Vicki M. Smith, Petitioner

JMP T.C. Melno. 2011-119 UNITED ST TÉS TAX COURT VICKI M. SMI H Petitioner v. COMMISSIONER OF INTERN L REVEliUE, Respondent Docket No. 25054-08.

Filed June 2, 2011.

John W. Nelson, for petit.ioner.

~T'imothy S .

. Sinnöt t , -€erde s ondent .

MEMORANDUM FINDIN S OF FACT AND OPINION

CHIECHI, Judge: Petitioner filed the petition in this case in response to a so-called final appeals determination (notice of determination) concerning petitioner's request for relief from joint and several liability un r section 60151 for each of her IAll section references ar to the Internal Revenue Code in .

(continued .

.

) SERVED Jun 02 2011 taxable years 2003 and 2004.

We must decide whether petitioner is entitled to relief under that section for each of those years.

We hold that she is to the extent stated herein.

FINDINGS OF FACT

Some of the facts in this case have been stipulated and are so found.

At the time she filed the petition in this case, petitioner resided in Indiana.

Petitioner, who was born in 1961, received a bachelor of science degree in business administration in ·1983 from the University of Evansville in Evansville, Indiana. During college, petitioner took courses in accounting, marketing, statistics, finance, business administration, and quantitative business analysis.

On May 26, 1984, petitioner married Michael Smith (Mr.

Smith).

(We shall sometimes refer to petitioner and Mr. Smith as the Smiths.) Mr. Smith, who was 49 years olS at the time of the trial in this case, had taken some college cðurses but had not received a college degree.

During their marriage, the Smiths maintained separate bank accounts and deposited their respective earnings into their respective bank accounts.

From the time they married until (...continued) effect at all relevant Court Rules of Practice and Procedure.

times. All Rule refebences are to the Tax around March 2007, Mr. Smith lagdled the .family's financial affairs, including signing an cliecks and paying household bills.

As of the time of the trial in this case, neither petitioner nor Mr. Smith had filed for divorce, and petitioner did not intend to file for divorce. At no time during their marriage did Mr. Smith abuse petitioner.

The Smiths have a daughter and a son. At the time of the trial in this case, the Smiths' daughter, who was 21 years old, was a full-time student at a private university .in Illinois, which was her primary residence.

- The Smiths' 'daughter stayed with petitioner only during s mmers and other school recesses.

During college, the Smiths' dau hter received certain financial aid for her college education.

In addition, at the time of the trial in this case petitioner arid her family were providing an unidentified amount of support to the Smiths' daughter.

As of the time of the trial in this case, the Smiths' son, who was 18 years old and residing with petitioner, was a senior at a private high school in Indiana and intended to attend a private university in Ohio. At that time, the Smiths' son was receiving certain financial aid for his high school tuition, and petitioner was paying approximately $4, 000 each school year towards that tuition.

From around December 1986 u til January or February 2005, Mr. Smith worked as a patrol olficer for the Indianapolis Police Department (police department). During 2003 ànd 2004, Mr. Smith worked as a police officer at least 40 hours each week and often worked significant amounts of overtime.

From around 1992 until at least the time of the trial in this case, petitioner worked for Dow Agro Sciences, L.L.C.

(Dow).

As of the time of that trial, petitioner was á customer service representative for Dow. During 2003 and 2004, Dow paid peti- tioner salaries of $35,237.38 and $37,774.05, respectively.

During 2008, Dow paid her a salary- of $48,012.

During 2003 and 2004, petitioner sold ce tain Mary Kay products (Mary Kay activity). During those ars, petitioner had net income from the Mary Kay activity of $3,185 and $650, respec- tively.

At all relevant ,times, petitioner maintained through Dow a retirement account under section 401(k) (retirement account).

From 1998 through late 2009 or early 2010, p(titioner at times borrowed money from her retirement account i order to pay certain expenses, including basic living exp nses.

At a time not disclosed by, the record during the 1990s, Mr. Smith began operating an unincorporated business (real estate business) in which he (1) acquired and opera ed certain rental real estate properties in Indianapolis and (2) engaged in so- called flipping, which involved his purchasing certain proper- ties, renovating them, and selling them. Although Mr. Smith's real estate business was initially successful, it became unprof- itable at an undisclosed time Defore 2000, which caused the Smiths to incur certain obligati ns and debts.

Because of the unprofitability of Mr. Smith's r al estate business, around 2000 the Smiths commenced a bankruptcy proceeding.

In late 2001, Mr. Smith e tablished First Choice Appraisal, Inc .

(First Choice) , of which he owned at all relevant times all of the outstanding stock. At no time did petitioner have an ownership interest in First Chþice. At all relevant times, First Choice was treated for Federal income tax (tax) purposes as an S corporation. During 2003 and 2004, Mr. Smith, in addition to working full time as a patrol officer for the police department, appraised certain residential real estate in Indiana on behalf of First Choice.

At all relevant times, First Choice maintained an unidenti- fied number of bank accounts (First Choice accounts) into which Mr . Smith deposited all of the n oney that First Choice received.

Petitioner did not have access to the First Choice accounts.

During 2003 and 2004, First Choice maintained an office in Indianapolis at which Mr. Smith-conducted most of its business.

At certain times during those years, Mr. Smith also worked for First Choice at the Smiths' residence where he conducted his work for First Choice primarily on the family's computer.

A password was necessary in order to access the First Choice files that || Mr. Smith created and maintained on that com uter. Petitioner did not know that password and did not at any time view those files.

li 1!

li During 2003 and 2004, petitioner did nod have access to the || books and records or the financial statementà of First Choice le that would have made her aware of the respect$ive amounts of net income that that company was geherating durinej those years .

il Il Petitioner was not involved' in the preparati n of any tax return that First Choice filed and was not shown any such return before or after its filing.

On a date early in 2003 before April 15, the Smiths filed jointly Form 1040, U.S.

Individual Income Taxi Return (Form 1040), for 2002 (2002 joint return) .

In that return, || they reported taxable income of $103,191, showed tax of $21,658, claimed a withholding tax credit of $6,293, and showed tax due of $15,365.

The Smiths did not pay on or before April 15, 2003, the tax shown due of $15,365.

Around August 2003, the.Smiths entered into an installment agreement (2003 - installment agreement) with the Internal Revenue Service (Service) with respect t-o their unpai tax for 2002.

Around November 17, 2003, respondent applied à $601.49 overpay- ment for the Smiths' taxable year 2000 against their remaining Il unpaid tax for 2002. Pursuant to the 2003 in tallment agreement, !

the Smiths made monthly paymen:s to the Service of at least $1,000 from December 2003 throag October 2004.2 Because of certain activizies (discussed below) in which Mr. Smith engaged on behalf of First Choice while appraising certain residential real estata, around late 2003 or early 2004 the Federal Bureau of Investig tion (FBI) began investigating him and that company.

In February 2004, the FBI executed a search warrant on Mr. Smith at the Smiths' residence and searched it for about four hours. During that search, Mr. Smith and the Smiths' son were present but not petitioner.

