t c memo united_states tax_court lois wiener petitioner v commissioner of internal revenue respondent docket no filed date larry kars for petitioner shawna a early for respondent memorandum findings_of_fact and opinion marvel judge this case arises under section from petitioner’s request for relief from joint_and_several_liability for unpaid federal_income_tax liabilities for and 1unless otherwise indicated all section references are to the internal_revenue_code as amended and all rule references are to the tax_court rules_of_practice and procedure tax_liabilities respondent determined petitioner was not entitled to relief petitioner timely petitioned the court to review respondent’s determination the issue for decision is whether respondent correctly determined that petitioner was not entitled to relief under sec_6015 or f findings_of_fact some of the facts have been stipulated and are so found the stipulation of facts and supplemental stipulation of facts are incorporated herein by this reference petitioner resided in new york when her petition was filed background petitioner and jay wiener mr wiener were married in as of the date of trial they were still married on the date of trial petitioner wa sec_75 years old and mr wiener wa sec_75 years old both have a history of health problems mr wiener’s medical_condition sends him to the hospital for several days at a time approximately twice each year petitioner graduated with a bachelor of arts degree from syracuse university in her course work did not include accounting finance or math classes from through petitioner worked in the customer service_department of at t in petitioner became a full-time homemaker petitioner remained a full-time homemaker until around the time of trial when she began selling clothing from her home petitioner relied on mr wiener to take care of family financial and tax matters including the management of the loismae wiener trust a_trust created by petitioner’s mother petitioner was a beneficiary of the trust and mr wiener was the trustee during the years at issue mr wiener owned his own business which was the principal source of support for him and for petitioner at some point during this period mr wiener’s business began to experience cashflow problems and he started taking funds from the charles wiener trust as of the date of trial mr wiener was in the process of closing his business because it had not generated income for or years on the date of trial the wieners’ cashflow consisted primarily of social_security payments funds from the loismae wiener trust and funds from the charles wiener trust 2the last will and testament of petitioner’s mother hazel kellmanson which created the loismae wiener trust gave mr wiener in his discretion as trustee the power to distribute income and principal to petitioner during her lifetime for her support maintenance and general welfare 3the charles wiener trust apparently was a testamentary_trust created by mr wiener’s father mr wiener’s mother was the trustee over a time period that is undefined in the record mr wiener received approximately dollar_figure from the charles wiener trust mr wiener signed over some of the checks issued by the trust to his business mr wiener claims the trust payments were loans however the alleged loans were not memorialized by promissory notes and mr wiener made no interest payments the trust agreement for the charles wiener trust was not introduced into evidence so we cannot ascertain from the agreement itself the identity of the trust beneficiaries petitioner had begun selling clothing from her home and mr wiener was looking for a job during the years in issue petitioner and mr wiener maintained a joint checking account petitioner wrote household checks from the account and mr wiener wrote larger checks such as those for investments or real_estate_taxes when petitioner wrote household checks she told mr wiener the total amount of the checks so that he could deposit additional funds into the account if necessary petitioner and mr wiener usually discussed large purchases before mr wiener wrote checks to pay for the purchases the bank statements for the joint checking account were mailed to the wieners’ home address mr wiener reconciled the account and monitored the checkbook balance during the years at issue and in the following years the wieners’ lifestyle was modest although petitioner traveled with mr wiener on at least one business trip to egypt and mr wiener purchased a ring for petitioner as a 30th anniversary present the wieners did not take expensive vacations nor did they purchase any other jewelry or luxury items mr wiener was not abusive to petitioner nor did he threaten petitioner however as set forth more fully below mr wiener withheld information regarding important financial and tax matters from his wife and misled her regarding the tax_liabilities during the period from to sinclair global arbitrage sometime before date martin bond mr bond mr wiener’s accountant introduced mr wiener to sinclair global arbitrage sga a limited_partnership and recommended that he invest in it mr wiener attended several meetings with mr bond regarding sga but petitioner did not mr wiener ultimately decided to invest in sga on date mr wiener wrote two checks to sga totaling dollar_figure from the wieners’ joint checking account on date mr wiener wrote another check to sga for dollar_figure petitioner did not sign any of the checks nor did she know about them mr wiener did not tell his wife anything about the investment in sga mr wiener received a schedule_k-1 partner’s share of income credits deductions etc for which reported that mr wiener was a limited_partner in