                          T.C. Memo. 2010-134



                        UNITED STATES TAX COURT



   KAREN MARIE WILSON, Petitioner v. COMMISSIONER OF INTERNAL
                       REVENUE, Respondent



        Docket No. 23882-04.               Filed June 17, 2010.



     Katherine J. Evans and Philip A. O’Connell, Jr., for

petitioner.

     Thomas Greenaway, for respondent.



                MEMORANDUM FINDINGS OF FACT AND OPINION


     HOLMES, Judge:     Lloyd Wilson was up to no good in 1997 and

1998.    His previously modest income had skyrocketed in less than

two years’ time.    He moved much of the money offshore--including

one deposit of a quarter-million dollars that he sent to

Grenada--and then systematically underreported his income on the

family’s tax returns.
                                 -2-

     When the SEC cease-and-desist order arrived, Wilson stopped

working altogether.   He asked a different tax preparer to help

him out of the mess; that preparer filled out amended returns

that Lloyd and his wife Karen signed.     The amended returns led to

a tax bill of over $540,000; neither Wilson has paid it.     The

Wilsons divorced, and Karen resumed working outside the home in

an insecure and low-paying clerical job.     She now seeks relief

from the old tax debt.

                          FINDINGS OF FACT

     The Wilsons married in 1983.      Karen Wilson was working as a

cashier in a gas station and, apart from a bit of technical

training, did not have an education beyond high school.     For the

first 14 years of their marriage, Lloyd was a self-employed

insurance salesman, earning about $30,000 to $36,000 a year.

Karen supplemented the family income by working a variety of

jobs, eventually becoming a loan officer at the local credit

union.    The Wilsons had three sons, one of whom is still a minor.

And every year Karen would prepare the family’s simple joint tax

return.

     Until 1997.   That year the Wilsons’ financial situation

started changing radically for the better.     Lloyd began netting

$20,000 a month in his new venture of steering people into a

Ponzi scheme called the Venture Fund Group.     We specifically

find, on the basis of her credible testimony, that Karen did not
                                  -3-

understand the nature of her husband’s business--she believed it

was legitimate and had no knowledge about its operations or

fraudulent nature.    But its apparent success allowed Karen to

leave her job at the credit union to help Lloyd with paperwork

and bookkeeping, and to spend more time taking care of the

children.   With their new earnings, the Wilsons put down $50,000

on two neighboring houses in Modesto, California and took out a

mortgage on each.    They used one as the family home and the

second as Lloyd’s office.

     Accounting for Lloyd’s new business was complicated--the

business involved several entities and offshore accounts--and

Lloyd turned to Roosevelt Drummer to prepare the Wilsons’ 1997

and 1998 joint returns.    But Drummer failed to report the

substantial income that Lloyd was sending to offshore accounts in

the name of a grantor trust.1   And, in the meantime, the SEC was

investigating.   In May 1999, an SEC cease-and-desist order put an

abrupt end to Lloyd’s $20,000-a-month business.    Lloyd dumped

Drummer and hired John Northup, a licensed CPA, for advice.

Northup looked at the Wilsons’ 1997 and 1998 returns and told

them to get right with the IRS.    They took his advice and at the

end of 1999 filed amended 1997 and 1998 returns that reported the


     1
       In the trust world, a grantor is the person who
contributes assets to a trust. A grantor trust is created if the
grantor retains enough control of or interest in the assets that
the trust is ignored for income tax purposes–-in other words, the
IRS continues to treat the assets as belonging to the grantor.
                                -4-

income Lloyd had been sending offshore.    They also filed their

1999 return.   The three returns showed a total tax liability of

$540,000.

     Northup knew about the order when he prepared the amended

returns, and he discussed it with Lloyd.    Lloyd told Karen about

the cease-and-desist order in 2000.   She was credible on this

point, and we find it more likely than not that this is true.

     Lloyd responded to this unfortunate turn of events by, as

Karen described it, spending much of 2000 and 2001 staying at

home and doing nothing.   Karen got upset with this behavior; the

unpaid bills piled up, and the Wilsons became estranged.    Karen

went to work as a clerk at a commercial real-estate company, but

she still did not have enough money to move out of the marital

home.   At this point, the Wilsons were renting out the other

house, so Karen moved to a different bedroom, celebrated holidays

separately, and did her best to avoid Lloyd.

