                       T.C. Memo. 1996-541



                     UNITED STATES TAX COURT



                  ANNA LEE LOCKE, Petitioner v.
          COMMISSIONER OF INTERNAL REVENUE, Respondent



     Docket No. 19310-94.                 Filed December 16, 1996.



     Anna Lee Locke, pro se.

     Jack Klinghoffer, for respondent.



             MEMORANDUM FINDINGS OF FACT AND OPINION

     COHEN, Chief Judge:    Respondent determined that petitioner

was liable as a transferee of Alexander Locke, Jr., for an income

tax liability of $18,247 for 1982.   Unless otherwise indicated,

all section references are to the Internal Revenue Code in effect

for the year in issue, and all Rule references are to the Tax

Court Rules of Practice and Procedure.
                                - 2 -

     The issues for decision are:    (1) Whether the statute of

limitations bars the assessment and collection of the transferee

liability; (2) whether petitioner is liable as a transferee under

section 6901; and (3) whether petitioner is an innocent spouse as

to the transferee liability.

                          FINDINGS OF FACT

     Some of the facts have been stipulated, and the stipulated

facts are incorporated in our findings by this reference.    At the

time the petition was filed, petitioner resided in Sacramento,

California.    Petitioner was the wife of Alexander Locke, Jr. (the

decedent).    Petitioner filed a joint 1982 Federal income tax

return with the decedent.    The 1982 return reported a loss of

$63,583 from an investment in EXOCO Energy Partners (EXOCO)

partnership.    The loss was in accordance with a Form K-1 filed by

EXOCO with the EXOCO return.    In June 1983, respondent issued a

refund to the decedent of $23,235 claimed on the 1982 return.

     The decedent died testate on June 26, 1984.    On June 28,

1984, an obituary was published in the local newspaper.

Petitioner handled the estate administration herself.

     On October 24, 1984, respondent sent a Notice of Beginning

of Administrative Partnership Proceeding of the EXOCO partnership

(NBAP) to "Alexander Locke, MD" at zip code 95825.

     Under the will, the entire estate passed to petitioner.      On

or about February 19, 1985, petitioner's certified public

accountant, C.S. Nicholas (Nicholas), filed a Form 4768,
                                - 3 -

Application for Extension of Time to File U.S. Estate Tax Return

and/or Pay Estate Tax.    The address shown on the Form 4768 was

that of Nicholas.    The United States Estate Tax Return, Form 706,

was subsequently filed, signed by petitioner, and dated

November 12, 1985.   The return included a schedule of assets and

deductions and listed the value of the total gross estate of the

decedent as $544,856.    Included in the return was a schedule of

annuities that listed the value of the decedent's profit sharing

plan and employee's money purchase plan as $260,715.00.    After

deductions, the amount listed as "Bequest, etc., to Surviving

Spouse" was $530,867.    The address shown on the estate tax return

included zip code 95864.    Sometime during 1985, petitioner's home

zip code was changed by the U.S. Postal Service from 95825 to

95864.

     On January 10, 1986, the Superior Court of the State of

California issued an Order conveying the decedent's community

property to petitioner.    Petitioner represented the estate

herself, acting in "Pro Per".    On March 20, 1986, the Internal

Revenue Service (IRS) mailed to Nicholas an Estate Tax Closing

Letter for the decedent's estate showing zero estate tax due.

The letter was addressed to petitioner, shown as "Anna Lee Locke,

Executrix".   Nicholas sent the letter to petitioner with a note

stating, "This means that you are through as far as the Internal

Revenue Service is concerned regarding the estate."
                               - 4 -

     On March 26, 1986, respondent sent a Notice of Final

Partnership Administrative Adjustment (FPAA) of EXOCO partnership

to Alexander Locke, M.D., at zip code 95825.    The tax matters

partner for EXOCO partnership filed a petition in this Court on

June 20, 1986.   Attached with the petition was a copy of the FPAA

and a list of the investor/partners in EXOCO.    The list included

Alexander Locke, M.D., at zip code 95825.   The tax matters

partner for the EXOCO partnership and respondent subsequently

entered into a settlement agreement.    Pursuant to the settlement

agreement, this Court entered a decision on April 30, 1992, and

the decision became final 90 days later on July 28, 1992.