sga who owned a 8169-percent 4mr wiener testified that the funds he used to make the sga investment actually came from his business mr wiener claimed that because he had to make the investment personally he withdrew the necessary funds from his business and deposited the funds in the wieners’ joint checking account although petitioner did not introduce any documentation supporting mr wiener’s testimony mr wiener testified that he attempted to get documentation from his bank and that the documentation was no longer available because of the passage of time partnership_interest petitioner’s name did not appear on the schedule_k-1 nor did it appear on any correspondence from sga tax returns petitioner and mr wiener filed joint federal_income_tax returns for and mr bond prepared the returns from information given to him by mr wiener or mr wiener’s office manager petitioner did not provide information for the preparation of the tax returns to mr bond nor did petitioner discuss the returns with mr bond after he prepared them after mr bond prepared each year’s return he would bring the return to mr wiener’s office mr wiener signed both his name and petitioner’s name to the return and mailed it to the irs petitioner did not review any of the returns for or each of the returns reported an overpayment and claimed a refund petitioner did not know about the refunds and she did not benefit from them beyond normal support 5petitioner states on brief that she gave mr wiener her permission to sign the returns for her and she does not dispute that the returns were joint returns for purposes of sec_6015 6on the questionnaire that petitioner submitted to the irs in support of her request for relief she stated that she signed the returns but at trial she testified that she did not sign the returns 7mr wiener testified that he believes he deposited the refund checks resulting from his distributive_share of the sga losses for into the wieners’ joint account and then transferred the refund amounts to his business the wieners’ joint returns for and deducted sga partnership losses of dollar_figure dollar_figure and dollar_figure respectively respondent audited sga for and disallowed certain partnership deductions and mailed a notice_of_deficiency to petitioner and mr wiener that disallowed the sga loss deductions and determined deficiencies for and a petition was filed in this court on behalf of the wieners seeking a redetermination of the deficiencies for docket no on date the court entered a stipulated decision in docket no petitioner did not sign the stipulated decision in accordance with the stipulated decision on date respondent assessed income_tax liabilities against the wieners of dollar_figure and dollar_figure for and respectively and on date respondent assessed an income_tax_liability against the wieners of dollar_figure for on date approximately months after respondent assessed the tax_liabilities petitioner transferred the marital home the morris lane property to the 8petitioner was not involved in the audit and mr wiener did not tell her about it 9respondent also assessed interest for the years 10the record does not disclose how the morris lane property was titled before it was transferred to the charles wiener trust however the parties to the indenture that conveyed the morris continued charles wiener trust ostensibly in consideration for substantial sums previously advanced to mr wiener by the trust on the date of the transfer petitioner did not know about the tax_liabilities or that she was personally liable for them after the transfer petitioner and mr wiener continued to live at the morris lane property and they paid the mortgage and other household expenses from their joint checking account on date respondent filed a notice_of_federal_tax_lien against petitioner and mr wiener with respect to the tax_liabilities in the wieners entered into an installment_agreement with respondent to pay the tax_liabilities mr wiener told petitioner at the time that the tax_liabilities related to his business and that he would take care of them under the installment_agreement the wieners were required to pay dollar_figure per month no later than the 30th of each month beginning in may dollar_figure the wieners generally made timely payments through date starting in date the wieners made installment continued lane property to the charles wiener trust were petitioner and the charles wiener trust we infer from this that petitioner owned the morris lane property before the date transfer 11the parties stipulated that payments were to begin in date however the installment_agreement lists date as the first due_date and the wieners’ certificates of official record for and show monthly payments starting in date payments of dollar_figure each month until date when they stopped making payments in pursuant to an agreement between the irs and the wieners the federal_tax_lien that had attached to the morris lane property was released and the morris lane property was sold petitioner and mr wiener purchased a new residence in armonk new york that under the agreement with the irs was titled in their joint names and was subject_to the federal_tax_lien the new home was purchased with the proceeds from the sale of the morris lane property the record does not contain documentation establishing who sold the morris lane property and in whose name the new residence was titled however mr wiener testified that the agreement with the irs required the new residence to be titled in the names of both petitioner and mr wienerdollar_figure petitioner’s innocent spouse claim in in connection with collection activities related to the tax_liabilities petitioner