UNITED STATES TAX COURT

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T.C. Memo. 2006-31

UNITED STATES TAX COURT

JANET H. KRASNER, Petitioner, AND PAUL KRASNER, Intervenor v.

COMMISSIONER OF INTERNAL REVENUE, Respondent

Docket No. 4702-04.

Filed February 23, 2006.

Dermot F. Kennedy, for petitioner.

Paul Krasner, pro se.

Jack T. Anagnostis, for respondent.

MEMORANDUM FINDINGS OF FACT AND OPINION

CHIECHI, Judge:

This case arises from a request for equita-

ble relief (relief) under section 6015(f)1 with respect to petitioner’s taxable year 1998.

We must decide whether respondent

All section references are to the Internal Revenue Code in

effect at all relevant times.

- 2 abused respondent’s discretion in denying petitioner such relief.

We hold that respondent did not abuse respondent’s discretion.

FINDINGS OF FACT

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

Petitioner resided in Havertown, Pennsylvania, at the time

she filed the petition.

Intervenor Paul Krasner (Mr. Krasner)

resided in Pottstown, Pennsylvania, at the time he filed the

notice of intervention.

Petitioner, a college graduate, and Mr. Krasner, a graduate

of college and dental school, married on or about June 11, 1983,

and legally separated on October 13, 1999.

On December 7, 1999,

petitioner instituted proceedings for a divorce from Mr. Krasner

(divorce proceedings) in the Court of Common Pleas of Montgomery

County, Pennsylvania (Montgomery County Court of Common Pleas).

Petitioner and Mr. Krasner have four children (the children):

S, C, W, and P.

At the time of the trial in this case,

S, C, and W were 21, 18, and 16 years old, respectively.2

Before petitioner married Mr. Krasner, she worked as a high

school biology teacher.

Sometime around 1984, when petitioner

and Mr. Krasner had their first child, petitioner stopped working.

She remained unemployed until around the beginning of 2005,

when she began working as a substitute teacher.

For the first

15-day period during which petitioner worked as a substitute

The record does not disclose P’s age.

- 3 teacher, she earned $100 a day.

Thereafter, she was classified

as a long-term substitute teacher and earned approximately $200 a

day.

At the time of the trial in this case, Mr. Krasner had been

an endodontist for 30 years.

For at least sometime prior to

1995, Mr. Krasner had a partner in his endodontic practice.

Around the beginning of 1995, Mr. Krasner began practicing

endodontics alone for Endodontics and Endodontic Surgery, P.C.

(Endodontics), a professional corporation of which he was the

sole stockholder.

At all relevant times thereafter, Mr. Krasner

continued to work as an endodontist for Endodontics.

Around October 1996, petitioner, Mr. Krasner, and the

children moved into a house (marital residence) located at 350

Exeter Road, Haverford, Pennsylvania, where petitioner continued

to live as of the time of the trial in this case.

Petitioner and

Mr. Krasner purchased the marital residence for approximately

$564,000, approximately $449,000 of which they borrowed.

At the

time of the trial in this case, the marital residence was encumbered by two mortgage loans totaling approximately $500,000.

The purchase of the marital residence by petitioner and Mr.

Krasner created a financial strain on them, given their income

and expenses at the time of that purchase.

Consequently, peti-

tioner and Mr. Krasner agreed to remove two of the children (W

and C) from private school and enroll them in public school.

- 4 1997, their son W was experiencing problems while attending

public school.

As a result, petitioner and Mr. Krasner decided

to re-enroll him in private school.

In 1998, their daughter C

also was experiencing problems while attending public school.

a result, petitioner and Mr. Krasner decided to re-enroll her in

private school.

At all relevant times, Mr. Krasner paid all private elementary and high school tuition expenses incurred for the children.

Those annual tuition expenses totaled approximately $48,000.

all relevant times, Mr. Krasner also paid all summer camp expenses incurred for the children.

Those summer camp expenses

totaled approximately $7,800 a year.

For a three-year period around 1998-2001, Mr. Krasner also

was the sole stockholder of a corporation known as Save-A-Tooth,

Inc., which manufactured and distributed a medical emergency

device called Save-A-Tooth (Save-A-Tooth device).3

Endodontics and Save-A-Tooth, Inc., had separate bank

accounts to which only Mr. Krasner had access.

Petitioner had no

knowledge of those accounts (or any other accounts that might

have existed in the name of Mr. Krasner or any of his businesses)

until sometime around or after she filed for divorce on December

7, 1999.

(We shall sometimes refer collectively to the respec-

After Save-A-Tooth, Inc., was dissolved sometime around

2001, Mr. Krasner formed another corporation known as Phoenix

Lazarus to manufacture and distribute the Save-A-Tooth device.

- 5 tive bank accounts of Endodontics and Save-A-Tooth, Inc., as Mr.

Krasner’s business bank accounts.)

Around March 4, 1997, Endodontics issued four checks, one

for $177.10 to petitioner and one for $265.65 to each of the

children S, C, and W.

(We shall refer collectively to those four

checks as Endodontics’ March 4, 1997 checks payable to petitioner

and three of the children.)

Certain office records of

Endodontics indicated that Endodontics’ March 4, 1997 checks

payable to petitioner and three of the children were for “Employee Salaries”.

At least during 1998 until around December 1999, petitioner

and Mr. Krasner maintained a joint checking account (joint

checking account) into which Mr. Krasner deposited revenues from

one or more of his businesses.

The respective balances in the

joint checking account on February 16 and March 16, 1999, were

$13,808.90 and $17,746.87.

Mr. Krasner closed the joint checking

account around December 1999 because of the excessive expenditures that he believed petitioner was making.

At least during 1999 until around December of that year,

petitioner had, or had access to, two major credit cards, Visa

and American Express.

Petitioner had access to a credit line of

$14,500 on the Visa credit card.4

Mr. Krasner closed those

The record does not disclose the amount of the credit line

to which petitioner had access on the American Express credit

card.

- 6 credit card accounts, or petitioner’s access to those accounts,

around December 1999 because of the excessive expenditures that

he believed petitioner was making.

At least during 1998 and 1999, petitioner generally was to

pay certain household bills and bills for certain personal items

(e.g., clothes, gasoline) from the joint checking account.

There

was not always enough money in the joint checking account to pay

all such bills, and Mr. Krasner paid certain household bills

(e.g., mortgage loan payments) from one or both of Mr. Krasner’s

business bank accounts.

On different occasions during 1998, Mr. Krasner purchased

and gave petitioner an Apple laptop computer and an Apple desktop

computer,5 a pearl necklace worth at least $2,000,6 and a digital

camera.7

Around Christmas 1998, Mr. Krasner gave petitioner an

opal brooch that he purchased for $350 and a diamond necklace

that he purchased for $800.

At the request of petitioner, Mr.

Krasner returned the diamond necklace.

At least during 1998, 1999, and 2000, petitioner, either

alone or with one or more family members, took (1) various trips

The record does not disclose the price of the two computers

that Mr. Krasner purchased for petitioner.

At an undisclosed time, the pearl necklace was appraised

and insured for $6,000.

There is no reliable evidence in the record establishing

the cost of the digital camera that Mr. Krasner gave to petitioner.

- 7 to different places in the United States, most of which lasted

under a week, (2) one trip to Italy, which lasted about two

weeks, and (3) one trip to Paris, France, which lasted about two

weeks.

Mr. Krasner paid for all of the trips that petitioner

took in 1998 and 1999 and may have paid for trips that she took

at other times.

At least during 1998 and 1999, Mr. Krasner took various

trips to attend professional meetings.

In addition, during 1998,

Mr. Krasner traveled to California for five days, inter alia, to

participate in a class on Hindu religion, play golf, and sightsee.

Mr. Krasner’s trip to California cost approximately $1,200.

During virtually all of the trips that petitioner took alone

during 1999, the children stayed with Mr. Krasner.

Among the

trips that petitioner took during 1998 and 1999, either alone or

with one or more family members, were the following.

In 1998, petitioner vacationed in Italy for about two weeks.

While in Italy, petitioner participated in a dance/exercise

course and visited friends.8

In January 1999, petitioner traveled alone to Jackson Hole,

Wyoming (Jackson Hole), to interview a few individuals.9

There-

after in January 1999, petitioner traveled from Jackson Hole to

There is no reliable evidence in the record establishing

the cost of petitioner’s trip to Italy.

The record does not disclose the specific purpose of those

interviews or the number of days petitioner stayed in Jackson

Hole.

- 8 Breckenridge, Colorado, where she stayed for about a week and

where she met a man who became a close friend of hers.

In February 1999, petitioner and Mr. Krasner vacationed in

Lake Tahoe, Nevada (Lake Tahoe vacation).

During the Lake Tahoe

vacation, Mr. Krasner encouraged petitioner to use the spa at

their hotel where she purchased, inter alia, certain beauty

treatments (e.g., facials).

Around the end of June 1999, petitioner and her daughter C

took a vacation to Paris, France, which lasted about two weeks.

Around September 8-11, 1999, petitioner traveled to Dallas,

Texas, in order to obtain a consultation for cosmetic surgery.

Around the end of September or early October 1999, petitioner took a trip to Colorado, which lasted at least 11 days.

While on that trip, petitioner had reconstructive surgery on her

knee.

In early November 1999, petitioner spent at least several

days in New York City in order to participate in a course that

Mr. Krasner had purchased for her.10

Around early December 1999, petitioner traveled to Colorado

for medical followup with respect to her knee surgery and remained there for at least several days.

Around Christmas 1999, petitioner again traveled to Colorado

where she stayed about a week.

The record does not disclose the subject matter of the

course.

- 9 On April 10, 1999, Mr. Krasner presented to petitioner

completed joint Form 1040, U.S. Individual Income Tax Return, for

taxable year 1998 (1998 joint return), and reviewed at least the

first three pages of that completed return with her.

Those pages

showed, inter alia, wages of $242,248, “Business income” of

$55,000 reflected in Schedule C, Profit or Loss From Business, a

loss of $4,483 from “Rental real estate, royalties, partnerships,

S corporations, trusts, etc.” reflected in Schedule E, Supplemental Income and Loss, Federal income tax (tax) of $66,361, total

tax payments of $28,037, and tax due of $38,324.11

In reviewing the 1998 joint return with petitioner on April

10, 1999, Mr. Krasner informed her that they owed $38,324 of tax

for 1998 and that they needed to make arrangements with the

Internal Revenue Service (IRS) to set up an installment plan to

pay that tax liability just as they had previously done with

respect to their joint tax liability for 1992.12

Mr. Krasner

Around the end of 1998, Schiffman Hughes Brown, P.C.,

certified public accountants (Schiffman Hughes Brown), who

represented Mr. Krasner and petitioner on, inter alia, their tax

matters informed Mr. Krasner that insufficient withholding had

been made for the first three quarters of 1998 with respect to

their projected tax liability for that year.

For taxable year 1992, petitioner and Mr. Krasner filed a

joint tax return (1992 joint return) that showed tax due, the

amount of which is not disclosed by the record and which they did

not pay when they filed that return. During 1994, Mr. Krasner

and the IRS agreed to an installment plan about which petitioner

was aware and under which petitioner and he agreed to make

monthly payments of their liability for taxable year 1992. At a

time not disclosed by the record, Mr. Krasner received an inheri(continued...)

- 10 advised petitioner that, in order to be able to pay their joint

tax liability for 1998, they needed to start setting money aside,

which Mr. Krasner told petitioner would require reducing the

amount that they were spending on household and other items.