Around July 7, 2004, the Smiths filed Form 1040 for 2003 (2003 joint return).2 In that return, the Smiths reported, inter alia, (1) wages of $78,057,4 (2) net income of $3,185 from the Mary Kay activity, (3) net in o e of $131,718 from First Choice, (4) adjusted gross income of $2 3,048, and (5) taxable income of $167,235.

In the 2003 joint e urn, the Smiths (1) showed tax of 2Pursuant to the 2003 installment agreement, in June and October 2004 the Smiths paid to the Service $2,000 and $1,500, respectively.

3Mr. Smith hired Jimmie Johnson (Mr. Johnson), a self-em- ployed tax preparer, The Smiths previously had used H& Block to prepare their tax re- turns.

to prepare their 2003 joint return.

*The wages of $78,057 that the Smiths reported in the 2003 joint return consisted of $35 237.38 that Dow paid to petitioner and $42,820.35 that the polic during 2003. dollar all amounts that they eported in the respective joint tax returns that the Smiths rounded to the nearest they filed for 2003 and 2004.

epartment paid to Mr. Smith We note that I $37,006 and self-employment tax of $450, (2) claimed a withhold- ing tax credit of $6,219,5 and (3) showed tax due of $31,680.

Around July 7, 2004, Mr. Smith gave the||2003 joint return to petitioner and asked her to sign it. Although petitioner did not review that entire return before signing it, she was aware (1) that First Choice, an S corporation, generated certain income that was reported in that return and (2) that that return showed a significant amount of tax dues. Petitioner asked Mr. Smith how he intended to pay the tax shown due in the 2003 joint return.

Mr. Smith responded that he would pay it from the profits that First Choice would generate in the following year.

Petitioner and Mr. Smith signed the 2003) joint return but did not pay the tax shown due in that return when they filed it around July 7, 2004. At the time the Smiths filed the 2003 joint return, petitioner did not suffer from any physical or mental illness.

At a time not disclosed by the record after the Smiths filed the 2003 joint return, petitionär recommended to Mr. Smith that he establish a quarterly payment plan with the Service with respect to any tax estimated to be due on incame generated by First Choice in order to reduce the amount that the Smiths would | sThe $6,219 withholding tax credit that t-he Smiths claimed in the 2003 joint return consisted of $3,121.66 that Dow withheld from petitioner's wages and $3,096.97 that withheld from Mr. Smith's wages during 2003.

thd police department | owe when they filed a tax retucn in which they reported such inc ome . Mr .. Smith did not do o .

From November 2004 to Jan ary 2005, the Smiths did not make the payments required under th 2003 installment agreement .

As a result, on January 14, 2005, r s ondent issued a separate Letter LT¹¹, Final Notice--Notice of Intent to Levy anda Your Notice of a Right to a Hearing (notice of levy) , to petitioner and Mr. Smit-h with respect to 2002 and 2003. Respondent included with the notice of levy that respondent issued to petitioner, inter alia, Publication 594, What You Should Know About The IRS Collection Process.

That publication indicated that so-called innocent , spouse relief might be available to certain taxpayers and di- rected taxpayers to another pt b ication of the Service discussing such relief .

On January 25, 2005, a giar d jury for the U.S. District Court for the Southern District of .Indiana (District Court) indicted Mr. Smith and nine ot her individuals on charges of conspiracy to defraud the United States, wire fraud, and money laundering.' That indictment alleged that one or more cocon- spirators of Mr. Smith purchased certain property for.low prices and then sold that property t another coconspirator who pur- 'The indictment against Mr. Smith and the nine other indi- viduals contained 101 counts. Mr. Smith was indicted on only 2 counts of conspiracy to defraud the United States, 13 counts of wire f raud, and 1 count of money laundering .

II chased it for an inflated price (second purcdase) and thereafter failed to make the required mortgage loan payments to the lending institution that financed the second purchas .

The second purchase by another coconspirator caused a significant loss to the lending institution because the property purchased was worth considerably less than the outstanding mortg ge loan.

The indictment alleged that Mr. Smith provided an inaccurate and inflated appraisal in order to (1) aid certafin of his cocon- spirators in obtaining financing for the second purchase of the || subject property at an inflated price and (2)i appropriate to himself and his coconspirators the gain realized by the seller in the second purchase.

After Mr. Smith was indicted, he was arr sted, released on I his own recognizance pending his trial in the District Court, and suspended in January or February 2005 from the police department, Around April 3, 2005, pursuant to the respective notices of || levy issued to petitioner and Mr, Smith, respondent levied against certain unidentified assets of one or both of them and credited $2,412.58 against their tax liabilit for 2002.

Around April 13, 2005, the Smiths filed Form 1040 for 2004 (2004 joint return).7 In that return, the Smiths reported, inter ?MJr. Johnson, who prepared the Smiths' 2d⁰³ joint return, also prepared their 2004 joint return.

a alia, (1) wages of $83,941,8 (2) net income of $650 from the Mary Kay activity, (3) net income of $133,000 from First Choice, (4) adjusted gross income of $219,210, and (5) taxable income of $183,188.

In the 2004 joint return, the Smiths (1) showed tax of $41, 477 and self -employment tax of $91, (2) claimed a withholding tax credit of $6,740,9 and (3) showed tax due of $35,805.1° Around April 13, 2005, Mr. Smith gave the 2004 joint return to petitioner and asked her to sign it . Although petitioner did not review that entire return before signing it, she was aware (1) that First Choice, an S ccr];oration, generated certain income that was reported in that return and (2) that that return showed a significant amount of tax due. Petitioner asked Mr. Smith how he intended to pay the tax sh wn due in the 2004 joint return.

Mr. Smith responded that he wou d pay it from the profits that First Choice would generate ir. t he following year.

Petitioner and Mr. Smith signed the 2004 joint return but did- not pay the tax shown due in that return when they filed it "The wages of $83, 941 that the Smiths reported in the 2004 joint return consisted of $37,774.05 that Dow paid to petitioner and $46,166.76 that during 2004.

the police department paid to Mr. Smith "The $6,740 withholding tax credit that the Smiths claimed in the 2004 joint return cons sted of $3,544.06 that Dow withheld f rom pet it ioner' s wages and $3 , 195 . 74 that the police department withheld from Mr. Smith's wages during 2004.

1°The tax due shown in the 2004 joint return included an estimated tax penalty of $977 around April 13, 2005. At the time the Smiths filed the 2004 joint return, petitioner did not suffer from any physical or mental.illness.

Around May 16, 2005, pursuant to the respective notices of levy issued to petitioner and Mr. Smith, resýondent levied against certain unidentified assets of one o both of them and credited $803.31 against their tax liability for 2002. Around March 27, 2006, respondent applied an overpa ment of $5,581 for the Smiths' taxable year 2005 as credits of $1,388.10 and $4,192.90 against the amounts that they owed for 2002 and 2003, respectively. Around April 15, 2006, respondent applied an ov,erpayment of $439 for the Smiths' taxable yiear 2005 as a credit against the amount that they owed for 2003.

