t c memo united_states tax_court helen m korchak petitioner v commissioner of internal revenue respondent docket nos filed date 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 tcmemo_2001_85 affd 295_f3d_280 2d cir respondent assessed against petitioner and petitioner’s spouse ernest i korchak mr korchak a deficiency of dollar_figure in their federal_income_tax tax for their taxable_year in a so-called affected items notice_of_deficiency affected items notice respondent determined for the taxable_year of petitioner and mr korchak additions to tax under sec_1 a a a b and of dollar_figure percent of the interest due on an assessed deficiency of dollar_figure and dollar_figure respectively the only issue remaining for decision is whether petitioner is entitled to relief under sec_6015 or in the alterna- tive under sec_6015 with respect to her taxable_year we hold that petitioner is entitled to relief under sec_6015 with respect to that year 1all section references are to the internal_revenue_code in effect for the year at issue 2in korchak v commissioner tcmemo_2005_244 see infra note respondent conceded that the affected items notice incorrectly referred to sec_6653 and b instead of to sec_6653 and 3on date respondent and petitioner entered into a stipulation to be bound stipulation to be bound by the final_decision in korchak v commissioner docket no 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 tcmemo_2001_85 affd 295_f3d_280 2d cir for the taxable_year of petitioner and mr korchak is subject_to additions to tax under sec_6653 and sec_6659 in the opinion that the court issued in the case involving mr korchak korchak v commissioner tcmemo_2005_244 the court sustained respondent’s determinations under sec_6653 and sec_6659 on date the court entered its decision in that case which became final on date in the stipulation to be bound petitioner retained the right to assert that she is entitled to relief under sec_6015 or f with respect to her taxable_year 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 mr korchak was born in czechoslovakia in in mr korchak moved with his family to the netherlands in mr korchak moved with his family to australia where he met petitioner in petitioner and mr korchak married and remained married as of the time of the trial and moved to the united_states in petitioner received a b s degree in biochemistry from the university of melbourne in 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 account- ing courses in mr korchak received a b s degree in chemical engineering from the university of melbourne in 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 to petitioner was a full-time homemaker and mother from until petitioner worked as a research scientist for new york university nyu from 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 dollar_figure as of that time petitioner intended to retire in in mr korchak began working for halcon international inc halcon he worked for that company or one of its subsid- iaries until when halcon and its subsidiaries ceased busi- ness 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 mr korchak was president of halcon research_and_development corporation a subsidiary of halcon that was involved in research_and_development sometime during mr korchak became president of scientific design corporation another subsidiary of halcon that was involved in engineering and held that position during 4during the year before the trial took place peti- tioner received her salary from the university of pennsylvania the amount of which is not disclosed by the record and other unidentified income totaling dollar_figure during and mr korchak received compensation and other taxable_distributions from halcon and or its subsidiaries collectively halcon distributions totaling dollar_figure and dollar_figure 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 distribu- tions 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 and although petitioner was generally aware that mr korchak invested a large portion of such distribu- tions she was not aware of the specific investments that he made from the time in when halcon and its subsidiaries ceased business operations and no longer employed mr korchak until around mr korchak received very little income starting in until at least the time of the trial mr korchak worked for performance coatings corporation perfor- mance 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 exis- tence at the time of the trial mr korchak who wa sec_71 years old was president of performance for which performance paid him an annual salary of dollar_figure 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 respon- sibility and that petitioner was better suited than mr korchak to do so consequently throughout the marriage of petitioner and mr korchak mr korchak assumed the responsibility of managing their family’s finances and petitioner relied upon him to do so and 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 5during the year before the trial took place mr korchak received a salary of dollar_figure from performance and the following income a distribution of dollar_figure from an individ- ual retirement account ira dollar_figure of social_security payments and a distribution of dollar_figure from a pension 6the three children of petitioner and mr korchak were born in and respectively 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 peti- tioner during petitioner was not aware of any brokerage accounts that mr korchak may have had at that time at least during petitioner was aware of two joint checking accounts in the names of mr korchak and herself at least during petitioner’s salary from nyu of approximately dollar_figure peti- tioner’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 check- ing 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 prior to mr korchak’s investment portfolio consisted of stocks and bonds during 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 without consulting petitioner mr korchak invested in a bus rental_activity mr korchak’s bus rental investment and three oil_and_gas partner- ships mr korchak’s three oil_and_gas partnership investments although mr korchak did not consult petitioner before he in- vested 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 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 date mr korchak became a client of hamilton gregg and mr korchak’s primary contact person at that company was mr cole on or about date mr cole delivered a private offering memorandum private offering memorandum to mr korchak 7mr korchak’s three oil_and_gas partnership investments were kelly-brock drilling partners odyssey partner sec_81 limited_partnership and matagorda limited_partnership ii with respect to a partnership called madison recycling associates madison recycling according to the private offering memoran- dum madison recycling was a new york limited_partnership formed on date 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 date without consulting petitioner mr korchak purchased an interest in madison recycling for dollar_figure mr korchak’s madison recycling investment mr korchak did not use the joint checking account into which peti- tioner’s nyu salary was deposited in order to purchase mr 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 petitioner became aware of mr korchak’s madison recycling investment on date when she and mr korchak signed form_872 consent to extend the time to assess tax form_872 with respect to their taxable_year 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 distri- bution from madison recycling b the tax basis of the taxpayer’s interest s in the aforementioned partner- ship s or organization s treated by the taxpayer s as a partnership c any gain_or_loss or the charac- ter or timing thereof realized upon the sale or ex- change 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 adjust- ments to any prior tax_return and e any consequen- tial changes to other items based on such adjustment in without consulting petitioner mr korchak pur- chased a majority interest in riverside polymer systems inc riverside and ultimately invested approximately dollar_figure in that company in riverside filed for bankruptcy as a result of that bankruptcy proceeding mr korchak lost his entire 8it is not clear from the record whether the cash management account was held at a bank or another type of financial_institution and in the joint names of petitioner and mr korchak investment in that