SARI F. DEIHL, Petitioner v.

T.C. Mèmo. 2012-176

UNITE 575)

STATES TAX COUI T

SARI F. DEIHL, Petitioner v.

COMMISSIONER OF INTERNAI REVENUE, Respondent

Docket Nos. 12937-06, 22897-08.

Filed June 21, 2012.

Tim Alan Tarter, for petitioner

Anne Ward Durning, for respondent.

..MEMORANDUM FINDINGS OF FACT AND OPINION

MARVEL, Judge. -These consolidated cases arise from petitioner's requests

for section 60151 relief with respect to the 1996-99 Federal income tax liabilities

1All section references aré to the Internal Revenue Còde in effect for the

relevant years, and all Riile reference 541

ài·e to the Tax Court Rules of Practice and

Procedure. '

$EiRVED JUN 21 2012

-2of petitioney and her deceased husband, Joseph Deihl. Respondent determined

that petitioner was not entitled to relief under section 6015. Petitioner timely filed

petitions seeking review of respondent's determination. After concessions2 and in

accordance with our Opinion in Deihl v. Commissioner, 134 T.C. 156 (2010)

(Deihl II), in which we held that section 6015(g)(2) barred petitioner from making

an election under section 6015(b) and from requesting equitable relief under

section 6015(f) for 1996 but did not otherwise bar her from requesting relief under

section 6015(c) for 1996 or from requesting relief under section 6015(b), (c), and

(f) for 1997 and 1998, the issues for decision are: (1) whether petitioner is entitled

to relief under section 6015(b) for 1997-99; (2) whether she is entitled to relief

under section 6015(c) for 1996-99; and (3) whether she is entitled to relief under

section 6015(f) for 1997-99.3

2Respondent concedes that petitioner is entitled to partial relief for 1996-99

under sec. 6Øl5(c) in that 50% of the 1996-99 tax liabilities are allocable to Mr.

Deihl and she is not liable for the amounts so allocated.

3For ll999, unlike the other years at issue, although petitioner sought relief

under sec. 6015(c) in her petition, she argued for relief at trial and on brief only

under sec. 6015(b) and (f) and she asserted a corresponding claim for refund of the

amount paid! and applied to the 1999 liability. Although we hold that petitioner is

not entitled to sec. 6015(b) or (f) relief from the 1999 liability, respondent

concedes that she is entitled to relief under sec. 6015(c) with respect to 1999, and

we agree. However, a taxpayer who qualifies for relief from a tax liability under

sec. 6015(c) is not entitled to claim a refund for that part of the liability that has

(continued...)

-3FINDINGS OF FACT

Some of the facts have been stipulated. The stipulation of facts is

incorporated herein by this reference. Petiti'oner resided in Arizona when she

petitioned this Court.

Background

Petitioner did not graduate from high school. She first met Joseph Deihl

when she was 12 years old. In 1963 when she was 18 years old, petitioner married

Mr. Deihl; and she remained married to him until his death on February 5, 2006.

During the period from 1963 to 1983 Mr. Deihl held various sales positions

and petitioner and Mr. Deihl moved several times to accommodate his

employment. In approximately 1982 Mr. Deihl traveled to Phoenix and purchased

a company that manufactured tear-gas-spraying flashlights. After operating that

company for about a year, Mr. Deihl and petitioner incorporated Mayor

Pharmaceutical Laboratories, Inc. (Mayor), an S corporation. Petitioner worked

for Mayor from approximately 1983 until sometime in 1992 or 1993, when Mr.

Deihl told her that there was no reason for her to continue coming down to the

3(...continued)

already been paid. See sec. 6015(g)(3).

-4company to work. Nevertheless, as more fully explained herein, petitioner

continued to be involved with Mayor and related companies after 1993.

. During the course of their marriage Mr. Deihl made the financial decisions

for the family and petitioner paid the household bills. Petitioner filed joint income

tax returns with Mr. Deihl, but she never reviewed them before signing them.

Mayor and KareMor

.

In the early 1980s petitioner and Mr. Deihl came up with the idea for and

ultimately acquired a patent for aTnultivitamin spray that came to be known as

VitaMist. In 1983 petitioner and Mr. Deihl incorporated Mayor to manufacture

VitaMist.4 Petitioner and Mr. Deihl jointly owned 100% of Mayor's stock and

were at all relevant times officers of Mayor.

After experimenting with various methods of distribution, in 1992 Mr.

Deihl and petitioner incorporated KareMor International, Inc. (KareMor), an S

corporation, to market VitaMist products. Petitioner and Mr. Deihl jointly owned

100% of KareMor's stock and were at all*relevant times officers of KareMor.

KareMor marketed VitaMist through independent distributors who purchased

VitaMist products from KareMor and then resold them. The distribution structure

4The VitaMist Web site refers to petitioner as a "co-founder" of the ^

VitaMist enterprise. Co-founder Letter, http://www.vitamist.com/Articles.asp?

ID=405 (last visited June 19, 2012).

5had multiple levels because KareMor encouraged distributors to recruit additional

distributors known as downline distributors. Distributors advanced in the

KareMor hierarchy as they recruited additional downline distributors.

Although petitioner did not work at Mayor during the years at issue, she

worked for KareMor in 1996 and 1997 and earned wages of $15,000 and.$44,000,

respectively. According to the Form W-2, Wage and .Tax Statement, attached to

petitioner's 1998 return, she also worked at Creative Personnel Resources and .

.

earned $84,613.30 in wages.5 She also regularly visited the corporate offices to

sign corporate documents, and she signed checks drawn on the Mayor and

KareMor accounts throughout 1996-98. Duringi1996-993petitioner used two

corporate credit cards for a variety of personal and cdrporate purchases.

Petitioner involved herself in Mayor and KareMor in·other ways. In a

related case, we described her involvement as follows: .