     While all of this was happening, the tax debt remained

unpaid.   In March 2002 Karen submitted IRS Form 8857 seeking

innocent-spouse relief for tax years 1997, 1998, and 1999.    Karen

requested equitable relief and described her financial status as

“of survival.”   She also submitted Form 886-A, Innocent Spouse

Questionnaire.   On that form she wrote that she was married and

still living with Lloyd and that she believed he could pay the
                                -5-

taxes when she signed the returns because Lloyd was “still in

business during this time.”

     The Commissioner’s Centralized Cincinnati Innocent Spouse

Operation (CCISO) denied Karen’s request for relief in a

preliminary determination letter in March 2003.    CCISO’s denial

was based on its finding that Karen did not have a reasonable

belief that the tax would be paid because there was an

outstanding balance from 1998 when the 1999 return was filed.

Karen responded to CCISO’s preliminary determination letter by

sending what she labeled a “statement of disagreement” to the IRS

Appeals Office.   The IRS Appeals officer handling the case wrote

Karen in February 2004, outlining his initial findings based on

her questionnaire.   The Appeals officer summarized his findings--

based on the limited information in the administrative record--

for each of the numerous factors that the IRS considers in such

situations.   In March 2004 he also spoke with Karen, who

explained that she was filing for divorce from Lloyd but still

sharing a house with him.   The Appeals officer told her that this

would complicate his analysis but that he would contact her again

in about three months.   Karen filed for divorce the very next

month. In July 2004, the Appeals officer mailed Karen a letter

asking her to contact him by August 18, 2004 for a telephone

hearing.   Karen never did, and in September she received a notice

of determination denying her request for relief.
                                 -6-

     The state court judge overseeing the Wilsons’ divorce

awarded Karen the couple’s second house in December 2004, and in

early 2005 she evicted the tenant and moved in.    She petitioned

the Tax Court as a resident of California, and we tried the case

in September 2005.   Karen did not have the assistance of legal

counsel and was even unaware that she could testify.2    When

complicated facts and legal issues unfolded, we arranged for pro

bono counsel.   The Wilsons’ divorce became final in 2007.      We

agreed to reopen the record and held a second trial in 2008 where

Karen provided additional testimony.

                              OPINION

     Section 6013(a)3 lets married couples file their federal tax

returns jointly but, if they do, both spouses are then

responsible for the return’s accuracy and both are generally

liable for the entire tax due.   Sec. 6013(d)(3); Olson v.

Commissioner, T.C. Memo. 2009-294.     In some cases, however,

section 6015 can relieve a spouse from this joint liability.

Relief comes in three varieties:   Relief under section 6015(b) or

(c) requires either an “understatement” or a “deficiency”; relief

under section 6015(f) requires that the requesting spouse be


     2
       This excerpt from the transcript of the first trial was
typical: “Call your first witness, then.” “I have no
witnesses.” “Well, how about yourself?” “Okay.” “You count.”
“I count?” “Yes.”
     3
       Unless otherwise indicated, all section references are to
the Internal Revenue Code in effect for the years in issue.
                                 -7-

“liable for any unpaid tax or any deficiency.”    If the liability

is neither an “understatement” nor a “deficiency”, the only

possible relief is under subsection (f).    See Hopkins v.

Commissioner, 121 T.C. 73, 87-88 (2003).

   The Commissioner never asserted a deficiency against Karen,

so hers is a case where relief is possible only under section

6015(f).    This turns out to be important in considering three

preliminary questions:

       •    jurisdiction;

       •    standard of review; and

       •    scope of review.

I. Jurisdiction to Hear Cases under Section 6015(f)

   Karen’s case is a “stand alone” nondeficiency case--one where

a spouse asks for relief on her own initiative, and not in

response to a deficiency action or moves by the IRS to collect a

tax debt.    After the trial began back in 2005, courts began

questioning whether we had jurisdiction over stand-alone

nondeficiency petitions.    See Commissioner v. Ewing, 439 F.3d

1009 (9th Cir. 2006), revg. 118 T.C. 494 (2002) and vacating 122

T.C. 32 (2004).    In Billings v. Commissioner, 127 T.C. 7 (2006),

we agreed that we lacked jurisdiction.    Instead of dismissing

Karen’s petition, however, we suspended her case in the

expectation that Congress might expand our jurisdiction to

include cases like hers.    It did, and late in 2006, amended
                                    -8-

section 6015(e) to give us jurisdiction over stand-alone

nondeficiency cases.       Tax Relief and Health Care Act of 2006,

Pub. L. 109-432, div. C, sec. 408, 120 Stat. 3061.       We then

confirmed with the parties that Karen’s case was covered by the

terms of the new provision’s effective date, and now agree with

them that we have jurisdiction to review the Commissioner’s

determination.

