T.C. Memo. 2006-185

UNITED STATES TAX COURT

HELEN M. KORCHAK, Petitioner v.

COMMISSIONER OF INTERNAL REVENUE, Respondent

Docket Nos. 170-04, 13315-06. Filed August 30, 2006.

Robert W. Lynch, for petitioner.

Gerald A. Thorpe, for respondent.

MEMORANDUM FINDINGS OF FACT AND OPINION

CHIECHI, Judge: Pursuant to Madison Recycling Associates v.

Commissioner, T.C. Memo. 2001-85, affd. 295 F.3d 280 (2d Cir.

2002), respondent assessed against petitioner and petitioner’s

spouse Ernest I. Korchak (Mr. Korchak) a deficiency of $140,388

in their Federal income tax (tax) for their taxable year 1982. 

In a so-called affected items notice of deficiency (affected
- 2 -

1All section references are to the Internal Revenue Code in

effect for the year at issue.

2In Korchak v. Commissioner, T.C. Memo. 2005-244, see infra

note 3, respondent conceded that the affected items notice

incorrectly referred to sec. 6653(a)(1)(A) and (B), instead of to

sec. 6653(a)(1) and (2). 

3On Feb. 28, 2005, respondent and petitioner entered into a

stipulation to be bound (stipulation to be bound) by the final

decision in Korchak v. Commissioner, docket No. 22105-03. That

case, which was based upon the affected items notice issued to

petitioner and Mr. Korchak, was commenced in the Court by Mr.

Korchak. The issue presented there was whether the deficiency in

tax that respondent assessed pursuant to Madison Recycling

Associates v. Commissioner, T.C. Memo. 2001-85, affd. 295 F.3d

280 (2d Cir. 2002), for the taxable year 1982 of petitioner and

Mr. Korchak is subject to additions to tax under secs. 6653(a)

and 6659. In the opinion that the Court issued in the case

involving Mr. Korchak, Korchak v. Commissioner, T.C. Memo. 2005-

244, the Court sustained respondent’s determinations under secs.

6653(a) and 6659. On Oct. 20, 2005, the Court entered its

decision in that case, which became final on Jan. 18, 2006. In

the stipulation to be bound, petitioner retained the right to

assert that she is entitled to relief under sec. 6015(b) or 

(f) with respect to her taxable year 1982. 

items notice), respondent determined for the taxable year 1982 of

petitioner and Mr. Korchak additions to tax under sections1

6653(a)(1)(A),2 6653(a)(1)(B),2 and 6659 of $7,019.40, 50 percent

of the interest due on an assessed deficiency of $140,388, and

$34,322.10, respectively.3

The only issue remaining for decision is whether petitioner

is entitled to relief under section 6015(b) or, in the alternative, under section 6015(f) with respect to her taxable year

1982. We hold that petitioner is entitled to relief under

section 6015(b) with respect to that year.
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FINDINGS OF FACT

Some of the facts have been stipulated and are so found

except as stated herein. 

Petitioner resided in Bryn Mawr, Pennsylvania, when she

filed the petitions. 

Petitioner was born in Australia in 1937. Mr. Korchak was

born in Czechoslovakia in 1934. In 1939, Mr. Korchak moved with

his family to the Netherlands. In 1952, Mr. Korchak moved with

his family to Australia, where he met petitioner. In 1959,

petitioner and Mr. Korchak married (and remained married as of

the time of the trial) and moved to the United States. 

In 1958, petitioner received a B.S. degree in biochemistry

from the University of Melbourne. In 1962, she received a Ph.D.

in physiology from Tufts University. As of the time of the

trial, petitioner had never taken any tax, financial, or accounting courses. 

In 1957, Mr. Korchak received a B.S. degree in chemical

engineering from the University of Melbourne. In 1964, he

received a Sc.D. in chemical engineering from the Massachusetts

Institute of Technology (MIT). Mr. Korchak audited an economics

class and an accounting class when he was studying at MIT. 

During the period 1964 to 1976, petitioner was a full-time

homemaker and mother. From 1976 until 1986, petitioner worked as

a research scientist for New York University (NYU). From 1986
- 4 -

4During 2004, the year before the trial took place, petitioner received her salary from the University of Pennsylvania,

the amount of which is not disclosed by the record, and other

unidentified income totaling $270. 

until at least the time of the trial, petitioner worked as a

research scientist for the University of Pennsylvania. At the

time of the trial, her annual salary from the University of

Pennsylvania was $115,000.4 As of that time, petitioner intended

to retire in 2007. 

In 1964, Mr. Korchak began working for Halcon International,

Inc. (Halcon). He worked for that company or one of its subsidiaries until 1986 when Halcon and its subsidiaries ceased business operations. During the first few years Mr. Korchak worked

for Halcon, he was involved in research and development. His

duties included developing chemical processes and determining

whether such processes were economically feasible. If, after a

relatively short period of time, the processes that were being

developed did not appear to be economically feasible, no further

work was done with respect to such processes. 

During 1981, Mr. Korchak was president of Halcon Research

and Development Corporation, a subsidiary of Halcon that was

involved in research and development. Sometime during 1981, Mr.

Korchak became president of Scientific Design Corporation,

another subsidiary of Halcon that was involved in engineering,

and held that position during 1982. 
- 5 -

During 1981 and 1982, Mr. Korchak received compensation and

other taxable distributions from Halcon and/or its subsidiaries

(collectively, Halcon distributions) totaling $1,539,269 and

$466,309, respectively. Petitioner and Mr. Korchak made a

considered judgment not to change their family’s lifestyle in any

way as a result of Mr. Korchak’s having received such distributions. They made that judgment because they did not want to

spoil their children by having a lavish lifestyle. Mr. Korchak

invested a large portion of the Halcon distributions that he

received during 1981 and 1982. Although petitioner was generally

aware that Mr. Korchak invested a large portion of such distributions, she was not aware of the specific investments that he

made. 

From the time in 1986 when Halcon and its subsidiaries

ceased business operations and no longer employed Mr. Korchak

until around 1995, Mr. Korchak received very little income. 

Starting in 1990 until at least the time of the trial, Mr.

Korchak worked for Performance Coatings Corporation (Performance), a new company that he and several others started in that

year. Mr. Korchak received very little, if any, compensation

from that company during the first several years of its existence. At the time of the trial, Mr. Korchak, who was 71 years

old, was president of Performance for which Performance paid him
- 6 -

5During 2004, the year before the trial took place, Mr.

Korchak received a salary of $91,000 from Performance and the

following income: (1) A distribution of $13,586 from an individual retirement account (IRA), (2) $19,166 of Social Security

payments, and (3) a distribution of $26,981 from a pension. 

6The three children of petitioner and Mr. Korchak were born

in 1965, 1967, and 1969, respectively. 

an annual salary of $90,000.5 As of that time, Mr. Korchak had

no intention of retiring. 

Based on their respective personal and business backgrounds

and experiences, petitioner and Mr. Korchak believed throughout

their marriage that managing their family’s finances should be

Mr. Korchak’s responsibility and that Mr. Korchak was better

suited than petitioner to do so. Petitioner and Mr. Korchak also

believed throughout their marriage that maintaining their home

and rearing their three children6 should be petitioner’s responsibility and that petitioner was better suited than Mr. Korchak

to do so. Consequently, throughout the marriage of petitioner

and Mr. Korchak, (1) Mr. Korchak assumed the responsibility of

managing their family’s finances, and petitioner relied upon him

to do so; and (2) petitioner assumed the responsibility of

maintaining their home and rearing their three children, and Mr.

Korchak relied on her to do so. 

As part of his responsibility for managing the family’s

finances, Mr. Korchak made all the family’s financial decisions. 

He did so without discussing those decisions with petitioner. If
- 7 -

petitioner had made any inquiries concerning the financial

decisions that Mr. Korchak made for their family, Mr. Korchak

would not have withheld any information from her with respect to

such decisions. 

Throughout their marriage, petitioner was generally unaware

of bank accounts or brokerage or other investment accounts in Mr.

Korchak’s name alone or in the names of Mr. Korchak and petitioner. During 1982, petitioner was not aware of any brokerage

accounts that Mr. Korchak may have had at that time. At least

during 1982, petitioner was aware of two joint checking accounts

in the names of Mr. Korchak and herself. At least during 1982,

petitioner’s salary from NYU of approximately $15,000 (petitioner’s NYU salary) was deposited into one of those two joint

checking accounts (joint checking account into which petitioner’s

NYU salary was deposited), and petitioner used that joint checking account to pay certain personal and household expenses. The

joint checking account into which petitioner’s NYU salary was

deposited was also used to pay any mortgage loan on the family

residence in which she and Mr. Korchak were living. 

At all relevant times, Mr. Korchak was responsible for

opening and reviewing all the family’s mail, including bills, tax

notices, documents pertaining to investments and other financial

matters, and bank statements, including any joint checking

account statements, and petitioner relied upon him to do so. 
- 8 -

7Mr. Korchak’s three oil and gas partnership investments

were Kelly-Brock Drilling Partners 1981-1, Odyssey Partners 81

Limited Partnership, and Matagorda Limited Partnership II. 

Prior to 1980, Mr. Korchak’s investment portfolio consisted

of stocks and bonds. During 1980, Mr. Korchak became a client of

Marcus V. Cole (Mr. Cole), who at that time worked for Merrill

Lynch and who was deceased at the time of the trial. During that

year, petitioner and Mr. Korchak purchased rental property

located on Hilton Head Island. In 1981, without consulting

petitioner, Mr. Korchak invested in a bus rental activity (Mr.

Korchak’s bus rental investment) and three oil and gas partnerships (Mr. Korchak’s three oil and gas partnership investments).7

Although Mr. Korchak did not consult petitioner before he invested in that bus rental activity and those partnerships, he may

have mentioned to her that he had invested in a bus rental

activity. However, he would not have provided any details about

that activity to petitioner. 

During 1982, Mr. Cole joined the staff of Hamilton Gregg &

Company, Inc. (Hamilton Gregg), a company engaged in the business

of providing financial planning advice to its clients. On or

about December 6, 1982, Mr. Korchak became a client of Hamilton

Gregg, and Mr. Korchak’s primary contact person at that company

was Mr. Cole. 