[Petitioner and Mr. Deihll* * * and members of their extended

family played a prominent role in interacting personally with

distributors at KareMor events. In these interactions, petitioners

believed that it was critical fór every aspect of their lives, from their

attire and personal grooming to their residence, tò portray an

appearance of extreme affluence and success. Petitioners felt that .

distributors who were imøressed to the point of being overwhelmed

No Forms W-2 are attached to the 1999 joint return that is in the record.

-

-6with vvhat could be achieved through multilevel marketing would be

encouraged to build their own downline networks in hopes of reaping

similar benefits.

In execution of this strategy, * * * {Petitioner and Mr. Deihl]

hostell at their residence a number of events * * * training sessions,

meetings, and entertainment functions * * *

Deihl v. Columissioner, T.C. Memo. 2005-287 (Deihl I). Petitioner planned many

of the KareMor events, attended all of the KareMor conventions, and hosted

numerous events at her and Mr. Deihl's Paradise Valley home. She also traveled

with Mr. Deihl on business and headed Women of KareMor, an organization for

wives of distributors.

Since:Mr. Deihl's death and through the date of trial, petitioner has operated

the VitaMist business through Mayor and other business entities.6

Other Business Entities

Petitioner and/or Mr. Deihl also held ownership interests in other business

entities,7 including but not limited to the following:

6Before the date of trial the VitaMist Web site contained a marketing

statement petitioner signed as "Co-Founder & CEO, Mayor Pharmaceutical Labs".

7Petitfoner testified that "Right now the companies are insolvent " We do

not find thisltestimony to be credible. Petitioner offered no documentation such as

financial statements, tax returns, account statements, corporate books and records,

or appraisals to substantiate her testimony. In addition, petitioner acknowledged

that some part of the family business is still operating and, as of the trial date, had

(continued...)

042

Phoenix Foundation, a company (sometimes teferred to as a "genealogy"

company) that was apparently formed to receive the commissions from downline

sales to which petitioner and Mr. Deihl were entitled undei the multilevel

marketing structure used to market VitaMist products;

.

C

042

Pharmanutra, Inc., a company that is 'also part of the genealogy and that

receives commissions for the benefit of petitioner. Petitioner holds all of the

officer positions and is a director of this company, which was incorporated in

Nevada in 2010, several years after Mr. Deihl died;

042

Spray Fun, Inc., a company incorporated.in NeVada in 2003 to sell

vitamins. Petitioner holds all of the officer positions and is a director of the

company;

.

042

Legacy Lodging II, an investment entity;

042

Windy City Properties, LLC, a real estate holding company that held title

to, among other things, tlïe property used as the corporate offices at 2401 South

24th St., Phoenix, Arizona. That property was'eventually sold to petitioner's

7(...continued)

16 employees. .Her son,- William Deihl, continues to work for the family business,

and petitioner is the chief executive officer, according to the VitaMist Web site.

-8sons8 on a date and for a price that do not appear in the record. The property at

2401 South 24th St. is still used as the VitaMist companies' headquarters;

042

Re ency Medical Research, a company that was apparently formed by Mr.

Deihl to market products on a retail basis to doctors;

042

VitaMist, Ltd., a company formed to market VitaMist products that

apparently was the successor to KareMor;9

,

042

Spoiled Brat, Ltd., a company formed by Mr. Deihl to market a line of .

facial products named after petitioner;

042

Alternative Employment Solutions, a company that leases employees to

various business entities involved in the manufacturing and distribution of

VitaMist products;

8One of petitioner's sons also may have received the proceeds from her sale

of residential property in 2006. Petitioner testified that the property in question,

which was titled in her name, was her son's property and that she could not

remember who received the sale proceeds. Petitioner acknowledged that the sale

price may have been $1,255,000 and testified that she could not remember

whether she reported the sale on her 2006 return.

9The record does not explain how, when, or by whom VitaMist, Ltd., was

formed, nor does it reveal whether VitaMist, Ltd., purchased assets from KareMor

for consideration. The record also does not indicate who owns VitaMist, Ltd.

Absent proof to the contrary, it is reasonable to infer from the limited record that

petitioner holds some ownership interest in VitaMist, Ltd.

042

Creative Personnel Resources, Inc., a company that was the same as

Alternative Employment Solutions and of which petitionei. was an officer and

director;1°

042

Lifestyle Advantage, Ltd., another companý,organized by Mr. Deihl to

sell products;

042

Liberty Group International, another company organized to sell products;

and

042

Left Field Productions, Inc., a company organized to put on shows:

Paradise Valley Home

Dui.ing the years at issue petitioner and Mr. Deihl lived in a. 10,000-square-

foot residence in Paradise Valley, Arizona (Paradise Valley home). Petitioner and

Mr. Deihl owned the Paradise Valley home as community property with right óf

survivorship.

In the late 1980s petitioner and Mr. Diehl purchased the Paradise Valley

home for $750,000 cash and almost immediately began an extensive reriiodeling

project on the property, which continued for several years. The imþrovements

1°The corporation was dissolved on September 16, 2005, for failure to file

its 2005 annual report with the Arizona Corporation Commission.

- 10 were paid for at least in part by KareMor," which claimed amortization expense

deductions ivith respect to the improvement costs on its 1996-98 corporate tax

returns. Sg Deihl I. In December 2006, after Mr. Deihl's death, petitioner, the

surviving and sole owner, sold the Paradise Valley home for approximately

$4,100,000. The final disbursement report reflects that petitioner received a

disbursement of $767,017.54 and that the Department of Internal Revenue

received a disbursement of $360,888.81 from the sale proceeds. Petitioner used a

portion of the money she received from the sale of the Paradise Valley home to

purchase a home on Cactus Road in Scottsdale, Arizona (Cactus Road home), for

$1,350,000 iñ 2006. Petitioner made a downpayment of approximately $270,000

and financed the balance of the purchase price and closing costs with a mortgage

of $1,080,0Ó0.4

"Respondent alleged that KareMor and Mayor paid for over $2 million of

improvemerits to the Paradise Valley home during 1996 and 1997 that were

reported as expenses on the corporation's corporate tax returns for those years.