On April 10, 1999, after Mr. Krasner reviewed and discussed

the 1998 joint return with petitioner as described above, petitioner and Mr. Krasner signed that return.13

ter, the 1998 joint return was filed.14

Sometime thereaf-

When they filed the 1998

joint return, petitioner and Mr. Krasner did not pay the $38,324

of tax shown due in that return.

On August 5, 1999, Mr. Krasner sent petitioner an email (Mr.

Krasner’s August 5, 1999 email to petitioner).

Mr. Krasner’s

August 5, 1999 email stated in pertinent part:

I deposited $2,000 in your checking account yesterday. There is one more outstanding check that I

wrote to pay the Visa charges from France for $2,300

dollars. That will leave you $1,786 for the month as

of Wednesday. I also checked the American Express

charge and you have charged $1,000. You will have to

pay this bill out of your checking account when it

comes on August 17. If it’s not paid, American Express

will not allow any more charges.

(...continued)

tance of approximately $34,000, almost all of which he used to

pay off the outstanding joint liability for taxable year 1992.

Schiffman Hughes Brown signed the 1998 joint return as the

paid preparer of that return.

The record does not disclose the date on which petitioner

and Mr. Krasner filed the 1998 joint return. Because the IRS did

not have a record of receiving the 1998 joint return, Mr. Krasner

sent a copy of that return to the IRS, which the IRS received on

May 2, 2000.

- 11 Janet, I am sorry that I have to do this. I know

that it makes you angry and you hate me even more than

ever. I am only doing it because we now have $92,000

dollars in debt that must be paid by October and we are

in financial jeopardy. You now are thinking about new

carpeting. I don’t know if it’s possible but I know

that it is impossible with our current spending rate.

We must cut back on all unnecessary expenses. Please

help me do this. [Reproduced literally.]

On August 9, 1999, in response to Mr. Krasner’s August 5,

1999 email to petitioner, petitioner sent Mr. Krasner an email

(petitioner’s August 9, 1999 email to Mr. Krasner).

Petitioner’s

August 9, 1999 email stated in pertinent part:

I HAVE PUT A CHARGE ON OUR AMERICAN EXPRESS CARD TO

RETAIN CHERYL YOUNG TO REPRESENT ME IN OUR DIVORCE

PROCEEDING. SHE REQUESTED A 10,000 DOLLAR RETAINER. I

TRIED TO PUT IT ON VISA SO THAT IT WOULDN’T HAVE TO BE

PAID RIGHT AWAY, BUT THEY DECLINED THE CHARGE. THOSE

ARE THE ONLY CARDS I HAVE ACCESS TO AND THEREFORE, MY

ONLY ALTERNATIVES. IF YOU WOULD LIKE THE RETAINER TO

BE PAID ANOTHER WAY, PLEASE CALL CHERYL YOUNG’S OFFICE

* * * TO CHANGE THE METHOD OF PAYMENT.

ADDITIONALLY, I HAVE CHARGED TWO TICKETS ON THE VISA

CARD. BOTH ARE FOR THE SAME DATES OF TRAVEL, ONE TO

JACKSON, WY IN CASE I DECIDE TO HAVE THE KNEE SURGERY

DONE THERE, AND ONE TO DENVER TO SEE DR. STEADMAN. I

MADE THE TICKETS FOR ABOUT A TWO WEEK STAY. THEY SAID

THERE WOULD BE A 75 DOLLAR CHARGE FOR ANY CHANGES.

* * *

I AM IN A STATE OF PANIC IN HAVING NO REAL WAY, SHOULD

YOU CANCEL MY ACCESS TO CREDIT, OF PAYING FOR ANYTHING.

THIS INCLUDES FOOD AND CLOTHING WHICH IS BOUGHT FOR

EVERYONE’S USE INCLUDING YOURSELF. [Reproduced literally.]

At most relevant times after petitioner and Mr. Krasner

legally separated on October 13, 1999, a custodial order of the

Montgomery County Court of Common Pleas (custodial order) was in

- 12 effect which directed that, for each 28-day period during the

year (excluding the summer when certain of the children attended

camp), the children were to spend 18 days with Mr. Krasner and 10

days with petitioner.

Despite the custodial order, starting

around 2001 the oldest child (S) chose to live all the time with

Mr. Krasner.

That child became emancipated around 2001 and as of

the time of the trial in this case still lived with Mr. Krasner

and attended college.

In addition, despite the custodial order,

starting around 2003 the second oldest child (C) chose to live

all the time with Mr. Krasner, which she continued to do as of

the time of the trial in this case.

From December 18, 1999, through February 11, 2001, petitioner telephoned the police department of Haverford Township,

Pennsylvania (Haverford police department) five times to report

certain alleged incidents involving Mr. Krasner.

Upon each of

those occasions, the Haverford police department dispatched an

officer to petitioner’s residence to investigate petitioner’s

claims, and that officer prepared a so-called incident report

(incident report).

All of the incident reports indicated that

some type of domestic dispute occurred between petitioner and Mr.

Krasner relating to custodial issues and/or the division of the

marital assets.

For example, an incident report prepared by an

officer of the Haverford police department on August 23, 2000,

stated in pertinent part:

- 13 Janet Krasner notified this department that her

husband, Paul Krasner, was at the home at 350 Exeter

rd. Janet felt that he would remove items in violation

of a court order. Upon arrival officers spoke with

Kranyak, a representative of Schnader Harrison Segal &

Lewis a law firm who is representing Mr. Krasner.

Officers reviewed court document # 99-21295 from the

Montgomery County Court of Common Pleas Family Division, filed on Thursday July 13, 2000. This document

was an agreement between all parties for Mr. Krasner to

video tape and remove specific books, all of a nonviolent nature. Officers found nothing in the document

to preclude Mr. Krasner from the residence for this

purpose. In fact the document ordered a representative

of Harrison Segal Lewis & Schnader to be present while

the residence was video taped and Mr. Krasner removed

the items. Mr. Krasner as ordered by the court will

provide a list of all of the items he removed from the

property to the court/and or Mrs. Krasner’s representatives. Mr. Kranyak asked if officers wished to remain

on location during this process. Since Mr. Kranyak was

present at 350 Exeter per order of the court and bound

by the courts instructions Police presence was not

required. No further police action taken at this time.

[Reproduced literally.]

An incident report prepared by an officer of the Haverford

police department on January 16, 2000 (January 16, 2000 incident

report) indicated that petitioner alleged that Mr. Krasner shoved

her while they were arguing.

The January 16, 2000 incident

report stated in pertinent part:

Dispatched to above location for a domestic in

progress. Upon arrival, Paul and his four children

were in the car outside attempting to leave. Paul

stated that he and his estranged wife are in the process of a divorce and he was there to pick up their

children. Paul went into the house to obtain some

personal items and an argument ensued. Janet stated

that Paul shoved her during the argument. No signs of

physical injury. * * * [Reproduced literally.]

Except for petitioner’s claim that Mr. Krasner shoved her, which

- 14 was noted in the January 16, 2000 incident report, petitioner

made no claim to the Haverford police department alleging any

unwanted physical contact, or any physical or mental abuse, by

Mr. Krasner.

Petitioner completed and submitted to the Montgomery County

Court of Common Pleas a document entitled “INCOME & EXPENSE

STATEMENT” dated January 25, 2000 (January 25, 2000 income and

expense statement).

The January 25, 2000 income and expense

statement was a six-page printed form that listed, inter alia,

categories of income items and expense items.

Petitioner made no

entries in that statement for any of the categories of income

items.

She made entries in the January 25, 2000 income and

expense statement for various categories of expense items as

follows.

In the January 25, 2000 income and expense statement,

petitioner claimed the following home and utility expenses:

- 15 -

Home

Mortgage

(husband

pays)

Maintenance1

Utilities

Electric

(husband

pays)

Pool2

Telephone3

Water (husband

pays)

Security system

monitoring4

Pottstown

property

taxes

(husband

pays, not

added in)

Monthly

Yearly

Self

(Monthly)

Children

(Monthly)

$3,500

$42,000

$700.00

$2,800.00

1,750

21,000

350.00

1,400.00

$3,000

$36,000

$600.00

$2,400.00

308

805

100

3,696

9,660

1,200

61.60

161.00

20.00

246.40

644.00

80.00

185

2,220

37.00

148.00

333

4,000

66.60

266.40

With respect to “Maintenance” expenses that petitioner

claimed, an attachment to the January 25, 2000 income and expense

statement claimed: (1) $5,200 annually for weekly lawn care,

(2) $1,000 annually for tree removal, (3) $2,000 annually for

landscaping, (4) $500 for replacement of a refrigerator part,

(5) $1,000 for plumbing, and (6) $11,300 for “Other Repairs On

Home (including electric work, restoration, etc.)”.

With respect to “Pool” expenses that petitioner claimed, an

attachment to the January 25, 2000 income and expense statement

claimed that the pool was serviced by Suburban Pool Service of

Conshohocken, Pennsylvania. That attachment claimed that such

service consisted of opening and closing the pool, weekly

cleanings, repairs, fence work, and concrete work. That attachment also claimed “Last two (2) checks for the pool bounced $349.80 and $399.62 because Husband closed out the joint account

at Commerce Bank which Wife used to pay the bills. Husband sent

back the latest bill to Wife.”

With respect to “Telephone” expenses that petitioner

claimed, an attachment to the January 25, 2000 income and expense

statement claimed the following monthly expenses: (1) $150 for

an automobile telephone, (2) $150 for a cellular telephone,

(3) $200 for a desk telephone, (4) $200 for a home telephone,

- 16 (5) $75 for the childrens’ telephone, and (6) $30 for a fax line.

That attachment also claimed that S’s cellular phone was paid for

by Mr. Krasner.

With respect to “Security system monitoring” expenses that

petitioner claimed, an attachment to the January 25, 2000 income

and expense statement claimed:

The home has always been protected by Vector Security

Systems, as required by the Philadelphia Contribution

Insurance Company, the homeowner carrier.

Husband refuses to pay for the security monitoring

system, stating “we can’t afford it.”

In the January 25, 2000 income and expense statement,

petitioner claimed the following tax and insurance expenses:

Taxes

Real estate and

school

Insurance

Homeowner’s (Phila.

contribution)

Monthly

Yearly

Self

(Monthly)

Children

(Monthly)

$833

$9,996

$166.60

$666.40

$268

$3,211

$53.60

$214.40

In the January 25, 2000 income and expense statement,

petitioner claimed the following automobile expenses:

Payments

Fuel, oil

Repairs1

Monthly

$807.97

500.00

285.00

Yearly

$9,695.64

6,000.00

3,420.00

Self

(Monthly)

$323.19

200.00

114.00

Children

(Monthly)

$484.78

300.00

171.00

With respect to “Repairs” expenses that petitioner claimed,

an attachment to the January 25, 2000 income and expense statement claimed the following with respect to a Lexus LX450:

(1) $448 for a 30,000 mile checkup, (2) $198.69 for a tire,

(3) $75.26 for an inspection, (4) $256.74 for rear pads,

(5) $183.37 for a tire, (6) $575.87 for brakes, (7) $497.34 for a

left front caliber, (8) $304.44 for rear brakes, and (9) $83.15

for mirror glass. That attachment also claimed that four new

- 17 tires were needed at a cost of $800.