On or about November 24, 1982, Mr. Cole delivered a private

offering memorandum (private offering memorandum) to Mr. Korchak
- 9 -

with respect to a partnership called Madison Recycling Associates

(Madison Recycling). According to the private offering memorandum, Madison Recycling was a New York limited partnership formed

on October 1, 1982, that was to lease, as lessee, steam chest

molded expanded polystyrene recycling equipment called Sentinel

EPS Recyclers (EPS Recyclers). The private offering memorandum

further indicated that Madison Recycling and two other entities

were to engage in a joint venture in which the EPS Recyclers were

to be used in a process designed to recycle scrap polystyrene. 

According to the private offering memorandum, the recycled

polystyrene was to be sold on the open market, and Madison

Recycling was to receive a share of the profits from such sales. 

Mr. Korchak considered in some detail whether to invest in

Madison Recycling. That was because he knew a lot about the

business of recycling technologies. In considering whether to

invest in Madison Recycling, Mr. Korchak was also aware that

Congress was encouraging investment in recycling in order to

conserve energy. 

After considering in detail whether to invest in Madison

Recycling, on November 30, 1982, without consulting petitioner,

Mr. Korchak purchased an interest in Madison Recycling for

$75,000 (Mr. Korchak’s Madison Recycling investment). Mr.

Korchak did not use the joint checking account into which petitioner’s NYU salary was deposited in order to purchase Mr.
- 10 -

8It is not clear from the record whether the cash management

account was held (1) at a bank or another type of financial

institution and (2) in the joint names of petitioner and Mr.

Korchak. 

Korchak’s Madison Recycling investment. Instead, he utilized a

cash management account (cash management account) that he used to

purchase all of the investments that he made.8 

Petitioner became aware of Mr. Korchak’s Madison Recycling

investment on February 2, 1986, when she and Mr. Korchak signed

Form 872, Consent to Extend the Time to Assess Tax (Form 872),

with respect to their taxable year 1982. That form stated in

pertinent part: 

The amount of any deficiency assessment is to be

limited to that resulting from any adjustment to: 

(A) the taxpayer’s distributive share of any item of

income, gain, loss, deduction, or credit of, or distribution from Madison Recycling, (B) the tax basis of the

taxpayer’s interest(s) in the aforementioned partnership(s) or organization(s) treated by the taxpayer(s)

as a partnership, (C) any gain or loss (or the character or timing thereof) realized upon the sale or exchange, abandonment, or other disposition of taxpayer’s

interest in such partnership(s) or organization(s)

treated by the taxpayer as a partnership, (D) items

affected by continuing tax effects caused by adjustments to any prior tax return, and (E) any consequential changes to other items based on such adjustment.

In 1986, without consulting petitioner, Mr. Korchak purchased a majority interest in Riverside Polymer Systems, Inc.

(Riverside), and ultimately invested approximately $700,000 in

that company. In 1989, Riverside filed for bankruptcy. As a

result of that bankruptcy proceeding, Mr. Korchak lost his entire
- 11 -

investment in that company. It was only after Riverside filed

for bankruptcy in 1989 that petitioner became aware that Mr.

Korchak had invested approximately $700,000 in that company. 

As was true of petitioner’s reliance on Mr. Korchak with

respect to their family’s finances, petitioner also relied upon

Mr. Korchak to retain a professional to prepare joint tax returns

for them. Petitioner’s role in the preparation of such returns

was limited to providing Mr. Korchak with any Forms W-2, Wage and

Tax Statement (Form W-2), and Internal Revenue Service (IRS)

information returns that she received as well as any other taxrelated information that she had. 

Since around the mid-1970s until the time of the trial, the

professional that Mr. Korchak retained to prepare Form 1040, U.S.

Individual Income Tax Return, for petitioner and himself (joint

tax return) was Hilton Sokol (Mr. Sokol), a certified public

accountant. Mr. Sokol was an employee of Miller, Ellin and

Company (Miller Ellin) in New York, which provided accounting

services for, inter alia, Halcon. Many of Halcon’s executives

retained certified public accountants employed by Miller Ellin to

prepare their respective tax returns. Both petitioner and Mr.

Korchak trusted and relied on Mr. Sokol’s professional judgment

to prepare accurately their joint tax returns. 

Since around the mid-1970s, the following general practice

remained the same with respect to (1) the preparation of joint
- 12 -

tax returns for petitioner and Mr. Korchak, including the joint

tax return for their taxable year 1982, and (2) the review,

signing, and filing of such returns. Mr. Sokol prepared a joint

tax return for Mr. Korchak and petitioner based on any Forms W-2,

IRS information returns, and other information provided to him by

Mr. Korchak. Thereafter, Mr. Sokol gave that joint tax return to

Mr. Korchak who reviewed it. After Mr. Korchak reviewed and

approved the joint tax return that the return preparer prepared,

Mr. Korchak presented that return to petitioner for her signature. In presenting such joint tax return to petitioner, Mr.

Korchak had it open to the page on which petitioner and he were

to sign it. Before petitioner signed the joint tax return that

Mr. Korchak presented to her, Mr. Korchak did not discuss its

contents with her, and petitioner did not review, or make any

inquiries about, such return. The signature of the return

preparer on the joint tax return that Mr. Korchak presented to

petitioner indicated to her that such return was prepared accurately. 

On April 28, 1983, the return preparer signed the joint tax

return for the taxable year 1982 of petitioner and Mr. Korchak

(1982 joint tax return). The return preparer then sent that

return to Mr. Korchak.

The 1982 joint tax return showed, inter alia, the following:
- 13 -

Amount Reported

Wages, salaries, tips, etc. 1$481,648

Interest income 55,633

Dividends 13,034

Refunds of State and local income taxes 6,056

Business income or (loss) from Schedule C 

2(24,961)

Capital gain or (loss) from Schedule D (3,000)

Supplemental gains or (losses) from Form 

 4797 

 (1,283)

Rents, royalties, partnerships, estates, 

 trusts, etc. from Schedule E 

 (220,695)

Other income 11,352

Total income 317,784

Adjusted gross income 310,932

Itemized deductions 47,846

Taxable income 258,086

Tax 116,492

Total tax 116,492

Investment credit from Form 3468 116,492

Balance 0

Minimum tax 3,064

Tax from recapture of investment credit 134

Total Tax 3,198

Total payments 96,168

Refund 92,970

1Of the $481,648 of wages, salaries, tips, etc., petitioner

received $15,339.46, and Mr. Korchak received the balance. 

2The entire loss of $24,961 from Schedule C, Profit or

(Loss) From Business or Profession, was with respect to Mr.

Korchak’s bus rental investment. 

Of the loss of $220,695 from Schedule E, Supplemental Income

Schedule (Schedule E), claimed in the 1982 joint tax return,

$189,965 was attributable to certain claimed partnership losses

(claimed partnership losses of $189,965) that were not identified

in Schedule E, and the balance was attributable to two claimed
- 14 -

rental losses (viz., a claimed rental loss of $7,627 with respect

to property located on Hilton Head Island and a claimed rental

loss of $22,383 with respect to a property identified as “Evian”)

and windfall profit tax withheld in 1982 of $720. 

Schedule E had the following notation with respect to the

claimed partnership losses of $189,965: “SEE STATEMENT 2". 

Statement 2 showed, inter alia, the following partnerships and

the following claimed loss of each such partnership that gave

rise to the total claimed partnership losses of $189,965 shown in

Schedule E:

Name of Partnership Partnership Loss

Kelly-Brock Drilling Partners 1981-11 $64,753

Odessey Partners 81 Limited Partnership1 57,087 

Matagorda Limited Partnership II1 10,036

Madison Recycling 58,089 

1Petitioner and Mr. Korchak also claimed losses with respect

to Mr. Korchak’s three oil and gas partnerships for their taxable

year 1981. 

There was nothing about the claimed $58,089 Madison Recycling

loss that would have made that claimed loss stand out in relationship to the other partnership losses claimed in the 1982

joint tax return. 

Statement 2 also showed for each of the partnerships identified below the following amount as “PROPERTY QUALIFIED FOR

INVESTMENT CREDIT NEW RECOVERY PROPERTY - OTHER”:
- 15 -

9No entries were made on lines 1(e) through 1(h) and lines 2

through 4 of Form 3468.

Name of Partnership

Property Qualified for

Investment Credit New 

Recovery Property - Other

Kelly-Brock Drilling Partners 1981-1 $11,447

Odessey Partners 81 Limited Partnership 8,161

Matagorda Limited Partnership II 1,246

Madison Recycling 577,500 

Neither Schedule E nor Statement 2 referred to Form 3468,

Computation of Investment Credit (Form 3468), that was included

as part of the 1982 joint tax return.

Form 3468, “PART II. - Qualified Investment”, showed the

following:

1 Recovery Property Line

(1)

Class of

Property

 (2) 

Unadjusted

 Basis 

 (3) 

Applicable

percentage

 (4)

Qualified

Investment

(Column 2 x 

 column 3) 

Regular 

Percentage

New 

Property

(a) 3-year 60

(b) Other 598,354 100 598,354

Used 

Property

(c) 3-year 60

(d) Other 100

 

* * * * * * *

5 Total qualified investment in 10% property - Add lines 

 1(a) through 1(h), 2, 3, and 4 (See instructions for 

 special limits)[9] . . . . . . . . . . . . . . . . . . . . . 598,354

Form 3468, “PART III. - Tentative Regular Investment

Credit”, showed the following: 
- 16 -

10No entries were made on lines 9 through 13 of Form 3468. 

11No entries were made on lines 15 and 16 of Form 3468. 

 8 10% of line 5 . . . . . . . . . . . . . . . . . . . . . . . 59,835

* * * * * * *

14 Current year regular investment credit - Add lines 8 

 through 13[10]. . . . . . . . . . . . . . . . . . . . . . . . 59,835

* * * * * * *

17 Tentative regular investment credit - Add lines 14, 15, 

 and 16[11] . . . . . . . . . . . . . . . . . . . . . . . . . . 59,835

Form 3468, “PART IV. - Tax Liability Limitations”, showed

the following:

18 a Individuals - From Form 1040, enter tax from line 38, ) 

 page 2, plus any additional taxes from Form 4970 . . . . )

 b Estates and trusts - From Form 1041, enter tax from line ) 

 26a, plus any section 644 tax on trusts . . . . . . . . .)

 c Corporations (1120 filers) - From Form 1120, Schedule ) 

 J, enter tax from line 3 . . . . . . . . . . . . . . . . ) 

 d Other organizations - Enter tax before credits from ) 

 return . . . . . . . . . . . . . . . . . . . . . . . . . ) 

 116,492

 

19 a Individuals - From Form 1040, enter credits from lines 41) 

 and 42 of page 2 . . . . . . . . . . . . . . . . . . . .)

 b Estates and trusts - From Form 1041, enter any foreign ) 

 tax credit from line 27a . . . . . . . . . . . . . . . . )

 c Corporations (1120 filers) - From Form 1120, Schedule ) 

 J, enter any foreign tax credit from line 4(a), plus )

 any possessions tax credit from line 4(f) . . . . . . . .) 

 d Other organizations - Enter any foreign or possessions )

 tax credit . . . . . . . . . . . . . . . . . . . . . . . )

 0

20 Income tax liability as adjusted (subtract line 19 from line 

 18). . . . . . . . . . . . . . . . . . . . . . . . . . . . . 116,492

21 a Enter smaller of line 20 or $25,000. See instruction for 

 line 21 . . . . . . . . . . . . . . . . . . . . . . . . . 

 b If line 20 is more than $25,000 - Enter 90% of the 

 excess . . . . . . . . . . . . . . . . . . . . . . . . . 