company it was only after riverside filed for bankruptcy in that petitioner became aware that mr korchak had invested approximately dollar_figure 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 tax- related 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 the preparation of joint tax returns for petitioner and mr korchak including the joint tax_return for their taxable_year and 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 signa- ture 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 accu- rately on date the return preparer signed the joint tax_return for the taxable_year of petitioner and mr korchak joint tax_return the return preparer then sent that return to mr korchak the joint tax_return showed inter alia the following wages salaries tips etc interest_income dividends refunds of state_and_local_income_taxes business income or loss from schedule c capital_gain or loss from schedule d supplemental gains or losses from form_4797 rents royalties partnerships estates trusts etc from schedule e other income total income adjusted_gross_income itemized_deductions taxable_income tax total_tax investment_credit from form_3468 balance minimum_tax tax from recapture of investment_credit total_tax total payments refund amount reported 1dollar_figure big_number big_number big_number big_number big_number big_number big_number big_number big_number big_number big_number big_number big_number big_number big_number big_number big_number big_number big_number 1of the dollar_figure of wages salaries tips etc petitioner received dollar_figure and mr korchak received the balance 2the entire loss of dollar_figure from schedule c profit or loss from business or profession was with respect to mr korchak’s bus rental investment of the loss of dollar_figure from schedule e supplemental income schedule schedule e claimed in the joint tax_return dollar_figure was attributable to certain claimed partnership losses claimed partnership losses of dollar_figure that were not identified in schedule e and the balance was attributable to two claimed rental losses viz a claimed rental loss of dollar_figure with respect to property located on hilton head island and a claimed rental loss of dollar_figure with respect to a property identified as evian and windfall profit tax withheld in of dollar_figure schedule e had the following notation with respect to the claimed partnership losses of dollar_figure see statement statement 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 dollar_figure shown in schedule e name of partnership kelly-brock drilling partners odessey partner sec_81 limited partnership1 matagorda limited_partnership ii1 madison recycling partnership loss dollar_figure big_number big_number big_number 1petitioner and mr korchak also claimed losses with respect to mr korchak’s three oil_and_gas partnerships for their taxable_year there was nothing about the claimed dollar_figure madison recycling loss that would have made that claimed loss stand out in rela- tionship to the other partnership losses claimed in the joint tax_return statement also showed for each of the partnerships identi- fied below the following amount as property qualified for investment_credit new recovery_property - other name of partnership kelly-brock drilling partners odessey partner sec_81 limited_partnership matagorda limited_partnership ii madison recycling property qualified for investment_credit new recovery_property - other dollar_figure big_number big_number big_number neither schedule e nor statement referred to form_3468 computation of investment_credit form that was included as part of the joint tax_return form_3468 part ii - qualified_investment showed the following recovery_property line class of property unadjusted_basis applicable_percentage regular percentage new property used_property a b c d 3-year other 3-year other big_number qualified_investment column x column big_number total qualified_investment in property - add line sec_1 through h and see instructions for special limits big_number form_3468 part iii - tentative regular_investment_credit showed the following 9no entries were made on line sec_1 through h and line sec_2 through of form_3468 of line big_number current_year regular_investment_credit - add lines through big_number tentative regular_investment_credit - add lines and big_number form_3468 part iv - tax_liability limitations showed the following a individuals - from form_1040 enter tax from line page plus any additional taxes from form_4970 b estates and trusts - from form_1041 enter tax from line 26a plus any sec_644 tax on trusts c corporations filers - from form_1120 schedule j enter tax from line d other organizations - enter tax before credits from return a individuals - from form_1040 enter credits from line sec_41 and of page b estates and trusts - from form_1041 enter any foreign_tax_credit from line 27a c corporations filers - from form_1120 schedule j enter any foreign_tax_credit from line a plus any possessions tax_credit from line f d other organizations - enter any foreign or possessions tax_credit income_tax_liability as adjusted subtract line from line a enter smaller of line or dollar_figure see instruction for line b if line is more than dollar_figure - enter of the excess regular_investment_credit limitation - add line sec_21a and sec_21b allowed regular_investment_credit - enter the smaller of line or line big_number big_number big_number big_number big_number big_number 10no entries were made on lines through of form_3468 11no entries were made on line sec_15 and of form_3468 business_energy_investment_credit limitation - subtract line from line business_energy_investment_credit - from line of schedule b form allowed business_energy_investment_credit - enter smaller of line or line total allowed regular and business_energy_investment_credit - add line sec_23 and sec_26 enter here and on form_1040 line schedule j form_1120 line b page or the proper line on other returns big_number big_number big_number big_number form_3468 schedule b business_energy_investment_credit schedule b referred to on line of part iv - tax_liability limitations of form_3468 showed the following type of property recovery nonrecovery class of property or life years 3-year other or more but less than or more but less than line a b c d e or more code unadjusted_basis basis applicable_percentage c big_number qualified_investment column x column big_number total energy investment_property - add line sec_1 through e column big_number enter of line big_number current_year business_energy_investment_credit - add lines through big_number tentative business_energy_investment_credit - add line sec_11 through enter here and on line of form_3468 big_number the following appeared on the bottom of schedule b of form type of property 3-year other nonrecovery c - recycling big_number it was not obvious from reviewing form_3468 that dollar_figure of the dollar_figure investment_tax_credit shown in form_3468 part iii - tentative regular_investment_credit was attributable to madison recycling and that the dollar_figure 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 dollar_figure invest- ment tax_credit attributable to madison recycling and the claimed dollar_figure business energy investment_tax_credit attributable to madison recycling as the claimed madison recycling tax_credits of dollar_figure prior to the preparation of the joint tax_return mr korchak never sought or received any_tax advice from mr sokol 12no entries were made on lines through of schedule b of form_3468 13no entries were made on line sec_12 and of schedule b of form_3468 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 schedule_k-1 issued to mr korchak dollar_figure the information set forth in the madison recycling 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 date madison recycling’s return that madison recycling filed with the irs on date in madison recycling’s return madison recycling claimed inter alia a loss of dollar_figure madison recycling’s claimed dollar_figure loss in form_3468 included as part of madison recycling’s return madison recycling claimed a basis of dollar_figure for both invest- ment tax_credit purposes and business energy investment_tax_credit purposes madison recycling’s claimed dollar_figure basis for investment_tax_credit purposes and business energy investment_tax_credit purposes if petitioner had asked mr korchak before she signed the 14the parties stipulated and attached as an exhibit to the