"Petitioner testified at trial that the value of her Cactus Road home had

declined substantially since she purchased it, and she estimated that as of the trial

date the property was worth substantially less than the mortgage balance.

Petitioner testified that she has ceased making mortgage payments and the

property was in foreclosure as of the trial date.

1 11 -

Petitioner and Mr. Deihl's Standard öf Living

.

.

Petitioner and Mr. Deihl drove expensiveicars, took vacations and business

trips to Europe, Las Vegas, and the Caribbean, and purchased fine jewelry They

also invested in commercial property, such as office buildings and strip malls, and

held several investment accounts. Petitioner and Mr. Deihl were members of the

Gainey Ranch Golf Club and the Arizona Club, at which they entertained people

in connection with their business.

Petitioner's Requests for Section 6015 Relief

Petitioner and Mr. Deihl filed joint Federal income tax returns for 1996-99.

Tax Years~1996-98

Respondent issued notices of deficiency to petitioner-and Mr. Deihl for r '

1996-98. Petitioner and Mr. Deihl subsequently filed a petition for

redetermination of respondent's determinations.

In Deihl I we held that petitioner and Mr. Deihl were not entitled to certain

deductions for expenses claimed through and in connection with Mayor and

KareMor," a reduction in gross income related to certain items of Mayor's cost of

"We held that petitioner and Mr. Deihl were not entitled to the following

claimed deductions: (1) capitalized residence improvement deductions related to

the Paradise Valley home; (2) maintenance and landscaping deductions related to

residential property and:unsubstantiated maintenance and landscaping deductions;

.

(continued!..)

- 12 goods sold, or a reduction in adjusted gross income for alleged duplicate reporting.

We conclud d that petitioner and Mr. Deihl were also liable for section 6662(a)

accuracy-related penalties.

* We entered our decision as follows:

Year

Deficiency

Penalty

Sec. 6662(a)

1996

1997

1998

1$1,002,062

2,196,184

629,495

$200,412

439,237

125,899

1All monetary amounts have been rounded to the nearest

dollas. . .

On or about March 6, 2007, petitioner signed a Form 8857, Request for

Innocent Sphuse Relief. Petitioner requested relief under section 6015(b), (c), and

(f) for 1996-98. On August 22, 2008, respondent issued a notice of determination

denying pet¾tioner's request for relief for each of those years. - Petitioner timely

filed a petitipn for review of respondent's determination.

13(...cÒntinued)

(3) security hosts related to the Paradise Valley home and other unsubstantiated

security costs; (4) dues for membership in various social clubs and e'xpenses

incurred at those clubs; (5) unsubstantiated entertainment expenses; (6)

unsubstantiated business gift expenses; (7) clothing costs; (8) equipment ánd

furnishings expenses; (9) unsubstantiated travel expenses; (10) charitable

contributions; and (11) unsubstantiated promotional and marketing expenses. See

Deihl v. Conunissioner, T.C. Memo. 2005-287.

- 13 Tax Year 1999

Respondent issued a notice of deficiency to þetitioner and Mr:Deihlífor

1999. Respondent subsequently assessed an income tax deficiency fòr 1999,

(which resulted from an examination of:KareMor's return as well as respondent's

disallowance of.depreciation deductions for improvements made to the Paradise

Valley home), interest and penalties (collëctivel% 1999 tax liability). Because

petitioner and Mr. Deihl failed to pay the 1999 tax,liability, riespondent mailed

them a Letter 1058, Notice of Levy and Your Right to a Hearing, for 1999. In

response, petitioner's representative, Donald W. McPherson, submitted a Form .

12153; Request for a Collection Due Process or Equivalènt Hearing. Before and during the hearing Mr. McPherson raised spousal defenses for petitioner and

requested that she receive relief under section'6015(a) or (f).

On April 6, 2006, respondent issued to petitioner and Mr. Deihl a Notice of

Determination Concerning Collection¼ction(s) Under Section 6320 and/or 6330*

sustaining respondent's proposed levy. In the notice of determination the Appeals

Officer concluded that petitioner was not entitled to relief under section 6015.

Petitióner timely filed a petition corîtestinj, respondent's determination.

Subsequently, on November 15,'2006/resp8ndent'filed a Notice of Federal

Tax Lien for 1999. Because respondent filèd the lien before petitioner's sale of

- 14 the Paradise Valley home, part of the sale proceeds was used to satisfy petitioner

and Mr. Deihl's 1999 tax liability.

Procedural History

We consolidated petitioner's two petitions for section 6015 relief for 199698 and 1999.. Subsequently, we severed the issue of whether section 6015(g)(2)

barred petitioner's claims for section 6015 relief for 1996-98," which we decided

in an Opinion issued on February 23, 2010. See Deihl II.

In DÒihl II respondent argued that section 6015(g)(2) barred petitioner from

claiming reyef from joint and several liability under section 6015(b), (c), and (f)

with respect to her joint Federal income tax liabilities for 1996, 1997, and 1998.

We held that (1) section 6015(g)(2) barred petitioner from seeking relief under

section 6015(b) and (f) for 1996; (2) section 6015(g)(2) did not bar her from

seeking reliéf under section 6015(c) for 1996; and (3) section 6015(g)(2) did not

bar her froni seeking relief under section 6015(b), (c), and (f) for 1997 and 1998.

Id.

"Sec. 6015(g)(2).provides that, in the case of any request for relief under

sec. 6015(b), (c), or (f), "if a decision of a court in any prior proceeding for the

same taxable year has become final, such decision shall be conclusive except with

respect to the qualification of the individual for relief which was not an issue in

such procee ing." However, the exception does not apply if the individual

participated meaningfully in the prior proceeding. Sec. 6015(g)(2).

- 15 OPINION

I.