learned for the first time that the tax_liabilities were attributable to mr wiener’s investment in sga at that time one of respondent’s revenue 12petitioner and mr wiener reside in the new residence and petitioner listed the residence as an asset on a form 433-a collection information statement for wage earners and self- employed individuals that she submitted to the irs on or about date we infer from the record as a whole that the wieners’ current marital home is titled in both of their names officers suggested that petitioner apply for relief from the tax_liabilities under sec_6015 on or about date petitioner filed form_8857 request for innocent spouse relief and separation of liability and equitable relief on which she requested relief from joint_and_several_liability for the tax_liabilities pursuant to sec_6015 c and f on or about date respondent issued a letter to petitioner informing her that her request for relief had been denied petitioner filed a protest with respondent’s appeals_office on date respondent issued a notice_of_determination that denied petitioner’s request for relief under sec_6015 for each of the years in issue the notice_of_determination was addressed to petitioner but the salutation referenced ms nick the notice simply stated that we did not find you eligible for relief under sec_6015 c or f and gave no indication of the analysis that the appeals_office used or the evidence it relied on in making its determination petitioner timely petitioned this court pursuant to sec_6015 alleging that respondent’s determination that petitioner was not entitled to relief for was in error on or about date petitioner submitted a form a collection information statement for wage earners and self- employed individuals to respondent on the form 433-a petitioner did not disclose that she had a beneficial_interest in the loismae wiener trust established under the will of her deceased mother nor did she disclose the existence of the charles wiener trust from which mr wiener had obtained substantial funds in the past to support his business petitioner did disclose however that as of date she and mr wiener owned the following assets asset fair_market_value various bank accounts marital home furniture personal effects jewelry dollar_figure dollar_figure dollar_figure dollar_figure she also disclosed that she and mr wiener had some dividend and interest_income that both she and mr wiener received social_security payments and that the wieners’ total monthly living_expenses exceeded their gross monthly income because petitioner and mr wiener own their home and have no outstanding mortgage their total monthly living_expenses did not include any mortgage or rent payment at trial petitioner introduced copies of several account statements for the loismae wiener trust account at charles schwab co and various checks dated in that had cleared the account the payees on the checks included 13petitioner however did disclose the existence of her beneficial_interest in the loismae wiener trust on her and federal_income_tax returns petitioner mr wiener and his business the value of the loismae wiener trust account at charles schwab co as of date was dollar_figure opinion in general married taxpayers who file a joint federal_income_tax return for a taxable_year are jointly and severally liable for the full amount of that year’s tax_liability sec_6013 114_tc_276 under sec_6015 however a spouse may obtain relief from joint_and_several_liability if the spouse satisfies certain requirementsdollar_figure sec_6015 provides that a spouse who has made a joint_return may elect to seek relief from joint_and_several_liability under sec_6015 dealing with relief from liability for an understatement_of_tax on a joint_return sec_6015 provides that a spouse who is eligible to do so may elect to limit that spouse’s liability for any deficiency with respect to a joint_return under sec_6015 relief from joint_and_several_liability under sec_6015 or c is available only with respect to a deficiency for the year for which relief is sought sec_6015 c see h conf sec_6015 applies to tax_liabilities arising after date and to tax_liabilities arising on or before date but remaining unpaid as of such date internal_revenue_service restructuring and reform act of rra publaw_105_206 112_stat_740 rept pincite 1998_3_cb_747 if relief is not available under either sec_6015 or c an individual may seek equitable relief under sec_6015 petitioner contends that she is entitled to full relief from liability under sec_6015 or f dollar_figure our jurisdiction to review petitioner’s request for relief is conferred by sec_6015 which allows a spouse who has requested relief from joint_and_several_liability to contest the commissioner’s denial of relief by filing a timely petition in this court a sec_6015 sec_6015 authorizes the commissioner to grant relief from joint_and_several_liability if the taxpayer requesting relief satisfies each requirement of subparagraphs a through e sec_6015 provides sec_6015 procedures for relief from liability applicable to all joint filers -- in general --under procedures prescribed by the secretary if-- a a joint_return has been made for a taxable_year b on such return there is an understatement_of_tax attributable to erroneous items of individual filing the joint_return 15the parties agree that petitioner does not qualify for relief under sec_6015 because she is still married to mr wiener 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 the requirements of sec_6015 are stated in the conjunctive therefore if the requesting spouse fails to meet any one of them she does not qualify for relief 119_tc_306 affd 101_fedappx_34 6th