T.C. M em o . 2 0 1 9 -1 3 6

UNITED STATES TAX COURT

HABIBE KRUJ A, Pet i t i o n er, AND ERM IR KRUJ A, In t erv en or v . COM M ISSIONER OF INTERNAL REVENUE, Res po n d en t

Do ck etNo . 2 3 8 59 -1 7
. Fi l edOct o b er 1 5 , 2 0 1 9
.

Hab i b e Kru

ja, p ro s e. Erm i r Kru

ja, p ro s e. DerekS. Prat t , fo r res p o n d en t
.

M EM ORANDUM FINDINGS OF FACT AND OPINION BUCH, J u d g e: Th e s o l e i s s u e b efo re the Co u rti s wh et h er M s . Kru ja i s
en t i t l edt o i n n o cen t s p ou s e rel i ef u n d er s ect i o n 6 0 1 5
. 1 Th e Co m m i s si on er i n i t i al l y

1 Un l es s o t h erwi s e i nd i cat ed , al l s ect i o n referen ces are t o th e In t ern al (co n ti n u ed ...)- 2
-

[* 2 ] d en iedM s . Kru

ja’ s req u es tfo r rel i ef rel at i n g t o d efi ci en ci es fro m 2 0 1 0 an d 2 0 1 1 t ax ab l e y ears b u t n o w co n ced es th ats h e i s en t i t l edt o rel i ef. Ho wev er, M r. Kru j a o p po s es rel ief. M s . Kru ja i s en t i t l edt o rel i ef u n d er s ect i o n 6 0 1 5(c) fo r d efi ci en ci es an daccu racy -rel at edp en al t ies al l o cab l e t o M r. Kru ja. FINDINGS OF FACT M s . Hab i b e Kru

j a was m arri edt o M r. Erm i r Kru ja i n 2 0 10 an d2 0 1 1 , th e y ears ati s s u e. M s . Kru

j a h o l d s a m as ter’ s i n b u s i n es s ad m i n i st rat i o n d eg ree, an d i n 2 0 1 0 an d2 0 1 1 s he wo rk edas a fi n an ce m an ag er at Cu s h m an & W ak efi el d . In 2 0 1 0 an d2 0 1 1 M r. Kru

ja o wn edan do p erat edh i s b u s i n es s , Bo b b ie’ s Cafe. Th e Kru j as m ai n t ai n eda jo i n tb an kacco u n tdu ri n g th e y ears ati s s u e. M s . Kru ja al s o
m ai n t ai n edh er o wnp ers o nal b an kacco u n t, an d M r. Kru ja m ai n t ai n eds ev eral b u s i n es s an dp ers o n al acco un t s . Th e Kru jas fi l edjo i n tFo rm s 1 0 4 0 , U.S. In d i v i du al In co m e Tax Return , fo r 2 0 1 0 an d2 0 1 1 . Th ey

recei vedSt at e refu n d s b u t d i dn o trep ortth es e refu nd s as i n co m e o n th ei r Fed eral i n co m e t ax return s . In ad d i t i o n th ey rep ort ed
u n rei m b u rs edem

p l o y ee b us i nes s ex p en s es o n th ei r Sch edu les A, It em ized

1 (...co n t in u ed ) Rev en u e Co de i n effect atal l rel ev an tt i m es , an dal l Ru l e referen ces are t o th e Tax Co u rtRu l es o f Pract i ce an dPro cedu re. Al l m o n et ary am o u n ts are ro u n d edt o th e n eares td o l l ar.- 3
-

[* 3 ] Deduct i o n s. As req u i redo n th e Sch edu l es A, they at t ach edFo rm s 2 1 0 6 , Em p l o y ee Bu s i n es s Ex p en s es , fo r M r. Kru ja’ s b us i n es s an dFo rm s 2 1 0 6-EZ, Un rei m b u rs edEm

p l o y ee Bu s i n es s Ex p en s es , fo r M s . Kru j a t o t h e ret u rn s . Fo r 2 0 1 1 they fi l edan am en d edretu rn an dat t ach edSch edu l e C, Pro fi to r Lo s s Fro m Bu s i nes s, rep o rt in g g ro s s recei p t s an dd educt i n g ex p en s es rel at edt o Bo b b i e’ s Cafe. M s . Kru

j a fi l edfo r d i v orce i n J u n e 2 0 1 3. OnM arch 7 , 2 01 4 , th e Co m m i s s i o n er i s su edth e Kru

j as a n ot i ce o f d efi ci en cy

fo r th ei r t ax y ears 2 0 1 0 an d2 0 1 1. Th e Co m m i s s io n er (1 ) d et erm i n ed ad d it i o n al i n co m e fro m