Evidentiary Matters

Petitioner reserved an objection to Exhibit 30-J, the trial transcript from

Deihl I. The Deihl I transcript includes the testimony of five witnesses: (1)

petitioner; (2) Mr. Deihl; (3) Robert J. Hartmann, an attorney who worked for

Mayor and KareMor; (4) Martin D. Goltz, who worked as a consultant for Mayor

and KareMor before becoming CFO of KareMor in the mid-1990s; and (5) Kermit

Lennick, a contractor who remodeled the Paradise Valley property. Petitioner

withdrew her objection with respect to her own testimony in the Deihl I transcript

but not with.respect to the rest of the transcript.

In connection with the partial trial iir docket No. 22897-08, Diehl II, the

parties stipulated the admissibility of the entire transcript from Diehl I. Neither

party reserved an objection to the transcript, which was marked and admitted as

Exhibit 14-J during the partial trial. The parties did not limit the use of the

transcript to the specific issue that was the subject of the partial trial and decided

in Diehl II.

By reason of the above, respondent contends that Exhibit 30-J is already in

evidence pursuant to Rule 91(e). Rule 91(e) provides:

- 16 (e) Binding Effect: A stipulation shall be treated, to the extent

of its terms, as a conclusive admission by the parties to the

stipulation, unless otherwise permitted by the Court or agreed upon

by those parties. The Court will not permit a party to a stipulation to

qualify, change, or contradict a stipulation in whole or in part, except

that it may do so where justice requires. A stipulation and the

admissions therein shall be binding and have effect only in the

pending case and not for any other purpose, and cannot be used

against any of the parties thereto in any other case or proceeding.

Alternatively, respondent contends that to the extent Exhibit 30-J contains the

testimony of Mr. Deihl, Exhibit 30-J is admissible under the former testimony

exception to the hearsay rule.

Neitlier party relied on the contested part of the Deihl I transcript as the sole

basis for a requested finding of fact in that party's posttrial briefs, and we do not

rely on the transcript to decide this case. Consequently, it is not necessary for us

to admit the remaining portion of the Deihl I transcript. For these reasons, we

shall exclude the remaining portion of the Deihl I transcript. See Fed. R. Evid.

401(a).

II.

Section 6015 Relief

Generally, taxpayers who file a joint Federal income tax return are each

responsible for the accuracy of their return and are jointly and severally liable for

the entire tax liability due for that year. Sec. 6013(d)(3); Butler v. Commissioner,

114 T.C. 276, 282 (2000). In certain circumstances, however, a spouse may obtain

- 17 relief from joint and several liability by satisfying the requirements of section

6015.15

.

Section 6015(a)(1) provides that a spouse may request relief from joint and

several liability under section 6015(b) for an understatement of tax on a joint

return. Additionally, section 60.15(a)(2) provides that an eligible spouse may ..·

request to limit her liability for any deficiency with respect to a joint return under

section 6015(c). If complete felief is not available under subsection (b) or (c) of

section 6015, a spouse may request equitable relief under section 6015(f).

Petitioner contends that she is entitled to relief from all of the 1997-99

liabilities under section 6015(b) or (f). Petitioner also requested relief from the

1996 liability and the 1997-99 liabilities under section 6015(c) in her petition,

contending that no part of the 1996-99 deficiencies is attributable to her.

Section 6015(e) confers jurisdiction on this Court to review petitioner's

requests for relief from joint and several liability. A spouse who has requested

relief may contest the Commissioner's denial of that relief by timely filing a

Sec. 6015 applies to tax liabilities arising after July 22, 1998, and to tax

liabilities arising on or before July 22, 1998, that remain unpaid as of such date.

See Internal Revenue Service Restructuring and Reform Act of 1998, Pub. L. No.

105-206, sec. 3201(g), 112 Stat. at 740.

- 18 petition in t is Court. Sec. 6015(e). We-address petitioner's request for relief

under sectidn 6015(b), (c), and (f) in turn.

A.

Section 6015(b)

Secti n 6015(b) authorizes the Secretaryis to grant relief if the taxnayer

satisfies the requirements of subparagraphs (A) through (E) and provides as

follows:

SEC. 6015(b). Procedures for Relief From Liability Applicable

to All Joint Filers.-(1) In general.--Under procedures prescribed by the

Secretary, if-.

(A) a joint return has been made for a taxable year;

(B) on such return there is an understatement of

tax attributable to erroneous items of 1 individual filing

the joint return;

(C) the other individual filing the joint return

establishes that in signing the return he or she did not

know, and had no reason to know, that there was.such

understatement;

16The term "Secretary" means "the Secretary of the Treasury or his

delegate", sec. 7701(a)(11)(B), and the term "or his delegate" means "any öfficer,

employee, o agency of the Treasury Department duly authorized by the Secretary

of the Treaspry directly, or indirectly by one or more redelegations of authority, to

perform the function mentioned or described in the context", sec.

7701(a)(12)(A)(i).

- 19 (D) taking into account all of the facts and

circumstances, it is inequitable to hold the other

individual liable for the deficiency in tax for such taxable

year attributable to such understatement; and

(E) the other individual elects (in such form as the

Secretary may prescribe) the benefits of this subsection .

not later than the date which is 2 years after the date the

Secretary has begun collection activities with respect to

the individual making the election,

then the other individual shall be relieved of liability for tax

(including interest, penalties, and other amounts) for such

taxable year to the extent such liability is attributable to such

understatement.

The requirements of section 6015(b)(1) are stated in the conjunctive.

Therefore, if the requesting spouse fails to satisfy any one of the requirements, she

does not qualify for relief. Alt v. Commissioner, 119 T.C. 306, 313 (2002), aff'd,

101 Fed. Appx.·34 (6th Cir. 2004). The requesting spouse bears the burden of

proving that she satisfies each requirement of section 6015(b)(1). See Rule

142(a).

Respondent does not dispute that petitioner meets the requirements in

subparagraphs (A) and (E) for 1997-99. Respondent contends that petitioner fails

to satisfy the requiremerits of subparagraphs (B) through (D). Petitioner disagrees.

With respect to subparagraph (B) of section 6015(b)(1), both parties agree

that the understatements were attributable to erroneous deductions of Mayor and

- 20 KareMor ekpenses and disallowed depreciation on the Paradise Valley home.