cir except as provided by sec_6015 the requesting spouse bears the burden of proving that she satisfies each requirement of sec_6015dollar_figure see rule a jonson v sec_7491 shifts the burden_of_proof in cases arising in connection with examinations commencing after date rra sec c 112_stat_727 because respondent’s examination of the wieners’ returns began before date continued commissioner 118_tc_106 affd 353_f3d_1181 10th cir respondent concedes that petitioner meets the requirements of subparagraphs a and e of sec_6015 however he argues that petitioner has not satisfied the requirements set forth in subparagraphs b c or d of sec_6015 sec_6015 sec_6015 requires that the tax returns in issue contain an understatement of income_tax attributable to the nonrequesting spouse the parties agree that the understatements of income_tax arose from the disallowance of sga’s partnership losses petitioner argues that the investment in sga is wholly attributable to mr wiener respondent contends that the investment is attributable to both spouses as a jointly held investment because mr wiener purchased the interest with checks from the wieners’ joint checking account respondent cites two of this court’s opinions to support the proposition that investments made with funds from joint bank accounts are joint investments the cases however are distinguishable in ellison v commissioner tcmemo_2004_57 we for several reasons held that the partnership interests in issue continued sec_7491 does not apply which were purchased with joint funds were jointly owned the requesting spouse had agreed to invest jointly with her husband in the partnerships id the partnership interests were purchased with joint funds and were held in joint name the partnerships treated the requesting spouse as a partner as evidenced by the schedules k-1 and other partnership documents id similarly in capehart v commissioner tcmemo_2004_268 affd 204_fedappx_618 9th cir we held that the partnership interests in issue which were also purchased with joint funds were jointly owned both spouses signed the partnership’s subscription agreement and selected the joint_ownership option provided on the agreement id see also abelein v commissioner tcmemo_2004_274 the requesting spouse in capehart was actively involved in the investment she wrote checks to pay for the investment made telephone calls regarding the investment and received and reviewed partnership documents capehart v commissioner supra see also abelein v commissioner supra petitioner had no involvement with or knowledge of sga when mr wiener invested in it petitioner did not write any checks to or communicate with sga mr wiener did not tell petitioner about the sga investment until approximately years after the investment was made and petitioner was not otherwise aware of the sga investment furthermore sga did not address any communications to petitioner and the schedule_k-1 the only one in evidence was issued solely in mr wiener’s name petitioner testified that she did not know about the sga investment until she learned about it as the result of contacts that were made in approximately more than years after mr wiener had invested in sga by an irs employee who was trying to collect the unpaid tax_liabilities we accept as credible petitioner’s testimony regarding when she first learned about the sga investment we also accept as credible_evidence showing that mr wiener wrote the sga checks from the wieners’ joint checking account without petitioner’s knowledge and that the resulting_partnership interest was registered only in his name moreover mr wiener credibly testified that the funds to make the sga investment came from his business we conclude on the totality of the facts and circumstances that the disallowed losses were generated with respect to an investment made by and registered to mr wiener and the tax understatements resulting therefrom were attributable to mr wiener not to petitioner sec_6015 sec_6015 requires a requesting spouse to prove that when she signed the return for the year for which she is seeking relief she did not know and had no reason to know of an understatement_of_tax on the return based on the record we are satisfied that petitioner did not have actual knowledge of the understatements attributable to the sga investment at the time mr wiener signed the returns on her behalf however we must also decide whether on the dates mr wiener signed the returns on petitioner’s behalf petitioner had reason to know that the returns understated the wieners’ tax_liabilities for those years this case is appealable barring a stipulation to the contrary to the court_of_appeals for the second circuit consequently we are bound to apply the law of the circuit as summarized below see 54_tc_742 affd 445_f2d_985 10th cir the court_of_appeals for the second circuit has adopted the reason to know standard utilized in 887_f2d_959 9th cir revg an oral opinion of this court see 992_f2d_1256 2d cir affg tcmemo_1992_228 a taxpayer has reason to know of an understatement if a reasonably prudent taxpayer in her position at the time she signed the return could be expected to know that the return contained the understatement see price v commissioner supra pincite factors to consider in analyzing whether a taxpayer had reason to know of the understatement include the taxpayer’s level of education the taxpayer’s involvement in the family’s business and financial affairs the presence of expenditures that appear lavish or unusual when compared to the family’s past levels of income standard of living and spending patterns and the culpable spouse’s evasiveness and deceit concerning the couple’s finances see hayman