parties’ stipulation of facts a copy of the joint tax_return that petitioner and mr korchak filed with the irs that return did not include madison recycling schedule_k-1 issued to mr korchak joint tax_return about the claimed dollar_figure madison recycling loss and the claimed madison recycling tax_credits of dollar_figure which she did not mr korchak would have assured her that that claimed loss and those claimed credits were proper on date petitioner and mr korchak signed the joint tax_return and on date they filed it with the irs on or about date respondent issued a notice of final_partnership_administrative_adjustment to madison recy- cling’s tax_matters_partner for inter alia madison recycling’s taxable_year ended date fpaa in the fpaa respondent inter alia disallowed madison recycling’s claimed dollar_figure loss and reduced to dollar_figure madison recycling’s claimed dollar_figure basis for investment_tax_credit purposes and business energy investment_tax_credit purposes respondent’s reduction to dollar_figure of madison recycling’s claimed basis on date 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 recy- cling’s return which in turn raised questions about the claimed dollar_figure madison recycling loss and claimed madison recycling tax_credits of dollar_figure in their joint tax_return on date 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 tcmemo_2001_85 on date 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 date pursuant to that opinion the court entered a decision sustaining inter alia respondent’s disallowance of madison recycling’s claimed dollar_figure loss and respondent’s reduction to dollar_figure of madison recycling’s claimed basis that decision was affirmed on appeal 295_f3d_280 2d cir pursuant to madison recycling associates v commissioner tcmemo_2001_85 on date respondent assessed against petitioner and mr korchak a deficiency of dollar_figure in tax for their taxable_year and interest thereon of dollar_figure as provided by law resulting from the disallowance of the claimed dollar_figure madison recycling loss and the claimed madison recycling tax_credits of dollar_figure as of the time of 15in computing the liability for interest as of date respondent used the increased interest rate applicable to underpayments attributable to tax-motivated transactions estab- continued 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 in that notice respondent determined that petitioner and mr korchak are liable for their taxable_year for additions to tax under sec_6653 a b and of dollar_figure percent of the interest due on an assessed deficiency of dollar_figure and dollar_figure respectively in response to the affected items notice mr korchak filed a petition with the court in the case at docket no see supra note 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 sec_6015 with respect to the additions to tax that respondent determined for her taxable_year as well as interest thereon as provided by law on date respondent filed a motion to remand herein respondent’s motion to remand in that motion respondent stated inter alia respondent has not considered petitioner’s request for relief under sec_6015 specifically respondent has not made a determination with respect to continued lished by sec_6621 16see supra note relief under sec_6015 petitioner’s counsel has indicated that peti- tioner is seeking relief under sec_6015 and f respondent requests this court grant his mo- tion 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 sec_6015 and f on date the court denied respondent’s motion to remand but continued the trial on date respon- dent’s counsel referred petitioner’s request for relief under sec_6015 to respondent’s cincinnati service_center on or about date petitioner sent to respondent form_8857 request for innocent spouse relief and separation of liability and equitable relief with respect to her taxable_year petitioner’s form petitioner attached to peti- tioner’s form_8857 form questionnaire for requesting spouse form a preprinted form the preprinted form contained several parts identified as part through the instructions to part of form stated complete this 17the parties stipulated that respondent referred peti- tioner’s request for relief under sec_6015 to respondent’s cincinnati service_center on date and not on date that stipulation is clearly contrary to the facts that we have found are established by the record and we shall disregard it see 93_tc_181 the record establishes and we have found that respon- dent referred petitioner’s request for relief under sec_6015 to the cincinnati service_center on date part for all requests for relief the instructions to part of form 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 of form stated com- plete this part if you are requesting relief for additional tax as a result of an irs examination in form that petitioner attached to petitioner’s form_8857 petitioner’s form petitioner provided the responses indicated to the following questions in part of petitioner’s form with respect to the filing and preparation of the return 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 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 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 did you review the tax_return s before signing 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 i was married to him for 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 yes no checking savings 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 no if yes indicate the type of account s other savings checking 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 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 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 yes no 8h did you balance the checkbook to the bank statements yes no did you pick up and open the household mail yes no 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 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 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 what business experience did you have during the year s you are requesting relief none have any assets been transferred from your ex spouse to you yes if yes list the assets and the date of transfer explain why they were transferred to you no in 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 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 and the investment was lost explain any other factors you feel should be considered for granting relief during i was completely consumed with raising three sons ages and 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 of petitioner’s form that was because petitioner is not seeking relief under sec_6015 with respect to an underpayment_of_tax for her taxable_year petitioner is seeking relief under sec_6015 with respect to an understatement_of_tax for that year in part of petitioner's form petitioner provided the responses indicated to the following questions with respect to petitioner’s knowledge of any items that caused the under- statement 1a at the time of signing were you concerned about any item s omitted from or reported on the return s 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 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 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 the irs sent a notice to us with a large proposed 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 of form listed inter alia various income items and various expense items for example the various income items listed in part of form included wages rent inter- est and dividends the various expense items listed in part of form included rents mortgage loans food and utili- ties the instructions to part of form stated if you completed part complete this part if you completed part completing this part is optional however doing so now may expedite consideration of your claim pursuant to those in- structions petitioner did not complete part of petitioner’s form that was because pursuant to the instructions to part of form petitioner was not required to and did not complete part of petitioner’s form since petitioner is not seeking relief under sec_6015 with respect to an underpayment_of_tax for her taxable_year petitioner is seeking relief under sec_6015 with respect to an understate- ment of tax for that year petitioner attached form innocent spouse statement petitioner’s form to petitioner’s form_8857 an attach- ment to petitioner’s form petitioner’s attachment to petitioner’s form stated in pertinent part in 