Bo b b i e’ s Cafe, (2 ) d i s al l o wedo r ad j u s tedv ari o u s Sch edu l e C d edu ct i o n s at t ri b u t ab l e t o Bo b b i e’ s Cafe, (3 ) d et erm in edi n co m e fro m St at e t ax refu n d s, an d (4 ) d i s al l o wedal l Sch edu l e A u n rei m b u rs edem

p l o y ee b u s i n es s ex p en s e d edu ct i on s . Becau s e t h e Kru jas b en efi tm ore fro m

th e s t an d ard d educt i o n th an th e ad

ju s t edi tem i zedd edu ct i o n s , the Co m m i ss i o n er al l o wedth e
s t an d ardd edu ct i o n i n l i euo f i tem i zedd edu ct i o ns . Th e Co m m i s s i o n er al s o d et erm i n edaccu racy -rel at edp en al t i es u n d er s ect i o n 6 6 6 2 (a). To d et erm i n e t h e u n rep o rt edi n co m e fro m Bo b b i e’ s Cafe o n thei r ret u rn s , t h e Co m m i s s i o n er u s edth e b an kd ep os i t s an al y s i s m et h o d . Th e Kru jas ’ jo i n tb an k- 4
-

[* 4 ] acco u n tan d Mr. Kru ja’ s v ari o u s b an kacco u n t s s h owedd ep o si t s fo r St at e t ax refu nd s as wel l as i n co m e fro m Bo b b i e’ s Cafe t h ath adn o tb een rep o rt ed
. Th e Kru jas p et i t i o n edth e Tax Co u rtt o red et erm i ne t h e d efi ci en cy i n d o ck et No . 1 3 3 6 8 -1 4 , an dth e cas e s et t l edwi th o u ta t ri al . As a res u l to f th i s i n i ti al p ro ceed in g th e p art ies ag reed o n d efi ci en ci es fo r 2 0 1 0 an d2 0 1 1 o f $ 3 7,3 8 0 an d $ 1 4 6 ,9 5 7 , res p ect iv el y , an dp en al t i es u n d er s ect io n 6 66 2 (a) o f $ 3 ,7 3 8 an d $ 1 4 ,6 9 6 , res pect i vel y . Co u n s el p u rp o rt i n g t o rep res en t t h e Kru jas i n th e d efi ci en cy

p ro ceed in g s i g n edth e d eci s i o n o n b eh al f o f b o th M r. an dM s . Kru ja. In M ay 20 1 4 M s . Kru

ja fi l edFo rm

8 8 5 7 , Req u es t fo r In n ocen tSp o us e Rel i ef, fo r 2 0 1 0 , 2 0 1 1 , an d 2 0 1 2 . Onth i s req ues tM s . Kru ja cl ai m edth e d efi ci en ci es were “ du e t o th e erro rs / o m m i s si on s [s i c] fro m

h er ex -h u s b an d ”, s h e

“ h adn o i n v o l v em en t wi t h h er ex -h u s b an d ’ s b u s i n es s” o r “ w i t h t h e reco rdk eep i n g
o f h er ex -h u s b an d’ s b u s in es s ”, an ds h e d i dn o tb en efi t“ i n an y way fro m th e i n co m e th ath adn o t b een cl ai m edo n t h e 2 0 1 0, 2 0 1 1 o r 2 0 1 2 t ax retu rn s .” Sh e fu rt her s tat edo n the Fo rm 8 8 5 7 : Hab i b e p rep aredan d fi l edth e 2 0 10 t ax retu rn wi t h h er h u s b an d
. Hab i b e h adn o tb een i n vo l v edi n an y way wi t h h er h u s b an d ’ s 2 0 1 0 b u s i n es s retu rn . Hab i b e p rep are[d ] an dfi l edjo i n t l y th e 2 0 11 t ax retu rn wi th h er h u s b an d . Hab i b e recei v edi n fo rm at i o n fro m h er h u s b an d ’ s acco u n t an t , wh o h ad p rep ared th e i n fo rm at i o n fo r t h e s ch edu l e C.- 5
-