II.      Standard of Review

      The Commissioner argues that we should review his

determination to see if he abused his discretion.       But our

decision in Porter v. Commissioner, 132 T.C. 203 (2009) (Porter

II), is to the contrary.       In Porter II, we held that the 2006

amendment to section 6015(e) not only gave us jurisdiction over

section 6015(f) claims but changed the standard of review:         “[I]n

cases brought under section 6015(f) we now apply a de novo

standard of review * * * .”       Porter II, 132 T.C. at 210.

III.     Scope of Review

      An earlier opinion, Porter v. Commissioner, 130 T.C. 115

(2008) (Porter I), reexamined our scope of review--i.e., what

evidence we look at--in stand-alone nondeficiency cases.        The

Commissioner continues to argue here that we should limit our

review to the administrative record.       The Commissioner also

argues that even if we do look outside the administrative record

in other cases, we should not do so in this one because Karen
                                 -9-

failed to provide information that the IRS Appeals officer

requested, and that we should limit review to evidence from the

first trial.   We note that the Commissioner has preserved these

objections, but Porter I and Porter II compelled us to overrule

them and apply both a de novo standard and scope of review.

   A trial de novo entails independent factfinding and legal

analysis unmarked by deference to the administrative agency.

See, e.g., Morris v. Rumsfeld, 420 F.3d 287, 292, 294 (3d Cir.

2005) (defining “trial de novo” as “without deferring to any

prior administrative adjudication” and “entirely independent of

the administrative proceedings”); Timmons v. White, 314 F.3d

1229, 1233-34 (10th Cir. 2003) (same); see also Wright & Koch, 33

Federal Practice and Procedure: Judicial Review of Administrative

Action, sec. 8332, at 161-62 (2006).

   Because our Court has interpreted section 6015(e) to enable

us to determine the “appropriate relief” quite independently of

what the IRS decides or the administrative record it assembles,

we also do not remand innocent-spouse cases to the IRS as a

district court might in reviewing administrative-agency action

for abuse of discretion when an agency’s factfinding or legal

analysis goes awry.   See Fla. Power & Light Co. v. Lorion, 470

U.S. 729, 744 (1985); Virk v. INS, 295 F.3d 1055, 1060-61 (9th

Cir. 2002).    When such a remand happens, the agency is able to

compile a new (or at least supplemental) administrative record,
                                  -10-

and judicial review on remand can be done using an abuse-

of-discretion standard applied against that record.

      But, contrary to the Commissioner’s arguments here, remand is

not an option in innocent-spouse cases.4     In Friday v.

Commissioner, 124 T.C. 220, 222 (2005), we held that “whether

relief is appropriate under section 6015 is generally not a

‘review’ of the Commissioner’s determination in a hearing but is

instead an action begun in this Court.”      (Fn. ref. omitted.)

Friday is a division opinion.      We must follow it.   See Sec. State

Bank v. Commissioner, 111 T.C. 210, 213-14 (1998), affd. 214 F.3d

1254 (10th Cir. 2000); Hesselink v. Commissioner, 97 T.C. 94,

99-100 (1991).

      To sum up these preliminary matters:   We hold that we have

jurisdiction to decide what relief Karen is entitled to under the

Code, and we will make our decision on the basis of the evidence

presented to us at trial, without deferring to the findings of

the Appeals officer who issued the notice of determination

denying relief.

