Teresa M. Brown, Petitioner

TERESA M . BROWN, Petitionerrv . COMMISSIONER OF I.NTERNAL .REVENUE, Responden t Docket No . 23720-05S .

Trapper Stewart and. Casey Carter (specially recognized), fo r petitioner .

Fred E . Green, Jr . , for respondent .

SWIFT, Judae : This case was heard pursuant to th e provisions of section 7463 of the Internal Revenue Code in effect when the petition was filed . Pursuant to section 7463(b), the , decision to be entered is not reviewable by any other court, and this opinion shall not be treated as precedent for any othe r case .

SERVED SEP 16 2008

g. The issue for decision is whether petitioner is' lentitled t o relief from joint and several liability under section 6015(f ) with respect to Federal income tax liability for the year 2000 .

Unless otherwise indicated, all section references are to the Internal Revenue Code .

Backgroun d Some of the facts are stipulated and are so found .

At the time the petition was filed, petitioner resided i n Nevada .

Before 1991 petitioner married Stephen Brown (Brown) .

During the 1990s Brown and petitioner worked in real estate i n Florida, California, and Hawaii .

!Brown and petitioner had two children, but Brown-wa s unstable and abusive . Brown had problems with alcohol and a t times would grab or hit petitioner and threaten to take th e children away from her .

1999 Brown and petitioner moved to Nevada for ; ne w opportunities in real estate . In 2000, the year in issue, Brown and petitioner worked in Las Vegas for two time-sharejcompanies for both of which Brown was the sales manager and petitioner wa s a salesperson working under Brown . As manager Brown would receive petitioner's occasional commission checks for distribution to petitioner, but Brown would not give the checks to petitioner' except to obtain her endorsement . Brown would-the n take petitioner's checks and cash or deposit them as .. he saw fit .

September 2000 Brown and petitioner had a .majo r altercation at their home, and police were called . When petitioner arrived at work the-next morning, Brown prevented" petitioner from entering the office . Brown and petitioner , separated, and Brown effectively prevented petitioner from working the remainder . of 2000 .

In 2001 petitioner again went- to work for-the same real estate company"but-'not under Brown's supervision and in a separate department and building from Brown . .° ;In January .2002 Brown and petitioner were divorced ..

Pursuant to the divorce decree, Brown was obligated to pay petitioner $40,000 . Brown, however, made only one $700 paymen t to petitioner .

As a result''of Brown's abuse .of and threats made t o petitioner , petitioner was constantly in :.fear . of Brown Throughout the marriage , petitioner - had no access to any of the family's-financial-accounts, and Brown paid--all the; bills .

Brown had the only key to the-ma. ilbox , and Brown would not .

allow' petitioner to,pick upaor read the mail .

Brown .was .in tota 1 , control of the finances relating to ;the marriage and the family- including income petitioner earned in her work .. .

r As a result of the abuse she experienced, the divorce, an d several serious accidents, petitioner's physical condition is poor . Petitioner takes medication for her pain and anxiety, an d petitioner is not able to work .

At some point in 2001 Brown prepared or .had prepared the 2000 joint Federal income tax return . It included aj;Schedule C, Profit or Loss From Business, on which was reported a total net income of $20,918, a zero income tax liability (afters a $656 child tax credit), and a $2,95 .6 self-employment tax Viability .

Attached to the 2000 joint Federal income tax return was a Schedule SE, Self-Employment Tax, on which the reported Schedul e C net income of $20,918 was allocated by Brown equally between Brown and petitioner ($10,459 each), and accordingly a self- employment tax liability was reported for Brown and for petitioner of $1,478 each .

Other than to sign, petitioner did not in any wa y participate in the preparation of the 2000 tax return, an d petitioner was not allowed to review the 2000 return befor e signing it . Petitioner was not aware of the equal allocation on the 2000 tax return of the Schedule C net income between Brow n and herself, and petitioner was not aware of the self employmen t tax liability of $1,478 reported by Brown for her .

On approximately October 31, 2001, Brown filed the 200 0 joint Federal income tax return late .

- - 5 In 2004, in connection with preparing and filing her 2003 individual Federal income tax return, petitioner . learned-, of .

significant . unpaid joint Federal income taxes for 1991, 1,997,,- 199&, 'and 200-0-that Brown had never paid and about w i hich Brow n had never informed her .

On-October 28, 2004, petitioner filed . withresp'ondent .a Form 8857, Request for Innocent Spouse Relief, . requesting relief fro m joint liability for the . outstanding Federal .income taxes for 1991, 1997,-1998, and 2000 . Under section 6015, respondent granted in full petitioner's request for 'relief from joint Federal =income _ tax liability for 1991,1997, and 1998 .

For 2000respondent granted petitioner relief from one-half of the $2,956 reported>self-employment taxes-,shown,-On the return on the ground that half was attributable°to Brown .(cid:127)-(Respondent,, however, determined that the other .Fhalf of the reported $2,956 self-employment taxes was attributable to petitioner's .-taxable income and that relief therefrom was not warranted . .

i At the time of trial=Brown continued to-live-in the home hE had shared with petitioner before their divorce, and petitione r lived in a motel and had custody of their daughter .

k Petitioner's father has been giving petitioner,~$500 per , month . Because of petitioner's medical conditi'on, .petitioner'i s not able to work ." At the time of trial, petitioner) was seeking Social Security disability benefits .