[* 5 ] In an ex pl an at i o n o f h ou s eh o l dfi n an ces o n Fo rm 8 8 5 7 , M s . Kru

ja as sert ed : Hab i b e an dh er h u s b an dh ada jo in tacco u n t , h o wev er Hab i b e d i dn o t d ep o s i t m o n ey

i n to th e jo i n tacco u n t o r t ak e d i s b u rs em en t s fro m th e jo i n tacco u nt . Hab i b e h adh er o wnacco u n t an d i twas h er b el i ef th at t h e jo i n tacco u n t h ad n o act i v i t y s i n ce h er h u s b an dal s o k ep th i s o wn acco u n t (s ). Th e Kru jas ’ d i v o rce b ecam e fi n al o n Ap ri l 1 6 , 2 0 1 5 . On M ay 2 0 , 2 0 1 5 , th e Co m m i s s i o n er g ran t edM s . Kru ja i n n o cen ts p o u s e rel ief fo r 2 0 1 2 u n d er s ect i o n 6 0 1 5 (b ). OnJ u ly 1 5 , 2 0 15 , th e Co m

m i s s i o n er recei v eda s eco ndFo rm 8 85 7 fro m M s . Kru j a co n cern i n g 2 0 1 0 an d2 0 1 1 . Onh er req u es t , M s . Kru ja as s ert edth e fo l l o w i n g cl ai m s: Th e t ax l i ab i li t y

th atres u l t edfro m

th e au d i to f 2 01 0 an d2 01 1 o ccu rreddu e t o erro rs /o m m is i o n s [s i c] fro m

m y ex -h u s b an d . I h adn o i n v o l v em en twi t h h i s b u s i n es s , wh i ch i s th e cau s e o f t h e ad di t i o n al t ax o b l i gat i o n . I d i dn oth av e i n v o lv em en ti n th e reco rdk eep in g o f t h e b u s i n es s ei t h er. I d i dn o tb en efi t i n an yw ay [s i c] fro m

the i n co m e fro m 2 0 1 0 an d 2 0 1 1. I h ad t h e co u rag e t o o p en a s ep arat e b an k acco u n tb u th e was v ery an g ry wi t h t h atd eci s io n an dh e wo ul dn o t g i v e m e an y

o f h i s i n co m e an dm ad e m e p ay al l o f t h e b i l l s an d ch i l d care ex p en s e fro m

m y acco u n t
. In ad d i t i o n t o al l th is , s o m eh o w Erm i r m an ag edt o m an ip u l at e t h e s y s t em t o en su re t h atI was n o ti n v o l vedi n th e au d i tp ro ces s . I h ad t ran s ferred m

y p o wer o f at t orn ey

t o Al l an Iad em a i n M arch , 2 0 1 4 y et h i s at t o rn ey

J G t ax Gro up s t i l l rep res en t edm e i n co u rt wi t h o u t m y kn o wl ed g e. I o n l y

l earn edth i s fro m

co u n t l es s h o u rs o f t el ep h o n e cal l s t o v ari o us d ep art m en t s i n th e IRS. He wo u l dn o ts h are an y- 6
-

[* 6 ] i n fo rm at i o n wi t h m e ev enaft er as k i n g fo r s t atus up dat es . Nei th er wo u ldh i s at t orn ey , ev en th o u gh th ey rep res en t edm e i n co urt
. OnAu gu s t1 2 , 2 0 1 5, t he IRS recei v eda Fo rm 1 2 5 0 8 , Qu es t i o nn ai re fo r No n -Req u es t i n g Sp o us e, fro m M r. Kru ja ex p l ai n i n g wh y

h e d i dn o tb el i ev e M s . Kru j a s h o u l db e g ran t edi nn o cen ts p o u s e rel i ef. On th e qu es ti o n n ai re M r. Kru ja cl ai m edth atM s . Kru

ja p rep ared th ei r t ax retu rn s , wo rk edas a cas h i er, fi l edb i l l s
an d i n vo i ces , an do rg an i zedp ap erwo rko n b eh al f o f h i s b u s i n es s , Bo b b i e’ s Cafe. Th e Co m m is s i o n er co n s i d ered M s . Kru ja’ s ap p eal an di s s u eda l et t er o n Au g u s t2 4 , 2 0 1 7 , d en y i n g M s . Kru ja i n n o cen ts p ou s e rel i ef fo r 2 0 1 0 an d 2 0 1 1
u n d er s ect i o n 6 0 1 5 (b ), (c), an d (f). In th e l et t er t h e Co m m i s s io n er d et erm i n edth at t h e Tax Co u rt h adal read y “ i s s ueda fi n al d eci s i on ” an d t h atM s . Kru ja

“ m ean i n g fu l ly

p art i ci p at ed i n th atp ro ceed i n g .” Wh i l e res i d i ng i n Ari zo n a, M s . Kru ja fi l eda t im el y

p et it i o n b as edo n th e d et erm i n at i o n . 2 Sh e cl ai m edth e fo l l o wi ng : I d i dn o tp art i ci p at e i n t h e co u rtp ro ceed in g as I was n o tm ad e aware o f i twh at s o ev er. Th e fu l l b u rd en i s o n m e wh en m o s to f th e t ax d eb t i s rel at edt o t h e b u s in es s th atwas fu l l y o wn edb y

Erm i r Kru

ja--m y ex s p o u s e. I h adzero i n t eres t , was n ota s hareh o l d er o r a p art n er.

