthorne.    We disagree.   The self-employment tax deduction

resulting from the self-employment tax due to Hawthorne’s self-

employment income from Medi-Task is allocable to Hawthorne under

the separate return rule for reasons discussed in paragraph A,

above.

C.   Whether Respondent’s Determination That Hawthorne Is
     Entitled to Relief Under Section 6015(f) Was an Abuse of
     Discretion

     After we issued our opinion in these cases at Charlton v.

Commissioner, 114 T.C. 333 (2000), respondent determined that

Hawthorne was entitled to equitable relief under section 6015(f)

for the deficiency in income tax attributable to the denied

deductions for the rental cabins and the deficiency in self-

employment tax attributable to improper netting due to the fact

that Charlton netted Medi-Task income and expenses with rental

cabin expenses.    Charlton disagrees with respondent’s

determination.

     We apply an abuse of discretion standard to review the

Commissioner’s determinations under section 6015(f).      See

Cheshire v. Commissioner, 115 T.C. 183, 199 (2000); Fernandez v.

Commissioner, 114 T.C. 324, 332 (2000); Butler v. Commissioner,

114 T.C. 276, 291-293 (2000).    Charlton contends: (1) The

improper characterization of costs for the rental cabins and

self-employment tax netting errors are partially attributable to

Hawthorne; (2) Hawthorne knew or had reason to know of the
                                  -9-

improper characterization and netting; and (3) Hawthorne

significantly benefited from the improper characterization and

netting.

     Charlton does not cite anything in the record to support his

contentions, and the record shows that some of his contentions

are incorrect.   First, Charlton contends that Hawthorne is

partially responsible for improperly characterizing rental

property costs and self-employment tax netting errors.     However,

the record shows that Charlton prepared the tax return for 1994.

We believe that the improper characterization of the rental

property expenses and self-employment tax netting errors were his

errors, and that Hawthorne did not know of those errors.     Second,

Charlton contends that Hawthorne significantly benefited from the

improper characterization of rental property expenses.     It

appears that Charlton, and not Hawthorne, benefited from the

errors on the 1994 tax return relating to the rental property

because he received and used the income tax refund for 1994 and

Hawthorne did not.   Costs of improvements to the rental

properties are added to the basis in the properties because we

held that they are capital expenses.    Charlton will benefit from

the fact that the basis was increased because he received the

rental property in the divorce.    Hawthorne testified that she did

not read the return, but her testimony on this point does not

establish that respondent’s determination that Hawthorne is
                                -10-

entitled to relief under section 6015(f) is an abuse of

discretion.

     Charlton questions the qualifications of the revenue agent

who prepared the Form 886A, Explanation of Items, which detail

respondent’s reasons for granting Hawthorne relief under section

6015(f).   However, there is no indication that the revenue agent

was unqualified, and respondent is not required to establish the

qualifications of the revenue agent who prepared the Form 886A.

See Greenberg’s Express v. Commissioner, 62 T.C. 324, 327 (1974).

     Charlton states that he does not know what information the

revenue agent used to support the findings on the Form 886A, that

he did not have the opportunity to question witnesses or examine

evidence that the revenue agent considered, and that he did not

have the opportunity to rebut Hawthorne’s statements.     However,

Charlton neither offered any evidence nor made any convincing

argument that respondent’s determination that Hawthorne was

entitled to relief under section 6015(f) was an abuse of

discretion.   Similarly, he has not identified any new evidence

that he wishes to offer.   See Rodman v. Commissioner, 542 F.2d

845, 860 (2d Cir. 1976) (unsupported allegations do not establish

an abuse of discretion), affg. in part, revg. in part on another

ground, and remanding T.C. Memo. 1973-277; United States v.

Marshall, 526 F.2d 1349, 1356 (9th Cir. 1975) (same).

     At trial, Hawthorne contended that she was entitled to

relief under section 6015(b).   To be entitled to relief under
                               -11-

section 6015(b), a taxpayer must show that it is inequitable to

be held liable for tax due on a joint return.    See sec.

6015(b)(1)(D).   Under section 6015(f), the Secretary may grant

relief from joint liability if it is inequitable to hold the

individual liable for any unpaid tax or deficiency.    Charlton was

present at trial.   Thus, he had the opportunity to present

evidence relating to whether or to what extent it was equitable

to hold Hawthorne jointly liable for tax.    He did not establish

that it was an abuse of discretion for respondent to relieve

Hawthorne from joint liability to the extent determined by

respondent under section 6015(f).

    Based on the Form 886A and the trial record in these cases,

we conclude that respondent’s grant of relief to Hawthorne under

section 6015(f) was not an abuse of discretion.    Thus, we sustain

that determination.

     For the foregoing reasons,



                                               Decision will be

                                      entered consistent with agreed

                                      computations submitted under

                                      Rule 155 by respondent and

                                      Hawthorne in docket No.

                                      11861-98 and consistent with
-12-

       respondent’s computations

       under Rule 155 in docket No.

       11412-98.
