                   T.C. Summary Opinion 2007-9



                     UNITED STATES TAX COURT



                MICHAEL ALAN SWANSON, Petitioner,
              AND JUDITH N. SWANSON, Intervenor v.
          COMMISSIONER OF INTERNAL REVENUE, Respondent



     Docket No. 5412-05S.             Filed January 17, 2007.



     Michael Alan Swanson, pro se.

     Deborah McIntosh, for intervenor.

     Michael Lloyd, for respondent.



     GOLDBERG, Special Trial Judge:   This is a case arising under

sections 6015 and 7463 of the Internal Revenue Code as in effect

at the time the petition was filed.   Unless otherwise indicated,

subsequent section references are to the Internal Revenue Code of

1986 as amended, and Rule references are to the Tax Court Rules

of Practice and Procedure.   The decision to be entered is not
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reviewable by any other court, and this opinion should not be

cited as authority.

     This case arises from petitioner’s election to seek relief

from joint and several liability for Federal income tax for the

taxable year 1999 under section 6015(b), (c), and (f).

Respondent determined that petitioner was not entitled to such

relief.   The issue before this Court is whether petitioner is

entitled to relief under section 6015(b), (c), and (f).

                             Background

     Some of the facts are stipulated.    The stipulated facts and

the exhibits received into evidence are incorporated herein by

reference.   At the time that the petition was filed, petitioner

resided in Evansville, Wyoming.

     During the taxable year at issue, petitioner was married to

Judith Swanson (intervenor).   There were no children born of the

marriage.    Petitioner and intervenor separated sometime in 1999.

In October 1999, intervenor moved to San Diego, California.

Petitioner and intervenor divorced in 2000.

     Petitioner and intervenor’s 1999 Federal income tax return

listed a $3,322 overpayment.   Of this amount, respondent offset

$1,659.29 for a liability outstanding from the 1997 taxable year.

Respondent also offset $448.50 for an outstanding liability from

the 1998 taxable year.   After these offsets were made, petitioner

received a refund of $1,217.21.
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     Petitioner currently works as a human resources specialist

for the Department of Agriculture.      He held this position

throughout 1999.   Intervenor, because of a chronic medical

condition, was classified as disabled sometime shortly before

1999.

     Petitioner and intervenor electronically filed their 1999

Federal income tax return.1   On the return, for “Filing Status”

petitioner and intervenor checked the box labeled “Married filing

jointly”.   They did not include in gross income $22,168 received

from intervenor’s pension fund.   They did not include this amount

as income because of an error with, and their misunderstanding

of, the Federal income tax preparation software that they used to

complete and file the return.

     On December 10, 2001, separate notices of deficiency were

sent to petitioner and intervenor in which respondent determined

a deficiency of $4,269 in Federal income tax for the year 1999

based on petitioner and intervenor’s failure to include

intervenor’s pension in gross income.      No petition was filed by

either party with the Tax Court seeking a redetermination of the



     1
      Intervenor argues that she never signed the return filed
electronically by petitioner. On Nov. 14, 2005, intervenor
submitted a Federal income tax return for 1999. On the return,
for “Filing Status” intervenor checked the box labeled “Married
filing separate return”. On line 16(a) and (b), she listed
$22,169 as income from her pension. After claiming the standard
deduction and applicable credits, she computed an overpayment of
tax due of $795.
                                - 4 -

deficiency.     Accordingly, on May 6, 2002, respondent assessed

the determined deficiency.

     On September 24, 2002, petitioner requested a collection due

process hearing; however, his request was denied as untimely.

Petitioner did subsequently receive an equivalent hearing.

     Petitioner filed a Form 8857, Request for Innocent Spouse

Relief, on April 30, 2004.    On November 16, 2004, the Internal

Revenue Service’s Examination Division denied petitioner’s claim

for relief under section 6015(b), (c), and (f).    Although

petitioner appealed to respondent’s Office of Appeals, a notice

of determination was sent to petitioner on February 14, 2005.

The notice denied petitioner relief from joint liability for the

taxable year 1999.

     Intervenor filed a Form 8857 on July 28, 2002.    That request

was subsequently denied.    On November 26, 2003, a notice of

determination was sent to intervenor.    Intervenor did not take

any action with respect to that notice.

     Respondent, pursuant to Rule 325 and King v. Commissioner,

115 T.C. 118 (2000), served notice of this proceeding on

intervenor.    Intervenor filed a notice of intervention on August

30, 2005.    She was not present at trial, but was represented by

counsel.    Intervenor filed a motion to dismiss at trial.    In her

motion, intervenor contends that petitioner’s claim for innocent

spouse relief should be dismissed because she never signed the
                               - 5 -

signature page to the electronically filed Federal income tax

return for 1999.   Intervenor also claims that petitioner knew

that the income from her pension was taxable and that he received

the benefit of an overpayment refund attributable to that income

for 1999.