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 the couple’s second child was born and in their third and final child was born during the years between through helen was a full-time home- maker in the korchak’s moved from hackensack nj to westport connecticut in helen korchak returned to her post-doc- toral 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 through 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 posi- tions with halcon he decided to engage the services of merrill lynch as a financial advisor in 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 pur- chase of madison recycling a company that had devel- oped environmentally friendly recycling technology ernest always had a strong interest in protecting the environment and was attracted by the investment possi- bilities coupled with tax incentives in 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 lim- ited partnership_interest in madison recycling or even as to the nature of madison recycling’s business opera- tions until six years after the investment in helen earned dollar_figure ernest earned dollar_figure halcon went out of business in 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 dollar_figure in riverside using his savings including the federal_income_tax refund and money from re-mortgaging the family home unfortunately the acceptance of waterborne technology was slower than expected river- side struggled for about three years before ernest had to declare the company bankrupt in he lost his entire investment and the refund during their entire marriage ernest took exclu- sive 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 main- taining the household and performing scientific re- search work as an immunologist first at new york uni- versity from through and then at the univer- sity of pennsylvania from 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 fi- nances 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 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 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 mar- riage relationship ernest korchak perceived his role as having sole responsibility for the financial affairs of the family during the tax_year in question helen korchak was completely consumed by her responsibilities as a mother of three children then ages and 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 had decided that financial matters were his sole re- sponsibility 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 fi- nancial advisor trusting upon their judgment as mentioned above helen korchak first became aware of ernest’s investment in madison recycling in when ernest showed her a date 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 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 er- nest showed helen the notice from the internal_revenue_service in 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 contribu- tion for a new startup company riverside polymer sys- tems inc that filed for bankruptcy in and was ultimately liquidated in total not known to helen until after the fact ernest loaned or invested dollar_figure by the time it was ultimately lost in bank- ruptcy 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 dollar_figure 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 in- terest in science had she asked any questions about madison recycling her husband and the accountant would have reassured her she never benefited from her hus- band’s decision to invest in madison recycling the tax_refund was lost as part of her husband’s in- vestment in a new startup company her husband con- trolled the family’s finances and tax_return prepara- tion all the facts recited herein concerning the tax_return were not learned by mrs korchak until through the present considering the equities in this matter it would be unduly harsh to find mrs korchak liable for the tax in question it would be egre- 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 con- sideration and finding that mrs korchak is indeed an innocent spouse is respectfully requested reproduced literally sometime between date and date respondent received from mr korchak form questionnaire for non-requesting spouse with respect to petitioner’s taxable_year mr korchak’s form in mr korchak's form mr korchak provided the responses indicated to the fol- lowing questions with respect to taxable_year 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 why did you file a joint_return instead of your own separate_return i always filed married-joint upon the advice of my cpa 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 did your ex spouse review the tax_return s before signing yes no 4a if no explain why not preparation of the return has always been my responsibility - helen has always trusted me and 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 during the year s in question did you have your own separate bank account s yes no during the year s in question did you and your ex spouse have any joint bank account s yes no if yes indicate the type of account s checking savings 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 my wages were dollar_figure while helen’s were dollar_figure 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 wrote check for groceries professional expenses 6f did you review the monthly bank statements yes no 6g did you balance the checkbook to the bank statements yes no did you pick up and open the household mail yes no identify any periods of separation between you and your ex spouse during the year s in question none 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 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 have any assets been transferred from you to your ex spouse yes no if yes list the assets and the date of transfer explain why the assets were transferred transfer of principal_residence from joint_ownership solely to my wife for estate_planning reasons in order to utilize our estate_tax exemptions 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 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 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 reproduced literally on date respondent received a memorandum from petitioner’s attorney of record herein petitioner’s date memorandum petitioner’s date memorandum set forth factual contentions that are substantially the same as those set forth in petitioner’s attachment to petitioner’s form and legal arguments that are substantially the same as those set forth in the posttrial briefs that petitioner filed herein petitioner’s date memorandum also stated in pertinent part in unknown to helen korchak petitioner her husband ernest mr korchak invested in various partnerships and claimed a schedule e loss in the amount of dollar_figure on their form_1040 joint income_tax return mr and mrs korchak’s form_1040 for together with schedules consists of pages there were also losses and investment credits for schedule c activity for rental of buses that generated a loss deduction of dollar_figure and net short-term and long- term loss deductions for u s treasury bills the schedule e deductions consisted of a dollar_figure loss from kelly-brock drilling partners a dollar_figure part- nership loss from odyssey partners a dollar_figure part- nership loss from matagorda ltd a dollar_figure partner- ship loss from madison recycling associates and a dollar_figure 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 ernest showed helen a date notice from the internal_revenue_service disallowing the madison recycling associates loss claimed on their income_tax return until then helen had no awareness or knowledge of ernest’s various investments helen’s only knowledge about the income_tax return was to provide ernest with a copy of her w-2 reporting wages in the amount of dollar_figure 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 dollar_figure the potential tax_liability exceeds the net value of the korchak’s assets at age 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 dollar_figure wages on a joint income_tax return her husband purchased interests in various part- nerships and only the loss deduction from one investment madison recycling associates was disallowed funds for the purchase came from her husband’s income 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 date in which that exam- iner concluded that petitioner was not entitled to relief under sec_6015 for her taxable_year the workpapers of re- spondent’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 tp’s are