On September 11, 2006, the District Cou t commenced the trial of Mr. Smith and certain of his coconspirators on the charges in the indictment.

On September 22, 2006, the jury unanimously found Mr. Smith guilty of each of the counts against him.

On January 26, 2007, the District Court sentenced Mr. Smith to 57 months of imprisonment and 5 years of supervised release.

The District Court also ordered Mr. Smith to þay restitution of $1,086,292.80 to certain lending institutions.

On March 1, 2007, Mr. Smith reported to the Federal prison at A hland, Kentucky, to begin serving his prison sentence.

As of the time of the trial ]3 - in this case, Mr. Smith was to be released from prison around October 25, 2010.

As of that ime, petitioner expected that Mr. Smith would return to live with her after his release.

Around November 1, 2007, þetitioner filed Form 8857, Request for Innocent Spouse Relief (Fo m 8857) , with respect to 2003 and 2004. Petitioner attached to hat form Form 12510, Questionnaire for Requesting Spouse (Form 12 10) .

(We shall sometimes refer collectively to Form 8857 and orm 12510 that petitioner filed with respect to 2003 and 2004 as petitioner's innocent spouse relief request .

) In petitioner' s innocent spouse relief request, she claimed (1) that she had n reason to believe there was a problem with the 2003 joint return or the 2004 joint return and (2) that Mr. Smith handled.all of the family finances. At the time she filed petitioner's innocent spouse relief request, petitioner did not suffer from any physical or mental illness.

In petitioner's Form 8857, petitioner claimed total monthly income of $4,559 consisting o monthly wages of $3,559 and monthly gifts of $1,000.

In hat form, petitioner also claimed total monthly expenses of $4,534 consisting of:

Claimed Monthly Expense taxes Federal, State, and local Rent or mortgage Utilities Telephone Food Car Medical expenses Life insurance Clothing Tuition² Total (including car payments and insurance) Amount $326 1,735 11,300 4,534 In Form 12510 that petitioner attached to Form 8857 that she submitted to the Service, petitioner claimed total monthly car expenses of $1,500 consisting of $1,200 for automobile payments, $100 for automobile insurance, and $200 for automobile gas and repairs. claimed $1,300 in Form 8857 and $1,500 in Fo m 12510.

The record does not establish why petitioner 2The tuition expense that petitioner claimed was for tuition that she paid to the university that the Smiths' daughter was attending.

Around December 27, 2007, Mr. Smith subditted to respondent II Form 12508, Questionnaire for Non-Requesting Spouse.

In that form, Mr. Smith claimed that he and petitioner maintained sepa- rate bank accounts, that petitioner did not ave any access to the First Choice accounts, and that petitione was not involved in any of the business or the financial affairs of First Choice.

On November 19, 2007, respondent issued to petitioner Letter 3661C, Preliminary Determination (preliminary determination), with respect to petitioner's request for reli f under section 6015 for 2003.

In that letter, respondent determined that petitioner was not entitled to that relief because she did not file her request for relief wi hin two years of the first collec- tion activity with respect to 2003.

Around December 19, 2007, petitioner submitted to respondent Form 12509, Statement of Disagreement (Form 12509), in response to respondent's determination with respect to her request for relief under section 6015 for 2003 (2007 Form 12509).

In that form, petitioner stated:

the áttempts from the IRS to collect For many years of our marriage he was responsi- He had a full-time I was unaware of the debt. When I found olut, my spouse (Michael) as- sured me that the matter was being taken care of. Michael was the person who received the mail at our house. ble for all the househol job and owned a small bu iness whose tax consequences were attached to our per onal tax returns were complet d by a third farty tax profes- sional. returns each year, so I their accuracy.

I had no reason td question or review the igned them in reliance on income tax returns.

expenses.

The * * a case)" was settled.

My inability to pay this debt only became a matter of heightened concern this edr after Michael was incar- cerated. * Michael bélieved he would be able to pay all expenses includi g any taxes when the investi- gation (which turned int believed [he] would be vindicated, the money back that was make arrangements to settle any outstanding debt. did not happen. financial hardship for me, have been forced to give uÿ our four bedroom house and move to a two bedroom apartment. I cannot make the mortgage payment so the touse will be foreclosed on soon.

return to work, get aken from him and be able [to] That is incarceration has created a Imy son and my daughter.

He I * * * I am now attempting to work to resolve this situation. from this the IRS grant me Equitable Relief I ask that debt as it was my reason ble belief that my husband was taking care of any expenses due from his business - 16 This debt places an extreme including the taxes. financial hardship on me and my and [siS] children who have already lost our home. This debt ólaces a finan- cial strain on the daily care of my children. Please also consider the fact that prior to my husband's problems I was fully compliant with the tax laws in every year prior and since. provided on Form 12510, annual salary.

As you can see by the data is more than my this tax debt I relied on my husband and a professional This tax debt was not a result of my do ngs or knowl- edge. tax preparer. I have now been faced with f nancial ruin because of it. grant me Equitable Relief I respectfully request from this debt.

that the IRS An examiner working for the Service (re pondent's examiner) prepared an examination workpaper dated January 9, 2008 (examina- tion workpaper) with respect to petitioner's request for relief under section 6015 for 2004.

In that workpaper, || respondent's examiner concluded that petitioner is not entitled to relief under that section for any portion of the underpayment for that year.

The examination workpaper stated, inter alia:

GENERAL INFORMATION

they both the QP [underpay- She is liable for $1180 & he is Per tax ran & attribution worksheet Denied - She is liable for part of ment]. did not have enough taxes withheld from their income to pay the bal due. liable for $33648. She knew there was a bal going to pay. they had financial problems because he lost his job & his business closed. from the previous yr not paid. economic hardship to hold her liable. Her income exceeds her expenses by $625 a month. been apart 12 months.

She has no reason to believe he was She also knew there was a bal due It would not cause an They have not ue & she knew

SPOUSE '

RESPONSE

He just talks about she ness .

He does not talk about a not involved in his busi- the balance due .

EVALUATION PROCESS

Year 2004 IRC 6015(f) Liability arose on or after July 22, 1998 Joint return is valid There is enough information to determine the claim No OIC accepted tax - rel ief is not available under IRC Eligibility factors: Underpayment of 6015(b) & 6015(c) Filed a joint return Claim filed timely Liability unpaid, or RS |requesting spouse] may have refundable payments Not a fraudulent return No fraudulent transfer oË assets No disqualified assets tåar sferred The underpaid tax is not sålely attributable to the NRS [nonrequesting spouse] Attribution:

Per the attribution worksheet did not hav their incdme to pay the balance due.

they both enough taxes withheld from Partial attribution to t e NRS. Continue evaluating for the portion attributëble to the NRS. Deny relief for the portion attributab]e to the RS.