Respondeny argues that 50% of the understatements are allocable to petitioner

because petitioner and Mr. Deihl jointly owned and operated Mayor and KareMor.

Petitioner argues that the understatements are allocable solely to Mr. Deihl

because she. did not assist Mr. Deihl in managing Mayor or KareMor or in making

any related financial decisions.

Erroneous items are allocable to the individual whose activities gave rise to

the items. Sec. 1.6015-1(f)(1), Income Tax Regs. While it may be a factor, joint

ownership alone does not dictate whether an erroneous item is allocated to both

spouses. Buchine v. Commissioner, T.C. Memo. 1992-36, aff'd, 20 F.3d 173 (5th

Cir. 1994). Generally, an allocation is made without regard to community

property lav s. Sec.·1.6015-1(f)(1), Income Tax Regs. A requesting spouse "who

voluntarily grees to enter into an investment and who actively participates in it"

cannot allocate the entire investment to the nonrequesting spouse. Juell v.

Commissioner, T.C. Memo. 2007-219; see also Olson v. Commissioner, T.C.

Memo. 2009-294. However, a requesting spouse who does not actually participate

in the investment or business activity, even if she is listed as a shareholdeí-or

partner and signed investment documents, may avoid an allocation of liability to

her in certain circumstances. See Juell v. Commissioner, T.C. Memo. 2007-219.

-521 In Juell, we declined to allocate ùnderstatements to the requesting spouse when the

requesting spouse did not invest any funds in the partnership, attend any

partnership meetings, or have access to any partnership funds.

In contrast, we have allocated understatements resulting from the

adjustment of partnership items to a requesting spouse who agreed to invest in the

partnership, signed documents relating to the partnership, and wrote checks to the

partnership drawn on the spouses' joint bank account. See Bartak v.

Commissioner, T.C. Memo. 2004-83, aff'd, 158 Fed. Appx; 43 (9th Cir. 2005).

We have also allocated understatements to a requesting spouse where the spouse

agreed to make the investment in the business, jointly invested in the business, and

participated actively in the business. See Abelein v. Commissioner, T.C. Memo.

2004-274.

Petitioner and Mr. Deihl jointly owned 100% of the stock in, were officers

of, and controlled Mayor and KareMor. Petitioner signed corporate checks, used

corporate credit cards, and deposited money from Mayor and·KareMor into her

personal accounts. Petitioner actively participated in the Mayor and KareMor

businesses through her event planning and through the W$men $f KareMor

organization. Furthermore, petitioner and Mr. Deihl viewed themselves and their

lifestyle as a key element in KareMor's success. Petitioner cannot convincingly

-22argue that s e did not actively participate in the business activity when she and

Mr. Deihl r lied on their personal interactions to spur business growth.

Petiti ner testified that she performed these tasks as directed by Mr. Deihl

and that sh never made any financial decisions related to Mayor and KareMor.

Given the 1 vel of petitioner's involvement with the corporations, however, her

professed I ck of interest and involvement in corporate finances is not credible,

nor is it sufficient to support an allocation of all of the understatements

attributable o the disallowance of Mayor and KareMor deductions to Mr. Deihl.

Petiti ner failed to prove that the erroneous items giving rise to the

understate ent of tax are attributable solely to Mr. Deihl. .Because petitioner

failed to sat sfy the subparagraph (B) requirement, she is not entitled to relief

under secti n 6015(b). We need not address whether petitioner satisfied the

requiremen s of subparagraphs (C) and (D) of section 6015(b)(1). Accordingly,

we sustain r spondent's determination to deny petitioner relief under section

6015(b) for 1997-99.

"Peti ioner testified that she personally paid the contractors who performed

the renovati ns on the Paradise Valley home with either personal funds or with

corporate

ds. Although petitioner testified that Mr. Deihl directed her to pay

the contract rs, she personally paid for the renovations and used corporate funds

to do so. P titioner introduced no other evidence to support her argument that the

Paradise Va ley depreciation deductions are allocable solely to Mr. Deihl.

- 23 B.

Section 6015(c)

Under section 6015(c), if the requesting spouse is no longer married to or is

legally separated from the spouse with whom she filed the joint return,18 the

requesting spouse may seek to limit her liability for a deficiencý as provided in

section 6015(d). Sec. 6015(c)(1), (3)(A)(i)(I). A requesting spouse may request

section 6015(c) relief any time after a deficiency is asserted but no later than two

years after the date on which the Secretary has begun collection activities with

respect to the requesting spouse. Sec. 6015(c)(3)(B).

In general, section 6015(d) provides that any item giving rise to a deficiency

on a joint return is allocated to the spouses as if they had filed separate returns.

Sec. 6015(d)(3)(A). The requesting spouse is liable only for her proportionate

share of the deficiency that results from such allocation. Sec. 6015(d)(1). If an

item giving rise to a deficiency provided a tax benefit on the joint return to the

nonrequesting spouse, the item is allocated to the nonrequesting spouse. Sec.

6015(d)(3)(B); Hopkins v. Commissioner, 121 T.C. 73, 83-86 (2003). The

requesting spouse bears the burden of establishing the amount of the deficiency

allocable to her. Sec. 6015(c)(2).

18An electing spouse is no longer married if she is widowed. See Rosenthal

v. Commissioner, T.C. Memo. 2004-89.

- - 24 Unallowable deductions attributable to a business or investment are

allocated tojthe spouse who owned the business or investment. Sec. 1.60153(d)(2)(iv), income Tax Regs. Generally, an erroneous deduction is allocated in

proportion to each spouse's ownership interest. Id. The regulations provide that,

"[i]n the absence of clear and convincing evidence supporting a different

allocation, an erroneous deduction item relating to an asset that the spouses owned

jointly is geherally allocated 50% to each spouse". Id.

Both parties agree that (1) petitioner qualifies for section 6015(c) relief for.