2 W e ack n o wl ed ge t h at Ari zo n a i s a co m m u n i ty p ro pert y St at e, b u t t h atfact d o es no tch an g e o u r an al y s i s . See s ec. 6 0 1 5 (a) (fl u s h l an g u ag e).- 7
-

[* 7 ] M r. Kru

j a i n t erv en ed 3 t o co n t en dth atM s . Kru ja was n o ten ti t l edt o rel i ef b ecau s e s h e d i dth ei r t ax es , kn ew ab o u tal l o f th e b an kacco u n t s an dthei r i n co m e
an d ex p en s es , an dh ad recei v eda l arg e s et t l em en tfro m t h e b u s in es s p ro ceed s i n t h e d i v o rce. Si n ce t h e fi l i ng o f thatp et i t i o n , th e Co m m i s s i o ner h as ch an g eds o m e o f h i s p o s i t i on s . He n o w co n t en d s t h atM s . Kru ja i s n o t p recl u d edfro m

rai si ng a cl ai m fo r i n n o cen ts p o us e rel i ef fo r 2 0 1 0 an d 2 0 1 1 . Th e Co m m i s s i o n er cl ai m s th atth e ad ju s t m en t s at t ri b u t ab l e t o Bo b b i e’ s Cafe s h o ul db e al l o cat edt o M r. Kru ja. Th e Co m m i s s i o n er al s o cl ai m s t h atu n rep o rt ed St at e t ax refu n d s an dd i s al l o wed
u n rei m b u rs edem

p l o y ee b us i nes s ex p en s es at t ri b u t ab le t o M s . Kru ja’ s jo b s h o u l d b e al l o cat ed t o h er.

3 If a s p o u se p et i t i o n s th e Co u rtfo r s ect i o n 6 0 1 5 rel i ef, th e n o n req u es t i n g s p o u se h as a ri g h t t o i n t erv en e i n th e cas e u nd er s ect i o n 6 0 1 5 (e)(4 ) an dRu l e 3 2 5
. By d oi n g s o , th e i n t erv en or b eco m es a p art y . Sec. 6 01 5 (e)(4 ).- 8
-

[* 8 ] Th i s cas e was tri ed i n J an u ary 2 0 1 9
. 4 Bo t h M r. an dM s . Kru ja t es t i fi ed , an d t h ey d i s ag reed as t o th e ex t en t o f h er i n v ol v em en t wi t h Bo b bi e’ s Cafe an dh er
m et h o d fo r p rep ari n g th ei r jo i n tretu rn s . Th i s d i s ag reem en twas al so ev id en tfro m t h ei r s tat em en t s i n t h e ad m i n i s t rat i v e reco rd
. OPINION M arri ed t ax p ay ers m ay

g en eral l y el ectt o fi l e a jo i n tFed eral i n co m e t ax retu rn . 5 If t h ey

d o s o , each s p o u s e i s jo in t l y an ds ev eral l y

l i ab l e fo r t h e en ti re t ax

4 W e h el d t ri al i n th is cas e b efo re t h e en act m en to f s ect i o n 6 0 1 5 (e)(7 ), wh i ch p ro v id es : (7 ) St an d ard an ds co p e o f rev i ew.--An y rev iew o f a d et erm i nat i o n m ad e u n d er t hi s s ect io n s h al l b e rev iewedd e n o vo b y t h e Tax Co urt an ds h al l b e b as edupo n --

(A) t h e ad m i n i s t rat i v e reco rdes tab l i s h ed atth e t i m e o f t h e d et erm i n at i o n , an d (B) an y ad d i t i o n al n ewl y d i s co v eredo r p rev i ou s l y u nav ai l ab le ev id en ce. Th i s p ro vi s i o n i s effect i ve fo r “ p et i t i o n s o r req u es t s fi l edo r p en d i n g o n o r aft er t h e d at e o f t h e en act m en to f t h i s Act .” Tax p ay er Fi rs tAct , Pub . L. No . 1 1 6 -2 5 , s ec. 1 2 0 3 (b ), 1 33 St at . at9 88 (2 0 1 9). Becau s e th e t ri al ev i den ce was m erel y cu m u l at i v e o f wh atwas al read y i n cl u dedi n th e ad m i ni s t rat i v e reco rd , s ect io n 6 0 1 5 (e)(7 ) d o es n o taffect th e o u t co m e o f t h i s cas e. As a res u l t , we h av e n o t ad dres s edth e effect o f s ect i o n 6 0 1 5 (e)(7 ).