Discussio n Generally, taxpayers filing joint Federal income tax returns are jointly liable for taxes reported due thereon . Sec .

6013(d)(3) . However, equitable relief from joint liability fo r -Federal income taxes may be available to a spouse when it would be inequitable to hold the spouse liable . Sec . 6015(f)(1) .

.:Rev . Proc . 2003-61, sec . 4 .01, 2003-2 C .B . 296, 297, set s forth seven threshold conditions which a taxpayer seeking equitable relief from joint liability under section 6015(f) is required to satisfy . With regard to half of the Schedule C reported income that Brown on the 2000 tax return attributed to petitioner and with respect to which respondent has denied petitioner relief from self-employment tax liability, respondent argues that one of the seven threshold conditions is not satisfied ; namely, that the income in question was "attributabl e to" petitioner . See id . sec . 4 .01(1) through (7), 2003-2 C .B . at 297-298 .

Petitioner challenges respondent's determination on the ground that the $10,459 in question was earned by Brown, not b y 'In describing, in part, the threshold condition i~i n question, Rev . Proc . .2003-61, sec . 4 .01(7), 2003-2 C .B . 296, 297, states : "The income tax liability from which the requesting spouse seeks relief is attributable to an item of the [other] individual with whom the requesting spouse filed the'hjoint return" . The exceptions are : (a) Attribution solely due to the operation of community property law ; (b) nominal ownership ; (c) misappropriation of funds ; and (d) abuse .

her, and that :the $10,459 therefore was Petitioner°°alsb chall enges respondent' s ground that petitioner qualifies for the abuse exception to .this seventh threshold condition .

See id . sec . 4 .01(7)(d) :, 2003- 2 C .B . at ~298 We agree ;with petitioner as to the abuse exception . !

Regardless of whether the $10,.459 was attributable-t o petitioner, . on(cid:127)the basis of the record before us and on- petitioner's credible"testimony at trial-we conclude that _H petitioner qualifies for the exception under Rev ., Proc . 20.03-61, sec .

.4 .01(7)(d)_ .2-Brown's control and abuse of petitioner was extensive and establishes,thatrpetitioner for fear of Brown's retaliation and further--abuse did not challenge Brown's preparation of the 2000- .Federal income tax return, Brown' s allocation of the Schedule .C income reported thereon equally _ between himself and-.petitioner, or Brown's allocation of th e self-employment taxes between himself .and petitioner .

Respondent also determined that petitioner knew or ha d reason°to know that Brown would not pay the self-employment taxes shown due on petitioner ; and Brown's joint . return. See Rev . Proc (cid:127)!

2003-61, sec: . . 4 . 02'(1) (b) , 2003-2 . C .B . at-298 . Respondent argues i that because =of their difficult .relationship and becaus e 2Rev . Proc 2003-61, sec . 4 .01(7) (d) , 2003-2 C .B . -at 298, allows the-Commissioner to grant equitable relief even though the underpayment in question may be attributable in full or in par t to an item of income of the requesting spouse .

petitioner, at the time she signed the 2000 joint return,-knew of the financial troubles of the marriage, petitioner should have anticipated :,that Brown would fail to pay the reportedself- employment taxes .

.We .~disagree . Brown kept petitioner entirely in the dark about the family's finances, including the payment ornonpayment of taxes . B.rown .did not allow petitioner to review a',ny of their financial records or tax-returns . Brown exercised so much- control over the finances for such an extended period' of tim e that petitioner had essentially no knowledge of any of the family's finances or tax liabilities . We conclude thia t petitioner has established-that it was reasonable fort her t o believe Brown would . pay the self-employment taxes reported on th e joint 2000 Federal income tax return..

Respondent also . determined that .petitioner would~notsuffe r economic hardship if she were denied-relief. from liab', ility fo r the $1,478 of 2000 self-employment taxes . See id . se c .

4 .02(cid:127)(1)(c), .2003-2 C .B . at 298 . . Economic .hardship un~der .Rev .

Proc : 2003-61, sec . 4 .02(1).(c), exists if satisfactio4n of the liability .in whole or in part would result in petitioner's inability to pay reasonable living expenses .

.:Sec . 30,41 .6343- 1(b)(4)(1),';Proced . & Admin . Regs .

As .noted, petitioner is living from day to day, bein g assisted by her father and friends . Petitioner's medical condition prevents her from working and earning any income .

conclude that petitioner's medical condition makes it unlikely that petitioner will be able to-find employment .

The . .fact that petitioner's father provides some . assistance .to petitioner is not particularly relevant to our economic .

hardship analysis . We conclude that denial of petitioner's request from relief would cause petitioner economic'ihardship .

Because we conclude that it would be inequitable to den y petitioner relief under Rev . Proc . 2003-61, sec . 4 .02, we need not reach the issue of equitable relief under Rev . Proc . 2003-61 , sec . 4 .03, 2003-2 C .B . at 298 .

To reflect the foregoing, Decision will be entere d for petitioner .