still married and maintaining a home together and are not considering divorce or sepa- ration spouse’s response nrs mr korchak states he handled all financial mat- ters and the rs petitioner trusted him and they both trusted the cpa to prepare the return properly evaluation process year sec_6015 liability arose before date a balance was due as of date rs did not make payments before date 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 sec_6015 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 over dollar_figure 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 sec_6015 continue sec_6015 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 duty to inquire 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 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 living arrangements their household and working full time 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 dollar_figure claim denied under sec_6015 sec_6015 eligibility factors evaluating the portion of deficiencies attributable to the nrs only relief is not available under sec_6015 sec_6015 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 consecutive months no economic hardship against 18the joint tax_return claimed a refund of dollar_figure 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 dollar_figure no marital abuse no poor mental or physical health no legal_obligation established rs had knowledge or reason to know against rs failed to satisfy her duty explanation to review the return or to inquire the return showed an adjusted_gross_income of over dollar_figure a tax_liability of only dollar_figure and a refund of dollar_figure 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 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 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 sec_6015 - full scope conclusion - denied under b c f reproduced literally at the time of the trial petitioner and or mr korchak owned the following properties owner petitioner petitioner petitioner petitioner petitioner petitioner petitioner petitioner petitioner and mr korchak mr korchak mr korchak type of property personal residence1 ira investment insurance_trust saturn automobile checking account house contents cri2 annuity_contract joint checking account iras boat value dollar_figure big_number big_number big_number big_number big_number big_number big_number big_number big_number big_number dollar_figure total 1from date until date petitioner and mr korchak owned as tenants_by_the_entirety the residence in which they were living on date 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 at the time of the trial the residence in which petitioner and mr korchak were living that petitioner owned was subject_to liabilities totaling dollar_figure petitioner filed a second petition with the court with respect to her taxable_year in that petition petitioner claimed that she is entitled to relief under sec_6015 with respect to the deficiency in tax assessed against petitioner and mr korchak for their taxable_year as well as interest thereon as provided by law opinion sec_6015 introduction petitioner claims that she is entitled to relief under sec_6015 for her taxable_year dollar_figure sec_6015 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 -- in general --under procedures prescribed by the secretary if- 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 for her taxable_year taxable_year a a joint_return has been made for a b on such return there is an understatement_of_tax attributable to erroneous items of 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 i sec_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 sec_6015 is similar to sec_6013 we may look at cases interpreting sec_6013 for guidance when analyzing parallel provisions of sec_6015 see 118_tc_106 affd 353_f3d_1181 10th cir the failure by a spouse requesting relief request- ing spouse under sec_6015 to satisfy any of the require- ments of that section prevents such spouse from qualifying for such relief 119_tc_306 affd 101_fedappx_34 6th cir the parties agree that petitioner satisfies sec_6015 b and e petitioner argues and respondent disputes that she satisfies sec_6015 and d sec_6015 pursuant to sec_6015 petitioner must establish that in signing the 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 dollar_figure madison recycling loss and the claimed madison recycling tax_credits of dollar_figure under- statement in the joint tax_return respondent does not dispute that in signing the joint tax_return petitioner did not have actual knowledge of the understatement in the joint tax_return the parties dispute whether in signing the joint tax_return petitioner had reason to know of the understatement in the joint tax_return according to respondent petitioner had constructive knowl- edge of the items reported in the joint tax_return respon- dent is correct that a taxpayer who signs a tax_return without reviewing it is charged with constructive knowledge of its contents see 94_tc_126 affd 992_f2d_1132 11th cir we must nonetheless determine whether in signing the joint tax_return petitioner had reason to know of the understatement in the 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 872_f2d_1499 11th cir affg tcmemo_1988_63 780_f2d_561 6th cir affg in part and revg in part on another ground tcmemo_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 er- ror s in such return see bokum v commissioner supra pincite- dollar_figure in making that determination we may examine several factors including the requesting spouse’s level of educa- tion the requesting spouse’s involvement in the family’s financial affairs the nonrequesting spouse’s evasiveness and deceit concerning the family’s financial affairs and the presence of expenditures that are lavish or unusual when compared to the requesting spouse’s past standard of living see steven sec_21see also hillman v commissioner tcmemo_1993_151 v commissioner supra 114_tc_276 93_tc_355 we shall hereinafter refer to the above factors as the education factor the involvement in financial affairs factor the evasive- ness and deceit factor and the lavish or unusual expenditures factor respectively we now address whether at the time of signing the joint tax_return petitioner was aware of the circumstances of the transactions in which madison recycling engaged that resulted in the understatement in the joint tax_return see bokum v commissioner supradollar_figure at the time she signed the joint tax_return petitioner was not even aware of mr korchak’s madison recycling investment let alone the circumstances of the transac- tions in which madison recycling engaged that resulted in madison recycling’s erroneously claimed dollar_figure loss and erroneously claimed dollar_figure million basis for investment_tax_credit purposes and business energy investment_tax_credit purposesdollar_figure 22see also hillman v commissioner supra 23madison recycling’s erroneously claimed dollar_figure loss and erroneously claimed dollar_figure 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 joint tax_return the claimed dollar_figure madison recycling loss the claimed dollar_figure 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 dollar_figure 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 pincite in contrast we have found herein that the 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 pincite in contrast we have found herein that at the time petitioner signed the joint tax_return she was not even aware of mr korchak’s madison recycling investment we have also found that there was nothing about the claimed dollar_figure madison recycling loss that would have made it stand out in relationship to the other part- nership losses claimed in the joint tax_return and that it was not obvious from reviewing form_3468 included as part of the joint tax_return that dollar_figure of the claimed dollar_figure investment_tax_credit was attributable to madison recycling and that the claimed dollar_figure business energy investment_tax_credit was attributable to madison recycling with respect to the claimed dollar_figure madison recycling loss although that loss was set forth in statement that statement also showed the following respective claimed losses of the following partnerships which accounted for dollar_figure of the total claimed partnership losses of dollar_figure shown in schedule e name of partnership kelly-brock drilling partners odessey partner sec_81 limited_partnership matagorda limited_partnership ii