 25,000

 82,343

22 Regular investment credit limitation - Add lines 21a 

 and 21b . . . . . . . . . . . . . . . . . . . . . . . . . . 107,343

23 Allowed regular investment credit - Enter the smaller of 

 line 17 or line 22 . . . . . . . . . . . . . . . . . . . . . 59,835
- 17 -

24 Business energy investment credit limitation - Subtract line 

 23 from line 20 . . . . . . . . . . . . . . . . . . . . . . 56,657

25 Business energy investment credit - From line 14 of Schedule 

 B (Form 3468) . . . . . . . . . . . . . . . . . . . . . . . 57,750

26 Allowed business energy investment credit - Enter smaller of 

 line 24 or line 25 . . . . . . . . . . . . . . . . . . . . . 56,657

27 Total allowed regular and business energy investment credit 

 - Add lines 23 and 26. Enter here and on Form 1040, line 

 43; Schedule J (Form 1120), line 4(b), page 3; or the proper 

 line on other returns . . . . . . . . . . . . . . . . . . . 116,492

Form 3468, Schedule B, Business Energy Investment Credit

(Schedule B), referred to on line 25 of “PART IV. - Tax Liability

Limitations” of Form 3468, showed the following:

(1)

Type of 

Property Line

(2)

Class of

property 

or life 

 years 

(3)

Code

(4)

Unadjusted

basis/Basis

(5)

Applicable

Percentage

(6)

Qualified

investment

(Column 4 x

column 5) 

Recovery (a) 3-Year 60

(b) Other C 577,500 100 577,500

Nonrecovery (c) 3 or more

but less

than 5

33 1/3

(d) 5 or more

but less

than 7

66 2/3

(e) 7 or more 100

2 Total 10% energy investment property - Add lines 1(a) 

 through 1(e), column (6) . . . . . . . . . . . . . . . . . . 577,500

* * * * * * *

7 Enter 10% of line 2 . . . . . . . . . . . . . . . . . . . . 57,750

 * * * * * * *
- 18 -

12No entries were made on lines 8 through 10 of Schedule B

of Form 3468.

13No entries were made on lines 12 and 13 of Schedule B of

Form 3468.

11 Current year business energy investment credit - Add lines 

 7 through 10[12] . . . . . . . . . . . . . . . . . . . . . . 57,750

 * * * * * * *

14 Tentative business energy investment credit - Add lines 

 11 through 13.[13] Enter here and on line 25 of Form 

 3468 . . . . . . . . . . . . . . . . . . . . . . . . . . . 57,750

The following appeared on the bottom of Schedule B of Form

3468:

TYPE OF PROPERTY 3-YEAR OTHER NONRECOVERY

C - RECYCLING 577,500.

It was not obvious from reviewing Form 3468 (1) that $57,750

of the $59,835 investment tax credit shown in Form 3468, “Part

III. - Tentative Regular Investment Credit”, was attributable to

Madison Recycling and (2) that the $56,657 business energy

investment tax credit shown in Schedule B of Form 3468

was attributable to Madison Recycling. (For convenience, we

shall sometimes refer collectively to the claimed $57,750 investment tax credit attributable to Madison Recycling and the claimed

$56,657 business energy investment tax credit attributable to

Madison Recycling as the claimed Madison Recycling tax credits of

$114,407.) 

Prior to the preparation of the 1982 joint tax return, Mr.

Korchak never sought or received any tax advice from Mr. Sokol
- 19 -

14The parties stipulated and attached as an exhibit to the

parties’ stipulation of facts a copy of the 1982 joint tax return

that petitioner and Mr. Korchak filed with the IRS. That return

did not include Madison Recycling 1982 Schedule K-1 issued to Mr.

Korchak. 

with respect to Madison Recycling. The only information that Mr.

Korchak provided to Mr. Sokol with respect to Madison Recycling

before that return was prepared was Schedule K-1, Partner’s Share

of Income, Credits, Deductions, Etc., that Madison Recycling

issued to Mr. Korchak (Madison Recycling 1982 Schedule K-1 issued

to Mr. Korchak).14

The information set forth in the Madison Recycling 1982

Schedule K-1 issued to Mr. Korchak was consistent with the

information that Madison Recycling reported in Form 1065, U.S.

Partnership Return of Income, for its taxable year ended December

31, 1982 (Madison Recycling’s 1982 return) that Madison Recycling

filed with the IRS on March 14, 1983. In Madison Recycling’s

1982 return, Madison Recycling claimed, inter alia, a loss of

$704,111 (Madison Recycling’s claimed $704,111 loss). In Form

3468, included as part of Madison Recycling’s 1982 return,

Madison Recycling claimed a basis of $7,000,000 for both investment tax credit purposes and business energy investment tax

credit purposes (Madison Recycling’s claimed $7,000,000 basis for

investment tax credit purposes and business energy investment tax

credit purposes). 

If petitioner had asked Mr. Korchak before she signed the
- 20 -

1982 joint tax return about the claimed $58,089 Madison Recycling

loss and the claimed Madison Recycling tax credits of $114,407,

which she did not, Mr. Korchak would have assured her that that

claimed loss and those claimed credits were proper. 

On May 1, 1983, petitioner and Mr. Korchak signed the 1982

joint tax return, and on May 6, 1983, they filed it with the IRS. 

On or about December 24, 1987, respondent issued a Notice of

Final Partnership Administrative Adjustment to Madison Recycling’s tax matters partner for, inter alia, Madison Recycling’s

taxable year ended December 31, 1982 (FPAA). In the FPAA,

respondent, inter alia, disallowed Madison Recycling’s claimed

$704,111 loss and reduced to $0 Madison Recycling’s claimed

$7,000,000 basis for investment tax credit purposes and business

energy investment tax credit purposes (respondent’s reduction to

$0 of Madison Recycling’s claimed basis).

On February 16, 1988, respondent sent a copy of the FPAA to

Mr. Korchak and petitioner in an envelope addressed to both of

them. Consistent with his practice of opening the family’s mail,

Mr. Korchak opened that envelope and reviewed the FPAA. He

showed the FPAA to petitioner because he believed that she should

be aware that the IRS had raised questions about Madison Recycling’s 1982 return, which, in turn, raised questions about the

claimed $58,089 Madison Recycling loss and claimed Madison

Recycling tax credits of $114,407 in their 1982 joint tax return. 
- 21 -

15In computing the liability for interest as of Oct. 3,

2003, respondent used the increased interest rate applicable to

underpayments attributable to tax-motivated transactions estab-

(continued...)

On May 17, 1988, a partner other than the tax matters

partner commenced a case in the Court contesting the adjustments

made in the FPAA. Ultimately, the parties in that case agreed on

the adjustments made in the FPAA, but they disagreed over whether

the IRS timely issued the FPAA. Madison Recycling Associates v.

Commissioner, T.C. Memo. 2001-85. On April 9, 2001, the Court

issued its Opinion addressing that dispute and held that the

period for limitations for assessment had not expired and that

the FPAA was timely. Id. On August 1, 2001, pursuant to that

Opinion, the Court entered a decision sustaining, inter alia,

respondent’s disallowance of Madison Recycling’s claimed $704,111

loss and respondent’s reduction to $0 of Madison Recycling’s

claimed basis. That decision was affirmed on appeal. Madison

Recycling Associates v. Commissioner, 295 F.3d 280 (2d Cir.

2002).

Pursuant to Madison Recycling Associates v. Commissioner,

T.C. Memo. 2001-85, on October 3, 2003, respondent assessed

against petitioner and Mr. Korchak a deficiency of $140,388 in

tax for their taxable year 1982 and interest thereon of

$1,107,797.85 as provided by law resulting from the disallowance

of the claimed $58,089 Madison Recycling loss and the claimed

Madison Recycling tax credits of $114,407.15 As of the time of
- 22 -

15(...continued)

lished by sec. 6621(c). 

16See supra note 2. 

the trial, no part of that assessed deficiency or that assessed

interest had been paid. 

Respondent issued an affected items notice to petitioner and

Mr. Korchak with respect to their taxable year 1982. In that

notice, respondent determined that petitioner and Mr. Korchak are

liable for their taxable year 1982 for additions to tax under

sections 6653(a)(1)(A),16 6653(a)(1)(B),16 and 6659 of $7,019.40,

50 percent of the interest due on an assessed deficiency of

$140,388, and $34,322.10, respectively. 

In response to the affected items notice, Mr. Korchak filed

a petition with the Court in the case at docket No. 22105-03. 

See supra note 3.

In response to the affected items notice, petitioner filed a

petition with the Court. In that petition, petitioner claimed

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

the additions to tax that respondent determined for her taxable

year 1982 as well as interest thereon as provided by law. 

On July 30, 2004, respondent filed a motion to remand herein

(respondent’s motion to remand). In that motion, respondent

stated, inter alia:

4. Respondent has not considered petitioner’s

request for relief under I.R.C. § 6015. Specifically,

respondent has not made a determination with respect to
- 23 -

17The parties stipulated that respondent referred petitioner’s request for relief under sec. 6015 to respondent’s

Cincinnati Service Center on Aug. 11, 2003, and not on Aug. 11,

2004. That stipulation is clearly contrary to the facts that we

have found are established by the record, and we shall disregard

it. See Cal-Maine Foods, Inc. v. Commissioner, 93 T.C. 181, 195

(1989). The record establishes, and we have found, that respondent referred petitioner’s request for relief under sec. 6015 to

the Cincinnati Service Center on Aug. 11, 2004. 

relief under I.R.C. § 6015(f). 

5. Petitioner’s counsel has indicated that petitioner is seeking relief under I.R.C. § 6015(b) and

(f). 