5 Sec. 6 0 1 3(a).- 9
-

[* 9 ] l i ab i l i t y

fo r t haty ear. 6 In cert ai n ci rcu m s t an ces , a s p o u s e wh o p rev i o u s l y fi led a jo i n t retu rn m ay

s eekrel i ef fro m

jo i n tan d s ev eral l i ab i l it y u nd er p ro cedu res
s etfo rt h i n s ect i o n 6 0 1 5
. 7 Sect io n 6 0 1 5 (a) al l o ws a s p o u s e t o s eekrel ief fro m jo i n tan d s ev eral l i ab i l i t y un d er s ub s ect io n (b ) an d , i f el i g ib l e, t o el ectt o al l o cat e t h e l i ab i l i t y
acco rd i n g t o p ro v i s i o n s s etfo rt h i n s ub s ect i on (c). If a t ax p ay er d o es n o tqu al i fy fo r rel i ef u nd er ei t h er s ub sect i o n (b ) o r (c), t he t ax p ay er m ay b e el i g i bl e fo r eq u it ab l e rel i ef u n d er s ubs ect i o n (f). Th e Secret ary h as d is cret i o n t o g ran t eq u it ab l e rel i ef t o a s p o u s e wh o fi l eda jo in t retu rn wi t h an u np ai dt ax l i ab il i t y o r a d efi ci en cy . 8 Ex cep t as o t herwi s e p ro v i d edi n s ect io n 6 0 1 5 , th e t ax p ay er b ears th e b u rd eno f p ro vi ng th ath e o r s h e i s en t i t l edt o s ect i o n 6 0 15 rel i ef. 9 In th e d et erm i nat i o n , th e Co m m i s si on er as s ert edth atth e Tax Co urth ad al read y i s s u eda fi n al d eci s i o n i n a d efi ci en cy p ro ceed i n g i n wh i ch M s . Kru ja
co u ldh av e rai s edi n n o cen ts p o u s e rel i ef an dth ats h e h adm ean i n g fu l l y p art i ci p at edi n thatp ro ceed i n g . Ho wev er, t h e Co m m i s s i on er n o w ag rees wi t h M s .

6 Sec. 6 0 1 3(d )(3 ).
7 Sec. 6 0 1 5(a).
8 Sec. 6 0 1 5(f).
9 Ru l e 1 4 2 (a).- 1 0 -

[* 1 0 ] Kru ja th ats h e i s n o tp recl u d edfro m rai s in g a cl ai m

fo r rel ief an d t h atth e d o ct ri n e o f res ju d i cat a d o es n o tap p l y h ere. Res ju d icat a g en eral l y p rev en t s p art i es fro m

rel i t i gat i n g th e s am e cau s e o f act i o n an d“ ap p li es t o a cl ai m i f i twas , o r co u ldh av e b een , l i ti g at edas p arto f t h e cau se o f act i o n i n a p ri o r cas e.” 1 0 Un d er s ect i o n 6 01 5 (g )(2 ), “ t o es cap e t h e effect o f res ju d icat a fro m p ri o r l i t i g at i o n , t h e req u es t i n g s po u s e m

u s ts h o w (1 ) t h ath i s i n n ocen ts p ou s e cl ai m ‘ was n o tan i s su e’ i n t h e p ri o r p ro ceed i n g an d(2 ) t hath e d idn o t ‘ p art i ci p at e[] m ean i ng fu l l y ’ i n the p ri o r p ro ceed i ng .” 1 1 Th e Co m m i ss i o ner b ears th e b u rd en o f p ro v i n g th atres ju d i cat a p recl u d ed Ms
. Kru ja’ s s ect i o n 6 0 1 5 (c) cl ai m . 1 2 Becau s e M s. Kru ja d i d
n o tm ean i n g fu l l y

p art i ci p at e i n th e cas e i n d ock etNo
. 1 3 3 6 8 -1 4 , s he i s n o t p recl u d edfro m

rai s i n g h er cl ai m . M s . Kru j a el ect edrel i ef u n d er s ect i on 6 0 1 5(c) t wi ce--o n ce b efo re t he Kru j as ’ d i v o rce was fi nal i zedan do n ce aft er. Un d er s ect i o n 6 0 15 (c), a d iv o rced o r
s ep arat eds p ou s e m ay

el ectt o l i m i t l i ab i l i t y

fo r a d efi ci en cy

o n a jo i n treturn . Th e el ect io n m ay

b e fi l edatan y

t im e aft er t h e d efi ci en cy i s as s ert edb u tn o tl at er th an

1 0 M o rs e v . Co m

m i s s i o n er, T.C. M em o . 2 0 0 3-3 3 2 , 8 6 T.C.M . (CCH) 6 7 3 , 6 7 6 -6 7 7 (2 0 0 3 ), aff’ d , 4 1 9 F.3 d8 2 9 (8 th Ci r. 2 00 5 ).