     Pursuant to the settlement and decision of this Court in the

EXOCO partnership proceeding, an assessment of a computational

adjustment in the amount of $18,247 was made as to the decedent

on February 15, 1993.   On July 22, 1994, a Statutory Notice of

Transferee Liability for the assessed amount of the decedent's

liability plus interest was mailed to petitioner.

                              OPINION

     Respondent contends that petitioner, as transferee of the

decedent, is liable for an amount equal to the decedent's 1982

income tax liability and interest.

     Petitioner asserts numerous and varied theories under which

she claims that she is not liable as a transferee.    The theories

can be categorized as those that relate primarily to the income
                                 - 5 -

tax liability and those that relate primarily to the transferee

liability.

       As a general rule, the taxpayer bears the burden of proof.

Rule 142(a); Welch v. Helvering, 290 U.S. 111, 115 (1933).     In a

transferee liability case, however, respondent must prove all of

the elements of transferee liability except that she does not

have the burden of proving that the transferor was liable for the

tax.    Sec. 6902(a); Rule 142(d).

The Decedent's Liability

       The tax liability of the decedent arose from a computational

adjustment that reflected the treatment of a partnership item

arising from the decedent's investment in the EXOCO partnership.

To the extent that petitioner would challenge that liability,

this Court lacks jurisdiction.    It is well settled that the Court

cannot decide partnership items in a deficiency proceeding

relating to nonpartnership items.    See Carmel v. Commissioner, 98

T.C. 265, 267 (1992); Trost v. Commissioner, 95 T.C. 560, 563

(1990); Maxwell v. Commissioner, 87 T.C. 783, 788 (1986).

Congress enacted audit and litigation procedures for certain

partnerships under the Tax Equity and Fiscal Responsibility Act

of 1982 (TEFRA), Pub. L. 97-248, sec. 402, 96 Stat. 648.    TEFRA

created a method for uniformly adjusting items of partnership

income, loss, deduction, or credit that affect each partner.    A

partner's tax liability attributable to partnership items is

determined at the partnership level, separate from the
                                - 6 -

proceedings for determining deficiencies attributable to

nonpartnership items.    Secs. 6221, 6230(a).   The conference

report, H. Conf. Rept. 97-760, at 611 (1982), 1982-2 C.B. 600,

668, states:

          Existing rules relating to administrative and
     judicial proceedings, statutes of limitations,
     settlements, etc., will continue to govern the
     determination of a partner's tax liability attributable
     to nonpartnership income, loss, deductions, and
     credits. Neither the Secretary nor the taxpayer will
     be permitted to raise nonpartnership items in the
     course of a partnership proceeding nor may partnership
     items, except to the extent they become nonpartnership
     items under the rules, be raised in proceedings
     relating to nonpartnership items of a partner.

     In Maxwell v. Commissioner, supra at 787-788, we examined

the legislative history and statutory pattern of the TEFRA

provisions and stated:

     the portion of any deficiency attributable to a
     "partnership item" cannot be considered in the
     partner's personal case involving other matters that
     may affect his income tax liability. The "partnership
     items" must be separated from the partner's personal
     case and considered solely in the partnership
     proceeding. * * *

In this transferee liability case, as in a proceeding for

redetermination of a deficiency, we lack jurisdiction to

adjudicate the decedent's liability for the computational

adjustment.

     Petitioner argues that her receipt of an Estate Tax Closing

Letter showing no tax due with regard to the decedent's estate

tax return precludes respondent from issuing a notice of

transferee liability in regard to the liability arising from the
                                 - 7 -

decedent's partnership item.   Petitioner's argument is

unsupported by law and is without merit.    There is no

relationship between the estate tax liability and the amount at

issue here, although the estate tax return is relevant for

reasons discussed below.

     Petitioner also argues that respondent is estopped from

assessing a computational adjustment in respect of the 1982

return because respondent had previously issued a refund for

1982.   A refund, however, is not binding on respondent in the

absence of a closing agreement, valid compromise, or final

adjudication.   Meridian Mut. Ins. Co. v. Commissioner, 44 T.C.