* * * * * * *

7. Respondent requests this Court grant his motion to remand so that he may have an opportunity to

make a determination with respect to petitioner’s claim

for relief from joint and several liability under

I.R.C. § 6015(b) and (f). 

On August 10, 2004, the Court denied respondent’s motion to

remand but continued the trial. On August 11, 2004,17 respondent’s counsel referred petitioner’s request for relief under

section 6015 to respondent’s Cincinnati Service Center. 

On or about November 11, 2004, petitioner sent to respondent

Form 8857, Request for Innocent Spouse Relief (And Separation of

Liability and Equitable Relief), with respect to her taxable year

1982 (petitioner’s Form 8857). Petitioner attached to petitioner’s Form 8857 Form 12510, Questionnaire for Requesting

Spouse (Form 12510), a preprinted form. The preprinted Form

12510 contained several parts identified as Part 1 through 5. 

The instructions to Part 1 of Form 12510 stated: “Complete this
- 24 -

part for all requests for relief”. The instructions to Part 2 of

Form 12510 stated: “Complete this part if you are requesting

relief for a balance due shown on your return when filed, but not

paid.” The instructions to Part 3 of Form 12510 stated: “Complete this part if you are requesting relief for additional tax

as a result of an IRS examination”. 

In Form 12510 that petitioner attached to petitioner’s Form

8857 (petitioner’s Form 12510), petitioner provided the responses

indicated to the following questions in Part 1 of petitioner’s

Form 12510 with respect to the filing and preparation of the 1982

return: 

2. What is the current marital status between you and

the (ex)spouse with whom you filed the joint

return(s) for the year(s) you are requesting

relief

 

 : Married and living together

* * * * * * *

3. Why did you file a joint return instead of your

own separate return

I did not make a decision whether to file a joint

return or a separate return. The tax returns were

always prepared by my husband and a CPA. The

filing status was already completed when I was

told to sign the return.

4. What was your involvement in the preparation of

the return(s)

I had no involvement at all in the preparation of

the return. I gave my husband my W-2 for the tax

year and signed the return when he told me to do

so.
- 25 -

5. Did you review the tax return(s) before signing. 

9 Yes : No 

If no, explain why not

My husband handles all the financial, banking and

tax matters for us. He is a business man and

company executive. In 1982, I was married to him

for 23 years and I always trusted him in these

matters. I was busy raising three young boys,

managing our house hold, and working full time. 

* * * * * * *

7a. During the year(s) in question did you have your 

 own separate bank account(s). 9 Yes : No 

 9 Checking 9 Savings 9 Other 

 My husband had some separate accounts, I did 

 not.

* * * * * * *

8a. During the year(s) in question did you and your 

 (ex)spouse have any joint bank account(s). 

 : Yes 9 No 

 

If yes, indicate the type of account(s). 

 : Checking 9 Savings 9 Other 

 A joint account for household matters. My husband 

 had other separate accounts.

8b. What access did you have to the account(s)

 My salary was automatically, electronically 

 deposited into the joint checking account. I did 

 not review monthly bank statements, my husband 

 did. I used the account to pay for groceries and 

 some household expenses.

8c. What funds were deposited to the account(s)

 My salary was electronically, automatically 

 deposited into the account, and I believe my 

 husband made some deposits also.
- 26 -

* * * * * * *

8e. What bills were paid out of the account(s)

 I paid for groceries, clothing for me and the 

 children, and household necessities. My husband 

 paid other monthly household expenses. He had 

 other separate accounts I was not aware of in 

 1982. 

8f. Who wrote the checks

 I wrote some checks for groceries, clothes and 

 some household expenses. My husband also wrote 

 checks and managed the account. He picked up the 

 mail. I did not see the monthly bank statements.

8g. Did you review the monthly bank statements

9 Yes : No 

8h. Did you balance the checkbook to the bank 

 statements

 9 Yes : No 

9. Did you pick up and open the household mail

 9 Yes : No 

* * * * * * *

12. What was your highest level of education during

the year(s) you are requesting relief.

Note any business or tax-related courses you

completed by that time.

I am a research scientist with a Ph.D. I also ran

the household, was the primary care giver, and

worked full time. My education was in the field

of physiology. I never had any business courses

or business experience.

13. What was your (ex)spouse’s highest level of

education during the year(s) you are requesting

relief.

Note any business or tax-related courses he or she

completed by that time. 

My husband also has a Doctorate of Science. He is

an engineer and had business experience as a
- 27 -

company executive. He managed our financial

affairs and all tax matters. I had no idea he

invested in Madison Recycling or that it had tax

implications. 

14. What business experience did you have during the

year(s) you are requesting relief

None.

15. Have any assets been transferred from your

(ex)spouse to you. : Yes 9 No 

If yes, list the assets and the date of transfer. 

Explain why they were transferred to you.

In 1987, before I learned about any tax problems,

we had wills prepared. The estate planning

attorney advised us to each have separate assets. 

Our residence was transferred from joint ownership

to me. My husband already had other assets in his

name. 

16. How was the extra money from the unpaid taxes

spent

I did not receive any money from a tax refund. I

later learned my husband used the refund to form a

new start up company called Riverside Polymer

Systems, Inc. The company went bankrupt in 1989

and the investment was lost.

17. Explain any other factors you feel should be

considered for granting relief

During 1982, I was completely consumed with

raising three sons, ages 17, 15, and 13. I was a

post doctorate research assistant working in the

field of immunology. I did not have time or

knowledge about business or tax matters to be

involved in those areas. My husband always took

it upon himself to manage financial/tax affairs

and it was not my place to do so. [Reproduced

literally.] 

Petitioner did not complete Part 2 of petitioner’s Form

12510. That was because petitioner is not seeking relief under
- 28 -

section 6015 with respect to an underpayment of tax for her

taxable year 1982. Petitioner is seeking relief under section

6015 with respect to an understatement of tax for that year.

In Part 3 of petitioner's Form 12510, petitioner provided

the responses indicated to the following questions with respect

to petitioner’s knowledge of any items that caused the understatement:

1a. At the time of signing, were you concerned about

any item(s) omitted from or reported on the

return(s)

9 Yes : No 

* * * * * * *

1c. At that time, describe how much you knew about

each of the incorrect item(s)

I did not know anything at all about the corrected

item, Madison Recycling, LLC. As previously

stated, I knew the return was prepared by our

accountant, a CPA, and by my husband of then 23

years. I signed the return when asked because I

trusted my husband completely. I believed that

since it had been reviewed and prepared by a CPA

and my husband, that everything was correct.

2. At the time of signing, if you were not concerned

about any item(s), when and how did your first

become aware of the incorrect item(s)

In 1988, the IRS sent a notice to us with a large

proposed 1982 tax liability because it intended to

disallow a deduction related to Madison Recycling. 

I never knew about my husband’s investment in

Madison Recycling and the tax deduction until then

when he informed me for the first time. 

Part 4 of Form 12510 listed, inter alia, various income

items and various expense items. For example, the various income
- 29 -

items listed in Part 4 of Form 12510 included wages, rent, interest, and dividends. The various expense items listed in Part 4

of Form 12510 included rents, mortgage loans, food, and utilities. The instructions to Part 4 of Form 12510 stated: “If you

completed Part 2, complete this part. If you completed Part 3,

completing this part is optional. However, doing so now may

expedite consideration of your claim.” Pursuant to those instructions, petitioner did not complete Part 4 of petitioner’s

Form 12510. That was because, pursuant to the instructions to

Part 2 of Form 12510, petitioner was not required to, and did

not, complete Part 2 of petitioner’s Form 12510 since petitioner

is not seeking relief under section 6015 with respect to an

underpayment of tax for her taxable year 1982. Petitioner is

seeking relief under section 6015 with respect to an understatement of tax for that year. 

Petitioner attached Form 12507, Innocent Spouse Statement

(petitioner’s Form 12507), to petitioner’s Form 8857. An attachment to petitioner’s Form 12507 (petitioner’s attachment to

petitioner’s Form 12507) stated in pertinent part:

In 1964, Ernest [Mr. Korchak] accepted a position

with Halcon International, Inc., in Little Ferry, New

Jersey, and the couple [petitioner and Mr. Korchak]

moved to Hackensack. Their first child was born that

year. Helen [petitioner] discontinued her work outside

the home to be a full-time mother and homemaker. In

1967, the couple’s second child was born and, in 1969,

their third and final child was born. During the years

between 1964 through 1976, Helen was a full-time homemaker. In 1969, the Korchak’s moved from Hackensack,
- 30 -

NJ, to Westport, Connecticut.

In 1976, Helen Korchak returned to her post-doctoral studies and was hired as a research scientist to

conduct research at New York University under a grant

from the National Institute of Health. During 1979

through 1980, Helen held a post-doctoral fellowship

with the Arthritis Foundation, conducting immunology

research while still being the primary homemaker and

care provider for her family.

As Ernest rose to more and more responsible positions with Halcon, he decided to engage the services of

Merrill Lynch as a financial advisor. In 1982, Ernest

received a substantial dividend distribution from

Halcon. He sought advice that year from Merrill Lynch,

which put him in touch with Hamilton Gregg, a financial

advisory group. Hamilton Gregg recommended the purchase of Madison Recycling, a company that had developed environmentally friendly recycling technology. 

Ernest always had a strong interest in protecting the

environment and was attracted by the investment possibilities, coupled with tax incentives. In 1982, Ernest

purchased a limited partnership interest in Madison

Recycling based on the advise of Merrill Lynch. He did

so without consulting Helen or discussing his interest

in various other investment possibilities with her. 

Helen Korchak had no idea that Ernest purchased a limited partnership interest in Madison Recycling, or even

as to the nature of Madison Recycling’s business operations, until 1988, six years after the 1982 investment. 

In 1982, Helen earned $15,339.00. Ernest earned

$466,309.00. 

Halcon went out of business in 1986, at a time

when there were no employment possibilities for people

in Ernest’s field with his experience. He was aware of

a small company, Riverside Polymer Systems, Inc., which

was in financial difficulty. The company specialized

in waterborne coating technology intended to replace

solvent-based coatings. Ernest thought the company

could become profitable and bought a majority interest

in Riverside. He investment approximately $700,000.00

in Riverside, using his savings, including the 1982

federal income tax refund, and money from re-mortgaging

the family home. Unfortunately, the acceptance of

waterborne technology was slower than expected. Riverside struggled for about three years before Ernest had
- 31 -

to declare the company bankrupt in 1989. He lost his

entire investment and the 1982 refund.