Tier I factors (limited scope) : Taxpayers are currently r.ot divorced, widowed or le- gally separated, and did not live apart prior to the claim for at least 12 cor.secutive months Tier I factors ( Limited scope) not met Tier II factors: Taxpayers are currently r.ot divorced, widowed or legally separated, and did not prior to the claim for ati Jeast 12 consecutive months No economic hardship Explanation:

live apart The info she provided shows her income Against Against exceeds her expenses by $25 a month but she added her daughters college tuition of $600 a month as an expenses & after a call is not a basic living expenses so her in- come exceeds by $625 a month.

to her to verify this that [sic] No marital abuse No poor mental or physical health No legal obligation established Knowledge: Background:

RS - Bachelor of Science in NRS - Some college Business Administration Business Admin, Finance, Marketing, Stastics [sic] Involvement:

Intro Acctg, RS - She had her owntaccount that her income was They deposited into. had no joint account.

NRS - He had his own account.

Lifestyle changes: NRS's elusiveness: Duty to inquire:

Living arrangements:

No No She did not rediew the return before signing it. Lived together all year.

RS had knowledge or reason to know Explanation:

Against She knew there was a⁹ balance due. She did not have realson to believe he was going to pay it. they had financial problems when he lost his job & his b siness was shut down. They als before & have not paid it.

owed the year She knew She did not receive any benefit.

No significant benefit gained. Explanation: Made a good faith effort to comply with the tax laws Explanation: Unique circumstances: No Not meeting Tier II factors - deny claim Tier II consideration:

She has been complia t For For Based on the ab ve facts it is equitable to hotld the RS lia- ble for the balance. She did not hav reason to believe he was going to pay. It would not cause an economic hardship. married/living together.

They are still Tier II factors not met Claim denied under II C 6015 (f) - deny - full scope

CONCLUSION

2004 - Denied under 6015(f) She is liable for part bal due. reason to believe he was going to pay. cause an economic hardship. living together. March 2007 but he is just incarcerated which does not constitute a separation.

It would not They are still married/ She states they have been apart since She did not have On January 18, 2008, respondent issued to petitioner a preliminary determination with espect to her request for relief under section 6015 for 2004.

In that letter, respondent deter- mined that petitioner is not entitled to that relief because "you [petitioner] did not show it would be unfair to hold you respon- sible.

You did not prove, that at the time you signed the return, you had reason to believe the tax would be paid. Also, the documentation you provided does not prove economic hardship."

Around February 8, 2008, petitioner submitted to respondent Form 12509 in response to respo dent's determination with respect to her request for relief und r section 6015 for 2004 (2008 Form 12509) .

That form contained a statement materially identical to the one that petitioner had included in her 2007 Form 12509.

Petitioner' s 2008 Form 12509 also included the following addi- tional information with respect to her then current expenses:

Since initially filing for Equitable Relaief, become more clear the magnitude of my monthly expenses. They include: Rent $940; Gas & Electricity $150; Food $280; Tithes $360; Auto payment $414; Auto Ins. $120; Auto License Plates $31; Life Ins. $85; Auto Gas & Repairs $200; Medical/Dental Loan $452; Clothing $50; Taxes $534; pl s co-pays for any medical/dental appointments, prescriptions, vision exams, glasses and contact Ins. $88; Sears Card $100; lenses, etc.

it has While I understand the family contribution of my daugh- ter's- college expenses is not considered part of my financial hardship, my sons is in high school and I have varying expenses that relate to that as well (i.e. his tuition ~$2,000/yr., books,$500/yr., etc.)

Respondent assigned petitioner's appeal to an officer (respondent's.Appeals officer) in respondent's Appeals Office (Appeals Office). While that appeal was pending, petitioner submitted to the Appeals Office (1) a pay statement dated April 25, 2008, reflecting petitioner's gross salary (petitioner's salary) from Dow and certain amounts that Dow: had deducted from petitioner's salary for the biweekly pay period April 7 to 20, 2008 (April 2008 pay statement) and (2) a sprpadsheet showing certain of petitioner's monthly expenses (expgnses spreadsheet).

The April 2008 pay statement indicated that pptitioner's monthly salary was $4,001.

That pay statement showed the following biweekly amounts that Dow had deducted from p titioner's salary:

Amount Federal, State, and local Medical, dental, vision, and taxes disability insurance and eAlth care reimbursement accoun a Li f e insurance ESP loan² Contribution to petitioner' s Actual Biweekly Deduction Deductioni $284.57 Prorated Monthly $616.57 137 . 86 ~18 . 18 226.09 298 . 70 3 9 . 3 9 489.86 240.07 34.99 1, 719 . 58 Miscellaneous² retirement account 110.80 16.15 793 . 65 For convenience, we have p orated the amount Total that Dow deducted from petitioner's sa]ary in order to determine the amount monthly salary.

that Dow would have decucted each month from petitioner's 2The ESP loan represented payments that petitioner made to in order ¡to repay certain loans that she her retirement account had made from that account.

| | 3The category "Miscellaneous" included two items identified on the April 2008 pay statement ,as "RHCAP" and "HP MBRSHP/SINGL" . The record does not establish what those two items represented or why petitioner paid certain amounts with respect to those items.

In the expenses spreadsheet , petitioner claimed the follow- ing monthly expenses:

Claimed Expense Rent Gas Electric Car payment Cable Home telephone Cellular telephone Automobile--gas Food Sears card Tithes Total || Amount $940.00 100.00 50.00 414.06 65.45 32.00 130.00 200.00 230.00 75.00 400.00 2,636.51 As of the time of the trial in this caså, petitioner had paid the balance on her Sears credit card.

After considering petitioner's appeal, respondent's Appeals || officer prepared an appeals case memorandum dated June 27, 2008 (appeals memorandum).

In that memorandum, respondent's Appeals officer concluded that petitioner is not entitled to relief under section 6015 for 2003 or 2004.

The appeals memorandum stated in pertinent part:

!

"In the appeals memorandum, respondent's Appeals officer analyzed petitioner's appeal under the factors set forth in Rev. We Proc. 2000-15, 2000-1 C.B. 447 (Revenue Procedure 2000-15). note that Rev. Proc. 2003-61, 2003-2 C.B. 296 (Revenue Procedure 2003-61), superseded Revenue Procedure 2000-16. Revenue Proce- dure 2003-61 is effective for requests for relief under sec. 6015(f) Revenue Procedure 2003-61 is applicable in this case because petitioner filed petitioner's innocent spouse relief request around Nov. 1, 2007.

that were filed on or after Nov. 1, 2003.

Id. sec. 7.

DISCUSSION AND ANALYSIS

* * * * * * * 6015(f) if, taking is provided io under §6015(f) Relief it into account all the facts and circumstances, is inequitable to hold the individual liable for any unpaid tax or any deficiency (or any portion of either) ; and relief is not available under subsection §6015(b) or (c).

Threshold Factors usd r IRC S6015 (f) A joint return was filed.

IRC Sections 6C15(b) and (c) are not avail- able.

There was a timely application for relief.

There was no und rpayment as of July 22, 19 98 .

There is no evidence of of assets.

fraudulent transfers There is no evidence of disqualified assets transferred.