375, 379 (1965), affd. 369 F.2d 508 (7th Cir. 1966).      Petitioner

relies on Schuster v. Commissioner, 312 F.2d 311 (9th Cir. 1962),

affg. in part and revg. in part 32 T.C. 998 (1959), affg. in part

and revg. in part First W. Bank & Trust Co. v. Commissioner, 32

T.C. 1017 (1959), to support her assertion of estoppel.     But the

doctrine of estoppel is applied against the Government "with the

utmost caution and restraint".     Kronish v. Commissioner, 90 T.C.

684, 695 (1988) (quoting Boulez v. Commissioner, 76 T.C. 209,

214-215 (1981), affd. 810 F.2d 209 (D.C. Cir. 1987)).

     In Schuster, a bank received information of a determination

by the Commissioner that the corpus of a trust was not to be

included in a taxpayer's gross estate.    The bank, in reliance on

the information, distributed the trust corpus.    The Commissioner

subsequently mailed a notice of transferee liability to the bank,
                                 - 8 -

as trustee of the trust.   The Court of Appeals held that the

Commissioner was estopped from asserting the liability of the

bank because the bank had distributed the corpus in reliance on

the Commissioner's determination, and the bank would have had to

pay the liability out of the bank's funds.     Schuster v.

Commissioner, 312 F.2d at 318.    The closing letter issued to the

decedent's estate related solely to the estate tax.

     Here, the Commissioner has done no about-face, as in

Schuster, i.e., petitioner's liability as transferee does not

arise in respect to any estate tax owed by the decedent's estate.

Rather, her liability is for the decedent's income tax, as to

which the closing letter was silent.     There is accordingly no

showing of detrimental reliance on her part comparable to that

incurred by the bank in Schuster.

     Petitioner testified that she did not receive the NBAP or

the FPAA and offered several theories to support her testimony.

She claims that the IRS used an incorrect zip code; the IRS

failed to change the name on the NBAP and FPAA to her name and

incorrectly used the decedent's name; and a change of address had

been submitted to the United States Postal Service by the person

that had acquired the decedent's medical practice.     She also

notes that her son lived with her and had the same name as the

decedent.   Petitioner argues that the notices were invalid on the

ground that they were mailed to the wrong zip code and addressed

to the decedent and not to petitioner.
                                - 9 -

     Section 6223(c) requires that, for purposes of mailing an

NBAP and FPAA, respondent use the information on the partnership

return or use specific information contained in a notice

submitted in writing to the IRS in accordance with regulations.

Sec. 6223(c); sec. 301.6223(c)-1T, Temporary Proced. & Admin.

Regs., 52 Fed. Reg. 6779, 6784 (Mar. 5, 1987).   Petitioner

testified that she did not submit the required notice under the

regulations that would have instructed the IRS to change a name

or a zip code.    Therefore, respondent properly mailed the notices

to the address of the decedent as shown on Schedule K-1 of the

partnership return, which used the old zip code.   Additionally,

there is neither evidence nor reason to believe that an outdated

zip code prevented mail delivery.

     Petitioner argues that respondent had a duty to take into

account information about the decedent's death that was printed

in the newspaper or contained in the decedent's estate tax

return.    Incorporation by reference of information contained in a

document that has not been furnished to the IRS in accordance

with the regulations will not be given effect for purposes of

6223(c).   Sec. 301.6223(c)-1T(c), Temporary Proced. & Admin.

Regs., 52 Fed. Reg. 6779, 6784 (Mar. 5, 1987).   Nor is the IRS

required to search its records for such information.   Sec.

301.6223(c)-1T(f), Temporary Proced. & Admin. Regs, 52 Fed. Reg.

6784 (Mar. 5, 1987); see Crowell v. Commissioner, 102 T.C. 683,

692-693 (1994).
                              - 10 -

     Petitioner testified that a change of address in the

decedent's name was submitted to the United States Postal Service

and that she never received the NBAP or FPAA.   Petitioner argues

that, had the notices been addressed to her, she would have

received them.   Petitioner's assertion that mail addressed to

Alexander Locke, M.D., was not delivered to her home was

contradicted by petitioner's own testimony.   She testified that

she and her son, also Alexander Locke, M.D., received an

"extremely high volume of mail".   Nonetheless, petitioner failed

to provide the IRS with additional information in a manner

prescribed by the regulations.   The notices that were mailed to

the address of the decedent as shown on the partnership return

were valid under these circumstances.    Petitioner and her husband

having filed a joint tax return, notice to him is deemed notice

to her unless she instructed the IRS to send her a separate

notice, which she evidently never did.    Olson v. Commissioner,

T.C. Memo. 1996-385; see sec. 301.6231(a)(2)-1T(3), Temporary

Proced. & Admin. Regs., 52 Fed. Reg. 6790 (Mar. 5, 1987).