1 1 Ko p ro ws k i v . Co m

m is s i o n er, 1 3 8 T.C. 5 4, 6 5 (2 01 2 ).
1 2 See Ru l es 3 9 , 1 4 2 (a); Cal cu t tv . Co m m i s s i o n er, 9 1 T.C. 1 4 , 2 0-2 1 (1 9 8 8 ).- 1 1 -

[* 1 1 ] two y ears aft er t h e Secret ary b eg i n s co l l ect i o n act i v i t ies
. 1 3 Here, n o
co l l ect i o n act i vi t i es h av e co m m en ced , s o t h e t wo -y ear p eri o d h as n o ts t art edt o
ru n . To b e el i g i bl e fo r rel i ef u n der s ect io n 6 0 1 5 (c) t h e el ect i n g i n d i v i du al m u s t : (1 ) n o l o n g er b e m arri edt o o r b e l eg al l y s ep arat ed fro m , th e i n d iv i du al wi th wh o m t h e jo in tretu rnwas fi l edo r (2 ) n o th av e b een a m em b er o f t h e s am e h o u s eh o l d wi t h th e i n di v i dual wi t h wh o m th e jo i n tretu rnwas fi l eddu ri n g th e 1 2-m o n t h p eri o db efo re t h e el ect i o n was fi l ed
. 1 4 Th e reg u lat i o n s p erm i ta s eco n del ect i o n wh en a ch an g e i n th e t ax p ay er’ s m ari t al s tatu s o p en s th e d oo r t o rel i ef fo r wh i ch t h e t ax p ay er was p rev i ou s l y i n el i g i bl e. 1 5 M s . Kru

ja d i dn o tqual i fy

fo r rel i ef u n d er
s ect i on 6 0 1 5 (c) at th e t i m e o f h er fi rs treq ues tb ecau s e s h e was s t i l l m arri edan d h ad b een p hy s ical l y

s ep arat edfo r l es s t h an 1 2 m o n t h s atthe t i m e o f el ect i o n . M s . Kru j a’ s s eco n dcl ai m

fo r i n n o cen ts p o u s e rel i ef s at i s fi edthe t im i n g req u i rem en t s fo r p u rp o s es o f h er el i g i b il i t y fo r rel i ef u n d er s ect io n 6 0 1 5 (c) b ecau se s h e was d i v o rced wh ens h e m ad e t h e s eco n del ect io n .

1 3 Sec. 6 0 15 (c)(3 )(B).
1 4 Sec. 6 0 15 (c)(3 )(A)(i ).
1 5 Sec. 1 .6 01 5 -1 (h )(5 ), In co m e Tax Reg s.- 1 2 -

[* 1 2 ] Sect io n 6 0 1 5 (c) l i m i t s t h e req u es ti n g s p o u se’ s l i ab i l it y fo r a d efi ci en cy t o t h e p o rt i o n o f t h e d efi ci en cy p ro p erl y al l ocab l e t o th at s po u s e u n d er
s ub s ect i o n (d ). In g en eral , an y i t em g i v i n g ri s e t o a d efi ci en cy o n a jo i ntretu rn i s al l o cat edt o the i n di v i du al s fi l in g th e retu rn i n th e s am e m an n er as i two u l dh av e b een if t h e i n d iv i du al s h adfi l eds ep arat e ret u rn s. 1 6 Un d er s ect i o n 6 0 1 5 (c)(2 ), t h e el ect in g s p o u s e g en eral l y h as th e b u rd en o f p ro v i n g h ow m u ch o f an y

d efi ci en cy

i s al l o cab l e t o h i m

o r h er. Ho wev er, s ect i o n 6 0 1 5(d ) p ro v id es an ex cep t i on th at al l o ws an i tem th at
wo u l do rd i n ari l y

b e al l o cab l e t o o n e i n d iv i dual u n der t h e g en eral ru le t o b e al l o cab l e t o the o th er i n d i vi du al fi l i n g th e jo i n treturn t o th e ex t en tth atth e o t h er i n d i v i du al recei v eda t ax b en efi tfro m th e i t em . 1 7 M s . Kru

ja cl ai m s th ats h e d i dn o t recei v e an y

t ax b en efi ts fro m

the u n rep o rt ed i n co m e, an dn ei th er M r. Kru ja n o r t h e Co m m i s s i o n er d i s p ut es th i s cl ai m . As fo r al l o cat i o n of erro n eo u s i t em s b et ween th e fo rm er s po u s es , s ect i o n 1 .6 01 5 -3 (d )(2 )(i i i ), In co m e Tax Reg s . , p ro v i des th at“ [e] rro n eo u s i t em s o f i n co m e are al lo cat edt o t h e s p o u s e wh o was th e s o u rce o f th e i n co m e”, an ds ect i o n 1 .6 0 1 5
- 3 (d )(2 )(i v ), In co m e Tax Reg s ., p ro v i d es th at“ [e] rro neo u s d edu ct i on s rel at edt o a