There was no evidence of a fraudulent return present d.

joint the first collection activity for the 2003 She filed fcr relief November 2007. intent to levy was mailed to each indi- The EO [examining officer] determined that the threshold factors of §6015(f) WERE NOT met because the taxpayer did not request relief within 2 years of account. notice of vidual January 2005. threshold factors fcr the 2004 tax year because collection activiti s had not yet begun. with the examining the 2004 tax year will be considered further.

fficer's determinations. Only The taxpayer meets the I agree The l TIER I & TIER II factors of §6015(f) The taxpayer DOES/DOES NOT qualify under the TIER I/TIER II factors of §6015(f) Following are the circumstances under which equitable relief under §6015(f) will ordi- narily be granted.

Il Tier I In cases where a liability,reported on a (1) joint return is unpaid, equitable relief under §6015(f) will ordinarily be granted in cases where ALL of the following elements are satisfied:

the time relief is requested, (a) At requesting spouse is no longer married to, or the nonrequesting is legally separated from, spouse, or has not been a memb¢r of the same household as the nonrequesting spouse at any time during the 12-month period ending on the date relief was requested; the facts from taxpa er & Govern- Relevant ment...the taxpayer is st 11 married and did not mention any plans to file for divorce. Her spouse is incarcerated for the next few years in fedþral prison.

IS NOT satisËied This element because...the taxpayers a e married and separate living arrangements due to imprisonment does not qua ify as sepa- rate househólds.

the time the return was signed, (b) At requesting spouse had no knowledge or reason to know that the tax would not be paid. The requesting spouse must establish that it was reasonable for the requesting pouse to be- lieve that the nonrequesting spouse would pay the reported liability. * * gnd the * Relevant facts from taxpayer & Govern- ment...The taxpayer believed that her I husband wculd be found innocent, rein- stated at h s job, and their lives would return to normal.. She signed the 2004 tax returr. after he was indicted and had been suspended from his job.

IS NOT sat sfied This elem n because...the taxpayer knew that the tax liability would not be paid for some time due to lthe criminal proceedings that were taking place during 2005. couple was using their savings to pay for their personal his attorney fees.

living expenses and The (c) The requesting spouse will suffer eco- nomic hardship if relief is not granted. purposes of this section, of whether a r q esting spouse will suffer economic hardship will be made by the Commis- sioner or the Commissioner's delegate, and will be based vided in §301.6343-1(b) (4) of on Procedure and Administration * n rules similar to those pro- the Regulations * the determination For * 's standard of fadts from taxpayer & Govern- Relevant axpayer is trying to change ment...Th the famil living so that her income is enough to pay their basic living expenses. family home to an apartment because she could not afford the mortgage payment: The taxpa ,er is experiencing economic hardship with or without this tax lia- bility.

She has moved from the This element IS satisfied because...the taxpayer is suffering an economic hard- ship and is unable to pay her basic time. living expenses at the present Tier II The Secretary may grant equitable relief under §6015(f) it is inequita- the facts and cigcumstances, ble to hold the bequesting spouse liable for the unpaid liability or defi- all or part of if, taking into account all || in determining whether ciency. The following is a pa tial list of the positive and negative factors that will be taken into account to grant full or partial equitable relief under §6015(f). No single fac or will be determinative of whether equitable relief will or will not be granted in any particular case. Rather, all factors will be considered and weighed appropriately. intended to be exhaustive.

The list is not (1) Factors that favor relief.

The factors weighing in favor of relief in- clude, but are not limited to, the following:

(a) Marital status. separated (whether legally separated or liv- ing apart) or divorced from th nonrequesting spouse.

The reque ting spouse is facts from taxpayer & Govern- Relevant ment...The taxpayer is still married and did not mention any plans to file for , divorce. Her spouse is .incarcerated for the next few years in federal prison.

IS NOT satisfied This element because...the taxpayers a$e married and separate living arrangemehts due to imprisonment does not qualify as sepa- rate households.

I' (b) Economic hardship. would suffer economic hardship (within the meaning of section 4.02(1) (c) bf this revenue procedure) not granted.

The requesting spouse if relief from the iability is facts from taxpayer & Govern- Relevant ment...The taxpayer is trying to change the family's standard of living so that her income is enough to pay their basic living expenses. family home to an apartment because she could not afford the mort age payment.

She has moved from the --27 - The taxpayer~is experiencing economic hardship wiŠh or without this tax lia- bility.

4.

This element IS satisfied because...the taxpayer is suffering an economic hard- ship and is unable to pay her basic time. living expenses at the present (c) Abuse. by the nonrequesting spouse, but such abuse did not amount to duress.

The requesting spouse was abused Relevant fadts from taxpayer & Govern- ment...thé taxpayer was not abused by her spouse.

This factc-r does not cause...thene is no evidence or allega- tion of abuse.

favor relief be- (d) No knowled e or reason to know. case of a liability that was properly re- ported but not paid, did not know ar.d had no reason to know that the liability would not be paid.

the requesting spouse In the * * * Relevant facts from taxpayer & Govern- ment...The taxpayer believed that her husband would be found innocent, rein- stated at his job, and their lives would return to nÒrmal. tax returr. after he was indicted and had been suspended from his job.

She signed the 2004 IS NOT satisfied This elemcnt because...t e taxpayer knew that the tax liability would not be paid for some time due to the criminal proceedings that were tåking place during 2005. couple was àsing their savings to pay for their pdrsonal his attorr.ey fees.

living expenses and The (e) Nonrequesting spouse's legal obligation. The nonrequesting spouse has a legal obliga- tion pursuant to a divorce decree or arrange- ment to pay the outstanding liability. This will not be a factor weighing in favor of relief if the requesting spouså knew or had reason to know, at the time th divorce de- cree or agreement was entered into, nonrequesting spouse would not pay the.lia- bility.

that the facts from taxpayer & Govern- Relevant ment...The taxpayer is still legally married to her spouse and does not plan to divorce him at this tine.

The factor does not favorirelief because...there is no legal obligation from a divorce decree that the spouse is to pay the liability.

(f) Attributable to nonrequesting spouse. The liability for which relief is sought solely attributable to the nonrequesting spouse.

is facts from taxpayer & Govern- Relevant ment...The taxpayer is liable for a small portion of withholding credits were not enough to cover her share of The majority of to the taxpayer's spouse.

the tax liability. the tax dùe is credited the liability since her This factor favors relief because...a substantial portion of is her spouse's responsibility.

the tax liability (2) Factors weighing against relief.

The factors weighing against relief include, but are not the following:

limited to, (a) Attributable to the requesting spouse. The unpaid liability or item giving rise to the deficiency is attributables to the re- questing spouse.

Relevant ment...The taxpayer is likble for a facts from taxpaþer & Govern- I the liability since her small portion of withholding credits were not enough to cover her s are of The major:.ty of the tax due is credited to the taxpayer's spouse.

the tax liability.

This factor does not weigh against re- lief.

