                           T.C. Memo. 1997-288



                         UNITED STATES TAX COURT



     DENNIS E. PEWITT and KATHLEEN M. PEWITT, Petitioner v.
          COMMISSIONER OF INTERNAL REVENUE, Respondent



    Docket No. 24188-88.                           Filed June 25, 1997.



    Kathleen M. Pewitt, pro se.

    Michelle K. Loesch, for respondent.



               MEMORANDUM FINDINGS OF FACT AND OPINION


     JACOBS,    Judge:       Respondent    determined       the   following

deficiencies    in,   additions   to,     and   increased     interest   on

petitioners' Federal income taxes:
                                        - 2 -


                                           Additions to Tax
Year   Deficiency   Sec. 6653(a)(1)    Sec. 6653(a)(2) Sec. 6621(c)    Sec. 6659

1980   $  480            $ 24              ---              ---             ---
                                            1
1981      931              47                               ---             ---
                                            1
1982      543              27                               ---             ---
                                            1                 2
1983    4,357             218                                             $1,121
                                            1                 2
1984    4,889             244                                              1,467


      1
         50 percent of the interest due on $931 for 1981, $543 for 1982, $3,735
for 1983, and $4,889 for 1984.
      2
        120 percent of the interest due on $3,735 for 1983, and $4,889 for 1984.
Pursuant to the Tax Reform Act of 1986, sec. 1151(c)(1), Pub. L. 99-514, 100
Stat. 2744, former sec. 6621(d) was redesignated as sec. 6621(c).

       The deficiencies in this case arise from the disallowance of

Schedule E losses and investment tax credits claimed by petitioners

with   respect      to    their   investment     in   two   partnerships--Media

Marketers       Limited    Partnership     (Media     Marketers)    and     Assured

Communications Limited Partnership (Assured Communications)--both

of which engaged in so-called jingle transactions that this Court

determined lacked economic substance. See Pacific Sound Prod. Ltd.

Partnership v. Commissioner, T.C. Memo. 1993-253.                     Petitioners

concede the deficiencies.             Moreover, the parties have reached a

settlement with respect to the additions to tax.                       Petitioner

Kathleen M. Pewitt (Mrs. Pewitt), however, contests her liability

for tax, claiming that she is an innocent spouse.                 Thus, the sole

issue to be resolved herein is whether Mrs. Pewitt is entitled to

tax relief as an innocent spouse pursuant to section 6013(e).                      For

the reasons discussed, we hold she is not.
                                - 3 -


      All section references are to the Internal Revenue Code as in

effect for the years under consideration.     All Rule references are

to the Tax Court Rules of Practice and Procedure.

                          FINDINGS OF FACT

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

stipulation of facts and attached exhibits are incorporated herein

by this reference.

      Petitioners were married in December 1971 and divorced in

October 1986.    They timely filed joint Federal income tax returns

for   1980,   1981,   1982,   1983,   and   1984,   the   years   under

consideration.    They resided in Escondido, California, at the time

the petition in this case was filed.

      Mrs. Pewitt (hereinafter sometimes referred to as petitioner)

has a high school education; she did not attend college.          Upon

graduating from high school in 1967, she worked as a dental

assistant.    She married Dennis Pewitt (Mr. Pewitt) when she was 22

years of age.    She continued working as a dental assistant for 4

years following her marriage and then attended John Mycut School of

Real Estate, where she obtained a real estate license. Thereafter,

she sold residential real estate for approximately 2 years.        She

stopped working when she had her first child in 1978.

      Mr. Pewitt's education was similar to that of Mrs. Pewitt

except he took several courses at Everett Community College.        He

began employment as a dispatcher for the police department, where
                                - 4 -


he worked for approximately 8 years.       He also obtained a real

estate license, and in 1980 left the police department and began

selling real estate.

     Petitioner's role in the marriage was to care for the home and

children.    She took responsibility for the household finances, and

Mr. Pewitt was responsible for the family's financial support.

Throughout their marriage, petitioners' bank accounts were in joint

names.

     Financially, the early years of petitioners' marriage were

lean and worrisome.    Their financial situation improved when, in

1981, Mr. Pewitt went to work for Transamerica Title Insurance Co.

as a branch manager.     In 1982, Continental Mortgage offered Mr.

Pewitt employment at double his Transamerica Title salary; Mr.

Pewitt accepted the offer.

     Because of the dramatic increase in his salary, Mr. Pewitt

believed petitioners needed tax "write-offs"; thus, he consulted

Ron W. Colwill, a certified financial planner.   Messrs. Pewitt and

Colwill met twice.      The first meeting was a "get acquainted

meeting", at which Messrs. Pewitt and Colwill discussed Media

Marketers.    Mr. Colwill clarified certain erroneous information

given to Mr. Pewitt by one of Media Marketers' general partners.

(Mr. Colwill was the other general partner of Media Marketers.)

Mr. Colwill advised Mr. Pewitt to discuss with Mrs. Pewitt the

possibility of petitioners' making an investment in Media Marketers
                                        - 5 -


and told him that if the Pewitts wished to make such an investment,

they should jointly meet with him.

      At the second meeting, Mr. Colwill discussed with Mr. and Mrs.

Pewitt the risks and rewards of an investment in Media Marketers,

including tax ramifications.               Mr. Colwill gave the Pewitts a

prospectus; both Mr. and Mrs. Pewitt "looked" at the prospectus but

did not understand its content.            As Mr. Pewitt testified:         "It was

way over our heads at that point."

      Mr. and Mrs. Pewitt jointly became limited partners of Media

Marketers in 1983 and partners of Assured Communications in 1984.