v commissioner supra pincite price v commissioner supra pincite citing 872_f2d_1499 11th cir affg t c memo our analysis of certain of the above-listed factors is generally in petitioner’s favor petitioner was a college graduate without any business tax or accounting background she paid only the household bills petitioner did not reconcile the joint checking account she informed mr wiener as to the total amount of the checks she wrote and he deposited sufficient money into the account to cover the checks if necessary although mr wiener generally consulted petitioner when he wrote checks for larger expenditures mr wiener alone was responsible for the couple’s investments and did not discuss those investments with petitioner when petitioner finally asked mr wiener about tax_liabilities necessitating the installment_agreement he told petitioner that they related to his business in which petitioner was not involved we also note that the wieners’ lifestyle did not improve during the years in issue and petitioner did not benefit from the tax refunds beyond normal support the wieners did not take luxurious vacations or purchase expensive items during the years in issue or in later years the foregoing recitation of facts does not complete the required analysis however under price v commissioner supra a taxpayer has reason to know of an understatement if she has a duty to inquire and fails to satisfy that duty the requesting spouse has a duty to inquire when she knows enough facts to put her on notice that such an understatement exists id pincite a tax_return reporting a large deduction that significantly reduces a couple’s tax_liability generally puts the taxpayer who joins in filing a joint_return on notice that the return may contain an understatement see levin v commissioner tcmemo_1987_67 the requesting spouse is deemed to have constructive knowledge of the understatement if she fails to inquire price v commissioner supra pincite see also von kalinowski v commissioner tcmemo_2001_21 requesting spouse found to possess constructive knowledge of understatement where income of dollar_figure was offset by losses of dollar_figure petitioner did not prepare the tax returns nor did she speak with mr bond about any of the tax returns in issue petitioner did not review or sign the returns before they were fileddollar_figure in so doing petitioner abdicated her right to review 17although the record contains some contradictory evidence continued and sign her joint tax returns in favor of her husband who did have knowledge of the sga losses and the resulting refunds that were claimed on the returns a taxpayer who files a joint_return with her spouse may not turn a blind eye to the joint_return and thereby avoid the duty to inquire price v commissioner supra pincite citing levin v commissioner supra see also hayman v commissioner supra pincite petitioner is charged with constructive knowledge of what she would have seen if she had examined her returns what she would have seen was the deduction of a large loss attributable to sga on each return her constructive knowledge of the sga deductions was sufficient to impose on her an obligation to inquire but she failed to make any inquiry regarding the sga losses claimed on the returns even a cursory examination of the joint returns would have revealed substantial overpayments that were directly attributable to the large sga losses claimed on schedules e supplemental income schedule attached to the returns the losses significantly reduced or eliminated the wieners’ adjusted_gross_income in each of the years a reasonably prudent person with a college-level education filing a joint_return with his or her spouse would have questioned deductions of such magnitude see eg 117_tc_279 continued we accept petitioner’s testimony that she did not review or sign the joint returns before mr wiener filed them with the irs losses that almost completely eliminated wages imposed duty to inquire we conclude that petitioner under the facts and circumstances of this case had a duty to inquire regarding the partnership losses claimed on her returns because she failed to satisfy her duty_of inquiry we find that she had reason to know of the understatements see hayman v commissioner f 2d pincite mora v commissioner supra pincite petitioner failed to prove that she satisfied all of the requirements of sec_6015dollar_figure consequently we sustain respondent’s determination denying petitioner relief from joint_and_several_liability under sec_6015 b sec_6015 sec_6015 provides an alternative means of relief for a requesting spouse who does not otherwise qualify for relief 18because petitioner abdicated her right and responsibility to inspect her joint tax returns and therefore did not make any attempt to inquire regarding the sga losses on the returns this case is distinguishable from 53_f3d_523 2d cir affg in part and revg in part tcmemo_1993_549 in friedman v commissioner supra pincite the court_of_appeals for the second circuit concluded that a spouse requesting relief under former sec_6013 the predecessor to sec_6015 had satisfied her duty_of inquiry when she asked her husband about the propriety of deductions claimed on the joint_return and was told that they came from a tax_shelter but that she should not worry 19because petitioner failed to satisfy the sec_6015 requirement we need not address or decide whether petitioner satisfied the sec_6015 requirement under subsection b or c of sec_6015 sec_6015 under sec_6015 the secretary may grant equitable relief to a requesting spouse based upon the facts and circumstances of the requesting spouse’s case this court like other federal courts is a court