In the January 25, 2000 income and expense statement,

petitioner claimed the following medical expenses:

Doctor

Psychologist/

psychiatrist2

Medicine (not

covered by

insurance)

Monthly

$167

1,473

Yearly

$17,676

708

Self

(Monthly)

$67.00

1,178.40

Children

(Monthly)

$100.00

294.60

11.80

48.20

With respect to “Doctor” expenses that petitioner claimed,

an attachment to the January 25, 2000 income and expense statement claimed: (1) $80 each week for petitioner and $80 each week

for Mr. Krasner for “Bob Chapra, Felden Kreis”, (2) $340 a month

for petitioner for “Body Worker”, (3) $80 for acupuncture every 2

to 3 months, and (4) $167 for “S’s Driver’s Physical”.

With respect to “Psychologist/psychiatrist” expenses that

petitioner claimed, an attachment to the January 25, 2000 income

and expense statement claimed: (1) $4,160 for S’s visits with

Dr. Andrew D’Amico and Dr. Rostain, (2) $7,020 for petitioner’s

visits with Cynthia Shar, and (3) $6,500 for petitioner and Mr.

Krasner to attend counseling sessions provided by Ellen Sterling.

In the January 25, 2000 income and expense statement,

petitioner claimed the following education expenses:

Private school1

Camp2

Monthly

$4,166

650

Yearly

$50,000

7,800

Self

(Monthly)

Children

(Monthly)

$4,166

650

With respect to “Private school” expenses that petitioner

claimed, an attachment to the January 25, 2000 income and expense

statement claimed: (1) $13,000 for S to attend Woodlynde School,

(2) $12,000 for C to attend Agnes Irwin, (3) $11,000 for W to

attend The School in Rose Valley, and (4) $12,000 for P to attend

Haverford School.

With respect to “Camp” expenses that petitioner claimed, an

attachment to the January 25, 2000 income and expense statement

claimed: (1) $2,400 for C to attend Interlocken Camp, (2) $2,400

for S to attend Outward Bound, and (3) $3,000 for P and W to

- 18 attend a school at Rose Valley Camp.

In the January 25, 2000 income and expense statement,

petitioner claimed the following personal and miscellaneous

expenses:

Personal

Clothing

Food

Hair

care/nails1

Milk delivery

Memberships

(Main Line

Health)

Miscellaneous

Household help

Child care

Papers/books/

mag.

Entertainment

Cable TV

Vacation

(business

paid)2

Gifts

Contributions

Monthly

Yearly

Self

(Monthly)

Children

(Monthly)

$1,667

1,733

865

$20,004

20,796

10,380

$666.80

346.60

640.00

$1,000.02

1,386.40

225.00

2,400

960

28,800

1,300.00

80.00

1,100.00

$433

167

150

$5,196

2,000

1,800

$216.50

400

2,083

4,800

600

25,000

100.00

1,041.50

250

208

3,000

2,500

187.50

208.00

75.00

$216.50

167.00

75.00

300.00

50.00

1,041.50

62.50

With respect to “Hair care/nails” expenses that petitioner

claimed, an attachment to the January 25, 2000 income and expense

statement claimed the following monthly expenses: (1) $350 for

petitioner’s hair care, (2) $150 for petitioner’s nail care,

(3) $140 for petitioner’s waxing, (4) $75 for C, and (5) $150 for

With respect to “Vacation (business paid)” expenses that

petitioner claimed, an attachment to the January 25, 2000 income

and expense statement claimed: (1) “$5,000+” for a yearly ski

vacation, (2) $5,000 for a trip to Sun Valley, Vail, and Aspen,

and (3) $7,000 for a trip that petitioner and C took to Europe.

That attachment also claimed that trips to Hawaii, Florida, and

New York were paid for by Mr. Krasner’s business.

- 19 In the January 25, 2000 income and expense statement,

petitioner claimed the following expenses under the category

“OTHER”:

Art supplies

Art classes

Music lessons

Musical

instruments

(maintenance

and rental)

Vet expenses

(two dogs)

Pets (food,

boarding and

grooming)

Dry cleaning

Courses

School

(lunches,

uniforms,

transportation, books,

trips, etc.)

Gifts for

doctors and

dentist

(professional

courtesy)1

Skiing trips

Airfare for

C’s camp

Airfare for

orthopedist

in Colorado

Framing art

Electrical work

Chimney work

Exterminator

Self

(Monthly)

Children

(Monthly)

$400.00

500.00

120.00

84.00

Monthly

$400.00

500.00

120.00

84.00

Yearly

$4,800

6,000

1,440

1,008

220.00

2,640

55.00

165.00

200.00

2,400

100.00

500.00

1,200

6,000

75.00

100.00

25.00

100.00

1,200

20.00

80.00

833.00

167.00

10,000

2,000

416.50

2,000.00

83.33

1,000

1,000.00

150.00

225.00

50.00

40.00

1,800

2,700

600

480

150.00

180.00

40.00

32.00

500.00

45.00

10.00

8.00

- 20 Personal

expenses

(CVS, etc.)

Stationery,

stamps,

FedEx, UPS

Photography

costs (film

and develop.)

Computer

supplies

Memberships

(museum)2

1,200.00

14,400

240.00

960.00

50.00

600

25.00

80.00

960

60.00

20.00

50.00

600

12.50

37.50

17.00

204

3.40

13.60

With respect to “Gifts for doctors and dentist (professional courtesy)” expenses that petitioner claimed, an attachment

to the January 25, 2000 income and expense statement claimed:

(1) $200 for a gift to Dr. Ted Kroll, (2) $1,200 for Dr. Ron

Markowitz to attend golf school, and (3) $300 for a gift for Dr.

Ron Gross and Dr. Fromer.

With respect to “Memberships (museum)” expenses that petitioner claimed, an attachment to the January 25, 2000 income and

expense statement claimed $200 for museum memberships and $2,400

for a family membership in Main Line Health and Fitness.

In the January 25, 2000 income and expense statement,

petitioner did not claim, inter alia, expenses for gas, sewer,

automobile insurance, life insurance, accident insurance, health

insurance, and an invisible fence.

Instead, with respect to

expenses for gas, sewer, automobile insurance, and an invisible

fence, petitioner stated in the January 25, 2000 income and

expense statement:

“Husband Pays”.

With respect to expenses for

life insurance, accident insurance, and health insurance, petitioner stated in the January 25, 2000 income and expense statement:

“Husband Pays/Amount Unknown”.

In addition, in the

January 25, 2000 income and expense statement, petitioner did not

- 21 claim, inter alia, credit card expenses or charge account expenses.

On February 23, 2000, the so-called conference officer in

support appointed by the Montgomery County Court of Common Pleas

made, inter alia, the following findings based upon information

submitted to such officer in the divorce proceedings:

The plaintiff’s [petitioner’s] net income after

deductions is $1,500.00 per month.

The defendant’s [Mr. Krasner’s] net self employment income after legal deductions, add backs, and

“perks”, if any, is $26,500.00 per month.

Un-reimbursed medical, dental and therapy expenses

for the children in excess of $250.00 per year per

child are to be paid 75% by Defendant and 25% by Plaintiff. Un-reimbursed medical and dental expenses for

Plaintiff shall be paid 50% for each of the parties.

Defendant’s obligations are conditioned upon Plaintiff

availing the children and herself to professional

courtesy whenever possible.

DEFENDANT to provide medical insurance coverage.

Within 30 days after the entry of this Order, the

DEFENDANT shall submit to the person having custody of

the children written proof that medical insurance

coverage has been obtained or that application for

coverage has been made. * * *

Defendant is to pay unallocated child support for

4 children and A.P.L. [alimony pendente lite] of

$5,116.00 per month.

Additionally, defendant shall pay directly, the

1st and 2nd mortgages, real estate taxes and homeowners

insurance (5,668.00 monthly) and shall continue to pay

for the children’s private schooling and summer camp

(approximately $5,000.00 monthly). Total expenditures

$5,116.00 + $5,668.00 + $5,000.00 = $15,784.00 per

month.

- 22 Calculations for the above included findings as to

incomes, application of MELTZER formula to a shared

custody situation, and findings that the children’s

reasonable expenses are $7,500.00 per month while with

plaintiff and $6,500.00 per month while with defendant.

Additionally, $1,484.00 was added to the monthly award

as being ½ of the portion of the total mortgages,

insurance and taxes that exceed 25% of plaintiff’s

income from all sources including the $5,668.00 monthly

that defendant is paying directly.

Contempt proceedings, credit bureau reporting and

tax refund offset certification will not be initiated,

and judgement will not be entered, as long as payor

pays $500.00 per month on arrears with each payment.

Failure to make each payment on time and in full will

cause arrears to become subject to immediate collection

by all of the means listed above.

This Order is effective as of 12/12/99 and amends

the Order of 2/03/2000.[15] [Reproduced literally.]

On or about January 15, 2001, petitioner filed with respondent Form 8857, Request for Innocent Spouse Relief (And Separation of Liability and Equitable Relief), with respect to, inter

alia, taxable year 1998 (petitioner’s Form 8857).16

Petitioner

attached a statement to petitioner’s Form 8857, which stated in

pertinent part:

The record does not contain the order of Feb. 3, 2000.

In petitioner’s Form 8857, petitioner also sought relief

under sec. 6015 with respect to taxable year 1999. In a letter

dated Aug. 31, 2001, that respondent sent to petitioner (discussed below), respondent informed petitioner that respondent did

not consider petitioner’s claim for relief under that section for

1999 because respondent had “no record of a joint return being

filed” for that year. Thereafter, petitioner no longer claimed

that she was entitled to relief under sec. 6015 with respect to

taxable year 1999. Taxable year 1999 is not at issue in the

instant case.

- 23 1.

I have not earned an income during the entirety of

our seventeen year marriage.

I did not sign the 1998 tax return.

I did not have any knowledge of what was on the

1998 return.

Taxes were always paid by my husband through an

accounting firm, the latest being the firm of

Schiffman, Hughes and Brown in Blue Bell, PA.

The reason my husband is not paying the taxes

which are due is to try and gain an advantage in the

divorce proceeding in which we are now engaged.

In response to petitioner’s Form 8857, respondent sent

petitioner a letter dated August 31, 2001 (respondent’s August

31, 2001 letter to petitioner).

That letter stated in pertinent

part:

We have made the following determination regarding the

innocent spouse claim you filed for the tax year(s)

shown above [1998].

You are not entitled to equitable relief of liability

for the unpaid balance of your tax under Internal

Revenue Code Section 6015(f).

We are denying your claim because we did not receive an

answer to our request for additional information. If

you furnish the necessary information, we will be glad

to reconsider your request for relief from joint and

several liability. A request for an Appeals hearing

could be denied if you do not submit the enclosed Form

886-A questionnaire.

Sometime between August 31 and October 26, 2001, in response

to respondent’s August 31, 2001 letter to petitioner, petitioner

sent respondent Form 886-A, Innocent Spouse Questionnaire (petitioner’s Form 886-A).

In petitioner’s Form 886-A, petitioner

- 24 provided the responses indicated to the following questions with

respect to the filing of the 1998 joint return:

If you are requesting relief from tax reported on

the original return:

it?

Did you review the tax return before signing

Never saw the 1998 tax return

At the time you signed the return, were you

aware there was a balance due IRS? Please explain

in detail.

Never signed the 1998 tax return

In response to questions in petitioner’s Form 886-A relating

to the preparation of the 1998 joint return, petitioner stated

that (1) she was not involved in the preparation of that return,

(2) she did not know the extent of her husband’s involvement in

the preparation of that return, (3) her husband’s accountant

prepared that return, and (4) she did not assist, sort, or

provide any information necessary in the preparation of that

return.