     Petitioner contends that the partnership item was converted

into a nonpartnership item because she did not receive the NBAP

or FPAA and, therefore, the statute of limitations for the

partnership item does not apply and the period of limitations for

a nonpartnership item had expired prior to assessment.   Section

6231(b) lists the events that change partnership items to
                                - 11 -

nonpartnership items.   Death of the partner is not listed among

the events.

     The statute of limitations for partnership items under TEFRA

is set forth in section 6229.    Section 6229 provides that the

period for assessment is 3 years from the later of (1) the date

on which the partnership return for the taxable year was filed or

(2) the last day for filing such return for such year (determined

without regard to extensions).    Sec. 6229(a).   However, under

section 6229(d), if a notice of FPAA is mailed to the tax matters

partner:

     the running of the period specified in subsection (a)
     (as modified by other provisions of this section) shall
     be suspended--

                (1) for the period during which an action may
           be brought under section 6226 (and, if an action
           with respect to such administrative adjustment is
           brought during such period, until the decision of
           the court in such action becomes final), and

                (2) for 1 year thereafter.

Section 6226 states:

          (a) Petition by Tax Matters Partner.--Within
     90 days after the day on which a notice of a final
     partnership administrative adjustment is mailed to the
     tax matters partner, the tax matters partner may file a
     petition for a readjustment of the partnership items
     for such taxable year with--

                (1) the Tax Court * * *

The statute of limitations for assessment of transferee liability

under section 6901(c) is as follows:
                              - 12 -

          (c) Period of limitations.--The period of
     limitations for assessment of any such liability of a
     transferee or a fiduciary shall be as follows:

                (1) Initial transferee.--In the case of
           the liability of an initial transferee,
           within 1 year after the expiration of the
           period of limitation for assessment against
           the transferor.

     The FPAA was sent to the decedent and the tax matters

partner of EXOCO on March 26, 1986.     The tax matters partner

filed a petition with this Court on June 20, 1986.     The decision

of this Court was entered pursuant to a settlement among the

parties to the action on April 30, 1992, and became final 90 days

later.   An assessment in the amount of $18,247 was made against

the decedent on February 15, 1993.     The statutory notice of

transferee liability for the assessed amount plus interest was

mailed to petitioner on July 22, 1994.     The assessment is not

time barred, nor is petitioner's liability as transferee.

     Petitioner has advanced other arguments with regard to the

partnership item.   She contends, for example, that she was

precluded by the absence of notice from negotiating a settlement

offered to other partners.   The assessment, however, was made

based on the decision entered pursuant to the settlement reached

in the partnership proceeding.   Other arguments related to the

decedent's investment in EXOCO cannot be addressed in this

proceeding for reasons set forth above.

Transferee Liability
                                - 13 -

     Petitioner's remaining claims are that respondent has failed

to meet her burden as to the elements of transferee liability and

that petitioner is an innocent spouse and should not be

responsible for the transferee liability.

     Respondent contends that she has satisfied her burden of

proving the elements of transferee liability and that petitioner

cannot assert here an innocent spouse defense.

     Section 6901(a)(1)(A)(i) authorizes the assessment of

transferee liability in the same manner as the liability for

income taxes.   This provision does not create a new liability but

rather provides a summary remedy for enforcing the existing

liability of the transferor.     Coca-Cola Bottling Co. v.

Commissioner, 334 F.2d 875, 877 (9th Cir. 1964), affg. 37 T.C.

1006 (1962); Mysse v. Commissioner, 57 T.C. 680, 700-701 (1972).

The term "transferee" includes donee, heir, legatee, devisee, and

distributee.    Sec. 6901(h).   The existence and extent of

transferee liability is a question of State law.     Commissioner v.