A request- (b) Knowledge, or reason to know. ing spouse knew or had reason to know of item giving ri e to a deficiency or that reported liability would be unpaid at time the returÅ was signed. This is an ex- tremely strong|factor weighing against re- lief. Nonetheiess, of equitable relief are unusually strong, may be appropriate to grant relief under -when the factors in favor the the the it 6015(f) in lidited situations where a re- questing spouse knew or had reason to know that the liabiiity would not be paid, and in very limited situations where the requesting spouse knew or had reason to know of an item giving rise to a Ideficiency.

Relevant acts from taxpayer & Govern- ment...The daxpayer believed that her husband would be found innocent, rein- stated at h s job, and their lives would return to normal. tax returr after he was indicted and had been suspended from his job.

She signed the 2004 This fact r weighs against relief.

(c) Significan benefit. The requesting spouse has significantly benefited [sic] (beyond normal support) bility or items deficiency.

iving rise to the See § 1.6013-5(b).

from the unpaid lia- Relevant facts from taxpayer & Govern- ment...The taxpayer and her family were paying normal.living expenses and the attorney fees with savings after her spouse was suspended without pay from his job.

This factor does not weigh against re- lief.

(d) Lack of economic hardship. ing spouse will not experience-economic hard- ship (within the meaning of section if 4.02(1) (c) of this revenue proåedure) relief from the liability is not granted.

The request- fadts from taxpayer & Govern- Relevant ment...The taxpayer is trying to change the family's standard of lining so that her income is enough to piy their basic living expenses. family home to an apartmeht because she could not afford the mort½age payment. The taxpayer is experienc ng economic hardship with or without this tax lia- bility.

She has moved from the This factor does not weig against re- lief.

The requesting spouse has not made a (e) Noncompliance with federal laws. good faith effort to comply with federal income tax laws in the tax yeags following the tax year or years to which the request for relief relates.

income tax facts from taxpayer & Govern- Relevant ment...The taxpayer and her spouse have filed and paid their tax the 2005 and 2006 tax years.

iabilities for This factor does not weigg against re- lief.

|| (f) Requesting spouse's legal bligation. The requesting spouse has a le al obligation pursuant to pay the liability.

to a divorce decree or agreement facts from taxpayer & Govern- Relevant ment...the taxpayer is stiill legally married to her spouse and does not plan to divorce him at this time.

This factor does weigh against relief.

No additional payer that would fa or relief .

facto a were presented by the tax- Taking into account all t he facts and circumstances in there are hazards that would be faced by this case, both sides should the case be heard at US Tax Court. In an effort to settle bótl I offered to relieve her of his liabi]ity for the 2004 tax year. She has not accepted the offer.

tax years, Because the taxpayer did not establish that it would be inequitable to hold her J iable for the 2003 and 2004 tax years, tion should be sustained. the statutory requirements for the 2003 tax year and has not proven her case regarding the 2004 tax year.

I am recommend.irig that the examiner's posi- The taxpayer does not meet On July 11, 2008, responderit issued to petitioner the notice of determination.

In that notice, respondent denied petitioner's request for relief under section 6015 for each of 2003 and 2004.

With respect to 2003, the notic of determination stated in pertinent part:

You [petitioner] did not file your request timely. section 6015 requires inno ent spouse claims to be filed no later than two years after we start collection activity against you. Our records show the date that the IRS first initiated ollection activity against you by sending you a due pro ess notice was 1/15/2005.

IRC With respect to 2004, the not ce of determination stated in per- tinent part:

"The information e have available does not show you meet the requirements for relief ."

As of April 30, 2010, the Smiths owed a balance of $50,051.55 with respect to 2003.

As of that date, the Smiths owed a balance of $59,545.28 with respect to 2004.

At the trial in this case, petitioner claimed that certain of her monthly expenses had changed (revised onthly expenses) since she submitted petitioner's innocent spoúse relief request and the expenses spreadsheet .

The revised monthly expenses that petitioner claimed at trial consisted of :

Rent Electric Cable Telephonel Automobile, At the- time of Claimed Monthly Expense Amount $1, 080 the trial in this case, Ôetitioner had life, and renter's insurande disconnected her landline home telephone service. At that time, petitioner and her children had only cellular telephone service.

As of the time of the trial in this case petitioner had a monthly salary of $4,001 and monthly expenses of $4,004 consist- ing of :D .I -l "For convenience, we have rounded petitioner' s monthly expenses to the nearest dollar.

· 33 - Monthly Expense Federal, State, and loc 1 taxes Rent Electric Gas Telephone Cable Car Automobile, Food Medical expenses (inclugli g insurance, (including car paymen s and gasoline) life, and renter's insurance dental, vision, and d:.sability) Retirement account Clothing Total loan páyment Amount $617 1,080 4,004 As of the time of the trial in this case, petitioner had complied with the tax laws for each taxable year after 2003 and 2004.

03INION The parties' only dispute is whether petitioner is entitled to relief under section 6015 (f) for her taxable year 2004.

"Petitioner concedes that she is not entitled to relief (c) for "OÓ3 or 2004.

under sec. 6015 (b) or also concedes that, because an appeal lie in the U.S. Court of Appeals for the Seventh Circuit, she is for 2003 under Lantz v. not entitled to relief under sec. 6015(f) revg. 132 T.C. 131 Commissioner, 607 F.3d 479 (7tl Cir. 2010), (2009) , which we shall T.C. 742, 757 (1970), affd. 445 F.2d 985 (10th Cir. 1971), even though we disagree with it, se Pullins v. Commissioner, 136 T.C. In Lantz, On brief, petitioner in this case would normally (2011) ; Hall v. Commission r, 135 T.C. 374 (2010) .

s e Golsen v. Commissioner, 54 follow, the Court of Appeals upheld the validity of sec . 1. 6015-5 (b) (1) , Income Tax Regs., which requires that a requesting spouse file a request for relief no more thark t wo years after the Commissioner of activity with respect to the yea -for which relief is requested.

Internal Revenue (Commissioter) first begins collection (continued. .-. ) || Petitioner bears the burden of proving that s e is entitled to relief under that section.

See 'Rule 142(a); onson v. Commis- sioner, 118 T.C. 106, 113 (2002), affd. 353 F 3d 1181 (10th Cir.

2003).

Section 6015(f) provides:

SEC. 6015.

RELIEF FROM JOINT AND SEVERAL LIABILITY ON JOINT RETURN.

scribed by the Secretary, (f) Equitable Relief.--Under proceNures pre- if-- || (1) taking into account all the facts and circumstances, it is inequitable to hold the indi- vidual liable for any unpaid tax or any deficiency (or any portion of either); and (2) relief is not available to such individ- ual under subsection (b) or relieve such individual of such liability.

(c), th Secretary may As directed by section 6015(f), the Commissioner has pre- scribed procedures in Revenue Procedure 2003-61 that are to be used in determining whether it would be inequitable to find the requesting spouse liable for part or all of the underpayment of tax.

That revenue procedure lists seven threhhold conditions (threshold conditions) which must be satisfied before the Commis- .I "(...continued) Lantz v. Commissioner, supra at 486. Petitioner filed Form 8857 more than two years after respondent first b gan collection activity with respect to 2003.