Petitioner also stated in petitioner’s Form 886-A that

the “CPA prepared the tax return.

I don’t know who was there at

the signing as I never saw or signed the tax return.”

In petitioner’s Form 886-A, petitioner provided the responses indicated to the following questions with respect to the

respective educational levels and work experience of petitioner

and Mr. Krasner:

What was the education level of you and your

spouse for the year you are requesting relief?

- 25 College degrees

Where did you work during the year you are requesting relief * * * List all places of your employment.

Not employed

Where did your spouse work during the year you are

requesting relief? List all places of your spouses’s

employment.

Endodontics and Endodontic Surgery, PC

Pottstown, PA

If your spouse was self-employed, what did

you do to help your spouse in the business?

No involvement

[Reproduced literally.]

In petitioner’s Form 886-A, petitioner provided the responses indicated to the following questions with respect to

questions relating to the existence of any joint bank accounts:

During the year involved, did you and your spouse

have a joint bank account?

Checking

Other:

Savings

Could be

Please indicate the type of account (e.g. mutual fund, money

market, etc.)

What was the extent of accessibility to these

accounts?

Access to checking account which was closed

by Husband in Dec. 1999

Did you review the bank statements when you

received them?

[No response]

- 26 c.

Did you balance the checkbook or bank statements?

Husband Bookkeeper

Did you receive and open the mail?

Sometimes

What bills did you pay?

Personal items – credit cards

What bills did your spouse pay?

All others

Were any bills paid out of a joint account?

If so, which ones?

– Some personal

In response to a question in petitioner’s Form 886-A relating to whether petitioner’s payment of the liability for taxable

year 1998 (unpaid 1998 liability) would cause an economic hardship to her, petitioner claimed the following monthly income and

monthly expenses:

Monthly Income1

$5,100

Type of

Monthly Expenses

Mortgage/rent

Utilities

Food

Clothing

Vehicle expenses:

loan payments,

insurance, etc.

Any other expenses.

Please list.2

Amount of

Monthly Expenses

-$2,600

1,000

-1,000

1,500

In petitioner’s Form 886-A, petitioner indicated that her

monthly income was attributable to alimony and child support.

Petitioner did not identify those other claimed expenses.

- 27 In response to a question in petitioner’s Form 886-A asking

whether petitioner was subject to any marital abuse during 1998,

petitioner stated:

“See Report”.

Petitioner did not attach any

report to petitioner’s Form 886-A.

In response to a question in petitioner’s Form 886-A asking

for any other information in support of petitioner’s position

that she is entitled to relief under section 6015 with respect to

taxable year 1998, petitioner stated:

“I never saw the 1998 tax

return nor did I sign the 1998 tax return.”

In response to petitioner’s Form 886-A, respondent sent

petitioner a letter dated October 26, 2001 (respondent’s October

26, 2001 letter to petitioner).

That letter stated:

We have reconsidered your claim based on the

information you submitted, however, our determination

has not changed. This is due to the fact that you had

knowledge of the balance due when you signed the return. The signature on the return is the same as your

signature on the form 8857-Innocent Spouse Relief

Request. The return was not even received until May 2,

2000. You stated you were not employed on your questionnaire but the return and your W-2 shows you had

$7,500.00 of income from Endodontics & Endodontic

Surgery PC (which is the same company Mr. Paul Krasner

worked for & had listed on his Schedule E).

You did not exercise due diligence when filing the

return. By law, taxpayers that file a joint return are

both responsible for the tax due on the original return

and any subsequent tax increases. You also did not

establish that you had a reasonable belief that the

taxes were to be paid at the time of signing the return.

Therefore your claim is being disallowed under

Internal Revenue Code 6015(f). You can still appeal

our decision to the IRS Appeals Division as stated in

- 28 our previous letter. Please include your name, social

security number, signature declaration(“signed under

penalties of perjury”), signature date, and your reason

for disagreement. You have 10 days from the date of

this letter to appeal. [Reproduced literally.]

In response to respondent’s October 26, 2001 letter to

petitioner, petitioner sent respondent a letter dated November 1,

2001 (petitioner’s November 1, 2001 letter).

That letter stated

in pertinent part:

The first issue is my signature on the return. I do

not recall signing this return. Furthermore, you say

that the return was not even received until May 2,

2000. I have absolutely no knowledge of a return being

sent in to the IRS at any time during the year 2000.

The only form I have knowledge of, is the Innocent

Spouse form I sent in during January of 2001.

During the years prior to the separation from my husband, the accounting firm that handled all income tax

matters for my husband and myself was the firm of

Schiffman, Hughes and Brown in Blue Bell, PA. All

income tax forms were prepared by this firm. I was

never apprised that any return had not been filed in a

timely manner; not by my husband nor by the accounting

firm we had hired. I only found out that taxes were

still due when a notice arrived stating that my home

would be scheduled for foreclosure if the income taxes

due were not paid.

It was upon receiving this notice that I filed for

Innocent Spouse status with the government. The attorney representing me at that time, Dorothy Phillips,

Esq. did not advise me to take this action, and refused

to help me in the process. * * *

It was on or about November of 1999, that I learned

that I had been on the payroll at Endodontics and

Endodontics Surgery PC, which is the name of the practice owned by my husband, Dr. Paul Krasner. I learned

that not only I, but also my four children had been on

the payroll as well. During the year in question, they

- 29 were ages five, eight, ten and twelve. I learned this

through my attorney at that time, Dorothy Phillips,

Esq. During the separation between my husband and

myself, and when we were still residing in the same

residence, I had taken the initiative to copy certain

documents that I found in the house. I did not understand what these documents contained until I was advised by my attorney.

* * * neither I, nor my children had ever received or

had knowledge of any of the money listed as income on

our W-2 forms. Evidently, he signed the checks himself

and deposited them into one of his bank accounts.

When the accounting firm was preparing the income tax

forms, I relied on them to exercise the due diligence

that was necessary, and advise my husband and myself

accordingly. I also relied on this firm to file the

forms in a timely manner, and advise me if this was not

accomplished. I was never advised that the taxes had

not been paid, until the IRS advised me. I have always

held the belief that income taxes should be paid when a

return is signed. It was also my belief that when I

signed a return for the IRS that it would be sent in to

the IRS in a timely manner by the accounting firm

responsible for sending the return in.

I do not remember signing this return and I would

appreciate the opportunity to see what was finally sent

in on May 2, 2000. If I did sign a return, then I gave

no authorization to any person nor firm, to hold my

signature for three years time, and then use my signature as current.

Thank you for taking the time to continue to review

this case. It is my belief that the reason that the

tax returns and payments have not been received by the

IRS in a timely fashion is because my husband, at the

advice of his attorneys, has decided to use the tax

bills as a means to force the sale of the marital home.

In fact, my husband has an outstanding petition in

which the Court is being asked to have the marital

residence sold in order to pay the income taxes due.

* * *

* * * My husband appears to have endless amounts of

money to spend on our domestic legal proceedings, and

yet, he cannot seem to find a way to pay any of the

- 30 taxes he owes, nor the support he was ordered to pay to

me by the Court. * * * [Reproduced literally.]

In petitioner’s November 1, 2001 letter, petitioner informed

respondent that she was challenging the accuracy of an appraisal

that had been performed on the marital residence in which she

resided.

With respect to that issue, petitioner’s November 1,

2001 letter stated in pertinent part:

on September 16, 1999, there was a fire in the marital

home. The home has not been restored from the fire

damage to date. * * *

The appraiser we had agreed on in Court, Mr. Donald

Reape, knew that both parties were to be present at the

time the house was appraised * * *. When asked later

why he continued on with the appraisal despite the fact

that I was not present, he said that he had thought

that the woman who was taking care of the house, was

me. * * *

Mr. Reape performed the appraisal of the marital home

as if it had already been restored from the fire, and

allowed a $50,000 allowance for repairs in spite of the

fact that no insurance money had been given. On August

2, 2001, checks were released by the insurance company

totaling more than $124,000. My husband’s law firm

still holds these funds and will not release them.

In February of 2001, I had the home appraised again by

a certified appraiser. His estimate was almost

$300,000 less than the former appraisal done by Mr.

Reape. * * *

There is a $425,000 note on the marital residence. If,

the house were sold in the condition that it is in, for

its full value, that would leave less than $200,000 to

divide between the parties. * * * [Reproduced literally.]

- 31 Petitioner attached a document to petitioner’s November 1,

2001 letter, which was a copy of a page from certain books and

records of Endodontics.

As discussed above, that document

reflected, inter alia, that in early March 1997 Endodontics

issued Endodontics’ March 4, 1997 checks payable to petitioner

and three of the children.

On April 28, 2003, an appraiser named Kathleen A. Price, and

a supervisory appraiser named Donald J. Reape, signed a summary

“UNIFORM RESIDENTIAL APPRAISAL REPORT” (summary appraisal report)

with respect to the marital residence.

The summary appraisal

report stated, inter alia:

INDICATED VALUE BY SALES COMPARISON APPROACH . . . . . . $ 975,000

INDICATED VALUE BY INCOME APPROACH (If Applicable) Estimated

Market Rent $_______ /Mo.xGross Rent Multiplier ______ = $ N/A

This appraisal is made

9 “as is”

: subject to the repairs,

alterations, inspections or conditions listed below

9 subject

to completion per plans and specifications

Conditions of Appraisal: SEE ADDENDUM[17]

Final Reconciliation: INTENDED USE OF APPRAISAL: THIS SUMMARY

APPRAISAL REPORT IS INTENDED FOR USE BY THE CLIENT FOR EQUITABLE

DISTRIBUTION ONLY. THIS REPORT IS NOT INTENDED FOR ANY OTHER USE.

SEE ADDENDUM.

Petitioner, through her attorney of record in this case,

sent respondent a letter dated November 7, 2003 (petitioner’s

November 7, 2003 letter) supplementing petitioner’s November 1,

2001 letter.

In petitioner’s November 7, 2003 letter, petitioner

claimed relief under section 6015(b), (c), and (f).

That letter

stated in pertinent part:

There is no addendum to the summary appraisal report that

is part of the record in this case.

- 32 Janet Krasner objects and protests the denial of

innocent spouse relief and objects to being held continually liable for tax deficiencies solely arising out

of income generated by her husband, Paul, from whom she

is separated.

While Ms. Krasner does not have immediate recollection of signing this return, she agrees that the

signature on the return bears sufficient resemblance to

hers that it is most probable the signature page of the

return was presented to her for execution. At the time

of the execution of the return, she also does not have

any recollection that it showed a tax deficiency which

was and remains unpaid.

During 1998 Janet Krasner was a stay at home mom

concerned only with the general welfare of her children

and was not knowledgeable nor did she have reason to

know the business details of her husband’s operation of

his practice. She was not acquainted with any of the

accounting details nor how her husband, Paul, kept his

books. Janet was not an employee of her husband,

Paul’s, endodontic practice. Assuming for purposes of

this supplemental Protest, Janet did sign the return,

she did not have any reason to believe that the returns

were any thing but correctly prepared and that the tax

would remain unpaid past its due date. Prior to the

tax return at issue, Janet had enjoyed a life of middle

class comfort and when such matters as tax return

preparation were presented to her, it was for the

ministerial act of receiving her signature with assurances that all taxes had been paid. * * * Dr. Krasner

never indicated his inability to full pay his income

taxes and never urged Janet to “cut back” because of

impending economic problems.