IV.        Equitable Relief Under Section 6015(f)

      Section 6015(f) grants relief to a requesting spouse if

“taking into account all the facts and circumstances, it is


       4
       As is always the case in administrative law, general
principles yield to any specific governing statute. See, e.g.,
Nguyen v. Shalala, 43 F.3d 1400, 1403 (10th Cir. 1994) (outlining
specific statutory remedies available to a court reviewing a
denial of Social Security disability claims).
                               -11-

inequitable to hold the individual liable.”   The Commissioner

uses Revenue Procedure 2000-15, sec. 4, 2000-1 C.B. 447, 448, as

a framework to determine whether to grant equitable relief.    We

also have followed that revenue procedure in deciding what relief

is appropriate.5   See, e.g., Washington v. Commissioner, 120 T.C.

137, 147-52 (2003); Jonson v. Commissioner, 118 T.C. 106, 125-26

(2002), affd. 353 F.3d 1181 (10th Cir. 2003).

   Revenue Procedure 2000-15, sec. 4.01, 2000-1 C.B. at 448, has

seven requirements that all spouses requesting relief under

section 6015(f) must meet.   The Commissioner concedes that Karen

meets all seven.

   The procedure also has a safe harbor.   This safe harbor

grants relief to a requesting spouse if she meets three

conditions.   Id. sec. 4.02, 2000-1 C.B. at 448.   The first

requires that:

   At the time relief is requested, the requesting spouse is
   no longer married to, or is legally separated from, the
   nonrequesting spouse, or has not been a member of the same
   household as the nonrequesting spouse at any time during
   the 12-month period ending on the date relief was
   requested;



     5
       Karen Wilson filed Form 8857 in March 2002. The procedure
in effect when she filed her request for relief was Revenue
Procedure 2000-15, 2000-1 C.B. 447. It has been superseded by
Revenue Procedure 2003-61, 2003-2 C.B. 296, but the new revenue
procedure applies only to requests for relief filed on or after
November 1, 2003, or those pending on November 1, 2003, for which
no preliminary determination letter had been issued as of that
date. Id. secs. 5, 6, and 7, 2003-2 C.B. at 299. We therefore
apply Revenue Procedure 2000-15 to this case.
                                 -12-

Id. sec. 4.02(1)(a), 2000-1 C.B. at 448.    Karen concedes that she

was not divorced or legally separated when she requested relief,

but argues that she was no longer part of the same household

because she moved to a different bedroom than her husband and

tried to avoid him as much as possible.     However, Karen indicated

on her Innocent Spouse Questionnaire that she was still married

and living together with Lloyd.    Based solely upon the

administrative record, Karen would fail the first safe-harbor

condition.    Even under de novo review Karen would fail the first

safe-harbor because she was still married and didn’t have a

separate household at the time she applied for relief.     In

Nihiser v. Commissioner, T.C. Memo. 2008-135, we found that a

married couple was “living apart” under Revenue Procedure 2000-15

while still living in the same household.    Our finding was,

however, based on the test in section 4.03(1)(a), 2000-1 C.B. at

448, that does not require separate households.    The safe harbor

in section 4.02(1)(a), does.    The first safe-harbor condition is

not met when a legally married couple continue to live in the

same house.

   And even keeping separate households wouldn’t be enough in

the case of a married couple, because those separate households

must be maintained for a “12-month period ending on the date

relief was requested.”    Id.   Karen credibly testified that she

became estranged in 2001 and filed for innocent spouse relief in
                                -13-

March 2002.    But when did she become estranged in 2001?      If she

moved into the separate bedroom on or before March 1, 2001, 12

months would have passed; if it happened after March 1, 2001, the

requisite period would not be met.      She has the burden, and with

no testimony or other proof of the move-to-the-bedroom date in

2001, Karen would also fail based on the 12-month requirement.

And failing any requirement for the safe harbor is enough to deny

relief under its terms.    Nihiser, T.C. Memo. 2008-135.

   This leaves us with an eight-factor balancing test to apply.