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

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

Petitioner concedes that s e does not satisfy all of the threshold conditions with respect to the portion of the underpay- ment for 2004 that is attribut.a le to herself.

See Rev. Proc.

2003-61, sec. 4.01(7).

On the record.before us, we find that petitioner is not entitled to relief under section 6015(f) for that portion.

The parties' agree that pet tioner satisfies all of the threshold conditions with respect to the portion of the underpay- ment for 2004 that is attribut a le to Mr. Smith. Where the requesting spouse satisfies the threshold conditions, section 4.02(1) of Revenue Procedure 003-61 sets forth the circumstances under which the Commissioner c.rdinarily will grant relief to that spouse under section 6015 (f) .in a case, like the instant case, where a liability is reported in a -joint return but not paid.

Petitioner concedes that she cods not qualify for relief under section 4 . 02 (1) of Revenue Prc cédure 2003 -61.

Instead, she relies on section 4.03 of that evenue procedure in support of her claim for relief under sect on 6015(f).

Section 4.03 of Revenue Irócedure 2003-61 sets forth the following factors that are to be considered in determining whether a requesting spouse is entitled to relief under section 6015(f):

(1) Whether the regresting spouse is separated or divorced from the nonrequesting spouse (marit 1 status factor) ; (2) whether the requesting spouse would suffer economic hardship if not granted relief (economic hardship fact r); (3) whether the || requesting spouse knew or had reason to know that the nonre- questing spouse would not pay the tax liability (knowledge factor); (4) whether the nonrequesting spouse has a legal obliga- tion to pay the outstanding tax liability pursuant to a divorce decree or agreement (legal obligation factor) - (5) whether the requesting spouse received a significant benefit from the item giving rise to the deficiency (significant benefit factor) ; and (6) whether the requesting spouse has made a < ood faith effort to comply with the tax laws for the taxable years following the taxable year to which the request for such re ief relates (com- pliance factor).14 Rev. Proc. 2003-61, sec. 4.03(2) (a), 2003-2 C.B. at 298-299.

In making our determination under section 40ther factors that may be considered under Revenue Proce- dure 2003-61 are (1) whether the nonrequestin spouse abused the requesting spouse (abuse factor) and (2) whether the requesting spouse was in poor mental or physical health (mental or physical health factor) when he or she signed the tax return (return) or when he or she requested relief. Rev. Proc. 2003-61, sec. 4.03(2) (b), 2003-2 C.B. at 298. " ing spouse abused the requesting spouse or spouse was in poor mental or physical health hen he or she the abuse signed the return or when he or she requested relief, factor or the mental or physical health factor, as the case may be, will be taken into account. (1) and (2) health when she signed the return or when she requested relief, taken into account. those factors are not the nonrequesting spouse did not abuse the requesting spouse in poot mental or physical (1) the requesting the requesting spouse was not Id. However, where, as here, In the event (2) the nonrequest- Id.

6015(f), we shall consider thcse factors and any other relevant factors.

No single factor is t< be determinative in any particu- lar case, and all factors are to be considered and weighed appropriately.

With respect to the marital status factor, the parties agree that the Smiths remained married as of the time of the trial in this case.

With respect to the econcmic hardship factor,15 respondent isIn determining whether a equesting spouse will suffer economic hardship, sec. 4.02(1) (Ic) of Revenue Procedure 2003-61 requires reliance on rules sinilar to those provided in sec. That regulation gener- 301.6343-1(b) (4), Proced. & Acmin. Regs. ally provides that an individual suf fers an economic hardship if the individual living expenses . provides in pertinent part:

is unable to pay his or her reasonable basic Sec . 301. 6343 -1 (b) (4) , Proced . & Admin . Regs .

, (ii) Information frcm taxpayer. --In determining a reasonable amount for basid living expenses the direc- tor will consider any information provided by the taxpayer including-- (A) The taxpayer's age, employment status and history, ability to earn, number of dependents, and status as a dependent of someone else; (B) The amount rea onably necessary for food, tax payments (inc¹ ding federal, state, and clothing, housing (inclucing utilities, home-owner insurance, home-owner dues, and the like) , medical expenses (including health insurance) , current local) , alimony, child support, or other court-ordered payments, and expenses necessary to the taxpayer's production of income (such as dues for a trade union or professional organizatior , or child care payments which allow the taxpayer to be gainfully employed) ; transportation, (continued. .

. ) argues that petitioner "merely testified that she had the ex- penses listed in her brief, but did not provi e any substantia- tion of those expenses." We reject respondent's argument.

In addition to her testimony, which we found to be credible, peti- tioner submitted (1) Form 8857 in which she claimed certain expenses, (2) the 2008 Form 12509 in which she provided addi- tional information about her monthly expenses (3) the April 2008 pay statement detailing certain expenses that Dow deducted from her wages, and (4) the expenses spreadsheet in which she detailed certain of her expenses.

|| In evaluating petitioner's request for relief, neither respondent's examiner nor res ondent's Appeals I officer maintained that petitioner was not entitled to relief because she failed to substantiate her claimed expenses.

In li fact, respondent's Appeals officer relied on those claimed expenses in reaching the conclusion in the appeals memorandum Il "(...continued) (C) The cost of in which the taxpayer resides; living in the ge graphic area (D) The amount of property exempt which is available to pay the taxpayer's expenses; from levy (E) Any extraordinary circumstanoes such as special education expenses, a medical ca astrophe, or natural disaster; and (F) Any other factor that the taxpayer claims bears on economic hardship and brings to the attention of the director.

that petitioner was "experiencing economic hardship with or without this tax liability."

We have found that as of the time of the trial in this case petitioner had (1) a monthly salary of $4,001 and (2) monthly expenses of $4,004 exclusive of certain expenses that petitioner argues should be included as part of her basic living expenses" and certain other expenses that respondent argues should be excluded as part of her basic living expenses." Thus, we have "Petitioner argues that her claimed monthly expense for is unreasonably low and significantly less than food (i.e., $230) the monthly expense for food (i.e., $537) set forth in the national standards (Service's national standards) that the Service uses in determining whether a taxpayer is suffering an economic hardship. Petitioner also asserts that she is entitled to use the monthly expenses set iforth in the Service's national standards for "Food, Clothing add Other Items". shall not address whether petitioner is entitled to use those monthly expenses. tioner's basic living expenses the monthly expenses set forth in the Service's national standard for "Food, Clothing and Other Items", we have found that petitioner's monthly expenses exceed her monthly salary.

is because, without including in peti- We need not and That "Respondent argues that cable television, tithes to peti- is because, without We need not and shall not address whether tithes to tioner's church, and certain contributions to petitioner's retirement account do not constitute reasonable basic living expenses. petitioner's church and certailn |contributions to petitioner's retirement account constitute re'asonable basic living expenses. That basic living expenses those tithes and those contributions, we have found that petitioner's monthly expenses exceed her monthly salary. tioner's reasonable basic living expenses. rejected respondent's argument that "petitioner's cable expense of $120.00 is not a reasonable basic living expense". were to exclude cable television from petitioner's reasonable basic living expenses, petitioner's monthly salary would exceed We have included $120 for cable television in peti- including in petitioner's reasonable In doing so, we have Even if we (continued...)

found that petitioner's monthly expenses exce ded her monthly salary.