While the Krasners marriage deteriorated, they

contineud to struggle with the hope of keeping their

marriage intact. Unfortunately, they have now separated in part because of these finanical tax liabilities and related problems. Ms. Krasner asserts that

she was the subject of spousal abuse, and that all of

the other factors for granting relief from the proposed

assessments are clearly present herein.

- 33 There is no present obligation pursuant to a

divorced decree or agreement for Ms. Krasner to pay the

liability of Paul’s nor is there any basis for attributing this liability solely to her. For purposes of

analyzing equitable relief, normal support of a spouse

does not need to be a significant benefit.

* * * Because of Ms. Krasner’s relatively modest

level of existence, there is no reason to suggest that

she “significantly benefited” from the understatement,

other than receiving normal material support, much of

which was provided by herself. [Reproduced literally.]

On December 12, 2003, respondent’s Appeals Office (Appeals

Office) sent petitioner a “Notice of Determination Concerning

Your Request for Relief Under the Equitable Relief Provision of

Section 6015(f)” (notice of determination).

In the notice of

determination, the Appeals Office denied petitioner relief under

section 6015(f) with respect to taxable year 1998.

The notice of

determination stated in pertinent part:

We’re writing to tell you that we’ve made a decision

about your January 15, 2001 request for innocent spouse

relief under Section 6015(f) of the Internal Revenue

Code.

We’ve determined that, for the above tax year(s), we:

•

cannot allow your request.

The schedule below shows any adjustments we’ve made to

your account:

Tax

Amount of relief Amount of relief Amount of tax

Period(s)

you requested

we could allow

remaining

12/31/1998

$38,324.00

$0.00

$38,324.00

[Reproduced literally.]

- 34 Respondent attached to the notice of determination with

respect to petitioner’s taxable year 1998 a document entitled

“APPEALS CASE MEMO” (Appeals Office memorandum) that stated in

pertinent part:

EXECUTIVE SUMMARY

Janet Krasner made a joint return with her husband,

Paul, for 2000. The return was signed by the taxpayers

on April 10, 1999, but not filed until May 20, 2000.

The return was filed with a balance due of $38,324. To

date the underpayment shown on the return remains

unpaid.

Janet filed a Request for Innocent Spouse Relief–Form

8857 on January 15, 2001, on which she seeks relief

from the unpaid tax liability, plus statutory additions, under IRC 6015(f).

I take note here that the Form 8857 also includes 1999.

However, the taxpayer did not make a joint return for

1999. The service center notified Janet that it could

not consider a request for relief for 1999 because a

joint return had not been made for that year. This ACM

addresses only the 1998 tax year.

Issue

SUMMARY AND RECOMMENDATION

Should the proposed rejection of Janet Krasner’s Request for Innocent Spouse Relief be sustained?

Yes.

FINDING OF FACT AND DISCUSSION

Janet argues that she should be granted relief from the

joint liability because it would be inequitable to hold

her liable for the underpayment shown on the return and

the statutory additions that have been assessed and/or

- 35 have accrued. On an attachment to the Form 8857 she

argued that the following three point support here

position:

She did not sign the joint return;

She did not have any income during 1998; and

She had no knowledge of what was shown on the

1998 return.

Compliance concluded, after consideration of all the

facts and circumstances, it would not be inequitable to

hold Janet liable for the underpayment and additions

thereto because:

•

Janet knew that there was an underpayment at

the time she signed the return; and

•

She did not establish that she had a reasonable belief that the taxes would be paid by

the nonrequesting spouse.

Key facts on which Compliance based its conclusion are:

Janet and Paul were living together as husband and wife at the time the return was

signed and at the time the return was filed;

Janet has a college education;

The couple maintained a joint checking account during 1998 and 1999.

Compliance also determined that Janet did have taxable

income during 1998 and that she did in fact sign the

return.

Janet filed a written Protest on November 1, 2001.

* * *

Dermot Kennedy, Janet’s representative, filed a Supplemental Protest on November 7, 2003. In this supplement

he discusses IRC 6015(b) and 6015(c). Relief is not

available to Janet under either of these sections

because the unpaid liability is not an understatement,

but rather an underpayment. I will not address any of

the points Mr. Kennedy raised relative to these two

sections.

- 36 In the Supplement Mr. Kennedy concedes that Janet did

sign the return. He argues:

Janet was legally separated from Paul at the

time the Form 8857 was filed. (Compliance

acknowledged this fact.);

Janet was a victim of abuse by her husband.

(He did not present any evidence to support

this contention.);

Janet has no recollection as to whether or

not the return she signed for 1998 showed a

balance due;

Janet had never been an employee of Paul’s

corporation. (No evidence was provided to

support this contention.);

Janet had no reason to believe that the tax

due would remain unpaid past the due date of

the return. (There is no evidence to show

why she believed it would be timely paid or

from what source of funds she expected it to

be timely paid.);

Janet would suffer economic hardship if the

relief sought is not granted. (The Supplemental Protest does not explain how or why.);

Under the Separation Agreement, neither

spouse has a legal obligation to pay the

liability in issue; and

The total unpaid liability is attributable to

Paul’s income. (This point is not in dispute.)

LAW AND ANALYSIS

Equitable relief will be granted under IRC 6015(f) if

after considering all the facts and circumstances it

would be inequitable to hold the requesting spouse

liable for the underpayment. Rev. Proc. 2000-15 provides seven threshold conditions that must be met

before the IRS will consider a request for equitable

relief under IRC 6015(f). In the instant case Compli-

- 37 ance and the requesting spouse agree that all seven of

these test have been met.

Reg. 1.6015-2(d) provides guidelines to be used to

determine whether or not equitable relief should be

granted. There are factors listed that weigh in favor

of relief and factors listed that weigh against relief.

Neither list is all-inclusive. Other factor can be

considered as well. I will discuss each of the factors

as they relate to the facts in this case.

Factors Weighing For Relief

Marital status--Janet lived as husband and wife

with Paul during the entire year for which there is the

underpayment and was also living with him at the time

she signed the return showing the underpayment. She

was legally separated from Paul on the date she filed

the Form 8857. The fact that Janet was living with

Paul during all of 1998 and at the time she signed the

return causes this factor not to weigh in favor of

granting relief.

Economic hardship--Janet has not demonstrated that

the payment of the jointly owed tax by her would create

an economic hardship. Consequently, this factor does

not weigh in favor of granting relief.

Abuse--There was no evidence of abuse. Consequently, this factor does not weigh in favor of granting relief.

Knowledge or reason to know--Janet is college

educated. She signed the return, which shows a balance

due. Even a cursory review of the return would have

alerted Janet to the fact that there was a balance due.

She had not presented any evidence to show that she had

a reasonable belief that Paul was going to pay the

balance due. In view of these facts, this factor does

not weigh in favor of relief.

Spouse’s legal obligation--There is no legal

agreement or agreement between the spouses that provides that Paul has an obligation to pay the amount

owed. Accordingly, this factor does not weigh in favor

of relief.

- 38 6.

Attribution--The unpaid liability arises primarily

if not solely from income attributable to Paul. This

factor weighs in favor of relief.

Factors Weighing Against Relief

Attribution--The unpaid liability arises primarily

if not solely from income attributable to Paul. This

factor does not weigh against relief.

Knowledge or reason to know--Janet is college

educated. She signed the return, which shows a balance

due. Even a cursory review of the return would have

alerted Janet to the fact that there was a balance due.

She has not presented any evidence to show that she had

a reasonable belief that Paul was going to pay the

balance due. In view of these facts, this factor

weighs very strongly against relief.

Significant benefit--As a member of the household

Janet received benefit from the unpaid taxes. Therefore, this factor weighs against relief.

Lack of economic hardship--Janet has not shown

that she would experience an economic hardship if

relief is not granted. This factor weighs against

relief.

Noncompliance with federal tax laws--It appears

that Janet has complied with all federal income tax

laws in subsequent years. Accordingly, this factor

does not weight against relief.

Requesting spouse’s legal obligation--There is no

legal agreement or agreement between the spouses that

provides that Janet has an obligation to pay the amount

owed. Accordingly, this factor does not weigh against

relief.

MY EVALUATION

After consideration of all the arguments, facts and

circumstances, it is my reasoned judgment that Janet

Krasner has not demonstrated that it would be inequitable to hold her liable for the joint 1998 tax liability.

- 39 MY CONCLUSION

I recommend that the proposed denial of Janet Krasner’s

request for innocent spouse relief under IRC 6015(f) be

sustained. A Notice of Determination should be issued

for 1998. [Reproduced literally.]

On December 27, 2004, the Montgomery County Court of Common

Pleas issued an order (December 27, 2004 order) modifying any

previous support orders in the divorce proceedings instituted in

that Court by petitioner.18

The December 27, 2004 order provided

in pertinent part:

AND NOW, this 27th day of December, 2004, after

trial proceedings conducted, and predicated upon findings that Plaintiff’s [petitioner’s] income and/or

earning capacity is $1,500.00 per month, and Defendant’s [Mr. Krasner’s] net income from self employment

is $30,173.00 per month, it is hereby ORDERED and

DECREED as follows:

Effective April 23, 2002, Defendant shall pay

to Plaintiff the sum of $9,180.20 per month,

which sum has been calculated as follows:

Defendant

$30,173.00

- 1,500.00

$28,673.00

.40

$11,469.20

Plaintiff

$ 1,500.00

+11,469.20

$12,969.20

Combined Income

$31,673.00

59%

41%

Presumptive Minimum for Three (3) children:

The record does not contain all of the prior support

orders issued in the divorce proceedings.

- 40 -

Plus:

$3,480.00

$3,044.00

$ 744.00

$ 862.00

$8,160.00[19]

x .41

$3,345.60[19]

Private School

Child Care

Summer Camp

Mortgage Adjustment

Total Mortgage and Taxes:

$3,942.00

+1,413.50

$5,355.50

25% of Plaintiff’s Combined Income:

$12,969.00

x .25

$3,242.30[20]

$5,355.50

-3,242.30[20]

$2,113.20[20]

= $1,056.60[20]

Defendant to Plaintiff:

$11,469.20

APL

Less child support

-$3,345.60[21]

[21]

$8,123.60

Plaintiff to Defendant

+$1,056.60[20]

Mortgage Adjustment

$9,180.20/mo[21]Defendant to Plaintiff

Defendant shall be responsible for the cost

of health insurance for Plaintiff and the

Our calculations show that this number should have been

$8,130, and not $8,160. Because of this computational error in

the December 27, 2004 order, other numbers in that order are

erroneously calculated.

Our calculations show that this number should have been

$3,242.25, and not $3,242.30. Because of this computational

error in the December 27, 2004 order, other numbers in that order

are erroneously calculated.

See supra note 19.

- 41 parties’ unemancipated children, the children’s private school tuition, summer camp,

and daycare expenses.

Unreimbursed Medical and Dental expenses,

including, but not limited to, psychological

and/or psychiatric expenses on behalf of the

children, which exceed $250.00 dollars per

child per year, shall be apportioned 41%

plaintiff and 59% Defendant.

Plaintiff shall be responsible for payment of

the first mortgage, second mortgage, and real

estate taxes for the property located at 350

Exeter Rd., Haverford, PA.

All past issues related to credits sought by

Defendant and/or challenged by Plaintiff by

virtue of Defendant’s past payment of mortgage, taxes, and insurance, during any period

of wife’s responsibility for payment thereof,

shall be addressed in the context of the

equitable distribution of marital assets.

[Reproduced literally.]

OPINION

We review respondent’s denial of relief under section

6015(f) for abuse of discretion.22

T.C. 276, 292 (2000).