partnership loss dollar_figure big_number big_number thus statement showed a claimed loss from the kelly-brock drilling partners partnership that was greater than the claimed dollar_figure madison recycling loss and a claimed loss from the odessey partner sec_81 limited_partnership that was approxi- mately equal to the claimed dollar_figure madison recycling loss with respect to the claimed madison recycling credits of dollar_figure neither schedule e which had a notation to statement nor statement referred to form_3468 the form included with the 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 tax_return showed a claimed dollar_figure investment_tax_credit and a claimed dollar_figure business energy investment_tax_credit that form did not however indicate the entity or entities to which those respective claimed credits were attribut- able it is also significant that an examination of the education factor the involvement in financial affairs factor the evasive- ness 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 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 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 24we have found 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 mr korchak assumed the responsibility of managing their family’s finances and petitioner relied upon him to do so as part of continued with respect to the evasiveness and deceit factor peti- tioner 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 dollar_figure 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 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 decision sec_24 continued his responsibility for managing the family finances mr korchak made all the family financial decisions mr korchak did not discuss those decisions with petitioner 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 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 petitioner did not become aware of mr korchak’s madison recycling investment until date when she and mr korchak signed form_872 with respect to their taxable_year we have also found that petitioner was not involved in the reporting of any_tax conse- quences of such financial decisions that were claimed in the joint tax returns including the 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 that were claimed in the joint tax returns including the 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 signifi- cant changes in petitioner’s and mr korchak’s lifestyle or spending patterns 25we have found during and mr korchak received halcon distributions totaling dollar_figure and dollar_figure 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 and 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 and moreover in petitioner’s form and petitioner’s attachment to petitioner’s form petitioner indicated and respondent does not dispute here that mr korchak without consulting her invested the dollar_figure refund claimed in the joint tax_return in riverside which filed for bankruptcy in and that as a result of that bankruptcy proceeding mr korchak lost his entire dollar_figure investment in that company in addition in mr korchak’s form mr korchak indicated and respondent does not dispute here that mr korchak invested the dollar_figure refund claimed in the joint tax_return in a business venture of his namely riverside which later failed with respect to the refund of dollar_figure claimed in the joint tax_return petitioner testified that she had no specific recollec- tion regarding that return that she and mr korchak usually received tax refunds and that she had no specific recollection of the refund of dollar_figure claimed in the 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 joint tax_return petitioner was aware of the dollar_figure refund claimed in that return even if petitioner were aware at that time of that claimed refund that would not change continued on the record before us we find that a reasonably prudent taxpayer under petitioner’s circumstances at the time of signing the 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 joint tax_return could not have been expected to know that the tax_liability stated in that return was erroneous petitioner none- theless had a duty to investigate further whether the tax liabil- ity stated in that return was erroneous duty to inquire in support of that position respondent states had petitioner reviewed the 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 madi- son loss of dollar_figure and tax_credit totaling dollar_figure were large enough to put her on notice that further inquiry was warranted to determine the legiti- macy 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 dollar_figure 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 joint tax continued our findings and conclusions herein return that dollar_figure of the claimed dollar_figure investment_tax_credit was attributable to madison recycling and that the claimed dollar_figure business energy investment_tax_credit was attributable to madison recycling with respect to the claimed dollar_figure 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 included with the joint tax_return showed a claimed loss from the kelly-brock drilling partners partnership that was greater than the claimed dollar_figure madison recycling loss and a claimed loss from the odessey partner sec_81 limited_partnership that was approximately equal to the claimed dollar_figure madison recycling loss we have found that the amount of the claimed dollar_figure madison recycling loss would not have made that claimed loss stand out in relationship to the other partner- ship losses claimed in statement even if as respondent argues both the claimed dollar_figure madison recycling loss and the claimed madison recycling credits of dollar_figure had been clearly set forth in a schedule attached to the return as discussed above at the time petitioner signed the joint tax_return she must have had sufficient knowledge of the circumstances of the transactions in which madison recy- cling engaged that resulted in the understatement in that return so as to permit her to inquire into the appropriate tax treatment of such transactions see bokum v commissioner t c at dollar_figure as also discussed above at the time petitioner signed the joint tax_return she was not even aware of mr korchak’s madison recycling investment let alone the circum- stances of the transactions in which madison recycling engaged that resulted in madison recycling’s erroneously claimed dollar_figure loss and erroneously claimed dollar_figure million basis for investment_tax_credit purposes and business energy investment_tax_credit pur- posesdollar_figure on the record before us we find that a reasonably prudent taxpayer under petitioner’s circumstances at the time of signing the joint tax_return would not have had a duty to investi- gate further whether the tax_liability stated in that return was erroneousdollar_figure 26see also hillman v commissioner tcmemo_1993_151 27see supra note 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 explana- tion see eg foley v commissioner tcmemo_1995_16 estate of killian v commissioner tcmemo_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 joint tax_return about the claimed dollar_figure madison recycling loss and the claimed madison recycling tax_credits of dollar_figure 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 joint tax_return he continued based upon our examination of the entire record before us we find that in signing the 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 sec_6015 for her taxable_year sec_6015 pursuant to sec_6015 petitioner must establish that taking into account all the facts and circumstances it is inequitable to hold her liable for the deficiency in tax attrib- utable to the understatement in the joint tax_return the requirement in sec_6015 is virtually identical to the requirement of former sec_6013 and cases interpreting former sec_6013 remain instructive to our analysis alt v commissioner t c pincite the factors that we consider in determining whether it would be inequitable for purposes of sec_6015 are the same factors that we consider in determining whether it would be inequitable for purposes of sec_6015 see id pincite one factor considered in determining whether it would be inequi- table for purposes of sec_6015 and thus for purposes of continued would have assured her that the claimed dollar_figure madison recycling loss and the claimed madison recycling credits of dollar_figure 