(Although    the     record      is    scant     with     respect    to    Assured

Communications, it appears that petitioners' investment in that

partnership was made through Mr. Colwill, who followed the same

procedures with regard to Mr. and Mrs. Pewitts' investment in

Assured Communications as he had done with their investment in

Media Marketers.)

      Mrs. Pewitt signed the initial investment documents relating

to both Media Marketers and Assured Communications. She was listed

on   the   Forms    K-1   issued      by   the   partnerships   as    a    partner.

Subsequent to petitioners' divorce in 1987, and prior to the filing

of the petition in this case, she wrote Mr. Colwill requesting

then-current       information     about     Media      Marketers    and    Assured

Communications.
                                 - 6 -


     During 1983 and 1984, petitioners constructed a home costing

approximately   $400,000;    petitioner    assumed   responsibility   (as

between the Pewitts) for the project.

     Petitioners'   investment    in   Media   Marketers   and   Assured

Communications resulted in their receiving joint tax refunds for

years 1980 through 1984, totaling more than $12,000. Additionally,

petitioners were able to shield approximately 50 percent of their

gross wages in 1984 and 1985 with the losses attributable to their

investments in the two partnerships.

     In 1986, Mr. Pewitt purchased for petitioner a Corvette

automobile and a $6,000 diamond ring.       Upon the Pewitts' divorce,

neither took assets of any substance from the marriage, and in fact

both subsequently declared bankruptcy.

                                 OPINION

     Spouses who file a joint return generally are jointly and

severally liable for its accuracy and the tax due, including any

additional taxes, interest, or penalties determined on audit of the

return.   Sec. 6013(d)(3).   However, pursuant to section 6013(e), a

spouse (commonly referred to as an innocent spouse) can be relieved

of tax liability if that spouse proves:        (1) A joint return was

filed; (2) the return contained a substantial understatement of tax

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

signing the return, the spouse seeking relief did not know, and had

no reason to know, of the substantial understatement; and (4) it
                                    - 7 -


would be inequitable to hold the relief-seeking spouse liable for

the     deficiency   attributable     to    the   understatement.        Sec.

6013(e)(1).     The spouse seeking relief bears the burden of proving

that each of the four requirements has been satisfied.              In other

words, failure to prove any one of the statutory requirements will

prevent innocent spouse relief.            Bokum v. Commissioner, 94 T.C.

126, 138-139 (1990), affd. 992 F.2d 1132 (11th Cir. 1993).

        The parties stipulated that petitioner and Mr. Pewitt filed

joint returns for 1980 through 1984 and that petitioners' 1981,

1982, 1983, and 1984 returns contained a substantial understatement

of tax due to a grossly erroneous item.

        With respect to tax year 1980, the deficiency in income tax is

$480.      This amount ($480) does not constitute a "substantial

understatement".          A      substantial      understatement    is     an

understatement, as defined in section 6662(d)(2)(A), which exceeds

$500.       Sec.   6013(e)(3).      Section    6662(d)(2)(A)   defines     an

"understatement" as the excess of the amount of tax required to be

shown on the return over the amount of tax imposed which is shown

on the return, reduced by any rebate.          Consequently, because there

is no substantial understatement involved for 1980, petitioner is

precluded from obtaining relief as an innocent spouse under section

6013(e) for that year.

        We also hold that petitioner is not entitled to innocent

spouse relief for the other years under consideration, namely 1981
                                   - 8 -


through 1984.     The evidence establishes that petitioner was a

limited partner in both Media Marketers and Assured Communications.

She signed documents authorizing the investments, and Forms K-1

were issued naming both petitioner and her husband as partners in

the limited partnerships.      Petitioner attended a meeting in which

she was informed about the tax risks and rewards of making an

investment in the limited partnerships, and she acquiesced in

becoming a partner with her husband.       See Hayman v. Commissioner,

992 F.2d 1256 (2d Cir. 1993), affg. T.C. Memo. 1992-228; Feldman v.

Commissioner, 20 F.3d 1128 (11th Cir. 1994), affg. T.C. Memo. 1993-

17.

       Although petitioner may not have understood the technical tax

nuances involved in petitioners' investment in the two limited

partnerships, we believe she knew (1) that such investments would

enable petitioners to claim substantial deductions and tax credits

that   would   result   in   the   reduction   of   the   amount    of   taxes

petitioners otherwise would owe, and (2) that the Internal Revenue

Service might disallow these deductions and tax credits upon audit

of petitioners' returns.

       Petitioner asserts she is an "ignorant spouse".             But as the

United States Court of Appeals for the Ninth Circuit (where an

appeal of this case would lie) has said:        "Of itself, ignorance of

the attendant legal or tax consequences of an item which gives rise

to a deficiency is no defense for one seeking to obtain innocent
                                   - 9 -


spouse relief."     Price v. Commissioner, 887 F.2d 959, 964 (9th Cir.

1989).   Further,     there   is   no      apparent    difference   between

petitioner's and Mr. Pewitt's knowledge of the investment. Suffice

it to say, neither petitioner nor Mr. Pewitt fully grasped the

nature and risks of the investments.        See McCoy v. Commissioner, 57

T.C. 732 (1972).    But they both attended a meeting with Mr. Colwill

where he explained the potential tax benefits and risks of the

investments. Moreover, petitioner and Mr. Pewitt discussed the tax

returns involved and the refunds they were to receive.

     Additionally, we do not believe it would be inequitable to

hold petitioner liable because she shared with her husband the tax

benefits resulting from the claimed deductions and credits.

     To conclude, we hold that petitioner is not entitled to

innocent spouse relief for any of the years under consideration.

To reflect the foregoing and the parties' settlement with respect

to the additions to tax,



                                                An    appropriate   Decision

                                           will be entered.