Butler v. Commissioner, 114

Petitioner bears the burden of proving

that respondent abused respondent’s discretion in denying such

relief.

See Jonson v. Commissioner, 118 T.C. 106, 125 (2002),

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

Section 6015(f) grants respondent discretion to relieve an

individual who files a joint return from joint and several

The Court’s jurisdiction in this case is dependent upon

sec. 6015(e)(1). Ewing v. Commissioner, 118 T.C. 494, 498-507

(2002); see also Fernandez v. Commissioner, 114 T.C. 324, 330-331

(2000); Butler v. Commissioner, 114 T.C. 276, 289-290 (2000).

- 42 liability with respect to that return.

SEC. 6015.

That section provides:

RELIEF FROM JOINT AND SEVERAL LIABILITY ON

JOINT RETURN.

(f) Equitable Relief.--Under procedures prescribed by

the Secretary, if-(1) taking into account all the facts and

circumstances, it is inequitable to hold the individual liable for any unpaid tax or any deficiency

(or any portion of either); and

(2) relief is not available to such individual under subsection (b) or (c),

the Secretary may relieve such individual of such

liability.

In the instant case, the parties agree that relief is not

available to petitioner under section 6015(b) or (c), thereby

satisfying section 6015(f)(2).

They disagree over whether

petitioner is entitled to relief under section 6015(f).

Before turning to the issue presented under section 6015(f),

we shall restate the comments that we made at the conclusion of

the trial in this case with respect to our assessment of the

credibility of petitioner, who testified in support of her

position that she is entitled to relief under section 6015(f),

and the credibility of Mr. Krasner, who testified in support of

his position as intervenor that petitioner is not entitled to

relief under that section.

credible.

We did not find petitioner to be

We found Mr. Krasner to be credible.

We have taken

into account our evaluation of petitioner’s credibility and Mr.

- 43 Krasner’s credibility in reaching our findings and conclusions in

this case.

We turn now to the issue presented under section 6015(f).

As directed by that section, respondent has prescribed procedures

in Rev. Proc. 2000-15, 2000-1 C.B. 447 (Revenue Procedure

2000-15)23 that are to be used in determining whether it would be

inequitable to find the requesting spouse liable for part or all

of the liability in question.

Section 4.01 of Revenue Procedure

2000-15 lists seven conditions (threshold conditions) which must

be satisfied before the IRS will consider a request for relief

under section 6015(f).

In the instant case, respondent concedes

that those conditions are satisfied.

Where, as here, the re-

questing spouse satisfies the threshold conditions, section 4.01

of Revenue Procedure 2000-15 provides that a requesting spouse

may be relieved under section 6015(f) of all or part of the

liability in question if, taking into account all the facts and

We note that Rev. Proc. 2003-61, 2003-2 C.B. 296 (Revenue

Procedure 2003-61), superseded Revenue Procedure 2000-15.

Revenue Procedure 2003-61 is effective for requests for relief

under sec. 6015(f) which were filed on or after Nov. 1, 2003, and

for requests for such relief which were pending on, and for which

no preliminary determination letter had been issued as of, that

date. Id. sec. 7, 2003-2 C.B. at 299. Revenue Procedure 2003-61

is not applicable in the instant case. That is because

(1) petitioner filed her request for relief under sec. 6015(f)

(viz, petitioner’s Form 8857) on Jan. 15, 2001, and (2) the IRS

issued preliminary determinations on Aug. 31, and Oct. 26, 2001,

respectively (viz, respondent’s August 31, 2001 letter to petitioner and respondent’s October 26, 2001 letter to petitioner)

with respect to such request for relief.

- 44 circumstances, the IRS determines that it would be inequitable to

hold the requesting spouse liable for such liability.

Where, as here, the requesting spouse satisfies the threshold conditions, section 4.02(1) of Revenue Procedure 2000-15 sets

forth the circumstances under which the IRS ordinarily 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.

As pertinent here, those circumstances, which section

4.02 of Revenue Procedure 2000-15 and we refer to as elements,

are:

(a) At the time relief is requested, the requesting spouse is no longer married to, or is legally

separated from, the nonrequesting spouse, or has not

been a member of the same household as the

nonrequesting spouse at any time during the 12-month

period ending on the date relief was requested;

(b) At the time the return was signed, the 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

spouse to believe that the nonrequesting spouse would

pay the reported liability. * * *; and

hardship if relief is not granted. For purposes of

this section, the determination of whether a requesting

spouse will suffer economic hardship will be made by

the Commissioner or the Commissioner's delegate, and

will be based on rules similar to those provided in

§ 301.6343-1(b)(4) of the Regulations on Procedure and

Administration. [Rev. Proc. 2000-15, sec. 4.02(1),

2000-1 C.B. at 448.]

(We shall hereinafter refer to the elements set forth in section

4.02(1)(a), (b), and (c) of Revenue Procedure 2000-15 as the

- 45 marital status element, the knowledge or reason to know element,

and the economic hardship element, respectively.)

Section 4.02(2) of Revenue Procedure 2000-15 provides that

relief granted under section 4.02(1) of that revenue procedure is

subject to the following limitations:

(a) If the return is or has been adjusted to

reflect an understatement of tax, relief will be available only to the extent of the liability shown on the

return prior to any such adjustment; and

(b) Relief will only be available to the extent

that the unpaid liability is allocable to the

nonrequesting spouse.

Turning to the three elements set forth in section 4.02(1)

of Revenue Procedure 2000-15, the presence of which will ordinarily result in a grant of relief under section 6015(f), in the

instant case, (1) respondent concedes that the marital status

element is present, (2) the parties dispute whether the knowledge

or reason to know element is present, and (3) the parties dispute

whether the economic hardship element is present.

With respect to the knowledge or reason to know element,

petitioner contends that that element is present here.

In order

for the knowledge or reason to know element to be present in the

instant case, petitioner must establish (1) that at the time the

1998 joint return was signed she had no knowledge or reason to

know that the tax shown due in that return would not be paid and

(2) that it was reasonable for her to believe that Mr. Krasner

would pay such tax.

- 46 In support of her position that the knowledge or reason to

know element is present in the instant case, petitioner argues:

Intervenor [Mr. Krasner], who was solely and fully

responsible for making adequate withholdings from his

professional corporation “learned” in late 1998 that he

had underwithheld, and withheld this information from

Petitioner until the return for 1998 was prepared in

1999. Intervenor had sole authority and ability to

make the necessary transfers and deposits into the

Krasners’ joint personal checking account from his

business accounts. In addition, from late 1998 up

until the due date of the tax return in question,

Intervenor was experiencing over a fifty percent (50%)

increase in his income. The court in Levy v. Commissioner, T.C. Memo. 2005-92 held in granting innocent

spouse relief that where a party “...earned substantial

income from which he had adequate funds to pay the

reported...balance due amounts” provided a basis for

Petitioner’s expectation that the taxes would be paid

in full. It is not credible to have Intervenor on the

one hand control the flow of funds into the Krasners’

account with which to pay the taxes, and on the other

have him instruct Petitioner to set aside money to pay

the outstanding delinquent taxes, with no access to

funds, with which to do so. Therefore, this factor

should weigh positively in favor of granting the relief

requested by Petitioner. [Reproduced literally.]

We turn first to petitioner’s reliance on Levy v. Commissioner, T.C. Memo. 2005-92.

Levy is materially distinguishable

from the instant case, and petitioner’s reliance on that case to

support her position with respect to the knowledge or reason to

know element is misplaced.

In Levy, the (1) nonrequesting spouse

(a) did not discuss with the requesting spouse the preparation

and filing of the tax return in question or the payment of the

tax shown due in that return, (b) exercised complete control over

the household expenditures and the money that the requesting

- 47 spouse spent, and (c) handled and paid all of the household

bills, and (2) the requesting spouse did not have access to any

credit cards until the requesting spouse began working five years

after she and the nonrequesting spouse separated.

In contrast,

in the instant case, (1) on April 10, 1999, Mr. Krasner (the

nonrequesting spouse) presented to petitioner (the requesting

spouse) the completed 1998 joint return and reviewed at least the

first three pages of that completed return with her, which

included the page of that return that showed tax due of $38,324;

(2) in reviewing the 1998 joint return with petitioner on April

10, 1999, Mr. Krasner informed her (a) that they owed $38,324 of

tax for 1998, (b) that they needed to make arrangements with the

IRS to set up an installment plan to pay that tax liability just

as they had previously done with respect to their joint tax

liability for 1992, and (c) that, in order to be able to pay

their joint tax liability for 1998, they needed to start setting

money aside, which Mr. Krasner told petitioner would require

reducing the amount that they were spending on household and

other items; and (3) on April 10, 1999, after Mr. Krasner reviewed and discussed the 1998 joint return with petitioner as

described above, petitioner and Mr. Krasner signed that return.

Moreover, unlike Levy, in the instant case, (1) at least during

1998 until around December 1999, (a) petitioner and Mr. Krasner

maintained a joint checking account into which Mr. Krasner

- 48 deposited revenues from one or more of his businesses, (b) the

respective balances in the joint checking account on February 16

and March 16, 1999, were $13,808.90 and $17,746.87, and

bills for certain personal items from the joint checking

account.24

Finally, unlike Levy, in the instant case, at least

during 1999 until around December of that year, petitioner had,

or had access to, two major credit cards, Visa and American

Express.

Having found petitioner’s reliance on Levy with respect to

the knowledge or reason to know element to be misplaced, we turn

now to whether petitioner has carried her burden of establishing

that that element is present here.

Petitioner contends:

at the time the return [for 1998] was presented to her

[petitioner] for her signature, the Krasner family was

living a life, which many would agree to be the American dream.[25] The Intervenor’s [Mr. Krasner’s] practice was, during 1998 and 1999, from a financial perspective, enjoying its most successful years.

Intervenor, for 1999 alone, had increased his adjusted

gross income over that of 1998 by over $170,000.00,

which, calculated on a monthly average basis alone

would have provided for the payment in full of the

In instances where petitioner did not always have enough

money in the joint checking account to pay all the household

bills that she was to pay, Mr. Krasner paid certain household

bills (e.g., mortgage loan payments) from one or both of Mr.

Krasner’s business accounts.

In fact, petitioner claims on brief that “the Krasner

family’s lifestyle was arguably in the upper income sphere of

American families”. However, petitioner claimed in petitioner’s

November 7, 2003 letter to respondent: “Prior to the tax return

at issue, Janet had enjoyed a life of middle class comfort”.

- 49 underpayment of 1998 tax in April of 1999. Therefore,

* * * it is difficult to understand and believe that

monetary considerations were prominent in the Krasner

family with a year to date average monthly increase of

over $14,000.00 for 1998 to 1999. Notwithstanding the

testimony of Paul Krasner, his first written assertion

that there was something awry with their finances was

included in * * * [Mr. Krasner’s August 5, 1999 email

to petitioner], which is over four months after the due

date for payment of the taxes at issue. Petitioner

asserts that the true reason for sending the e-mail on

August 5, 1999, was in response to her retaining divorce counsel on or about that time, which she had

previously hoped to avoid by arriving at a harmonious

property settlement and divorce decree.