of limited jurisdiction and it may exercise its jurisdiction only to the extent authorized by congress sec_7442 114_tc_171 85_tc_527 sec_6015 e confers jurisdiction on this court to review a determination under sec_6015 it provides in pertinent part as follows sec_6015 petition for review by tax_court -- in general --in the case of an individual against whom a deficiency has been asserted and who elects to have subsection b or c apply or in the case of an individual who requests equitable relief under subsection f -- a in general -- in addition to any other remedy provided by law the individual may petition the tax_court and the tax_court shall have jurisdiction to determine the appropriate relief available to the individual under this section 20congress amended sec_6015 to confirm the tax court’s jurisdiction over stand-alone sec_6015 cases effective with respect to a liability arising or remaining unpaid after date see tax relief and health care act of trhca publaw_109_432 div c sec_408 120_stat_3061 because this case involves tax_liabilities remaining unpaid after date sec_6015 as amended by trhca applies however our jurisdiction in this case does not depend upon sec_6015 as amended because this is not a stand-alone case for relief solely under sec_6015 and a deficiency in tax has been asserted against petitioner regarding the standard of review that the court applies in determining whether a taxpayer is entitled to relief under sec_6015 we have held that we ordinarily examine the commissioner’s determination to deny equitable relief under sec_6015 for abuse of discretiondollar_figure see 120_tc_137 butler v commissioner t c pincite however in porter v commissioner t c ___ a case that decided the appropriate scope of review in sec_6015 cases the opinion of the majority refrained from deciding any issue relating to the standard of review id at ___ ndollar_figure slip op pincite n and the concurring opinion of judge wherry in which seven other judges joined questioned whether our existing precedent was still applicable in light of the amendments to sec_6015 and contended that a de novo standard of review is now the correct standard of review in sec_6015 cases id at ___ slip op pincite we need not and do not decide herein the issue of the appropriate standard of review under sec_6015 we cannot apply an abuse_of_discretion standard because the notice_of_determination that is in the record did nothing more than deny 21under this standard of review we defer to the commissioner’s determination unless it is arbitrary capricious or without sound basis in fact 118_tc_106 affd 353_f3d_1181 10th cir a requesting spouse bears the burden of proving that the commissioner abused his discretion in denying relief under sec_6015 see rule a jonson v commissioner supra pincite petitioner relief under sec_6015 the notice_of_determination did not contain any analysis or recite any factual determinations that we can review for abuse_of_discretion the only analysis to which we are privy is the analysis contained in an undated supplemental case memo that the parties stipulated was issued by respondent’s appeals officer the supplemental case memo states as follows this case was returned from counsel for further consideration counsel felt that there were inconsistencies in the analysis counsel also felt that the appeals determination was based on the examiner’s determination and did not reflect an independent determination the unnamed appeals officer then addresses the inconsistencies but does not show how he or she analyzed the factors that revproc_2000_15 2000_1_cb_447 discussed below required the appeals officer to consider because we cannot ascertain what analysis was made by the appeals officer in reaching his or her determination that petitioner is not entitled to relief under sec_6015 we cannot review the determination for abuse of discretiondollar_figure instead we shall examine the trial record de novo to decide whether respondent properly concluded that petitioner is not entitled to relief the commissioner prescribed procedures in revproc_2000_ supra that irs personnel must use to determine whether a 22we have held that we do not remand sec_6015 cases 124_tc_220 requesting spouse qualifies for relief under sec_6015dollar_figure although the notice_of_determination does not state that respondent used the procedures specified in revproc_2000_15 supra the appeals officer who considered petitioner’s request for relief was obligated to do so in addition this court has applied the procedures and analysis specified in revproc_2000_ supra in reviewing the commissioner’s determination to deny relief under sec_6015 in other cases see eg washington v commissioner supra pincite jonson v commissioner t c pincite in this case both of the parties rely on revproc_2000_15 supra and both parties address the factors enumerated therein revproc_2000_15 sec dollar_figure before the commissioner will consider a taxpayer’s request for relief under sec_6015 the taxpayer must satisfy the following seven threshold conditions listed in revproc_2000_ sec_4 c b pincite the requesting spouse filed a joint_return for the taxable_year for which relief is sought relief is not available to the requesting spouse under sec_6015 or sec_6015 23rev proc 2003_2_cb_296 which supersedes revproc_2000_15 2000_1_cb_447 is effective for requests for relief filed on or after date and for requests for relief pending on date for which no preliminary determination_letter has been issued as of that date petitioner requested relief on date and respondent issued the preliminary determination_letter before date therefore revproc_2003_61 supra is inapplicable here the