                             Discussion

     Except as otherwise provided in section 6015, petitioner

bears the burden of proof.   See Rule 142(a); Alt v. Commissioner,

119 T.C. 306, 311 (2002), affd. 101 Fed. Appx. 34 (6th Cir.

2004).

     Generally, spouses filing joint Federal income tax returns

are jointly and severally liable for the taxes due thereon.    Sec.

6013(d)(3).   Section 6015 provides three avenues for relief from

that liability to a taxpayer who has filed a joint return:     (1)

Section 6015(b) allows relief for understatements of tax

attributable to certain erroneous items on a return; (2) section

6015(c) provides relief for a portion of an understatement of tax

to taxpayers who are separated or divorced; and (3) section

6015(f) more broadly confers on the Secretary discretion to grant

equitable relief to taxpayers who otherwise do not qualify under

section 6015(b) or (c).

     The first avenue for relief is section 6015(b).   Under

section 6015(b), the Court may grant a taxpayer full or

apportioned relief from joint and several liability for an
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understatement of tax on a joint return attributable to erroneous

items of the other spouse if the taxpayer establishes that in

signing the return he “did not know, and had no reason to know”

of the understatement.    Sec. 6015(b)(1)(C), (2).

     Petitioner testified that he was aware of intervenor’s

pension account and that he did, in fact, consider it income to

them.   The only issue raised by petitioner with respect to

intervenor’s pension income was whether the amount was considered

taxable.    Petitioner admits that he erred in entering the

information into his Federal income tax preparation software

program and in misunderstanding from information provided to him

by the software program that the pension income was not taxable

because intervenor is disabled.    However, because petitioner, by

his own admission, had actual knowledge of the pension income,

section 6015(b) does not apply.    Thus, petitioner is not entitled

to relief under section 6015(b).

     The second avenue for relief is section 6015(c).    Section

6015(c) affords proportionate relief to the requesting spouse

through allocation to the responsible party.    Generally, the

avenue of relief allows a spouse to elect to be treated as if a

separate return had been filed.    Rowe v. Commissioner, T.C. Memo.

2001-325.    To be eligible for relief under section 6015(c), the

requesting spouse must no longer be married to, or must be

legally separated from, the individual with whom the tax return
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was filed and must have elected the applicability of section

6015(c) not later than 2 years after the date on which collection

activity began.   Sec. 6015(c)(3).   Furthermore, and perhaps most

important to these facts, relief under section 6015(c) is not

available to a taxpayer if it is shown that the taxpayer had

actual knowledge when signing the return of any “item” giving

rise to the deficiency.   Sec. 6015(c)(3)(C).

     Petitioner is now divorced from intervenor, and the divorce

decree was finalized before petitioner requested relief from

joint and several liability.    Petitioner timely filed a Form 8857

to request relief under section 6015.   Accordingly, the remaining

issue is whether petitioner had no actual knowledge of the income

item leading to the underpayment.

     In this case, petitioner had actual knowledge of the “item”

because he entered the amount listed on intervenor’s Form 1099

from her pension account into the income tax preparation software

when completing and filing the 1999 return.     Because petitioner

had actual knowledge of intervenor’s pension income, and, in

fact, applied the tax withheld from that income against total tax

liability on the 1999 return, he is precluded from claiming

relief under section 6015(c).

     Because petitioner is not eligible for relief under section

6015(b) and (c), we must consider the equitable relief provisions

of section 6015(f).   Section 6015(f) provides, in part, that a
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taxpayer may be relieved from joint and several liability if it

is determined that, taking into account all the facts and

circumstances, it is inequitable to hold the taxpayer liable for

the unpaid tax, and relief is not available under section 6015(b)

or (c).   To prevail, petitioner must prove that respondent’s

denial of equitable relief from joint liability under section

6015(f) was an abuse of discretion.    Jonson v. Commissioner, 118

T.C. 106, 125 (2002), affd. 353 F.3d 1181 (10th Cir. 2003);

Cheshire v. Commissioner, 115 T.C. 183, 198 (2000), affd. 282

F.3d 326 (5th Cir. 2002); Butler v. Commissioner, 114 T.C. 276,

291-292 (2000).

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

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

modifying Rev. Proc. 2000-15, 2000-1 C.B. 447, that are to be

used in determining whether it is inequitable to hold a

requesting spouse liable for all or part of the liability for any

unpaid tax or deficiency.2   The requesting spouse must satisfy

seven conditions (threshold conditions) before the Commissioner

will consider a request for relief under section 6015(f).   Rev.