Respondent argues that the abalance in petitioner's retire- il ment account, which as of the time of the triÅl in this case was approximately $75,000, "could be used to pay à significant portion of the liabilities." Respondent's argument ignores that petitioner concedes that she is liable for the Smiths' tax liability for 2003, which as of April 30, 2010, was $50,051.55.18 Respondent's argument also ignores that petitioner has at times borrowed money from her retirement account in order to pay certain expenses, including basic living expenses.

We believe that she will be required to continue to borrow from her retire- ment account in order to meet certain of those basic living expenses.

"(...continued) her monthly expenses by only $117 and would not change our to the economic ha dship factor. finding below with respect In the alternative, respondent argues that "at best, [peti- items of is not clear.

the National Standards petitigner relies upon and tioner's cable expense] would fall under neous' would not be a separate allowable expense." Respondent's argu- ment mining petitioner's reasonable basic living egpenses any of monthly expenses set forth in the Service's national standards for "Food, Clothing and Other Items", see supra note 16, and we need not and shall not address respondent's alternative argument.

In any event, we have not(included in deter- 'othþr' or 'miscella- the "The tax liability for 2003 continues t until paid.

See sec. 6601.

|| accrue interest -: 41 - On the record before us, we find that petitioner has carried her burden of establishing that she would suffer economic hard- ship if relief under section E⁰ 5 (f) were not granted with respect to the portion of the underpayment for 2004 that is attributable to Mr. Smith.

With respect to the know]edge factor, petitioner must establish that it was reasonable for her to believe that Mr. Smith would pay the tax shown due in the 2004 joint return.

See Rev. Proc . 20 03 -61, sec .

4 . 02 (1) (b) , 4 . 03 (2) (a) (iii) , 20 03 -2 C.B. at 298.

Respondent argues that "Eased on Mr. Smith's legal difficul- ties and loss of employment * * * petitioner knew or had reason to know that Mr. Smith would Áot pay those [tax] liabilities with the return or in a reasonably prompt time."19 Peddoner coun- ters that she had no reason to believe that the tax shown due in the 2004 joint return would not be paid.

That is because, according to petitioner, it w s reasonable for her to believe "Respondent' s argument that petitioner must believe that time is based on in order for a belief that a liability would be paid to the tax would be paid in a reasonably prompt Banderas v. Commissioner, T.C Memo. 2007-129. held that be reasonable the requesting pduse must believe that to pay the liability would be on hand within a reasonably prompt time . Respondent contends th t that holding in Banderas is wrong and that the requesting spouse must believe that the tax would be paid by the later of the date on which the tax is dug to be paid. invites us to do because, our holding in Banderas as re pondent as discussed below, even under that holding we sustain respon- dent's argument with respect the date on which the return was filed or to the knowledge factor.

We need not revisit In Banderas, we the funds Mr. Smith when he told her that he would pay that amount out of the profits generated by First Choice in the following year.

Petitioner contends that at the time she signÅd the 2004 joint - Il return ("1st ient income income of $131,718. Given that income in 2004 was $133,000, suffi her husband's business, 1st Choice Appraisal Choice"), was coming off of an impressivé year in 2003 its where it had total total was being produced to pay the tax liability. Moreover, although the indictment against Michael Smith had been filed on January 25, 2005, othe trial against him did not commence until September 11, 2006, over one year after petitioner signed the 2004 return.) Moreover, jury verdict against Mr. Smith was not returned until January 17, 2007. cause for concern at full extent of Mr. Smith's legal problem was not yet apparent [Cross-refs. omitted.]

Thus, although there was perhaps the time the return was filed, to petitioner when she signed the return.

the the On the record before us, we reject petitioner's.argument.

We have found that around April 13, 2005, petitioner and Mr. Smith signed the 2004 joint return.

We h ve also found that at that time petitioner was aware that (1) around 2000 the Smiths commenced a bankruptcy proceeding; (2) early in 2003 before April 15, the Smiths filed the 2002 joint return in which they showed tax of $21,658, claimed a withholding tax credit of $6,293, and showed tax due of $15,365; (3) th Smiths did not pay on or before April 15, 2003, the tax shown duè in the 2002 joint return of $15,365; (4) around August 2003 the Smiths entered into the 2003 installment agreement; (5) aro.und Ju y 7, 2004, (a) the Smiths filed the 2003 joint return in which they showed tax due !

of $31, 680 and (b) petitioner w s aware that that return showed a significant amount of tax due (6) the Smiths did not include any payment with the 2003 joint retúrn when they filed it around July 7, 2004; (7) from November 2004 to January 2005 the Smiths did not make the payments required linder the 2003 installment agree- ment; (8) on January 25, 2005, a grand jury for the District Court indicted Mr. Smith on 16 counts; and (9) in January or February 2005 Mr. Smith was suspended from the police department.

On the record before us, we find that it was not reasonable for petitioner to believe at t.he time she signed the 2004 joint return around April 13, 2005, that First Choice would generate profits in the following year sufficient to pay the tax shown due in that return.²⁰ On the record before us, we find that petitioner has failed to carry her burden of establishing that she reasonably believed that the tax shown due in the 2004 joint return would be paid on or before the date on which that tax was due.

On that record, we further find that petitioner has failed to carry her burden of establishing that she reasonabl believed that the funds to pay the tax shown due in the 2004 joint return would be available 20We thus reject petitioner's contention that the instant case is materially similar to Downs v. Commissioner, T.C. Memo. We find Downs to be materially distinguishable from 2010-165. the instant case and petitioner' s reliance on that case to be misplaced.

within a reasonably prompt time." On the record before us, we find that petitioner has failed to carry her burden of establish- ing that she did not know and had no reason tÅ know that the tax shown due in the 2004 joint return would not þe paid.

With respect to the legal obligation facior, the parties agree that there is no divorce decree or other agreement that obligates Mr. Smith to pay the portion of the underpayment that is attributable to him.

With respect to the significant benefit factor, the parties agree that petitioner did not receive a significant benefit beyond normal support from the portion of the underpayment attributable to Mr. Smith.

.

With respect to the compliance factor, the parties agree that petitioner has complied with the tax laws for all years after 2004.

Based upon our examination of the entire record before us, we find that petitioner has carried her burden of establishing that.it would be inequitable to hold her liabie for the portion of the underpayment for 2004 that is attribut(ble to Mr. Smith.

On that record, we further find that petition r has carried her burden of establishing that she is entitled tè relief under section 6015(f) for that portion of that underpayment.

"See supra note 19.

We have considered all of tihe contentions and arguments of the parties that are not discusàed herein, and we find them to be without merit, irrelevant, and/or moot.

To reflect the foregoing and the concessions of petitioner, Decision will be entered under Rule 155.