Stern, 357 U.S. 39, 45 (1958); Scott v. Commissioner, 70 T.C. 71,

79 (1978).   Because the transfers were made in California,

California Civil Code section 3439.05 applies.     Cal. Civ. Code

sec. 3439.05 (West 1970 & Supp. 1996).     In order to establish

transferee liability under California Civil Code section 3439.05,

respondent must establish:

     (1) The decedent owed a debt to the IRS;

     (2) the claim of the IRS arose before the transfer was made;
                              - 14 -

     (3) the decedent (or the decedent's estate) made the

transfer without receiving a reasonably equivalent value in

exchange for the transfer; and

     (4) the debtor was insolvent at the time of the transfer or

became insolvent as a result of the transfer.

     Additionally, a transferee cannot be held liable for the tax

of a transferor beyond the value of the assets received from the

transferor.   Yagoda v. Commissioner, 39 T.C. 170, 185 (1962),

affd. 331 F.2d 485 (2d Cir. 1964).     Therefore, respondent must

prove the actual value of the assets received rather than merely

showing that petitioner received assets of some value.     Moran v.

Commissioner, 45 T.C. 528, 529-530 (1966); Scott v. Commissioner,

T.C. Memo. 1986-566.

     Respondent contends that the decedent owed respondent a debt

based on the decedent's liability from the EXOCO partnership.

Petitioner argues that the decedent did not owe a debt to the

respondent because the respondent violated the procedural

requirements of TEFRA and therefore the notice was invalid.    As

discussed above, the IRS did not violate the procedural

requirements of TEFRA, the notice was not invalid, and, in

accordance with the final decision of this Court in the

partnership proceeding, which gave rise to the computational

adjustment assessed against the decedent, the decedent owed a

debt to the IRS.
                              - 15 -

     Respondent contends that the claim arose prior to the

transfer because the liability accrued on the due date of the

decedent's income tax return for 1982.   Petitioner asserts that

the claim arose after the transfer because no definitive

partnership-related liability was determined at the time of the

transfer.   Petitioner further asserts that post-1984 case law was

not yet determined and that it was that case law that provided

the groundwork for this Court's decision which imposed the

partners' tax liability.   Neither of these assertions has merit.

The liability for the decedent's 1982 income tax accrued on April

15, 1983, the due date of the return.    Swinks v. Commissioner, 51

T.C. 13, 17 (1968); see O'Sullivan v. Commissioner, T.C. Memo.

1994-17; LaMothe v. Commissioner, T.C. Memo. 1990-63.   The

transfers took place on January 10, 1986, after the decedent's

death.   Although the transfer must occur after the tax liability

accrues, the tax need not be assessed at the time of the

transfer.   See O'Sullivan v. Commissioner, supra; LaMothe v.

Commissioner, supra.   "A transferee is liable retroactively for

the transferor's taxes and additions to tax in the year of the

transfer to the extent of assets received from the transferor,

even though the tax liability of the transferor was unknown at

the time of the transfer."   Swinks v. Commissioner, supra at 17.

     Respondent contends that petitioner received the assets of

the decedent's estate without giving a reasonably equivalent

value in exchange.   Respondent relies on the value of the estate
                               - 16 -

as shown on the decedent's estate tax return.   Respondent further

contends that, because petitioner was the executrix of the

decedent's estate and signed the estate tax return that listed

the value of the total gross estate as $544,856, petitioner is

estopped from asserting a different estate value.

     Petitioner asserts that the transfer was for a reasonably

equivalent value because the items transferred to her from the

decedent consisted of liabilities in excess of assets.

Petitioner testified that the values on the estate tax return

were incorrect, the items were subject to encumbrances, and the

values were artificially inflated so that she could receive a

higher step-up in basis.   The values submitted by petitioner on

the estate tax return are an admission by petitioner, and lower

values cannot be substituted without cogent proof that the

reported values were erroneous.    Estate of Hall v. Commissioner,

92 T.C. 312, 337-338 (1989).   The Sacramento County tax

assessment offered by petitioner is insufficient to establish the

fair market value of residential property because there is no

evidence of the manner in which the assessed value was

determined.   Residential property assessments in California are

limited by law and not necessarily based on fair market value.