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 sec_6015 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 revproc_2003_ sec_4 a iii b 2003_2_cb_296 moreover in determining whether a requesting spouse satisfies sec_6015 we may consider inter alia whether such spouse satisfies sec_6015dollar_figure we have found that petitioner satisfies sec_6015 for her taxable_year we further find that in signing the joint tax_return petitioner did not know and had no reason to know of the understatement in that return for purposes of sec_6015 other_relevant_factors that we may consider in determining whether a requesting spouse satisfies sec_6015 include whether the requesting spouse was deserted divorced or separated marital status factor the requesting spouse would suffer economic hardship if relief were not granted eco- nomic hardship factor and 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 120_tc_137 alt v commissioner supra pincite 29see halton v commissioner tcmemo_2005_209 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 tcmemo_2001_85 respondent assessed against petitioner and mr korchak a defi- ciency of dollar_figure in tax for their taxable_year and inter- est thereon as of date of dollar_figure resulting from the disallowance of the claimed dollar_figure madison recycling loss and the claimed madison recycling tax_credits of dollar_figure if the court were to deny petitioner’s claim under sec_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 tcmemo_2005_244 and the parties’ stipulation to be bound see supra note if the court were to deny petitioner’s claim under sec_6015 petitioner and mr korchak would be jointly and severally liable for addi- tions to tax for their taxable_year under sec_6653 sec_6653 and sec_6659 of dollar_figure percent of the interest due on the assessed deficiency of dollar_figure and dollar_figure respectively petitioner contends that at the time of the trial the total liability with respect to her taxable_year greatly exceeds dollar_figure milliondollar_figure respondent contends that at that time that liabil- ity was approximately dollar_figure 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 was at least dollar_figure 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 continues to increase with the passage of time 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 total liability the parties agree that at the time of the trial the total value of the assets of peti- tioner and mr korchak was dollar_figure the parties also agree that at that time the residence in which petitioner and mr korchak were living that petitioner owned was subject_to liabili- ties totaling dollar_figure 30in petitioner’s date 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 date the total liability with respect to her taxable_year exceeded dollar_figure million 31see supra note 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 dollar_figure million of the liability for their taxable_year 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 liabil- ity 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 total liability as well as all of their basic reasonable living_expenses would be petitioner’s annual salary of dollar_figure and mr korchak’s annual salary of dollar_figure that they were receiving at the time of the trialdollar_figure 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 at age dollar_figure 32the basic reasonable living_expenses of petitioner and mr korchak include the expenses with respect to the dollar_figure of liabilities to which their residence that petitioner owned at the time of the trial was subject 33during 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 dollar_figure the record does not disclose how much if any income from such sources petitioner and mr korchak expect to receive after 34although mr korchak testified that as of the time of the trial he had no intention of retiring we note that he wa sec_71 years old at that time on the record before us we find that petitioner would suffer an economic hardship if she were required to pay the 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 based upon our examination of the entire record before us we find that taking into account all the facts and circum- stances 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 joint tax_return on that record we further find that petitioner satisfies sec_6015 for her taxable_year conclusion based upon our examination of the entire record before us we find that petitioner is entitled to relief under sec_6015 with respect to her taxable_year dollar_figure 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 35in light of our finding that petitioner is entitled to relief under sec_6015 with respect to her taxable_year we need not address petitioner’s alternative claim for relief under sec_6015 for that year to reflect the foregoing appropriate decisions for petitioner will be entered


internal_revenue_service cor-115871-00 number info release date uil the honorable earl pomeroy u s house of representatives washington d c dear mr pomeroy date thank you for your letter of date signed by you and a number of your colleagues encouraging the internal_revenue_service to immediately readjust the business standard mileage rate to reflect the recent increase in gasoline prices you note that the increased cost has particularly burdened self-employed taxpayers who use automobiles for business purposes gasoline prices we realize increased gasoline prices are an economic burden however the cost of gasoline is only one part of the business standard mileage rate which includes fixed and operating automobile costs these costs include depreciation or lease payments maintenance and repairs insurance and license and registration fees in addition to gasoline and oil less than one-third of the cents per mile rate comes from the cost of gasoline and oil thus an immediate adjustment in the rate taking into account the recent increase in gasoline prices might not be significant setting the business standard mileage rate the rate is a national average amount determined by an annual study performed by an independent_contractor who is an expert in the cost analysis of business use of automobiles the contractor uses recent data from each state on the component costs of operating the most popular automobiles the contractor then combines this data to achieve a national composite cents-per-mile rate advantages of using the business standard mileage rate reducing a taxpayer’s record-keeping burden is the principal advantage of using the rate gasoline prices rise and fall during the year but taxpayers may continue to use the same rate without having to keep records of actual expenses although rising gasoline prices can be a disadvantage for taxpayers who use the rate falling prices can work to their advantage for example although gasoline prices fell in for all of and through date taxpayers were able to use the rate that reflected the earlier higher prices taxpayer’s options to deduct the ordinary and necessary expenses of using an automobile for business purposes a taxpayer must substantiate the cost date place and business_purpose of each use of the automobile by adequate_records for the cost the taxpayer has two options cid substantiate actual cost by keeping records or by other_sufficient_evidence cid use the business standard mileage rate using the rate gives approximate not actual costs taxpayers can deduct the actual business_expenses of using a personally-owned automobile and this may be advantageous when automobile costs are rising publication travel entertainment gift and car expenses contains further information on how taxpayers should substantiate expenses i have enclosed the relevant pages from that publication i am sending a similar letter to your colleagues i hope this information is helpful please call me at or robert a berkovsky at if you have any questions sincerely charles o rossotti enclosure