Rev. Proc. 2000-15, sec. 4.03, 2000-1 C.B. at 448-49.        The

Commissioner may consider other factors, but this is where he

starts.   Id. (“The list is not intended to be exhaustive.”)       The

eight factors including the one factor not in dispute, which we

put in italics, are:

                                                      Weighs Against
  Weighs for Relief            Neutral                    Relief
Separated or            Still married           N/A
divorced
Abuse present           No abuse present        N/A
No significant                                  Significant benefit
benefit6



     6
       Revenue Procedure 2000-15, sec. 4.03, 2000-1 C.B. at 448-
49, does not state that the absence of a significant benefit will
weigh in a petitioner’s favor, but only that receiving a
significant benefit will weigh against her. Nonetheless, we
decided in Ferrarese v. Commissioner, T.C. Memo. 2002-249 (and
other cases cited), that the absence of a significant benefit
should be a positive factor.
                                 -14-

                                                 Weighs Against
  Weighs for Relief           Neutral                Relief
N/A                    Later compliance       Lack of later
                       with Federal tax       compliance with
                       laws                   Federal tax laws
No knowledge or        N/A                    Knowledge or reason
reason to know taxes                          to know taxes would
would be left unpaid                          be left unpaid
Economic hardship if   N/A                    No economic hardship
relief not granted                            if relief not
                                              granted
Tax liability          N/A                    Tax liability
attributable to non-                          attributable to
requesting spouse                             petitioner
Nonrequesting spouse   No divorce decree      Petitioner
responsible for                               responsible for
paying tax under                              paying tax under
divorce decree                                divorce decree


   The Commissioner conceded only that the nonrequesting-

spouse’s-legal-obligation-to-pay-the-tax factor is neutral.      That

leaves the remaining seven factors in dispute.

   A. Marital Status

   The first contested factor is Karen’s marital status.     This

factor favors relief if Karen is “separated (whether legally

separated or living apart) or divorced” from Lloyd.    Id. sec.

4.03(1)(a).   On the innocent-spouse questionnaire she submitted

to the IRS, Karen stated she was married to and living with

Lloyd, and the IRS Appeals officer initially found that this

factor weighed against relief.    We agree that this factor would

be neutral if we looked at just the administrative record.      In
                               -15-

contrast to an applicant’s marital status in applying for relief

under the revenue procedure’s safe harbor, her marital status in

arguing for relief under the balancing test is not limited to her

status when she applied for relief.     And because we look at her

eligibility for relief de novo, we look at her situation as of

the time of trial.   She credibly testified that her marriage was

formally dissolved in April 2007.     We therefore find the marital

status factor weighs in favor of relief.

   B. Abuse

   Karen does argue that Lloyd was frequently angry with her,

and suggests that that might be a form of abuse.    But we agree

with the Commissioner on this point.    Karen conceded during the

IRS’s consideration of her claim that she was not abused, and

during the trial presented no specific evidence on the issue.

   C. Significant Benefit

   The third contested factor is whether Karen received a

significant benefit.   This factor weighs against relief if Karen

“significantly benefitted (beyond normal support) from the unpaid

liability or items giving rise to the deficiency.”     Id. sec.

4.03(2)(c), 2000-1 C.B. at 449.   “A significant benefit is any

benefit in excess of normal support.”    Sec. 1.6015-2(d), Income

Tax Regs.

   The IRS Appeals officer found in Karen’s favor on this issue,

and the trial revealed nothing that would change that result.
                                 -16-

Since Karen applied for innocent-spouse relief in 2002,

significant benefits have not been rolling in.      As we already

found, Lloyd had stopped working by 2001--failing to provide even

“normal support.”     As a result, Karen is struggling--living

modestly in an unairconditioned house in Modesto.      The two homes

the Wilsons purchased in 1998 still have significant mortgage

balances outstanding; and the $250,000 CD from the First

International Bank of Grenada, which may or may not be solvent,

lists only Lloyd as a beneficiary.      Therefore, on both the

administrative record and de novo review, we find that the lack

of a significant benefit weighs in favor of granting relief.

   D. Later Compliance with Federal Tax Laws

   The fourth contested factor is whether Karen was in

compliance with the Federal tax laws.     If Karen “has not made a

good faith effort to comply with federal income tax laws” for

years after those to which her request for innocent-spouse relief

relates, then this factor would weigh against relief.     Rev. Proc.

2000-15, sec. 4.03(2)(e), 2000-1 C.B. at 449.     The administrative

record showed that this factor should be neutral because Karen

had only small underpayments of tax in 2001 and 2002 that she

later paid in full.    Trying the case de novo lets us glimpse at

even later years.   Karen testified that she owed approximately

$2,000 for the 2004 tax year, but that she intended to resolve

the matter.   The second trial included no testimony about later
                               -17-

tax compliance, and it remains unclear whether Karen satisfied

her 2004 tax liability and remained current for subsequent tax

years.