During their entire marriage, Ernest took exclusive charge of all financial matters, giving Helen

money weekly for groceries and household necessities. 

While she at times wrote checks for groceries, family

clothing, and household necessities, the monthly bank

account statements were maintained and reviewed solely

by Ernest. Helen was engrossed during these years as a

post-graduate student, a homemaker and mother. Her

time was fully consumed by raising her children, maintaining the household and performing scientific research work as an immunologist, first at New York University from 1976 through 1986, and then at the University of Pennsylvania from 1986 through the present. 

She never studied business or accounting.

While Helen was aware that income tax returns had

to be prepared and filed each year, her only role was

to provide Ernest with a copy of her W-2 form during

those years in which she worked. On the other hand,

Ernest was an engineer with business skills, who held a

very responsible executive/management position. Finances were always an area of interest to him. He

regarded the management of family financial affairs as

his sole responsibility. He undertook to engage the

services of a highly reputable accountant in 1966, an

accountant who was providing services to his employer

and to other management personnel at Halcon during

those years. 

Just as she did during all the years of their

marriage, Helen followed the instruction and direction

of her husband to simply sign the 1982 tax return once

it had been prepared by their accountant and presented

to her for signing. During forty-five years of what

could only be described as a wonderful, trusting marriage relationship, Ernest Korchak perceived his role

as having sole responsibility for the financial affairs

of the family. 

During the tax year in question, 1982, Helen

Korchak was completely consumed by her responsibilities

as a mother of three children, then ages 17, 15, and

13, as a homemaker, and by her passionate interest in

her medical research in the field of immunology. As an

engineer and corporate executive/businessman, Ernest
- 32 -

had decided that financial matters were his sole responsibility and did not seek to discuss tax matters or

investments with Helen. When he had questions, he

discussed issues with his accountant and with his financial advisor, trusting upon their judgment.

As mentioned above, Helen Korchak first became

aware of Ernest’s investment in Madison Recycling in

1988, when Ernest showed her a February 16, 1988 notice

from the Internal Revenue Service * * *. Prior to that

time, she had no knowledge or awareness that Ernest

claimed a loss from his Madison recycling investment in

1982. She admittedly did not review the Form 1040

individual income tax return when it was presented to

her for signing where marked. It had been prepared by

Ernest and a certified public accountant, and she

trusted her husband’s judgment. It was not until Ernest showed Helen the notice from the Internal Revenue

Service in 1988 that she became aware of the tax loss

claimed and the refund generated. She never received

any financial benefit from the refund. Ernest used the

entire refund proceeds as a loan or capital contribution for a new startup company, Riverside Polymer Systems, Inc., that filed for bankruptcy in 1989 and was

ultimately liquidated. In total, not known to Helen

until after the fact, Ernest loaned or invested

$700,000.00 by the time it was ultimately lost in bankruptcy. 

Helen Korchak is eligible for retirement. She has

a retirement fund that she has long contributed to. 

Unfortunately, she is now faced with the prospect of a

horrific federal tax liability in excess of $2 million,

with interest and penalties. Should she be punished

for being a loving, trusting wife, a homemaker and

mother who also had career aspirations and a keen interest in science? Had she asked any questions about

Madison Recycling, her husband and the accountant would

have reassured her. She never benefited from her husband’s decision to invest in Madison Recycling. The

1982 tax refund was lost as part of her husband’s investment in a new startup company. Her husband controlled the family’s finances and tax return preparation. All the facts recited herein concerning the 1982

tax return were not learned by Mrs. Korchak until 1988

through the present. Considering the equities in this

matter, it would be unduly harsh to find Mrs. Korchak

liable for the 1982 tax in question. It would be egre-
- 33 -

gious to take away her retirement at an age when she

earned that right. The innocent spouse relief was

designed for these circumstances. Your favorable consideration and finding that Mrs. Korchak is indeed an

innocent spouse is respectfully requested. [Reproduced

literally.] 

Sometime between October 8, 2004, and January 10, 2005,

respondent received from Mr. Korchak Form 12508, Questionnaire

for Non-Requesting Spouse, with respect to petitioner’s taxable

year 1982 (Mr. Korchak’s Form 12508). In Mr. Korchak's Form

12508, Mr. Korchak provided the responses indicated to the following questions with respect to taxable year 1982:

1. What is the marital status between you and the

(ex)spouse with whom you filed the joint return(s)

for the year(s) relief is being requested?

 : Married and living together

* * * * * * *

2. Why did you file a joint return instead of your

own separate return? 

I always filed married-joint upon the advice of my

CPA.

3. What was your involvement in the preparation of

the return(s)? For example, did you gather the 

receipts and cancelled checks, just provide your

W-2's, etc.

I gathered all the W-2's; K-1's; 1099's, receipts,

etc and sent them on to my CPA

4. Did your (ex)spouse review the tax return(s)

before signing? 9 Yes : No

4a. If no, explain why not.

Preparation of the return has always been my

responsibility - Helen has always trusted me and 
- 34 -

my CPA to prepare the tax return properly 

4b. If yes, did your (ex)spouse ask you or the return

preparer for an explanation of any items or

amounts on the tax returns?

N/A

* * * * * * *

5. During the year(s) in question, did you have your

own separate bank account(s)? 9 Yes : No 

* * * * * * *

6. During the year(s) in question did you and your

(ex)spouse have any joint bank account(s)?

: Yes 9 No

If yes, indicate the type of account(s).

: Checking 9 Savings 9 Other

6a. What access did your (ex)spouse have to the

account(s)? (For example, permitted to make 

deposits, write checks and withdraw funds)?

Helen’s paycheck was directly deposited & she 

would write checks for groceries * * * [and 

professional expenses.] 

6b. What funds were deposited to the account(s)?

Our wages: in 1982 my wages were $466,309 * * * 

while Helen’s were $15,339 * * *

6c. Who made these deposits?

I believe we used direct deposit.

6d. What bills were paid out of the account(s)?

All household bills

6e. Who wrote and signed the checks?

I was the primary bill payer. I believe Helen
- 35 -

wrote check for groceries & professional expenses

6f. Did you review the monthly bank statements?

: Yes 9 No

6g. Did you balance the checkbook to the bank 

statements?

: Yes 9 No

7. Did you pick up and open the household mail?

: Yes 9 No

8. Identify any periods of separation between you and

your (ex)spouse during the year(s) in question.

None

9. What was your highest level of education during

the year(s) in question?

Note any business or tax related courses you

completed by that time.

Sc.D in chemical engineering from MIT. No

business or tax related courses.

10. What was your (ex)spouse’s highest level of

education during the year(s) in question?

Note any business or tax related courses he or she

completed by that time.

Ph.D in physiology from Tufts University. No

business or tax related courses.

11. Have any assets been transferred from you to your 

(ex)spouse? : Yes 9 No

If yes, list the assets and the date of transfer.

Explain why the assets were transferred.

9/14/87. Transfer of principal residence from 

joint ownership solely to my wife. For estate

planning reasons, in order to utilize our estate 

tax exemptions

* * * * * * *
- 36 -

12a. Was your (ex)spouse aware of any financial

problems you were having such as bankruptcy, high

credit card debt or difficulty paying monthly

living expenses? If yes, please explain.

I did not have any financial problems at the time.

13. If the tax years in question were audited, what

items, if any, changed? Were the changed items

yours or your (ex)spouse’s? (For example,

unreported income, disallowed deductions,

unclaimed credits)

The audit of my LTD. partnership [Madison 

Recycling] disallowed my deduction and tax

credits. This was solely my investment. 

* * * * * * *

15. If the items changed by the audit were yours, did

your (ex)spouse benefit from them? Explain.

No: The losses and tax credits resulted in a

refund of my withholdings. The refund was

invested in another business venture of mine which

failed in 1990. [Reproduced literally.] 

On December 15, 2004, respondent received a memorandum from

petitioner’s attorney of record herein (petitioner’s December 15,

2004 memorandum). Petitioner’s December 15, 2004 memorandum set

forth (1) factual contentions that are substantially the same as

those set forth in petitioner’s attachment to petitioner’s Form

12507 and (2) legal arguments that are substantially the same as

those set forth in the posttrial briefs that petitioner filed

herein. Petitioner’s December 15, 2004 memorandum also stated in

pertinent part:

In 1982, unknown to Helen Korchak [petitioner],

her husband Ernest [Mr. Korchak] invested in various
- 37 -

partnerships and claimed a Schedule E loss in the

amount of $220,695.00 on their Form 1040 joint income

tax return. Mr. and Mrs. Korchak’s Form 1040 for 1982,

together with schedules, consists of 36 pages! There

were also losses and investment credits for Schedule C

activity for rental of buses that generated a loss

deduction of $24,961.00, and net short-term and longterm loss deductions for U.S. Treasury Bills. The

Schedule E deductions consisted of a $64,753.00 loss

from Kelly-Brock Drilling Partners, a $57,087.00 partnership loss from Odyssey Partners, a $10,036.00 partnership loss from Matagorda Ltd., a $58,089.00 partnership loss from Madison Recycling Associates, and a

$30,010.00 loss from two rental properties. From all

those various, sophisticated investments, the Internal

Revenue Service disallowed only the loss deduction from

Madison Recycling Associates, which resulted in the

deficiency at issue.

In 1988, Ernest showed Helen a February 16, 1988

Notice from the Internal Revenue Service disallowing

the Madison Recycling Associates loss claimed on their

1982 income tax return. Until then, Helen had no

awareness or knowledge of Ernest’s various investments. 

Helen’s only knowledge about the 1982 income tax return

was to provide Ernest with a copy of her W-2 reporting

wages in the amount of $15,339.00. As of today, the

disallowed Madison Recycling Associates loss and tax

credits, with interest and penalties, result in an

asserted deficiency exceeding two and one half million

dollars ($2,500,000). The potential tax liability

exceeds the net value of the Korchak’s assets. At age

67, Helen could be faced with Internal Revenue Service

collection activity that could levy upon her entire

pension benefits and her home - a terrible hardship for

reporting her $15,339.00 wages on a joint income tax

return. * * * 

* * * * * * *

 • Her husband purchased interests in various partnerships and only the loss deduction from one

investment, Madison Recycling Associates, was

disallowed

 • Funds for the purchase came from her husband’s

income
- 38 -

 • Her husband maintained separate accounts for his

investments that Helen did not have access to

[Reproduced literally.] 