1 6 Sec. 6 0 15 (d )(3 )(A).
1 7 Sec. 6 0 15 (d )(3 )(B).- 1 3 -

[* 1 3 ] b u s i n es s o r i n v es t m en tare al l o cat edt o t h e s p o u s e wh o o wn edth e b u s i n es s
o r i n v es t m en t .” Iti s u n d i s p u t edth atBo bb i e’ s Cafe was M r. Kru ja’ s b u s i n es s . As
a res u l tal l ad

ju s t m en t s at t ri b u t ab l e t o Bo b b i e’ s Cafe are al l o cab l e t o M r. Kru ja. Th i s i n cl u d es al l ad

ju s t m en t s t o Sch edu le C i t em s , th e u nrep o rt edi n co m e fro m Bo b b i e’ s Cafe, an dM r. Kru ja’ s p o rt i o n o f t he d i s al l o wedem p l o y ee b u s i n es s
ex p en s e d educt i o ns . Li k ewi s e, d i s al l o wedu nrei m bu rs ed em

p l o y ee b u s in es s
ex p en s e d educt i o ns at t ri b u t ab l e t o M r. an dM s. Kru ja are s ep arat el y

al l o cab l e t o each o f t h em . If t h e Co m

m i s s i on er s h o ws th atwh en s i g n i n g t h e ret urn th e el ect i ng s p o u se h ad act u al kn o wl ed g e o f an y i t em g i v i n g ri se t o a d efi ci en cy (o r p o rt i o n th ereo f) wh i ch i s n o tal l o cab l e t o th e el ect i n g s p o us e, t h e el ect io n u su al l y d o es n otap p l y t o t h atd efi ci en cy

(o r p o rt i o n ). 1 8 Th e Co m m is si o n er m

u s t d em on s trat e act ual kn o wl ed g e b y

a p rep o nd eran ce o f t h e ev i d en ce. 1 9 Th e act u al kn owl ed g e s tan d ard i s n arro wer t h anth e “ reas o n t o kn o w” s t an d ardap p l i ed u n d er s ect i o n 6 0 1 5(b )
an d (f). 2 0 Pro v i n g actu al kn o wl ed g e req ui res th e Co m m i s si o n er t o s ho w th atth e

1 8 Sec. 6 0 15 (c)(3 )(C).
1 9 Cu l v er v . Co m

m i ss io n er, 1 1 6 T.C. 1 8 9 , 1 9 6 (2 0 0 1 ).
2 0 M cDan i el v . Co m

m i s s i o n er, T.C. M em o . 2 0 0 9 -1 3 7, 9 7 T.C.M . (CCH) 1 7 8 6 , 1 7 8 9 (2 00 9 ).- 1 4 -

[* 1 4 ] i n d i v i du al m ak i n g th e el ect i o n h ad“ act u al kn o wl ed g e o f t h e fact u al ci rcu m s t an ces wh i ch m ad e t h e i t em u n al l o wab l e as a d edu ct i o n.” 2 1 Pro v i n g actu al kn o wl ed g e o f t h e t ax l aws o r t h e l eg al co n s eq u en ces i s n o treq u i red
. 2 2 Ou r Co u rth as n otan s weredan d we l eav e o p enth e ques t i o n o f wh et h er t h e b u rd eno f p ro of s h i ft s t o th e i n t erv en o r wh en th e Co m m is s i o n er co n ced es th ata t ax p ay er i s en t i t l ed t o rel i ef an dan i nt erv en o r o p p o s es rel ief. 2 3 Becau s e we wo u l d d eci d e t h i s cas e t h e s am e way reg ard les s o f wh i ch p art y b ears th e b u rd en , we d o
n o tn eedt o d eci d e wh o bears th e b u rd en . Th e Co m m is s i o n er ag rees wi t h M s . Kru ja th ats h e d idn o th av e act u al kn o wl ed g e o f t h e i t em s g i v in g ri s e t o th e d efi ci en ci es at tri b ut ab l e t o M r. Kru ja’ s b u s i n es s wh en s he s i g n edth e retu rn s . M r. Kru j a d i s ag rees . Nev ert h el es s, t h e
ev i d en ce i n the ad m i n i s t rat iv e reco rd d oes n o t es t ab l i sh th atM s . Kru ja h adactu al kn o wl ed g e o f t h e i t em s at t ri b u t ab l e t o Bo b b i e’ s Cafe g i v in g ri s e t o t h e d efi ci en ci es . W e d o n o tag ree wi t h th e Co m m i s si o n er thatth e fu l l p o rt i o n s o f t h e d efi ci en ci es at tri b ut ab l e t o th e St at e t ax refu n d s are al l o cab l e t o M s . Kru ja. Inth e