   Based upon Karen’s pattern of resolving her 2001 and 2002 tax

liabilities, we find it probable that she would resolve her 2004

tax liability as well.   We find that these minor shortfalls show

no bad faith.   But it was her burden to produce evidence of her

tax compliance, and she did not.    We find that this factor,

taking into account her lack of bad faith, slightly weighs

against relief on de novo review.

   E. No Knowledge or Reason to Know

   The fifth contested factor is Karen’s knowledge of the

underpayment.   This factor weighs against relief if she “knew or

had reason to know * * * the reported liability would be unpaid

at the time the return was signed.”     Id. sec. 4.03(2)(b), 2000-1

C.B. at 449.

   Based solely on the administrative record, the knowledge

factor would weigh against Karen.     The IRS Appeals officer wrote

Karen, asking her to explain what she knew when she signed the

returns.   She never did, and so failed to show in the

administrative proceedings that she neither knew nor had reason

to know of the underpayment.

   On de novo review, we have more information.     The original

1997 return showed $33,909 in taxes due, while the 1998 return
                                -18-

showed $31,384.    Considering Lloyd’s earnings, the equity in the

Wilsons’ two houses, the $250,000 CD, and Lloyd’s prior tax

compliance, we find that Karen reasonably believed that Lloyd

would pay the taxes as shown on the original 1997 and 1998

returns.    But the 1999 tax return reflected a $98,000 tax

liability because the Wilsons followed Northup’s tax-return-

preparation advice.    The Wilsons had already paid $20,000 in

estimated taxes, meaning they still owed $78,000 in taxes upon

signing.    The Wilsons signed the 1999 return on December 30,

1999, when Lloyd was still working but after the SEC had issued

the cease-and-desist order.    We have already found, however, that

Karen did not know about the SEC order until 2000 at the

earliest.    But even assuming that she knew about the cease-and-

desist order and understood that Lloyd would no longer earn

$20,000 a month, we find that it would be reasonable for her to

believe that the Wilson family’s assets, such as home equity and

the CD, would be sufficient to pay an extra $78,000 in taxes.

   In Billings v. Commissioner, T.C. Memo. 2007-234 (Billings

II), an innocent spouse had no knowledge of an underpayment of

tax at the time the original returns were signed, but knew that

the tax would not be paid when he signed the amended returns.

The Commissioner looked to his knowledge when the amended returns

were signed, but we noted that the revenue procedure does not

tell us “when to measure the knowledge of a requesting spouse who
                                -19-

signed both an original and an amended return.”    Id.   Citing

section 6015(f)’s requirement to consider “all the facts and

circumstances,” we reasoned that the Commissioner’s failure to

consider knowledge at the time the original return was signed was

an abuse of discretion.    Thus, looking just at the time the

original returns were signed, we find that the knowledge factor

weighs in Karen’s favor.

   Because, however, Karen’s knowledge or reason to know changed

over time on the de novo record, our holding is a bit mixed.      We

do think that we should, on the strength of Billings II, look to

her state of knowledge when she signed the original returns.      For

the first two years, this means that we would easily hold that

the knowledge factor weighs in her favor.    For the 1999 tax year,

we are less sure, because she signed amended returns for 1997 and

1998 on the same day she signed the original return for 1999.

The two amended returns showed about $444,000 in taxes due, and

when combined with the 1999 taxes, the total came to over

$540,000.   We nevertheless conclude from her evident lack of

business sophistication and limited education that she still

lacked reason to know that Lloyd would fail to pay the taxes

owed--after all, in addition to the hundreds of thousands of

dollars in additional taxes owed, the amended returns showed

close to a million dollars in extra income that Lloyd was not

spending at home.
                                -20-

   F. Economic Hardship

   The next contested factor is whether Karen will suffer

economic hardship if she must pay the tax debt.    This factor

weighs in her favor when satisfaction of the tax liability would

cause her to be unable to pay “her reasonable basic living

expenses.”   Sec. 301.6343-1(b)(4), Proced. & Admin. Regs.7   The

Commissioner looks at any information provided by the requesting

spouse to arrive at a reasonable amount for basic living

expenses.    Sec. 301.6343-1(b)(4)(ii), Proced. & Admin. Regs.