requesting spouse applies for relief no later than two years after the date of the service’s first collection activity after date with respect to the requesting spouse except as provided in the next sentence the liability remains unpaid a requesting spouse is eligible to be considered for relief in the form of a refund of liabilities for a amounts paid on or after date and on or before date and b installment payments made after date pursuant to an installment_agreement entered into with the service and with respect to which an individual is not in default that are made after the claim for relief is requested no assets were transferred between the spouses filing the joint_return as part of a fraudulent scheme by such spouses there were no disqualified assets transferred to the requesting spouse by the nonrequesting spouse if there were disqualified assets transferred to the requesting spouse by the nonrequesting spouse relief will be available only to the extent that the liability exceeds the value of such disqualified assets for this purpose the term disqualified_asset has the meaning given such term by sec_6015 and the requesting spouse did not file the return with fraudulent intent although respondent’s position is not entirely clear respondent appears to concede that petitioner meets conditions and respondent however objects to the transfer of the wieners’ principal_residence to the charles wiener trust approximately months after the tax_liabilities were assessed and appears to contend that the transfer was either a fraudulent transfer between spouses see revproc_2000_15 sec_4 or a transfer of a disqualified_asset see id sec_4 a transfer of assets between spouses revproc_2000_15 sec_4 does not define the phrase transferred between the spouses at first glance it does not appear that a transfer of a principal_residence by the requesting spouse to a_trust created by or under the will of a third party in this case a relative of mr wiener would qualify as a transfer between spouses respondent contends that the transfer was not an arm’s-length transfer was not for adequate_consideration and was not valid respondent does not really explain however how these complaints render the transfer a fraudulent transfer between spouses within the meaning of revproc_2000_15 sec_4 the transfer about which respondent complains was a transfer of the morris lane property which petitioner and mr wiener used as their personal_residence to the charles wiener trust the transfer was effected by an indenture that petitioner executed on date in favor of the trust the real_property transfer report attached to the indenture recites that the transfer took the form of a sale on date that it was not an arm’s-length sale and that the sale price was dollar_figure mr wiener testified that the transfer was made in consideration of approximately dollar_figure of loans the charles wiener trust had made over an undefined period of time to help finance his business although we understand respondent’s concern about the timing of the transfer we reject respondent’s implied argument that the transfer was a transfer between spouses as part of a fraudulent scheme by such spouses within the meaning of revproc_2000_15 sec_4 the transfer was not between petitioner and mr wiener it was between petitioner and the charles wiener trust nothing in revproc_2000_15 sec_4 suggests that a transfer of an asset between the requesting spouse and a_trust qualifies as a transfer between spouses although we can envision a situation where a_trust might qualify as the alter ego of a spouse in certain circumstances respondent does not argue that a transfer to the charles wiener trust was the substantive equivalent of a transfer to mr wienerdollar_figure however even if petitioner’s transfer of the morris lane property to the charles wiener trust could be characterized as a transfer between spouses within the meaning of revproc_2000_ sec_4 we cannot conclude on the record before us that the transfer was part of a fraudulent scheme between the wieners we have found that petitioner the sole owner of the morris lane property before its transfer to the charles wiener trust did not 24the record contains documents pertaining to the transfer of the house that were signed by mr wiener’s mother who was the trustee of the charles wiener trust know about her liability for the tax_liabilities before she transferred the property to the trust petitioner credibly testified that she found out about the tax_liabilities during the course of finalizing the installment_agreement and that she did not discover the liabilities were the result of mr wiener’s investment in sga until dollar_figure we conclude that the transfer in question was not a fraudulent transfer between spouses within the meaning of revproc_2000_15 sec_4 and that therefore the revproc_2000_15 sec_4 requirement is satisfied b transfer of disqualified assets revproc_2000_15 sec_4 sets forth the following threshold condition that a requesting spouse must satisfy in order to qualify for relief under sec_6015 25we also note that respondent probably benefited from the transfer we infer from the evidence that the morris lane property was titled in petitioner’s name before petitioner conveyed it to the charles wiener trust when petitioner and mr wiener wanted to sell the morris lane property and buy a smaller house they had to apply for a release of the federal_tax_lien that had attached to the property in consideration for the wieners’ agreement to title their new residence in both of their names and to take title subject_to the lien the irs released the lien on the morris lane property and permitted the wieners to acquire