After conducting an examination, respondent’s examiner

prepared workpapers dated January 10, 2005, in which that examiner concluded that petitioner was not entitled to relief under

section 6015 for her taxable year 1982. The workpapers of respondent’s examiner stated in pertinent part:

GENERAL INFORMATION

Helen M. Korchak [petitioner] has filed a valid Form

8857 requesting relief of the understatement for tax

year 1982. TP’s are still married and maintaining a

home together and are not considering divorce or separation.

SPOUSE’S RESPONSE

NRS [Mr. Korchak] states he handled all financial matters and the RS [petitioner] trusted him and they both

trusted the CPA to prepare the return properly.

EVALUATION PROCESS

Year 1982

IRC 6015(b)

Liability arose before July 22, 1998

A balance was due as of July 22, 1998

RS did not make payments before July 22, 1998

Understatement of tax

Taxpayers are currently not divorced, widowed or

legally separated, and did not live apart prior to the

claim-relief is not available under IRC 6015(c)

Filed a joint return

Joint return is valid

There is enough information to determine the claim

Balance due remaining

RS did not sign the amended return or a waiver

There was a defaulted Statutory Notice of Deficiency in

the RS’s name-unagreed assessment

No OIC accepted

Claimed filed timely
- 39 -

Over $1,500 of understatement-full scope

Understatement of tax attributable to both spouses

Erroneous items: Disallowed partnership losses on TP’s

joint Schedule E

RS’s attribution does not meet the attribution

exceptions. This portion will be denied under IRC

6015(f).

Continue IRC 6015(b) for the portion attributable to

the NRS

Knowledge factors:

Background:

 RS-Education: Ph.D. in Physiology. NRS-Education: Doctorate

 Occupation: Research Scientist. of Science in 

 Chemical Engineering.

 Occupation: Executive.

Involvement:

 RS-RS states there was a joint NRS-NRS states he was 

 checking account for household the primary bill 

 matters and that the NRS had payer and that he 

 other separate accounts. RS managed the account,

 states she used the joint balanced the check-

 account to write checks for book, reviewed the

 groceries, clothing for monthly bank state-

 herself and the children and ments and picked up

 household necessities. and opened the

household mail.

Lifestyle changes: None indicated. 

NRS’s elusiveness: No evidence of elusiveness or

deceit. NRS states he

gathered all information and

sent it to the CPA. He states

the preparation of the return

had always been his

responsibility. He states the

RS did not ask questions that

she trusted him and the CPA.

Duty to inquire: RS states she did not review

the return when signing. She

states the NRS handles all

financial matters and she

trusted him and the CPA. She

states she was busy raising

three boys, managing 
- 40 -

18The 1982 joint tax return claimed a refund of $92,970. 

their household and working

full time.

Living arrangements: Lived together entire tax

year. TP’s are married and

continue to maintain their

home together.

RS had constructive knowledge of all erroneous items

when return was signed

Explanation: RS has failed to establish

that she had no knowledge or

reason to know of the

overstated deductions. She

failed to satisfy her duty to

review the return and to

inquire as to the content. 

The return resulted in a

refund of $95,488.96.[18]

Claim denied under IRC 6015(b)

* * * * * * *

IRC 6015(f)

Eligibility factors:

Evaluating the portion of deficiencies attributable to

the NRS only

Relief is not available under IRC 6015(b) & 6015(c)

Filed a joint return

Liability unpaid, or RS may have refundable payments

Not a fraudulent return

No fraudulent transfer of assets

No disqualified assets transferred

Tier II factors:

Taxpayers are currently not divorced, widowed or

legally separated, and did not live apart prior to the

claim for at least 12 consecutive months

No economic hardship Against
- 41 -

Explanation: Economic hardship is not

indicated. TP’s are still 

married and continue to

maintain their home together. 

They continue to file joint

returns through the most

recently filed tax year and

the joint TXI is $227,674.00

No marital abuse

No poor mental or physical health

No legal obligation established

RS had knowledge or reason to know Against

Explanation: RS failed to satisfy her duty

to review the return or to

inquire. The return showed an

adjusted gross income of over

$300,000.00, a tax liability

of only $3198 and a refund of 

$92,970. RS’ had reason to

know there was a substantial

loss taken.

 No significant benefit gained For

Explanation: No significant benefit

evident.

Made a good faith effort to comply with For

 the tax laws 

Explanation: RS is compliant. TP’s have 

continued to file joint tax 

returns through the most 

recently filed tax year.

Unique circumstances: TP’s state that in 1987 prior

to receiving notice of the 

deficiency on this tax year

and as part of their estate 

planning, the ownership of the

primary residence was

transferred from joint

ownership to the RS’s

individual ownership.

Not meeting Tier II factors - deny claim
- 42 -

Tier II consideration: Based on the above facts it is

equitable to hold the RS

liable for the balance. RS

failed to establish marital

status or economic hardship,

there are no extenuating

circumstances such as abuse,

poor health or legal

obligation and RS had reason

to know.

Tier II factors not met - deny

Claim denied under IRC 6015(f) - full scope

CONCLUSION

1982 - Denied under 6015(b),(c),(f) [Reproduced

literally.] 

At the time of the trial, petitioner and/or Mr. Korchak

owned the following properties:

Owner Type of Property Value

Petitioner Personal Residence1 $750,000

Petitioner IRA 195,220

Petitioner Investment Insurance Trust 9,509

Petitioner 1999 Saturn Automobile 3,500

Petitioner Checking Account 59,000

Petitioner House Contents 10,000

Petitioner CRI2 1,000

Petitioner Annuity Contract 466,345

Petitioner and 

 Mr. Korchak

Joint Checking Account 28,000

Mr. Korchak IRAs 448,595

Mr. Korchak Boat 1,000 

Total $1,972,169 

1From Aug. 15, 1986, until Sept. 14, 1987, petitioner and Mr. Korchak

owned as tenants by the entirety the residence in which they were living. On

Sept. 14, 1987, for estate planning reasons, Mr. Korchak transferred to

petitioner for no consideration his interest in the residence in which they

were living. 

2The record does not indicate what “CRI” means.
- 43 -

19The record does not disclose whether petitioner or Mr.

Korchak had any other liabilities at the time of the trial. 

20In the alternative, petitioner claims relief under sec.

6015(f) for her taxable year 1982.

At the time of the trial, the residence in which petitioner

and Mr. Korchak were living that petitioner owned was subject to

liabilities totaling $139,000.19

Petitioner filed a second petition with the Court with

respect to her taxable year 1982. In that petition, petitioner

claimed that she is entitled to relief under section 6015 with

respect to the deficiency in tax assessed against petitioner and

Mr. Korchak for their taxable year 1982 as well as interest

thereon as provided by law. 

OPINION

Section 6015(b)

Introduction

Petitioner claims that she is entitled to relief under

section 6015(b) for her taxable year 1982.20 Section 6015(b)

provides in pertinent part:

SEC. 6015. RELIEF FROM JOINT AND SEVERAL LIABILITY ON 

 JOINT RETURN.

* * * * * * *

 (b) Procedures For Relief From Liability Applicable

to All Joint Filers.--

(1) In general.--Under procedures prescribed 

by the Secretary, if–
- 44 -

(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;

(D) taking into account all 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.

Section 6015(b)(1) is similar to section 6013(e)(1). We may

look at cases interpreting section 6013(e)(1) for guidance when

analyzing parallel provisions of section 6015. See Jonson v.

Commissioner, 118 T.C. 106, 119 (2002), affd. 353 F.3d 1181 (10th

Cir. 2003). The failure by a spouse requesting relief (requesting spouse) under section 6015(b) to satisfy any of the requirements of that section prevents such spouse from qualifying for 
- 45 -

such relief. Alt v. Commissioner, 119 T.C. 306, 313 (2002),

affd. 101 Fed. Appx. 34 (6th Cir. 2004). 

The parties agree that petitioner satisfies section

6015(b)(1)(A), (B), and (E). Petitioner argues, and respondent

disputes, that she satisfies section 6015(b)(1)(C) and (D). 

Section 6015(b)(1)(C)

Pursuant to section 6015(b)(1)(C), petitioner must establish

that in signing the 1982 joint tax return she did not know, and

had no reason to know, of the understatement of tax in that

return attributable to the claimed $58,089 Madison Recycling loss

and the claimed Madison Recycling tax credits of $114,407 (understatement in the 1982 joint tax return).

Respondent does not dispute that in signing the 1982 joint

tax return petitioner did not have actual knowledge of the

understatement in the 1982 joint tax return. The parties dispute

whether in signing the 1982 joint tax return petitioner had

reason to know of the understatement in the 1982 joint tax

return. 

According to respondent, petitioner had constructive knowledge of the items reported in the 1982 joint tax return. Respondent is correct that a taxpayer who signs a tax return without

reviewing it is charged with constructive knowledge of its

contents. See Bokum v. Commissioner, 94 T.C. 126, 148 (1990),

affd. 992 F.2d 1132 (11th Cir. 1993). We must nonetheless

determine whether in signing the 1982 joint tax return petitioner
- 46 -

21See also Hillman v. Commissioner, T.C. Memo. 1993-151.

had reason to know of the understatement in the 1982 joint tax

return. In making that determination, we bear in mind that a

requesting spouse has reason to know of an understatement if a

reasonably prudent taxpayer under the circumstances of the

requesting spouse at the time of signing a tax return could have

been expected to know that the tax liability stated in such

return was erroneous or that further investigation was warranted. 

Stevens v. Commissioner, 872 F.2d 1499, 1505 (11th Cir. 1989),

affg. T.C. Memo. 1988-63; Shea v. Commissioner, 780 F.2d 561, 566

(6th Cir. 1986), affg. in part and revg. in part on another

ground T.C. Memo. 1984-310; Bokum v. Commissioner, supra. 

In resolving whether in signing a tax return a requesting

spouse had reason to know of the understatement in such return,

we consider whether the requesting spouse was aware of the

circumstances of the transaction(s) that gave rise to the error(s) in such return. See Bokum v. Commissioner, supra at 145-

146.21 In making that determination, we may examine several

factors, including: (1) The requesting spouse’s level of education; (2) the requesting spouse’s involvement in the family’s

financial affairs; (3) the nonrequesting spouse’s evasiveness and

deceit concerning the family’s financial affairs; and (4) the

presence of expenditures that are lavish or unusual when compared

to the requesting spouse’s past standard of living. See Stevens
- 47 -

22See also Hillman v. Commissioner, supra.