1996-99 and (2) the deficiencies resulted from erroneous deductions attributable to

Mayor and KareMor and disallowed depreciation deductions related to the

Paradise Valley home. Respondent concedes that 50% of the deficiencies are

allocable to;Mr. Deihl but contends that the other 50% are allocable to petitioner

because she jointly owned and controlled Mayor and KareMor. Petitioner

contends, however, that the entire deficiency is allocable to Mr. Deihl., She argues

that joint ownership of the corporations is not determinative of whether the

disallowed deductions are jointly allocable to her and Mr. Deihl. Because

petitioner contends that she held her interest in Mayor and KareMor purely in a

nominal capacity, made no f'mancial decisions regarding the corporations, and

never saw the corporate tax returns, she concludes that the deficiency is not

25 allocable to her. Petitioner relies on Rovve v. Commissioner, T.C. Memo.v2001-

325, and McKnight v. Commissioner, T.C. Memo. 2006-155, to support her

argument.

In Rowe, we declined to allocate farming activity losses to the requesting

spouse even though the requesting spouse.was listed as a proprietor of the

business on her tax'returns. We stated: "the evidence in the record reflects that

petitioner's involvement in the farming,activity * * * was minimal and purely

social in nature. Other than infréquent attendance at hòrse shows to support her

son, petitiorier's ónly apparent-link to the activity is that her name is listed as a

proprietor ön the * * * tax returns." Similarly, in McKnight, we declined to '

allocate S corporation income to the requesting spouse. Although the requesting'

spouse signed the articles of incorporation for the S corpotation and was listed as a

director, she did not make a cápital:contribution, participate in decisionmaking,

receive stock, have signatory authority on the corporate bank account, know what

title she held with the corporation, or réceive any distributions or wages from the

corporation.

Petitioner failed to prove that the items giving risë to the deficiencies are

allocable solely to Mr. Deihl. Unlike the requesting spouses in Rowe and '

McKnight, petitioner actively participated in tlie business activities óf Mayor-and

- 26 KareMor as described supra pp. 4-6. While petitioner's role was predominantly

social, she engaged in those social activities as a business strategy and not merelÿ

for personal enjoyment.

Because petitioner and Mr. Deihl jointly owned Mayor and KareMor and

were both active in the businesses, we conclude that 50% of the Mayor and

KareMor items giving rise to the deficiency are allocable to each spouse.

Petitioner failed to produce clear and convincing evidence supporting a different

allocation. S_e_e sec. .1.6015-3(d)(2)(iv), Income Tax Regs. Furthermore, petitioner

failed to prove that the erroneous depreciation deductions are allocable solely to

Mr. Deihl. Petitioner owned the Paradise Valley home with Mr. Deihl, she lived

in the home during the years at issue, and she personally paid for the

improvements on which the depreciation deductions were based. She failed to

produce any evidence supporting a different allocation of the depreciation

deductions. Therefore, we sustain respondent's determination that petitioner is .

entitled to relief only from 50% of the liabilities for 1996-99 under section

6015(c).

C.

¿Section 6015(f)

Section 6015(f) provides an alternative means of relief for a requesting

spouse who does not qualify for relief under section 6015(b) or (c). Because we

-27have not relieved petitioner of all liability for the 1997-99 deficiencies, we now

consider whether she is entitled to any additional relief under section 6015(f).

Under section 6015(f), the Secretary may grant relief where "it is

inequitable to hold the individual liable for any unpaid tax or any deficiency (or

any portion of either)". Sec.'6015(f)(1). Pursuant to section 6015(f), the

Commissioner has prescribed guidelines in Rev. Proc. 2003-61, 2003-2 C.B.

296,19 for determining whether the requesting spouse qualified for relief under that

section. Generally, the Commissioner has analyzed requests for section 6015(f)

relief filed on or after November 1, 2003, using the procedures set forth in Rev.

Proc. 2003-61, supra, and this Court has considered the guidelines, but is not

bound by them, in evaluatinj, the facts and circumstances of a case in order to

decide whether equitable relief is appropriate. See Pullins v. Commissioner, 136

T.C. 432, 438-439 (2011); Porter v. Commissioner, 132 T.C. 203, 210 (2009).

19Rev. Proc. 2003-61, 2003-2 C.B. 296, supersedes Rev. Proc. 2000-15,

2000-1 C.B. 447, and is effective for requests for sec. 6015(f) relief filed on or

after November 1, 2003. Rev. Proc. 2003-61, secs. 6 and 7, 2003-2 C.B. at 299.

28 On Jänuary 5, 2012, the IRS released Notice 2012-8, 2012-4 I.R.B. 309,20 3

proposed revenue procedure that, if finalized, would revise the factors the IRS will

use to evaluate a requesting spouse's claim for equitable relief únder section

6015(f) andiwould supersede Rev. Proc. 2003-61, supra. Notice 2012-8, supra,

provides that "until the revenue procedure is finalized, the Service will apply the

provisions in the proposed revenue procedure instead of Rev. Proc. 2003-61 in

evaluating claims for equitable relief under section 6015(f)."

042The lsarties contend that this Court should apply the provisions of the

proposed revenue procedure set forth in Notice 2012-8, supra, in determining

whether petitioner is entitled to equitable relief under section 6015(f).21 However,

20Notice 2012-8, 2012-4 I.R.B. 309, updates the guidelines for determining

whether a requesting spouse is entitled to relief from joint and several liability

under secs. 66(c) and 6015(f). The Commissioner released Notice 2012-8, supra,

to expand "how the IRS will take into account abuse and financial control by the

nonrequesting spouse in determining whether equitable relief is warranted." Id.

In particular, Notice 2012-8, supra, provides that abuse or lack of financial control

may mitigate factors that otherwise weigh against granting relief from joint and

several liability. See id.

"On January 30, 2012, we held a conference call with the parties during

which counsel for the parties requested the opportunity to state their positions with

respect to the proper interpretation and application of Notice 2012-8, supra, to the

facts of these cases. By order dated February 15, 2012, we ordered the parties to

file a status i.eport informing the Court of their positions with respect to the proper

interpretation and application of Notice 2012-8, supra, in these cases. The parties

contend that|Notice 2012-8, supra, applies to these cases.