Both Petitioner and Intervenor testified that Paul

Krasner had expended substantial sums of money on

lavish gifts he purchased for Petitioner during the

taxable year in question with apparent no regard for

any alleged financial inability to afford such at the

time of their purchase. In addition, both the

Intervenor and Petitioner took both separate and joint

vacations during the taxable year in question in the

early part of 1999, again with no apparent regard for

the expense of same. Intervenor, Paul Krasner, also

had prior to 1998 put his very young children on the

payroll of his endodontic practice and, notwithstanding

his professional financial woes, determined that they

were worth somewhere in the range of $265.00 per hour

for secretarial and administrative work. * * * Since

the Intervenor elected to expend money on such

extravagancies as lavish gifts and paying his very

young children such exorbitant salaries, supports the

Petitioner’s justifiable belief that the tax liability

for 1998 would be paid in full at the time that it was

due. This belief was especially reasonable in light of

the glowing periodic and regular financial reports

Intervenor was providing to Petitioner about his practice. [Reproduced literally.]

On the record before us, we reject petitioner’s position

with respect to the knowledge and reason to know element.

discussed above, we have found that before petitioner signed the

1998 joint return on April 10, 1999, Mr. Krasner (1) presented

- 50 and reviewed at least the first three pages of that return with

petitioner and (2) informed her that they (a) owed $38,324 of tax

for 1998, (b) needed to make arrangements with the IRS to set up

an installment plan to pay that tax liability, and (c) needed to

start setting money aside, which Mr. Krasner told petitioner

would require reducing the amount that they were spending on

household and other items.

Under these circumstances, we con-

clude that it was unreasonable for petitioner to believe when she

signed the 1998 joint return on April 10, 1999, that the $38,324

of tax shown due in that return would be paid by Mr. Krasner when

that return was filed.

At a minimum, in light of what Mr.

Krasner told petitioner immediately before she signed the 1998

joint return, petitioner should have asked Mr. Krasner at that

time to explain why they were unable to pay their joint tax

liability for 1998, given that they had been spending money on

household and other items, including gifts for petitioner and

trips by petitioner, alone or with one or more family members,

during 1998 and the first several months of 1999.

asked for no such explanation.

Petitioner

Petitioner would have the Court

conclude that she asked for no such explanation because Mr.

Krasner never advised her on the day she signed the 1998 joint

return that, in order to be able to pay their $38,324 joint tax

liability for 1998, they needed to make arrangements with the IRS

to set up an installment plan and to start setting money aside by

- 51 reducing the amount that they were spending on household and

other items.

We do not believe petitioner’s version of the

events that transpired on the day she signed the 1998 joint

return.26

We believe Mr. Krasner’s testimony about those events.

On the record before us, we find that petitioner has failed

to carry her burden of establishing that the knowledge or reason

to know element set forth in section 4.02(1)(b) of Revenue

Procedure 2000-15 is present here.

With respect to the economic hardship element set forth in

section 4.02(1)(c) of Revenue Procedure 2000-15,27 petitioner

In petitioner’s Form 8857 filed around Jan. 15, 2001, and

in petitioner’s Form 886-A filed between Aug. 31 and Oct. 26,

2001, petitioner denied that she signed the 1998 joint return.

It was only in petitioner’s November 1, 2001 letter to respondent

that petitioner stopped denying that she signed the 1998 joint

return and indicated that she did not remember signing that

return. In petitioner’s November 7, 2003 letter to respondent,

petitioner again contended that she did “not have immediate

recollection of signing this [1998 joint] return”.

In determining whether a requesting spouse will suffer

economic hardship, sec. 4.02(1)(c) of Revenue Procedure 2000-15,

to which sec. 4.03(1)(b) of that revenue procedure refers,

requires reliance on rules similar to those provided in sec.

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

301.6343-1(b)(4)(i), Proced. & Admin. Regs., generally provides

that an individual suffers an economic hardship if the individual

is unable to pay his or her reasonable basic living expenses.

Sec. 301.6343-1(b)(4), Proced. & Admin. Regs., provides in

pertinent part:

(ii) Information from taxpayer.--In determining a

reasonable amount for basic living expenses the director will consider any information provided by the

taxpayer including-(A) The taxpayer's age, employment status and

(continued...)

- 52 contends that that element is present here.

According to peti-

tioner,

While * * * Petitioner currently receives what would

appear to be a substantial amount of income, the Petitioner credibly testified that she had to pay from that

over $5,300.00 per month in total mortgage payments and

taxes on the marital residence. In addition, Petitioner testified that utility costs for water, sewer,

gas, electric for their house, etc., also absorbed

another significant chunk of her money. The balance of

the monies, to the extent they were timely and fully

paid, which was not always the case * * * was used to

pay, in part, food, clothing, health and transportation

expenses for herself and her children. * * *

On the record before us, we find that petitioner has failed

(...continued)

history, ability to earn, number of dependents, and status

as a dependent of someone else;

(B) The amount reasonably necessary for food,

clothing, housing (including utilities, home-owner

insurance, home-owner dues, and the like), medical

expenses (including health insurance), transportation,

current tax payments (including federal, state, and

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 organization, or child care payments which

allow the taxpayer to be gainfully employed);

in which the taxpayer resides;

(D) The amount of property exempt from levy

which is available to pay the taxpayer's expenses;

(E) Any extraordinary circumstances such as

special education expenses, a medical catastrophe, or

natural disaster; and

(F) Any other factor that the taxpayer claims

bears on economic hardship and brings to the attention

of the director.

- 53 to substantiate the amount of her “reasonable basic living

expenses” within the meaning of section 301.6343-1(b)(4), Proced.

& Admin. Regs.

Moreover, although the December 27, 2004 order

issued by the Montgomery County Court of Common Pleas required

petitioner to pay the first and second mortgage loans and real

estate taxes for the marital residence, that order directed Mr.

Krasner to pay $9,180.20 a month to petitioner, $1,056.60 of

which was with respect to such mortgage loans and taxes.28

addition, around the beginning of 2005, shortly after the Montgomery County Court of Common Pleas issued the December 27, 2004

order, petitioner’s earning capacity increased from the $1,500 a

month reflected in that order to approximately $200 a day.

the record before us, we find that there is no credible evidence

establishing, and petitioner has failed to show, that if she were

to pay the unpaid 1998 liability, she would not be able to pay a

reasonable amount for basic living expenses within the meaning of

section 301.6343-1(b)(4), Proced. & Admin. Regs.

On the record before us, we find that petitioner has failed

to carry her burden of establishing that the economic hardship

element is present here.

The December 27, 2004 order issued by the Montgomery

County Court of Common Pleas also made Mr. Krasner responsible

for, inter alia, the cost of health insurance for petitioner and

the unemancipated children and the children’s private school

tuition, summer camp, and day care expenses. That order did not

address who was to bear responsibility for utility expenses with

respect to the marital residence.

- 54 On the record before us, we find that petitioner has failed

to carry her burden of establishing that all of the elements set

forth in section 4.02(1) of Revenue Procedure 2000-15 under which

the IRS will ordinarily grant equitable relief under section

6015(f) are present in the instant case.

The IRS may nonetheless grant relief to petitioner under

section 4.03 of Revenue Procedure 2000-15.

That section provides

a partial list of positive and negative factors which respondent

is to take into account in considering whether to grant an

individual relief under section 6015(f).

No single factor is to

be determinative in any particular case; all factors are to be

considered and weighed appropriately; and the list of factors is

not intended to be exhaustive.

Rev. Proc. 2000-15, sec. 4.03,

2000-1 C.B. at 448.

As pertinent here, section 4.03(1) of Revenue Procedure

2000-15 sets forth the following positive factors which weigh in

favor of granting relief under section 6015(f):

(a) Marital status. The requesting spouse is

separated (whether legally separated or living apart)

or divorced from the nonrequesting spouse.

(b) Economic hardship. The requesting spouse

would suffer economic hardship (within the meaning of

section 4.02(1)(c) of this revenue procedure) if relief

from the liability is not granted.

the nonrequesting spouse, but such abuse did not amount

to duress.

- 55 (d) No knowledge or reason to know. In the case

of a liability that was properly reported but not paid,

the requesting spouse did not know and had no reason to

know that the liability would not be paid. * * *

(e) Nonrequesting spouse’s legal obligation. The

nonrequesting spouse has a legal obligation pursuant to

a divorce decree or agreement to pay the outstanding

liability. This will not be a factor weighing in favor

of relief if the requesting spouse knew or had reason

to know, at the time the divorce decree or agreement

was entered into, that the nonrequesting spouse would

not pay the liability.

(f) Attributable to nonrequesting spouse. The

liability for which relief is sought is solely attributable to the nonrequesting spouse.

(We shall hereinafter refer to the positive factors set forth in

section 4.03(1)(a), (b), (c), (d), (e), and (f) of Revenue

Procedure 2000-15 as the marital status positive factor, the

economic hardship positive factor, the abuse positive factor, the

knowledge or reason to know positive factor, the legal obligation

positive factor, and the attribution positive factor, respectively.)

We note initially that the parties do not dispute that the

marital status positive factor, the knowledge or reason to know

positive factor, and the economic hardship positive factor set

forth in section 4.03(1)(a), (d), and (b), respectively, of

Revenue Procedure 2000-15 are the same as the marital status

element, the knowledge or reason to know element, and the economic hardship element set forth in section 4.02(1)(a), (b), and

(c), respectively, of that revenue procedure.

- 56 With respect to the marital status positive factor set forth

in section 4.03(1)(a) of Revenue Procedure 2000-15, respondent

concedes that that factor is present here.

With respect to the economic hardship positive factor and

the knowledge or reason to know positive factor set forth in

section 4.03(1)(b) and (d), respectively, of Revenue Procedure

2000-15, we have found that petitioner has failed to carry her

burden of showing that the economic hardship element and the

knowledge or reason to know element set forth in section

4.02(1)(c) and (b), respectively, of Revenue Procedure 2000-15

are present here.

On the instant record, we further find that

petitioner has failed to carry her burden of establishing that

the economic hardship positive factor and the knowledge or reason

to know positive factor set forth in section 4.03(1)(b) and (d),

respectively, of that revenue procedure are present here.

With respect to the abuse positive factor set forth in

section 4.03(1)(c) of Revenue Procedure 2000-15, petitioner

relies on the five incident reports prepared by officers of the

Haverford police department between December 18, 1999, and

February 11, 2001, and on her testimony to support her position

that the abuse positive factor is present here.

According to

petitioner,

during the taxable year at issue and, both before and

afterwards, the Intervenor abused drugs and alcohol,

which resulted in aberrant behavior and his abusive

treatment of her. Petitioner credibly testified that,

- 57 because of this abusive behavior by the Intervenor, she

felt duress during the time period when the tax return

at issue was being prepared and signed. Petitioner

testified that she reluctantly acquiesced to many of

Intervenor’s demands to maintain marital and family

harmony.

With respect to the five incident reports on which petitioner relies to support her claim of abuse by Mr. Krasner, those

reports related to complaints made by petitioner well after April

10, 1999, when she signed the 1998 joint return.29

Moreover,

those incident reports do not support petitioner’s position that

the abuse positive factor is present here.

Except for the

January 16, 2000 incident report, which indicated that petitioner

alleged that Mr. Krasner shoved her, none of the other incident

reports reflected any claim made by petitioner to the Haverford

police department of unwanted physical contact, or any physical

or mental abuse, by Mr. Krasner.

As for the January 16, 2000

incident report which indicated that petitioner claimed that Mr.

Krasner “shoved her during the argument”, that report stated:

“No signs of physical injury.”

With respect to petitioner’s testimony on which she relies

to support her claim of abuse by Mr. Krasner, we did not believe

such testimony.