23Madison Recycling’s erroneously claimed $704,111 loss and

erroneously claimed $7 million basis for investment tax credit

purposes and business energy investment tax credit purposes, in

turn, resulted in Mr. Korchak’s erroneously reporting in the 1982

joint tax return the claimed $58,089 Madison Recycling loss, the

claimed $577,500 of basis attributable to Madison Recycling for

investment tax credit purposes and business energy investment tax

credit purposes, and the claimed Madison Recycling tax credits of

$114,407.

v. Commissioner, supra; Butler v. Commissioner, 114 T.C. 276, 284

(2000); Flynn v. Commissioner, 93 T.C. 355, 365-366 (1989). (We

shall hereinafter refer to the above factors as the education

factor, the involvement in financial affairs factor, the evasiveness and deceit factor, and the lavish or unusual expenditures

factor, respectively.) 

We now address whether at the time of signing the 1982 joint

tax return petitioner was aware of the circumstances of the

transactions in which Madison Recycling engaged that resulted in

the understatement in the 1982 joint tax return. See Bokum v.

Commissioner, supra.

22 At the time she signed the 1982 joint tax

return, petitioner was not even aware of Mr. Korchak’s Madison

Recycling investment, let alone the circumstances of the transactions in which Madison Recycling engaged that resulted in Madison

Recycling’s erroneously claimed $704,111 loss and erroneously

claimed $7 million basis for investment tax credit purposes and

business energy investment tax credit purposes.23 
- 48 -

We find the instant record to be materially distinguishable

from Bokum v. Commissioner, supra. In Bokum, we found that the

requesting spouse should have been alerted by the tax return

preparer’s failure to sign the tax return in question. Id. at

148. In contrast, we have found herein that the 1982 joint tax

return was signed by a return preparer and that the signature of

the return preparer on that return indicated to petitioner that

such return was prepared accurately. Moreover, in Bokum, we

found that at the time the requesting spouse signed the return in

question she was aware of the sale of a ranch, the tax treatment

of which was at issue, and that a cursory review of the tax

return would have brought to the requesting spouse’s attention

the distribution resulting from that sale as well as the tax

treatment of that distribution. Id. at 146-147. In contrast, we

have found herein that at the time petitioner signed the 1982

joint tax return she was not even aware of Mr. Korchak’s Madison

Recycling investment. We have also found (1) that there was

nothing about the claimed $58,089 Madison Recycling loss that

would have made it stand out in relationship to the other partnership losses claimed in the 1982 joint tax return and (2) that

it was not obvious from reviewing Form 3468 included as part of

the 1982 joint tax return that $57,750 of the claimed $59,835

investment tax credit was attributable to Madison Recycling and

that the claimed $56,657 business energy investment tax credit
- 49 -

was attributable to Madison Recycling. 

With respect to the claimed $58,089 Madison Recycling loss,

although that loss was set forth in Statement 2, that statement

also showed the following respective claimed losses of the

following partnerships, which accounted for $131,876 of the total

claimed partnership losses of $189,965 shown in Schedule E: 

Name of Partnership Partnership Loss

Kelly-Brock Drilling Partners 1981-1 $64,753

Odessey Partners 81 Limited Partnership 57,087 

Matagorda Limited Partnership II 10,036

Thus, Statement 2 showed a claimed loss from the Kelly-Brock

Drilling Partners 1981-1 partnership that was greater than the

claimed $58,089 Madison Recycling loss and a claimed loss from

the Odessey Partners 81 Limited partnership that was approximately equal to the claimed $58,089 Madison Recycling loss. 

With respect to the claimed Madison Recycling credits of

$114,407, neither Schedule E, which had a notation to Statement

2, nor Statement 2 referred to Form 3468, the form included with

the 1982 joint tax return in which the respective bases for any

claimed investment tax credit and any claimed business energy

investment tax credit and the computation of such respective

credits were to be detailed. Form 3468 included as part of the

joint 1982 tax return showed (1) a claimed $59,835 investment tax

credit and (2) a claimed $56,657 business energy investment tax

credit. That form did not, however, indicate the entity or
- 50 -

24We have found: (1) Based on their respective personal and

business backgrounds and experiences, petitioner and Mr. Korchak

believed throughout their marriage that managing their family’s

finances should be Mr. Korchak’s responsibility and that Mr.

Korchak was better suited than petitioner to do so; (2) Mr.

Korchak assumed the responsibility of managing their family’s

finances, and petitioner relied upon him to do so; (3) as part of

(continued...)

entities to which those respective claimed credits were attributable. 

It is also significant that an examination of the education

factor, the involvement in financial affairs factor, the evasiveness and deceit factor, and the lavish or unusual expenditures

factor further supports a finding that a reasonably prudent

taxpayer under petitioner’s circumstances at the time of signing

the 1982 joint tax return could not have been expected to know

that the tax liability stated in that return was erroneous.

With respect to the education factor, there is no question

that petitioner is highly educated. However, at the time of the

trial, petitioner did not have any education or work experience

in tax, financial, or accounting matters. We find nothing in the

record regarding petitioner’s education and experiences that

would, or should, have alerted her to the understatement in the

1982 joint tax return. 

With respect to the involvement in financial affairs factor,

respondent concedes in the face of the instant record “that the

record supports petitioner’s contention that she had little

involvement in her family’s financial affairs.”24
- 51 -

24(...continued)

his responsibility for managing the family finances, Mr. Korchak

made all the family financial decisions; (4) Mr. Korchak did not

discuss those decisions with petitioner; (5) throughout their

marriage, petitioner was generally unaware of bank accounts or

brokerage or other investment accounts in Mr. Korchak’s name

alone or in the names of Mr. Korchak and petitioner; (6) at all

relevant times, Mr. Korchak was responsible for opening and

reviewing all the family’s mail, including bills, tax notices,

documents pertaining to investments and other financial matters,

bank statements, including any joint checking account statements,

and petitioner relied upon him to do so; and (7) petitioner did

not become aware of Mr. Korchak’s Madison Recycling investment

until Feb. 2, 1986, when she and Mr. Korchak signed Form 872 with

respect to their taxable year 1982. We have also found that

petitioner was not involved in the reporting of any tax consequences of such financial decisions that were claimed in the

joint tax returns, including the 1982 joint tax return, that she

and Mr. Korchak filed. In this connection, we have found that

petitioner’s role in the preparation of such returns was limited

to providing Mr. Korchak with any Form W-2 and IRS information

returns that she received as well as any other tax-related

information that she had. 

With respect to the evasiveness and deceit factor, petitioner contends: 

Ernest [Mr. Korchak] secretly and effectively excluded

petitioner from information concerning family finances. 

He even concealed in a subsequent year the loss of a

$700,000.00 investment. His policy of secrecy and not

disclosing financial matters deceived the petitioner.

Respondent counters, and we agree on the record before us, that

Mr. Korchak was not evasive and did not deceive petitioner with

respect to their financial affairs. Nonetheless, as discussed

supra note 24, with respect to the involvement in financial

affairs factor, petitioner was not involved in managing her

family’s finances, making financial decisions for her family, or

the reporting of any tax consequences of such financial decisions
- 52 -

25We have found: (1) During 1981 and 1982, Mr. Korchak

received Halcon distributions totaling $1,539,269 and $466,309,

respectively; (2) petitioner and Mr. Korchak made a considered

judgment not to change their family’s lifestyle in any way as a

result of Mr. Korchak’s having received such distributions; and

(3) they made that judgment because they did not want to spoil

their children by having a lavish lifestyle. Nothing in the

record suggests that the desire of petitioner and Mr. Korchak not

to spoil their children by having a lavish lifestyle was limited

to the Halcon distributions that Mr. Korchak received in 1981 and

1982. Moreover, in petitioner’s Form 12510 and petitioner’s

attachment to petitioner’s Form 12507, petitioner indicated, and

respondent does not dispute here, that Mr. Korchak, without

consulting her, invested the $92,970 refund claimed in the 1982

joint tax return in Riverside, which filed for bankruptcy in

1989, and that, as a result of that bankruptcy proceeding, Mr.

Korchak lost his entire $700,000 investment in that company. In

addition, in Mr. Korchak’s Form 12508, Mr. Korchak indicated, and

respondent does not dispute here, that Mr. Korchak invested the

$92,970 refund claimed in the 1982 joint tax return in a business

venture of his (namely, Riverside), which later failed. With

respect to the refund of $92,970 claimed in the 1982 joint tax

return, petitioner testified that she had no specific recollection regarding that return, that she and Mr. Korchak usually

received tax refunds, and that she had no specific recollection

of the refund of $92,970 claimed in the 1982 joint tax return,

although there may have been such a claimed refund. We are

unable to find on the record before us that at the time she

signed the 1982 joint tax return petitioner was aware of the

$92,970 refund claimed in that return. Even if petitioner were

aware at that time of that claimed refund, that would not change

(continued...)

that were claimed in the joint tax returns, including the 1982

joint tax return, that petitioner and Mr. Korchak filed. 

With respect to the lavish or unusual expenditures factor, 

respondent concedes in the face of the instant record “that the

record does not reflect that the * * * taxes saved due to the

Madison loss deduction and investment tax credit led to significant changes in petitioner’s and Mr. Korchak’s lifestyle or

spending patterns.”25 
- 53 -

25(...continued)

our findings and conclusions herein.

On the record before us, we find that a reasonably prudent

taxpayer under petitioner’s circumstances at the time of signing

the 1982 joint tax return could not have been expected to know

that the tax liability stated in that return was erroneous. 

It is respondent’s position that, even if the Court were to

find, as we have, that a reasonably prudent taxpayer under

petitioner’s circumstances at the time of signing the 1982 joint

tax return could not have been expected to know that the tax

liability stated in that return was erroneous, petitioner nonetheless had a duty to investigate further whether the tax liability stated in that return was erroneous (duty to inquire). In

support of that position, respondent states:

Had petitioner reviewed the 1982 return, she would have

discovered that she and Mr. Korchak were claiming a

substantial loss and tax credit attributable to the

Madison investment, as that information was clearly set

forth in a schedule attached to the return. The Madison loss [of $58,089] and tax credit [totaling

$114,407] were large enough to put her on notice that

further inquiry was warranted to determine the legitimacy of those tax benefits. Thus, under the Bokum

standard, she had reason to know of the understatement. 

 

With respect to the claimed Madison Recycling credits of

$114,407, we disagree with respondent’s contention that those

claimed credits were “clearly set forth in a schedule attached to

the return.” As discussed above, we have found that it was not

obvious from reviewing Form 3468 included with the 1982 joint tax
- 54 -

return that $57,750 of the claimed $59,835 investment tax credit

was attributable to Madison Recycling and that the claimed

$56,657 business energy investment tax credit was attributable to

Madison Recycling.