2 1 Ki n g v . Co m

m i s s i o ner, 1 1 6 T.C. 1 9 8 , 2 0 4 (2 0 0 1 ).
2 2 Ki n g v . Co m

m i s s i o ner, 1 1 6 T.C. at2 04
. 2 3 See Ho l li m o n v . Co m

m i s s i o n er, T.C. M em o . 2 0 1 5-1 5 7 , at* 7
.- 1 5 -

[* 1 5 ] ab sen ce o f cl ear an dco n v i n ci n g ev i d en ce s up p ort i ng a d i fferen t al l o cat i o n , an erro n eo u s i t em o f i n co m e i s g en eral l y al lo cat ed5 0 % t o each s p o u s e. 2 4 M r. an d M s . Kru ja o wn edth e St at e t ax refu n d s jo in t l y an dth ere i s n o ev i d en ce i n th e ad m i n is t rat i v e reco rd , o r ad du cedattri al , t o s up p ortan al l o cat io n o th er t h an 5 0 % t o each s p o u s e. Acco rd i n g ly , th e St at e t ax refu n d s are p ro p erl y al l o cat ed5 0 % each t o M r. an dM s . Kru

ja. Th e Co m m is s i o n er co n t en d s th atM s. Kru j a h adactu al kn owl ed g e o f t h e
u n rep o rt edSt at e t ax refu nd s. Al t h o u g h t h e Kru jas ’ b an kacco u n ts t at em en t s i n d i cat e recei p to f St at e t ax refu n d s fro m Ari zo n a, t h e reco rdi s i n s u ffi ci en tt o
es t ab l i s h t h atM s . Kru

ja h adactu al kn o wl ed g e o f t h e u n rep o rt edSt at e t ax refu n d s . M s . Kru j a g en eral l y

req u es t edrel i ef u n der s ect io n 6 0 1 5 b u td idn o t p ro v i d e arg u m en t s reg ard i n g rel ief u n d er s ect io n 6 01 5 (b ) o r eq u i t ab l e rel i ef u n d er s ect i o n 6 0 1 5 (f). As a res u l t , M s . Kru j a i s n o tal t ern at i vel y el i g i bl e fo r rel ief fo r t h e St at e t ax refu n d s o r t he em

p l o y ee b u s i n es s ex pen s es u nd er s ub s ect i o n s (b ) an d (f). W e m u s tal s o ad dres s M r. an d M s . Kru ja’ s l i ab i l i t i es fo r accu racy -rel at ed p en al t i es th ath av e p rev io u s l y b een es t ab l is h ed wi t h res p ect t o the 2 0 1 0 an d2 0 1 1 d efi ci en ci es . When a s ect i o n 6 6 6 2 accu racy -rel at edp en al t y i s i n cl ud edam o n g th e i t em s t o b e al l o cat edu n d er s ect i o n 6 0 1 5 (c), s ect i o n 1 .6 0 1 5 -3 (d )(4 )(i v )(B), In co m e

2 4 Sec. 1 .6 01 5 -3 (d )(2 )(i ii ), In co m e Tax Reg s .- 1 6 -

[* 1 6 ] Tax Reg s ., p ro v i d es th atth e p en al t y i s “ al l o cat edt o th e s p ou s e wh os e i t em g en erat edth e p en al t y .” Fo l l o wi n g t h atreg u l at i o n , th e p en al t i es m u s t b e al l o cat ed t o M r. Kru

ja fo r al l i t em s ex cep tM s . Kru j a’ s h al f o f th e St at e t ax refu n d s an dh er
em pl o y ee b u s i n es s ex p en s es . Co n cl u s i o n Onth e b as is o f th e reco rdb efo re u s , we h ol d t h atM s . Kru ja i s en ti t l edt o rel i ef u n der s ect i on 6 0 1 5(c) fo r al l i t em s g i v in g ri se t o th e 2 0 1 0 an d2 0 1 1 d efi ci en ci es th atare at t ri b u t ab le t o M r. Kru ja’ s b u si n es s , th e p o rt i o n s o f t h e d efi ci en ci es at tri b ut ab l e t o M r. Kru ja’ s h al f o f th e St at e t ax refu n d s, an d t h e
acco m pan y i n g accu racy -rel at edp en al t ies
. To refl ectthe fo reg o i n g , Anap p ro p ri at e d eci s i o n wi l l b e
en t ered u n der Ru l e 1 5 5
.