Cal. Const. Code art. 13A, sec. 2(a) (West 1996).   Likewise,

petitioner's unsupported testimony as to the value of other items

is speculative and insufficient.   Petitioner has failed to

produce any evidence that would overcome the admission and
                                - 17 -

establish a different value for the items on the estate tax

return.

     Because the decedent's entire estate was transferred to

petitioner upon the decedent's death, the estate became insolvent

as a result of the transfer.

     Respondent has satisfied her burden and established

transferee liability.   Accordingly, petitioner is liable for the

amount of the deficiency plus any allowable interest to the

extent that it does not exceed the amount the decedent

transferred to petitioner.     Yagoda v. Commissioner, 39 at 185.

Notwithstanding the items that petitioner attempted to revalue,

petitioner's undisputed receipt of the amounts listed as

annuities in the decedent's estate tax return would have provided

petitioner with funds exceeding petitioner's transferee

liability.   Because the value of the items transferred exceeds

the transferee liability, petitioner is liable for the entire

amount determined.   Yagoda v. Commissioner, Id. at 185; Brown v.

Commissioner, 24 T.C. 256, 267 (1955).

     Finally, petitioner asserts that, if she is liable as a

transferee, she should be relieved of her liability because she

is an "innocent spouse".   Petitioner argues that it is

inequitable to hold her responsible for the amounts due,

particularly for the interest.

     Respondent asserts that the "innocent spouse" defense is not

available in a transferee liability case.    Respondent further
                               - 18 -

asserts that it is not inequitable to hold petitioner liable and

that petitioner could have taken action to prevent the interest

from accruing and chose not to do so.

     There is a distinction between a liability as a transferee

and as a taxpayer.   Construing the procedural provisions of the

Revenue Act of 1926, ch. 27, 44 Stat. 9, relating to taxpayers

and transferees, this Court stated:

     The two liabilities are separate and distinct, arise
     from different states of fact and are based upon
     entirely different theories. They present two distinct
     causes of action upon either of which it would
     naturally be assumed proceedings might be maintained
     independently. * * * [Michael v. Commissioner, 22
     B.T.A. 639, 642 (1931), affd. 75 F.2d 966 (2d Cir.
     1935); emphasis added.]

New York Trust Co. v. Commissioner, 26 T.C. 257, 261 (1956); Milk

Bottle Exch., Inc. v. Commissioner, 43 B.T.A. 33, 36 (1940).

That the same person appears in different capacities does not

call for a different result.   United States v. Floersch, 276 F.2d

714 (10th Cir. 1960); New York Trust Co. v. Commissioner, supra

at 261.

     Section 6013(e) relieves a taxpayer of liability arising

from the filing of a joint return.      The section provides:

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

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

                    (A) a joint return has been made under
               this section for a taxable year * * *
                               - 19 -

     Transferee liability is established by State law elements as

set forth above.   The filing of a joint return by the transferee

and the transferor is not an element.    Petitioner's status as a

joint filer with the decedent for the original income tax

liability is immaterial to the assertion of the transferee

liability.    Transferee liability and the liability arising from

the joint return are separate causes of action.    Section 6013(e)

only provides for relief from liability imposed upon a spouse by

virtue of the filing of a joint return.    Because a transferee's

liability does not arise by the filing of a joint return, the

innocent spouse defense cannot be asserted to relieve petitioner

of transferee liability.    United States v. Shanbaum, 10 F.3d 305,

315-316 (5th Cir. 1994).

     As to petitioner's assertion that it is inequitable to hold

her liable, we are not persuaded.    With transferee liability, the

petitioner-transferee is not paying the tax or interest with her

own funds.    This is ensured by the limit on the liability of the

transferee to the extent of the amounts transferred by the

transferor.    Yagoda v. Commissioner, supra at 185; Brown v.

Commissioner, supra at 267.    Had there been no transfer, the

decedent would have paid the liability from his assets.    If the

decedent died after paying the tax liability, the transferee

would have received the estate less the amount of the liability.

Thus, whether the amount of liability is removed from the estate

prior to the transfer or after the transfer, the transferee would
                             - 20 -

have received the same amount.   It is not inequitable to hold

petitioner liable as a transferee.

                                          Decision will be entered

                                     for respondent.