- 29 in Sriram v. Commissioner, T.C. Memo. 2012-91, slip op. at 9 n.7, we took the

position that we would "continue to apply the factors in Rev. Proc. 2003-61, 2003-

2 C.B. 296, in view of the fact that the proposed revenue procedure is not final and

because the comment period under the notice only recently closed." Additionally,

because our holding in Sriram:did not,turn on any single factor as revised in the

proposed revenue procedure, we called attention in the opinion to the effect, if

anyi of a revised factor only to the extent we deemed it necessary for clarity. Id.

We adopt a similar approach here. We shall decide whether petitioner is entitled

to relief under section 6015(f) by considering all-of the relevant facts and

circumstances, evaluating them through the prism of Rev. Proc.. 2003L61, supra,

and noting where appropriate how the analysis used in Rev. Proc. 2003-61, supra,

would change if the proposed revenue procedure in Notice 2012-8, supra, had

actually been finalized. In any event, our approach to deciding whether petitioner

qualifies for relief under section 6015(f) and our conclusion remain the same

regardless of whether we apply the analysis of Rev. Proc. 2003-61, supra, or adopt

the approach proposed in Notice 2012-8, supra.

We consider all relevant facts and circumstances in deciding whether å

requesting spouse is entitlèd to relief under section 6015(f). Poi.ter v.

Commissioner, 132 T.C. at 210. In inaking our analysis, we apply a de novo

- 30 standard of review and a de novo scope of review, see id., and we examine

whether thelrequirements set forth in Rev. Proc. 2003-61, supra, were satisfied,

see, e.g., Pufgsley v. Commissioner, T.C. Memo. 2010-255; O'Meara v.

Commissioner, T.C. Memo. 2009-71. Petitioner bears the burden of proving that

she is entitled to relief under section 6015(f). See Porter v. Commissioner, 132

T.C. at 210; see also Rule 142(a).

Rev. Proc. 2003-61, sec. 4.01, 2003-2 C.B. at 297-298, lists seven threshold

requirements that a requesting spouse must satisfy before the Commissioner will

consider a request for relief under section 6015(f):

1(1) The requesting spouse filed a joint return for the taxable

year for which he or she seeks relief.

(2) Relief is not available to the requesting spouse under

section 6015(b) or (c).

(3) The requesting spouse applies for relief no later than two

years after the date of the Service's first collection activity after July

22, 1998, with respect to the requesting spouse. * * * ("1

Notice 2012-8, sec. 4.01(3)(a), 2012-4 I.R.B. at 312, provides that "[i]f the

requesting spouse is applying for relief from a liability or a portion of a liability

that remains unpaid, the request for relief must be made before the expiration of

the period of limitation on collection of the income tax liability, as provided in

section 6502. Generally, that period expires 10 years after the assessment of tax:"

Respondent does not contend that petitioner failed to satisfy the threshold

requirement Kof Rev. Proc. 2003-61, sec. 4.01(3), 2003-2 C.B. at 297.

- 31 (4) No assets were transferred between the spouses as part of a

fraudulent scheme by the spouses.

(5) The nonrequesting spouse did not transfer disqualified

assets to the requesting spouse. * * *

(6) The requesting spouse did not file or fail to file the return

with fraudulent intent.

(7) The income tax liability from which the requesting spouse

seeks relief is attributable to an item of the individual with whom the

requesting spouse filed the joint return (the "nonrequesting spouse"),

unless one of the following exceptions applies:

*

*

*

*

*

*

*

(b) Nominal ownership. If the item is titled in the name of the

requesting spouse, the item is presumptively attributable to the

requesting spouse. This presumption is rebuttable. * * * ·

. .

* .

*.

*

*

*

. *

.-*'

(d) Abuse not amounting to duress. If the requesting spouse

establishes that he or she was the victim of abuse prior to the time the

return was signed, and that, as a result of the prior abuse, the requesting

spouse did not challenge the treatment of any item 541

on the return for

fear of the nonrequesting spouse's retaliation, the Service will consider

granting equitable relief although the deficiency or underpayment may

be attributable in part or in full to an item of the requesting spouse.

- 32 Petitioner satisfies Rev. Proc. 2003-61, sec. 4.01(1)-(6).23 Respondent contends

that petitioner does not satisfy section 4.01(7) because the remaining liability is

attributable to her items. Petitioner contends that she satisfies sectioh 4.01(7)

because either the nominal ownership exception or the abuse not amounting to

duress exception applies.

1.

Nominal Ownership

Under Rev. Proc. 2003-61: sec. 4.01(7)(b),24 a requesting spouse who is a

named owner may rebut the presumption of ownership. See Maluda v.

Commissioner, 431 Fed. Appx. 130 (3d Cir. 2011), aff'g T.C. Memo. 2009-281.

Rev. Proc. 2003-61, sec. 4.01(7)(b) provides the following example:

. (b) Nominal ownership. * * * For example, H opéns an

individual retirement account (IRA) in W's name and forges W's

signature on the IRA in 1998. Thereafter, H makes contributions to

the IRA and in 2002 takes a taxable distribution from the IRA. H and

In his brief respondent contends that petitioner does not satisfy Rev. Proc.

2003-61, sec. 4.01(2). We reject this contention. As described supra pp. 19-27,

petitioner does not qualify for relief under sec. 6015(b) and qualifies for only

partial relief under sec. 6015(c). Because we have not relieved petitioner of all

liability for the 1997-99 deficiencies, she satisfies Rev. Proc. 2003-61, sec.

4.01(2). See, e.g., Phemister v. Commissioner, T.C. Memo. 2009-201.

Furthermore, in his status report filed March 16, 2012, respondent concedes that

petitioner meets all of the threshold conditions except sec. 4.01(7).