Proc. 2003-61, sec. 4.01, 2003-2 C.B. at 297.   Respondent agrees


     2
      Rev. Proc. 2000-15, 2000-1 C.B. 447, was superseded by Rev.
Proc. 2003-61, 2003-2 C.B. 296, and is effective as to requests
for relief filed on or after Nov. 1, 2003, and for requests for
relief pending on Nov. 1, 2003, as to which no preliminary
determination letter had been issued as of that date.
Petitioner’s application for relief was filed after Nov. 1, 2003,
on Apr. 30, 2004.
                               - 9 -

that petitioner has satisfied those threshold conditions.

     In this case, there are three additional elements, which, if

satisfied, would ordinarily result in the granting of relief in

the case of an underpayment (balance due on return).   Petitioner

was divorced from intervenor in 2000 and therefore satisfies the

first element.   The second element is inapplicable under these

facts because at the time the return was filed, there was no tax

to be paid.   Finally, as to the third element, whether the

requesting spouse will suffer economic hardship if relief is not

granted, petitioner has failed to prove that he would be unable

to pay his reasonable basic living expenses were relief denied.

See sec. 301.6343-1(b)(4)(i), Proced. & Admin. Regs.   Therefore,

we conclude that petitioner does not qualify for relief under

Rev. Proc. 2003-61, sec. 4.02, 2003-2 C.B. at 298.

     Where, as here, the requesting spouse satisfies the

seven threshold conditions set forth in Rev. Proc. 2003-61, sec.

4.01 but does not qualify for relief under Rev. Proc. 2003-61,

sec. 4.02, he may still be granted relief if, upon taking into

account all the facts and circumstances, it would be inequitable

to hold the requesting spouse liable for all or part of the

unpaid deficiency.   Rev. Proc. 2003-61, sec. 4.03, 2003-2 C.B. at

298, lists six factors to be considered in determining whether to

grant equitable relief.   We will now consider petitioner’s

request in the light of those factors.
                               - 10 -

     In this case, petitioner divorced intervenor in 2000;

therefore, he satisfies the first factor.   With respect

to the second factor, petitioner must show that he would be

unable to pay basic reasonable living expenses if relief were not

granted.   See Monsour v. Commissioner, T.C. Memo. 2004-190.

Being unable to pay basic reasonable living expenses would amount

to economic hardship.    Sec. 301.6343-1(b)(4)(i), Proced. & Admin.

Regs.   Petitioner has not alleged that denial of his request for

relief would result in economic hardship.   He is gainfully

employed and has no dependents.   The Court fails to

see, and petitioner has neither raised as an issue or

established, that he would suffer economic hardship if his

request for relief from joint liability were denied.

     As to the third factor, as discussed earlier, petitioner had

actual knowledge of the pension income when he completed the 1999

income tax return.   Rev. Proc. 2003-61, sec. 4.03 specifically

states that actual knowledge by the requesting spouse of the item

giving rise to the deficiency is a strong factor weighing against

relief.    This strong factor may be overcome only if the factors

in favor of equitable relief are particularly compelling.     We

conclude that they are not.

     As to the fourth factor, petitioner points to language in

the separation agreement which states that if a deficiency

“results from the unreported income of one spouse, then the
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spouse who failed to report the income shall be solely

responsible for any deficiency, including taxes, penalties and

interest.”   Petitioner testified that he used the software

program to complete and file their tax return and that he

misunderstood that the pension was, in fact, taxable.    Therefore,

while the agreement holds petitioner and intervenor liable for

the deficiencies that arise from their own income, petitioner was

ultimately aware of the pension at the time he filed the return.

We find this fact ultimately dispositive.

     As to the fifth factor, petitioner received a substantial

benefit in that the overpayment due on the joint return was

applied to joint tax liabilities petitioner owed for taxable

years 1997 and 1998.   In addition, after the overpayment was

applied to the outstanding liabilities, petitioner received a

refund of more than $1,200.

     Petitioner’s failure to satisfy all but one3 of the factors

in Rev. Proc. 2003-61, sec. 4.03 is determinative.   On these

facts and circumstances, the Court holds that there was no abuse

of discretion by respondent in denying relief to petitioner under

section 6015(f).   The Court, therefore, sustains that denial.

     Because we have already sustained respondent, we need not



     3
       With reference to the sixth factor, we note that at trial,
respondent asserted that petitioner had not timely filed income
tax returns for taxable years 2000 and 2001. Petitioner did not
rebut this assertion.
                              - 12 -

address intervenor’s motion to dismiss on the grounds that she

did not file a joint return with petitioner in 1999, and that

petitioner’s claim for relief should be denied because he had

actual knowledge of the pension income at the time the 1999

return was filed.   For this reason, we will deny intervenor’s

motion in our order disposing of this case.

     Reviewed and adopted as the report of the Small Tax

Case Division.


                                         An appropriate order and

                                    decision will be entered.