With respect to the claimed $58,089 Madison Recycling loss,

we disagree with respondent’s contention that that claimed loss

was large enough to put petitioner on notice that further inquiry

was warranted to determine whether it was proper. As discussed

above, Statement 2 included with the 1982 joint tax return showed

a claimed loss from the Kelly-Brock Drilling Partners 1981-1

partnership that was greater than the claimed $58,089 Madison

Recycling loss and a claimed loss from the Odessey Partners 81

Limited partnership that was approximately equal to the claimed

$58,089 Madison Recycling loss. We have found that the amount of

the claimed $58,089 Madison Recycling loss would not have made

that claimed loss stand out in relationship to the other partnership losses claimed in Statement 2. 

Even if, as respondent argues, both the claimed $58,089

Madison Recycling loss and the claimed Madison Recycling credits

of $114,407 had been “clearly set forth in a schedule attached to

the return”, as discussed above, at the time petitioner signed

the 1982 joint tax return she must have had sufficient knowledge

of the circumstances of the transactions in which Madison Recycling engaged that resulted in the understatement in that return
- 55 -

26See also Hillman v. Commissioner, T.C. Memo. 1993-151.

27See supra note 23.

28The Court has held that a requesting spouse may satisfy a

duty to inquire by questioning his or her spouse about the

accuracy of a joint tax return and receiving a plausible explanation. See, e.g., Foley v. Commissioner, T.C. Memo. 1995-16;

Estate of Killian v. Commissioner, T.C. Memo. 1987-365. Assuming

arguendo that we had found that petitioner had a duty to inquire,

she would have satisfied that duty by asking Mr. Korchak before

she signed the 1982 joint tax return about the claimed $58,089

Madison Recycling loss and the claimed Madison Recycling tax

credits of $114,407 and receiving assurance from him that that

claimed loss and those claimed credits were proper. Mr. Korchak

testified credibly, and we have found, that if petitioner had

questioned him before she signed the 1982 joint tax return, he

(continued...)

so as to permit her to inquire into the appropriate tax treatment

of such transactions. See Bokum v. Commissioner, 94 T.C. at

148.26 As also discussed above, at the time petitioner signed

the 1982 joint tax return, she was not even aware of Mr.

Korchak’s Madison Recycling investment, let alone the circumstances of the transactions in which Madison Recycling engaged

that resulted in Madison Recycling’s erroneously claimed $704,111

loss and erroneously claimed $7 million basis for investment tax

credit purposes and business energy investment tax credit purposes.27

On the record before us, we find that a reasonably prudent

taxpayer under petitioner’s circumstances at the time of signing

the 1982 joint tax return would not have had a duty to investigate further whether the tax liability stated in that return was

erroneous.28
- 56 -

28(...continued)

would have assured her that the claimed $58,089 Madison Recycling

loss and the claimed Madison Recycling credits of $114,407 were

proper. We shall not penalize petitioner for failing to perform

the act of asking Mr. Korchak about that claimed loss and those

claimed credits where such an inquiry would have resulted in his

assuring her that that claimed loss and those claimed credits

were appropriate.

Based upon our examination of the entire record before us,

we find that in signing the 1982 joint tax return petitioner did

not know, and had no reason to know, of the understatement in

that return. On that record, we further find that petitioner

satisfies section 6015(b)(1)(C) for her taxable year 1982. 

Section 6015(b)(1)(D)

Pursuant to section 6015(b)(1)(D), petitioner must establish

that, taking into account all the facts and circumstances, it is

inequitable to hold her liable for the deficiency in tax attributable to the understatement in the 1982 joint tax return. The

requirement in section 6015(b)(1)(D) is virtually identical to

the requirement of former section 6013(e)(1)(D), and cases

interpreting former section 6013(e) remain instructive to our

analysis. Alt v. Commissioner, 119 T.C. at 313-314. 

The factors that we consider in determining whether it would

be inequitable for purposes of section 6015(b)(1)(D) are the same

factors that we consider in determining whether it would be

inequitable for purposes of section 6015(f). See id. at 316. 

One factor considered in determining whether it would be inequitable for purposes of section 6015(f) and thus for purposes of
- 57 -

29See Halton v. Commissioner, T.C. Memo. 2005-209.

section 6015(b)(1)(D), see id., is whether in signing the tax

return the requesting spouse did not know, and had no reason to

know, of an understatement in that return, see Rev. Proc. 2003-

61, sec. 4.03(2)(a)(iii)(B), 2003-2 C.B. 296, 298. Moreover, in

determining whether a requesting spouse satisfies section

6015(b)(1)(D), we may consider, inter alia, whether such spouse

satisfies section 6015(b)(1)(C).29 We have found that petitioner

satisfies section 6015(b)(1)(C) for her taxable year 1982. We

further find that in signing the 1982 joint tax return petitioner

did not know, and had no reason to know, of the understatement in

that return for purposes of section 6015(b)(1)(D).

Other relevant factors that we may consider in determining

whether a requesting spouse satisfies section 6015(b)(1)(D)

include whether (1) the requesting spouse was deserted, divorced,

or separated (marital status factor); (2) the requesting spouse

would suffer economic hardship if relief were not granted (economic hardship factor); and (3) the requesting spouse made a good

faith effort to comply with the tax laws for the taxable years

following the taxable year to which the request for relief

relates (tax compliance factor). See Washington v. Commissioner,

120 T.C. 137, 147 (2003); Alt v. Commissioner, supra at 314-316.
- 58 -

With respect to the marital status factor, petitioner and

Mr. Korchak were still married and living together at the time of

the trial. 

With respect to the economic hardship factor, pursuant to

Madison Recycling Associates v. Commissioner, T.C. Memo. 2001-85,

respondent assessed against petitioner and Mr. Korchak a deficiency of $140,388 in tax for their taxable year 1982 and interest thereon as of October 3, 2003, of $1,107,797.85 resulting

from the disallowance of the claimed $58,089 Madison Recycling

loss and the claimed Madison Recycling tax credits of $114,407. 

If the Court were to deny petitioner’s claim under section 6015,

petitioner and Mr. Korchak would be jointly and severally liable

for that assessed deficiency and that assessed interest, none of

which had been paid as of the time of the trial. Moreover,

pursuant to Korchak v. Commissioner, T.C. Memo. 2005-244, and the

parties’ stipulation to be bound, see supra note 3, if the Court

were to deny petitioner’s claim under section 6015, petitioner

and Mr. Korchak would be jointly and severally liable for additions to tax for their taxable year 1982 under sections

6653(a)(1), 6653(a)(2), and 6659 of $7,019.40, 50 percent of the

interest due on the assessed deficiency of $140,388, and

$34,322.10, respectively. 

Petitioner contends that at the time of the trial the total

liability with respect to her taxable year 1982 “greatly exceeds”
- 59 -

30In petitioner’s December 15, 2004 memorandum that she

submitted to respondent during the consideration by respondent’s

examiner of petitioner’s claim under sec. 6015, petitioner

indicated that, as of Dec. 13, 2004, the total liability with

respect to her taxable year 1982 exceeded $2.5 million.

31See supra note 19.

$2 million.30 Respondent contends that at that time that liability was approximately $2 million. Suffice it to say that the

parties agree that at the time of the trial the total liability

with respect to petitioner’s taxable year 1982 was at least $2

million. Moreover, interest as provided by law continues to

accrue thereafter with the passage of time. See sec. 6601. 

Thus, the total liability for taxable year 1982 continues to

increase with the passage of time (1982 total liability). 

Respondent maintains, and petitioner does not dispute, that,

because petitioner and Mr. Korchak were still married at the time

of the trial, it is appropriate to consider the income, the

assets, and the liabilities of both of them in determining

whether petitioner would suffer an economic hardship if she were

required to pay the 1982 total liability. The parties agree that

at the time of the trial the total value of the assets of petitioner and Mr. Korchak was $1,972,169. The parties also agree

that at that time the residence in which petitioner and Mr.

Korchak were living that petitioner owned was subject to liabilities totaling $139,000.31
- 60 -

32The basic reasonable living expenses of petitioner and Mr.

Korchak include the expenses with respect to the $139,000 of

liabilities to which their residence that petitioner owned at the

time of the trial was subject.

33During 2004, the year before the trial took place, in

addition to the respective salaries of petitioner and Mr.

Korchak, they received other income from various sources totaling

$60,003. The record does not disclose how much, if any, income

from such sources petitioner and Mr. Korchak expect to receive

after 2004.

34Although Mr. Korchak testified that as of the time of the

trial he had no intention of retiring, we note that he was 71

years old at that time. 

If petitioner and Mr. Korchak were to use all of the assets

owned at the time of the trial, they would be unable to pay even

the $2 million of the liability for their taxable year 1982 that,

at a minimum, the parties agree existed at that time. And they

would be left with no assets to pay the balance of that liability, including the interest as provided by law that continues to

accrue and that causes that liability to continue to increase. 

All that petitioner and Mr. Korchak would be left with to pay the

balance of the 1982 total liability, as well as all of their

basic reasonable living expenses,32 would be petitioner’s annual

salary of $115,000 and Mr. Korchak’s annual salary of $90,000

that they were receiving at the time of the trial.33 Of course,

those salaries would be subject to Federal and State income taxes

and Social Security taxes, as required by law. Moreover, as of

the time of the trial, petitioner intended to retire in 2007 at

age 70.34
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35In light of our finding that petitioner is entitled to

relief under sec. 6015(b) with respect to her taxable year 1982,

we need not address petitioner’s alternative claim for relief

under sec. 6015(f) for that year. 

On the record before us, we find that petitioner would

suffer an economic hardship if she were required to pay the 1982

total liability. 

With respect to the tax compliance factor, petitioner

contends, and respondent does not dispute, that she complied with

the tax laws for her taxable years following her taxable year

1982. 

Based upon our examination of the entire record before us,

we find that, taking into account all the facts and circumstances, it is inequitable to hold petitioner liable for the

deficiency in, and additions to, tax (as well as interest thereon

as provided by law) attributable to the understatement in the

1982 joint tax return. On that record, we further find that

petitioner satisfies section 6015(b)(1)(D) for her taxable year

1982. 

Conclusion

Based upon our examination of the entire record before us,

we find that petitioner is entitled to relief under section

6015(b) with respect to her taxable year 1982.35

We have considered all of the parties’ contentions and

arguments that are not discussed herein, and we find them to be

without merit, irrelevant, and/or moot.
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To reflect the foregoing,

Appropriate decisions for

petitioner will be entered.