   The Commissioner argues that the administrative record shows

Karen would not suffer economic hardship.   The records Karen

provided to the IRS show that her monthly income exceeds her

expenses by only $114.    But because Karen failed to substantiate

her expenses as requested by the IRS Appeals officer, the

Commissioner argues that he could not have abused his discretion.

We agree that if we looked only at the administrative record,

we’d have to find that the Commissioner had not abused his

discretion in finding that Karen would not suffer economic

hardship.

   On de novo review, the result is different.    Karen’s credible

testimony showed that paying a $540,000 tax debt would render her


     7
       To decide whether a spouse seeking relief will suffer
economic hardship, the revenue procedure directs us to the test
in section 301.6343-1(b)(4), Proced. & Admin. Regs. See Rev.
Proc. 2000-15, sec. 4.02(1)(c), 4.03(1)(b), (2)(d), 2000-1 C.B.
at 448-49.
                                -21-

unable to meet reasonable basic living expenses.    She lives in a

modest Modesto home, but supports a minor son and has run up her

credit card balance to $20,000 for necessary expenses.    Taking

into account other expenses not included in the administrative

record, we find that Karen’s expenses do exceed her income.       And

even if Karen had an extra $114 a month to spare, this would be

grossly insufficient to pay down the tax debt in any meaningful

way.

   The Commissioner points to Stolkin v. Commissioner, T.C.

Memo. 2008-211, to support his argument that a taxpayer who can

afford monthly payments will not suffer economic hardship.    In

Stolkin, we held that a taxpayer who “had the means to make

monthly payments to reduce the tax liability” will not suffer

economic hardship.   We find Karen does not have the means to make

monthly payments.    The taxpayer in Stolkin had secure monthly

disposable income of $600 (after taking into account expenses

such as BMW lease payments).    And in Stolkin, the outstanding tax

liability was only $55,000.    With $540,000 in outstanding tax

liabilities, an uncertain financial future, and a lifestyle that

is anything but luxurious, the economic-hardship factor weighs in

favor of granting Karen relief.

   G. Attribution

   The last contested factor is whether the tax liability is

attributable to Lloyd.   This factor weighs in favor of relief if
                               -22-

the “liability for which relief is sought is solely attributable”

to Lloyd.   Rev. Proc. 2000-15, sec. 4.03(1)(f), 2000-1 C.B. at

449.

   The Commissioner concedes that the portion of unpaid

liabilities attributable to Lloyd weighs in favor of relief; but

argues that since Karen did basic clerical work to assist Lloyd

and was an employee of his company, a portion of those

liabilities is attributable to her.     There was little information

in the administrative record that sheds any light on attribution,

so the IRS Appeals officer assumed that 50 percent of the tax

liability was attributable to Karen.     If we looked only to the

administrative record, this would weigh against relief.     But the

trial record leads us to find that Karen had no understanding of

Lloyd’s business.   She merely assisted with clerical duties while

Lloyd made all the business decisions.     We therefore find that

the tax liability is entirely attributable to Lloyd.

                            Conclusion

   After our analysis of these contested factors, the table

looks like this:

                                                  Weighs Against
  Weighs for Relief           Neutral                 Relief
Divorced
                         No abuse present
No significant
benefit
                                 -23-

                                                    Weighs Against
  Weighs for Relief             Neutral                 Relief
                                                 Lack of later
                                                 compliance with
                                                 Federal tax laws
No knowledge or
reason to know
Economic hardship if
relief not granted
Tax liability not
attributable to
Karen
                        No divorce decree


Thus, Karen has five factors weighing in favor of relief and only

one weighing against.   But the factor weighing against her has

little weight; although Karen’s compliance was never clearly

established, neither was any serious or bad faith lack of

compliance.   On the other hand, the knowledge factor weighing in

favor of relief--an “extremely strong factor,” id. sec.

4.03(2)(b) against relief when present--should not be as “heavy”

as usual because of the uncertainty involved in determining the

state of her knowledge as to the 1999 tax year.      With so little

weighing against relief, we conclude that relieving her from

joint tax liability for the years in question is the appropriate

relief under section 6015(f).



                                           Decision will be entered

                                        for petitioner.