internal_revenue_service department of the treasury number release date index number washington dc person to contact telephone number refer reply to cc psi 1-plr-158589-02 date feb legend x d1 dear this responds to a letter dated date submitted on behalf of x requesting relief under sec_1362 of the internal_revenue_code facts x was incorporated on d1 x intended to be treated as an s_corporation for federal_income_tax purposes effective on d1 but the s election was not timely filed law and analysis sec_1362 provides that a small_business_corporation may elect to be an s_corporation sec_1362 provides the rule on when an s election will be effective if an s election is made within the first two and one-half months of a corporation’s taxable_year then the corporation will be treated as an s_corporation for the year in which the election is made if the election is made after the first two and one-half months of a corporation’s taxable_year then the corporation will not be treated as an s_corporation until the taxable_year after the year in which the s election is made sec_1362 provides that if no election is made pursuant to sec_1362 or if made the election is made after the date prescribed for making such an election and the secretary determines there was reasonable_cause for the failure to timely make the election then the secretary may treat such an election as timely made for such taxable_year and effective as of the first day of that tax_year plr-158589-02 x did not file a timely election to be treated as an s_corporation under sec_1362 effective on d1 x has however established reasonable_cause for not making a timely election and is entitled to relief under sec_1362 conclusion based solely on the facts submitted and representations made and provided that x otherwise qualifies as a subchapter_s_corporation we conclude that x will be recognized as an s_corporation effective d1 within days from the date of this letter x should submit a properly completed form_2553 with a copy of this letter attached to the relevant service_center except as expressly provided herein no opinion is expressed or implied concerning the tax consequences of any aspect of any transaction or item discussed or referenced in this letter this ruling is directed only to the taxpayer requesting it sec_6110 provides that it may not be used or cited as precedent in accordance with the power_of_attorney on file with this office a copy of this letter is being sent to your authorized representative s dianna k miosi sincerely dianna k miosi chief branch associate chief_counsel passthroughs and special industries enclosures copy of this letter copy for sec_6110 purposes


significant index no department of the treasury internal_revenue_service washington d c tax_exempt_and_government_entities_division oct seit ep ra az re taxpayer ein - plans for which substitute mortality tables were requested plan ein - plan2 ein - - - - ein ein ein plan plan plan other plans in the taxpayer’s controlled_group plan dear ein - this letter is to inform you that your request to use substitute mortality tables for making computations under sec_430 of the internal_revenue_code the code for plan sec_1 and has been granted with respect to the populations specified in this letter effective for a period of plan years beginning with the plan_year commencing january your request has been granted in accordance with sec_430 of the code and sec_303 of the employee_retirement_income_security_act_of_1974 specifically this approval applies to the following populations the included group’ e aggregated_plan sec_1 and - male annuitants aggregated_plan sec_1 and - female annuitants based on the information provided by the taxpayer the following populations do not have credible mortality experience and therefore the standard mortality tables will be used for calculations under sec_430 of the code aggregated_plan sec_1 and - male and female nonannuitants plan - all participants plan - all participants plan - all participants plan - all participants in granting this approval we have only considered whether the substitute mortality rates were developed correctly in accordance with sec_1_430_h_3_-2 of the treasury regulations regulations and revrul_2017_55 accordingly we are not expressing any opinion as to the accuracy or acceptability of any calculations or other material submitted with your request male rate rate male female female annuitant annuitant annuitant base_year substitute mortality tables approved for use beginning with the plan_year commencing january permission is hereby granted to use the substitute mortality rates shown in the table below for the included group age age annuitant rate rate annuitant annuitant annuitant annuitant female female male rate male rate rate rate male female annuitant rate annuitant rate male annuitant rate female annuitant rate age age the above rates were developed based on an experience study period from january the rates were calculated through december with a base_year of by adjusting the applicable standard mortality tables in sec_1_430_h_3_-1 of the regulations indicated in the table below using the mortality ratio and credibility weighting factor individually determined for each separate population as shown in the table below included group population standard base mortality_table mortality ratio credibility factor male annuitants female annuitant mortality male annuitant mortality female annuitants_ the internal_revenue_service has reviewed the substitute mortality rates and supporting information and has determined that based on the information submitted the rates were correctly developed in accordance with sec_1_430_h_3_-2 of the regulations and revrul_2017_55 the above rates must be applied on a generational basis as provided in sec_1_430_h_3_-2 of the regulations your attention is called to sec_430 of the code and sec_1 h - d of the regulations which describe the circumstances in which the use of the substitute mortality_table will terminate before the end of the 10-year period described above in general the substitute mortality tables can no longer be used as of the earliest of 2u19yvu2u for a plan using a substitute mortality_table for only one gender the first plan_year for which there is full or partial credible mortality information with respect to the other gender that had lacked credible mortality information unless an approved substitute mortality_table is used for that gender the first plan_year in which the plan fails to satisfy the requirements of paragraph h -2 c of the regulations regarding the requirement that other plans and populations in the controlled_group must also use substitute mortality tables unless it can be demonstrated that they do not have credible mortality information taking into account the transition_period for newly affiliated companies in sec_1_430_h_3_-2 of the regulations the second plan_year following the plan_year for which there is a significant change in individuals covered by the plan as described in sec_1_430_h_3_-2 of the regulations the plan_year following the plan_year in which a substitute mortality_table used for a plan population is no longer accurately predictive of future mortality of that population as determined by the commissioner or as certified by the plan’s actuary to the satisfaction of the commissioner or the date specified in guidance published in the internal_revenue_bulletin pursuant to a replacement of mortality tables specified under sec_430 of the code and h -1 of the regulations other than annual updates to the static mortality tables issued pursuant to h - a of the regulations or changes to the mortality improvement rates pursuant to sec_1_430_h_3_-1 of the regulations we draw your attention to the fact that the aggregated_plan and plan male nonannuitants experienced deaths during the experience study period using the simplified rule described in sec_1_430_h_3_-2 of the regulations note that this population will have credible mortality experience if it experiences at least deaths during a 4-year period corresponding to the length of the experience study used to construct the substitute mortality tables for the other populations it will be important to monitor this population to ensure that appropriate action is taken if this occurs to avoid violating paragraph above this ruling is directed only to the taxpayer that requested it sec_6110 of the code provides that it may not be used or cited by others as precedent when filing form_5500 for the plan years for which the substitute mortality tables are used please note the information that is required to be attached to schedule sb actuarial information in accordance with the instructions to that form we have sent a copy of this letter to your authorized representative pursuant to a power_of_attorney form on file in this office and to the manager ep classification in columbus ohio and to the manager ep compliance unit in chicago illinois if you require further assistance in this matter please contact id at sincerely cc david m ziegler manager employee_plans actuarial group