Petitioner did not claim abusive treatment by

Mr. Krasner in petitioner’s Form 8857 or in any other written

Officers of the Haverford police department prepared the

five incident reports between Dec. 18, 1999, and Feb. 11, 2001.

- 58 submissions that she made to the IRS after she filed that form.30

Moreover, petitioner had no hesitation in allowing the children

to stay with Mr. Krasner during virtually all of the trips that

she took alone during 1999.

Nor did petitioner have any hesita-

tion in allowing the children to stay with Mr. Krasner pursuant

to the custodial order that was in effect at most relevant times

after she and Mr. Krasner legally separated on October 13, 1999,

under which, for each 28-day period during the year (excluding

the summer when certain of the children attended camp), the

children were to spend 18 days with Mr. Krasner.

If petitioner’s

claim that Mr. Krasner “abused drugs and alcohol, which resulted

in aberrant behavior” were true, we do not believe that she would

have left the children with Mr. Krasner during virtually all of

the trips that petitioner took alone during 1999, and we believe

that she would have asked the Montgomery County Court of Common

Pleas to modify the custodial order so that the children were not

in Mr. Krasner’s custody for 18 out of each 28-day period during

the year (except the summer).

Furthermore, petitioner had no

hesitation in making complaints about Mr. Krasner to the

Haverford police department.

If petitioner’s claim that Mr.

Krasner “abused drugs and alcohol, which resulted in aberrant

behavior and his abusive treatment of her” were true, we believe

In response to a question in petitioner’s Form 886-A

asking whether petitioner was subject to any marital abuse during

1998, petitioner stated: “See Report”. Petitioner did not

attach any report to petitioner’s Form 886-A.

- 59 (1) that the five incident reports prepared by officers of the

Haverford police department would have reflected petitioner’s

claims of such alleged drug and alcohol abuse and such alleged

aberrant behavior and abusive treatment and (2) that petitioner

would have made complaints to the Haverford police department

alleging such matters well before she made her first complaint on

December 18, 1999.

On the record before us, we find that petitioner has failed

to carry her burden of showing that the abuse positive factor set

forth in section 4.03(1)(c) of Revenue Procedure 2000-15 is

present here.

With respect to the legal obligation positive factor set

forth in section 4.03(1)(e) of Revenue Procedure 2000-15, petitioner concedes that as of the time of the trial in this case

there was no legal obligation for Mr. Krasner to pay any tax due

for taxable year 1998.

Respondent concedes that as of that time

there was no legal obligation for petitioner to pay any tax due

for that year.31

On the record before us, we find that the legal

obligation positive factor is a neutral factor in this case.

With respect to the attribution positive factor set forth in

section 4.03(1)(f) of Revenue Procedure 2000-15, respondent

concedes that the unpaid 1998 liability is solely attributable to

As of the time of the trial in this case, there was no

final divorce decree or agreement in which a court addressed who

was to pay any tax due for taxable year 1998. See infra note 33.

- 60 Mr. Krasner.

We find that respondent concedes that the attribu-

tion positive factor is present here.

Turning to the negative factors weighing against granting

relief under section 6015(f) set forth in section 4.03(2) of

Revenue Procedure 2000-15, as pertinent here, those factors are:

(a) Attributable to the requesting spouse. The

unpaid liability * * * is attributable to the requesting spouse.

(b) Knowledge, or reason to know. A requesting

spouse knew or had reason to know * * * that the reported liability would be unpaid at the time the return

was signed. This is an extremely strong factor weighing against relief. Nonetheless, when the factors in

favor of equitable relief are unusually strong, it may

be appropriate to grant relief under § 6015(f) in

limited situations where a requesting spouse knew or

had reason to know that the liability would not be paid

* * *.

has significantly benefitted (beyond normal support)

from the unpaid liability * * *.

(d) Lack of economic hardship. The requesting

spouse will not experience economic hardship (within

the meaning of section 4.02(1)(c) of this revenue

procedure) if relief from liability is not granted.

(e) Noncompliance with federal income tax laws.

The requesting spouse has not made a good faith effort

to comply with federal income tax laws in the tax years

following the tax year or years to which the request

for relief relates.

(f) Requesting spouse’s legal obligation. The

requesting spouse has a legal obligation pursuant to a

divorce decree or agreement to pay the liability.

(We shall hereinafter refer to the negative factors set forth in

section 4.03(2)(a), (b), (c), (d), (e), and (f) of Revenue

- 61 Procedure 2000-15 as the attribution negative factor, the knowledge or reason to know negative factor, the significant benefit

negative factor, the economic hardship negative factor, the tax

law noncompliance negative factor, and the legal obligation

negative factor, respectively.)

We note initially that the parties do not dispute that the

knowledge or reason to know negative factor, the economic hardship negative factor, and the legal obligation negative factor

set forth in section 4.03(2)(b), (d), and (f), respectively, of

Revenue Procedure 2000-15 are the opposites of the knowledge or

reason to know positive factor, the economic hardship positive

factor, and the legal obligation positive factor set forth in

section 4.03(1)(d), (b), and (e), respectively, of that revenue

procedure.

We also note that the parties do not dispute that the

attribution negative factor set forth in section 4.03(2)(a) of

Revenue Procedure 2000-15 is essentially the opposite of the

attribution positive factor set forth in section 4.03(1)(f) of

that revenue procedure.32

We have found above that petitioner has failed to carry her

burden of establishing that the economic hardship positive factor

We do not believe that those two factors are exactly

opposite because the attribution negative factor does not contain

the word “solely” that appears in the attribution positive

factor. Nonetheless, we conclude that respondent’s use of the

word “solely” in describing the attribution positive factor but

not in describing the attribution negative factor does not affect

our findings and conclusions in the instant case with respect to

those factors.

- 62 set forth in section 4.03(1)(b) of Revenue Procedure 2000-15 and

the knowledge or reason to know positive factor set forth in

section 4.03(1)(d) of that revenue procedure are present here.

On the instant record, we further find that petitioner has failed

to carry her burden of establishing that the knowledge or reason

to know negative factor set forth in section 4.03(2)(b) of

Revenue Procedure 2000-15 and the economic hardship negative

factor set forth in section 4.03(2)(d) of that revenue procedure

are not present here.

With respect to the attribution negative factor set forth in

section 4.03(2)(a) of Revenue Procedure 2000-15, we have found

that respondent concedes that the attribution positive factor is

present in this case.

On the record before us, we find that

respondent concedes that the attribution negative factor set

forth in section 4.03(2)(a) of Revenue Procedure 2000-15 is not

present here.

With respect to the significant benefit negative factor set

forth in section 4.03(2)(c) of Revenue Procedure 2000-15 (i.e.,

whether the requesting spouse has significantly benefited beyond

normal support from the unpaid liability), it is petitioner’s

position that she “did not significantly benefit from the nonpayment of taxes.”

In support of her position, petitioner asserts

that “she had neither knowledge nor reason to know of the nonpayment because of Intervenor’s own lavish spending on gifts” and

- 63 other items.

We have rejected petitioner’s contention that “she

had neither knowledge nor reason to know of the nonpayment” of

the tax shown due in the 1998 joint return.

Assuming arguendo

that we had accepted that contention, whether petitioner knew or

had reason to know when she signed the 1998 joint return that the

$38,324 of tax shown due in that return would not be paid has

nothing to do with, and does not establish, whether she significantly benefited from that unpaid 1998 liability.

In further support of her position that the significant

benefit negative factor set forth in section 4.03(2)(c) of

Revenue Procedure 2000-15 is not present here, petitioner asserts:

Respondent contends that Petitioner’s trips,

combined with certain personal expenditures, evidenced

significant benefits from the unpaid tax liability.

Although the Petitioner did take the trips in question,

she was on many occassions [sic] doing so for the

primary purpose of correcting failed knee surgery.

Other trips, such as the one to France with her daughter, were jointly purchased by the Intervenor and

Petitioner. Similarly, the Intervenor also enjoyed

golf trips and a spiritual retreat in California during

the tax year at issue. Payment of Petitioner’s initial

legal fees by Intervenor should similarly be rejected

as a significant benefit since she was doing so only to

protect her best interests and defending herself

against the actions of Intervenor and his counsel. All

of the above Petitioner’s expenditures were being done

at a time of dramatically increasing household income.

Therefore, Petitioner did not significantly benefit

from payment of these costs since the majority of these

expenditures were to protect her health or legal interests. * * * [Citations omitted.]

- 64 Normal support is not a significant benefit.

Commissioner, 93 T.C. 355, 367 (1989).

Flynn v.

In order to determine

whether the requesting spouse significantly benefited from the

unpaid liability in question, we consider whether the requesting

spouse and the nonrequesting spouse were able to make expenditures that they otherwise would not have been able to make and

that benefited, or were important to, the requesting spouse.

See

Alt v. Commissioner, 119 T.C. 306, 314 (2002), affd. 101 Fed.

Appx. 34 (6th Cir. 2004); Jonson v. Commissioner, 118 T.C. at

126.

We have found that on different occasions during 1998 Mr.

Krasner purchased and gave petitioner two Apple computers, a

pearl necklace worth at least $2,000, a digital camera, an opal

brooch that he purchased for $350, and a diamond necklace that he

purchased for $800 and returned at the request of petitioner.

have also found that at least during 1998, 1999, and 2000,

petitioner, either alone or with one or more family members, took

various trips to different places in the United States, one trip

to Italy, and one trip to Paris, France.

Two of those trips in

the fall of 1999 related to constructive surgery that petitioner

had on her knee.

However, the record is devoid of reliable

evidence establishing the amount that petitioner and Mr. Krasner

spent annually for normal support before, during, and after the

taxable year at issue.

As a result, we are unable to find on the

- 65 record presented that petitioner did not significantly benefit

beyond normal support from the unpaid 1998 liability.

On the

record before us, we find that petitioner has failed to carry her

burden of establishing that she did not significantly benefit

beyond normal support from that unpaid liability.

On the record before us, we find that petitioner has failed

to carry her burden of establishing that the significant benefit

negative factor set forth in section 4.03(2)(c) of Revenue

Procedure 2000-15 is not present here.

With respect to the tax law noncompliance negative factor

set forth in section 4.03(2)(e) of Revenue Procedure 2000-15,

respondent concedes that that factor is not present here.

With respect to the legal obligation negative factor set

forth in section 4.03(2)(f) of Revenue Procedure 2000-15, as

discussed above, respondent concedes that as of the time of the

trial in this case there was no legal obligation for petitioner

to pay any tax due for taxable year 1998, and petitioner concedes

that at that time there was no legal obligation for Mr. Krasner

to pay any tax due for that year.33

As a result, we have found

that the legal obligation positive factor set forth in section

4.03(1)(e) of Revenue Procedure 2000-15 is a neutral factor in

this case.

On the record before us, we find that the legal

obligation negative factor set forth in section 4.03(2)(f) of

See supra note 31.

- 66 that revenue procedure also is a neutral factor in this case.

On the record before us, we find that petitioner has failed

to carry her burden of establishing any other factors that weigh

in favor of granting relief under section 6015(f) and that are

not set forth in sections 4.02(1) and 4.03(1) of Revenue Procedure 2000-15.

Based upon our examination of the entire record before us,

we find that petitioner has failed to carry her burden of showing

that respondent abused respondent’s discretion in denying her

relief under section 6015(f) with respect to the unpaid 1998

liability.

We have considered all of the parties’ arguments and contentions that are not discussed herein, and we find them to be

without merit, irrelevant, and/or moot.

To reflect the foregoing,

Decision will be entered

for respondent.

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