24Notice 2012-8, supra, proposes no significant changes to the nominal

ownership exception. See Notice 2012-8, secs. 3, 4.01(7)(b), 2012-4 I.R.B. at

311-312.

- 33 W file a joint return for the 2002 taxable year, but do not report the

taxable distribution on their joint return. The Service later proposes a

deficiency relating to the taxable IRA distribution and assesses the

deficiency against H and W. W requests relief from joint and several

liability under section 6015. W establishes that W did'not contribute

to the IRA, sign paperwork relating to the IRA, or otherwise act as if

W were the owner of the IRA.. W thereby rebutted the presumption

that the IRA is attributable to W.

Furthermore, if the requesting spouse acts as an owner ofthe investment, the

requesting spouse cannot avoid attribution. See Bell v. Commissioner, T.C.

Memo. 2011-152.

Petitioner and Mr. Deihl jointly owned Mayor and Karemor; 50% of Mayor

and of KareMor is presumptively attributable to petitioner. Petitioner has not

produced evidence sufficient to rebut this presumption. In the example in Rev.

Proc. 2003-61, sec. 4.01(7)(b), the requesting spouse had no knowledge of the

investment and her nominal ownership resulted from the nonrequesting spouse's

forgery. Unlike the spouse in the example, petitioner knew about Mayor and

KareMor and knew that she owned 50% of both corporations. Petitioner acted as

an owner of the corporations by signing corporate documents and checks, using

corporate credit cards, drawing a salary from KareMor, and actively participating

in business activities. We conclude that the nominal ownership exception does .

not apply.

- 34 2.

Abuse Not Amounting to Duress

Under Rev. Proc. 2003-61, sec. 4.01(7)(d),25 if the requesting spouse proves

that she wa a victim of abuse, section 6015(f) relief may be granted even though

the liability is attributable to items of the requesting spouse. For purposes of

innocent spòuse relief, abuse includes verifiable physical harm as well as severe

psychological mistreatment. See Nihiser v. Commissioner, T.C. Memo. 2008-135.

If the requesting spouse did not question or disobey the nonrequesting spouse for

fear of such abuse, the abuse exception applies. Thomassen v. Commissioner,

T.C. Memo. 2011-88; Stephenson v. Commissioner, T.C. Memo. 2011-16.

This Court requires substantiation, or at a minimum, specificity, with regard

to allegations of abuse. See Nihiser v. Commissioner, T.C. Memo. 2008-135. A

generalized claim of abuse is insufficient. See Thomassen v. Commissioner, T.C.

Memo. 2011-88; Knorr v. Commissioner, T.C. Memo. 2004-212. To carry this

burden, it is helpful for the requesting spouse to provide corroborating evidence or

substantiation of the alleged abuse. See Thomassen v. Commissioner, T.C. Memo.

2011-88.

25Notice 2012-8, supra, proposes no significant changes to the abuse not

amounting to duress exception to the threshold requirement of Rev. Proc. 2003-61,

sec. 4.01(7). See Notice 2012-8, secs. 3, 4.01(7)(d), 2012-4 I.R.B. at 311-312.

-'35 Petitioner testified that Mr. Deihl physically and mentally abused her

throughout their marriage. She further testified that she never questioned Mr.

Deihl's decisions for fear of retaliation. Petitioner testified that she did not report

the physical abuse to the police or other law enforcement authorities. Petitioner's

testimony was not specific as to the timeframe of the alleged abuse, and she did

not testify as to any specific abuse that occurred during the relevant timeframe.

Petitioner did not testify that Mr. Deihl's physical or verbal abuse affected'her

decision to file or sign a joint return. When questioned+about signing the joint

returns, petitioner did not mention Mr. Deihl's physical or verbal abuse. Petitioner

simply testified that she signed the joint.returns when Mr. Deihl presented them to

her.

Petitioner's son, William M. Deihl, testified that he heard Mr..Deihl

verbally abusing her and saw signs of physical abuse, such as bruises. William M.

Deihl testified that he last observed signs of physical abuse in 1990. When

questioned about Mr. Deihl's verbal abuse, William M. Deihl testified that Mr.

Deihl constantly yelled at petitioner. No one else testifiéd regarding any abuse of

petitioner by Mr. Deihl.

Abuse is a genuine reason to grant relief from joint and several liability, and

we are sensitive to the legal and emotional issues related thereto. However, we

- 36 cannot conólude on this record that petitioner did not question the treatment of

items reported on the joint returns for fear of Mr. Deihl's'retaliation. We did not

find petitioiker's testimony credible or convincing. Petitioner provided no

substantiation of the alleged abuse, such as a police incident report or a medical

report. As corroborating evidence, petitioner introduced only the testimony of

William MdDeihl,26 which we do not find credible: In the absence of

corroborating evidence, we are not required to áccept petitioner's self-serving

testimony. Se_e Shea v. Commissioner, 112 T.C. 183, 189 (1999). Petitioner has

failed to me¢t her burden of proving that she was a victim of abuse.

Petitioner has not satisfied the seventh threshold condition of Rev. Proc.

2003-61, supra. Consequently, we conclude that petitioner is not entitled to

section 601.5(f) relief from the parts of the 1997-99 tax liabilities attributable to

her.

26PetiÍiOn r s son may have a personal interest in the result of thiÄ litigation.

He may have received property from petitioner after Mr.,Deihl's death for no

consideration. In addition, he is employed by the successor in interest to

KareMor, and the record does not disclose whether he has an ownership interest in

the continuing companies or how he might have obtained that interest. In the

absence of persuasive corroborating evidence, we are not required to accept the

self-serving testimony of interested parties. See Bose Corp. v. Consumers Union

of U.S., Inc., 466 U.S. 485, 512 (1984); Tokarski v. Commissioner, 87 T.C. 74, 77

(1986).

- 37 We have considered the parties' remaining arguments, and to the extent not

discussed above, conclude those arguments are irrelevant, moot, or without merit.

To reflect the foregoing,

Decisions will be entered

under Rule 155.