a smaller residence the result is that the irs acquired an uncontested security_interest in the wieners’ current residence which is jointly owned it is probable depending on applicable state law that mr wiener’s interest in the residence is properly subject_to the lien regardless of whether petitioner qualifies for relief under sec_6015 see 535_us_274 there were no disqualified assets transferred to the requesting spouse by the nonrequesting spouse if there were disqualified assets transferred to the requesting spouse by the nonrequesting spouse relief will be available only to the extent that the liability exceeds the value of such disqualified assets for this purpose the term disqualified_asset has the meaning given such term by sec_6015 sec_6015 defines disqualified_asset as any property or right to property transferred to an individual making the election under this subsection with respect to a joint_return by the other individual filing such joint_return if the principal purpose of the transfer was the avoidance of tax or payment of tax the transfer of the morris lane property does not meet the definition of a disqualified_asset because it did not involve a transfer to petitioner by mr wiener sec_6015 unequivocally defines disqualified_asset as a transfer of property or right to property by a nonrequesting spouse to a requesting spouse because the transfer of the morris lane property did not meet that definition we conclude that petitioner also satisfies the threshold requirement of revproc_2000_15 sec_4 c fraudulent intent the final threshold requirement is set forth in revproc_2000_15 sec_4 and is satisfied if the requesting spouse did not file the return with fraudulent intent respondent makes no allegation that petitioner filed her joint returns with fraudulent intent and the record does not support such a finding even if respondent had alleged it we conclude therefore that petitioner satisfies all of the threshold conditions for sec_6015 relief imposed by revproc_2000_ sec_4 we turn now to a review of the factors set forth in revproc_2000_15 sec_4 c b pincite revproc_2000_15 sec dollar_figure revproc_2000_15 sec_4 provides that in cases where the threshold conditions set forth in revproc_2000_15 sec_4 have been satisfied but the requesting spouse does not qualify for relief under revproc_2000_15 sec_4 c b pincite6 equitable relief may be granted under sec_6015 if taking into account all facts and circumstances it is inequitable to hold the requesting spouse liable revproc_2000_15 sec_4 and contains a list of positive and negative factors that the commissioner will take into account in determining on the facts and circumstances whether to grant full or partial equitable relief under sec_6015dollar_figure as revproc_2000_15 sec_4 makes clear no single factor i sec_26rev proc sec_4 c b pincite requires that at the time relief is requested the requesting spouse must no longer be married to the nonrequesting spouse petitioner and mr wiener remain married therefore relief under revproc_2000_15 sec_4 is unavailable to petitioner 27the factors that we consider in determining whether it would be inequitable for purposes of sec_6015 are the same as the factors that we consider in determining whether it would be inequitable for purposes of sec_6015 119_tc_306 affd 101_fedappx_34 6th cir determinative in any particular case all factors are to be considered and weighed appropriately and the listing of factors is not intended to be exhaustive see washington v commissioner t c pincite jonson v commissioner t c pincite revproc_2000_15 sec_4 lists the following six positive factors that the commissioner will weigh in favor of granting equitable relief a marital status the requesting spouse is separated or divorced from the nonrequesting spouse b economic hardship the requesting spouse would suffer economic hardship within the meaning of sec_4 c of this revenue_procedure if relief from the liability is not granted c abuse the requesting spouse was abused by the nonrequesting spouse but such abuse did not amount to duress d no knowledge or reason to know in the case of a liability that was properly reported but not paid the requesting spouse did not know and had no reason to know that the liability would not be paid in the case of a liability that arose from a deficiency the requesting spouse did not know and had no reason to know of the items giving rise to the deficiency e nonrequesting spouse’s legal_obligation the nonrequesting spouse has a legal_obligation pursuant to a divorce decree or agreement to pay the outstanding liability this will not be a factor weighing in favor of relief if the requesting spouse knew or had reason to know at the time the divorce decree or agreement was entered into that the nonrequesting spouse would not pay the liability f attributable to nonrequesting spouse the liability for which relief is sought is solely attributable to the nonrequesting spouse revproc_2000_15 sec_4 lists the following six negative factors that the commissioner weighs against granting equitable relief a attributable to the requesting spouse the unpaid liability or item giving rise to the deficiency is attributable to the requesting spouse b knowledge or reason to know a requesting spouse knew or had reason to know that the reported liability would be unpaid at the time the return was signed this is an extremely strong factor weighing against relief nonetheless when the factors in favor of equitable relief are unusually strong it may be appropriate to grant relief under sec_6015 in limited situations where a requesting spouse knew or had reason to know that the liability would not be paid and in very limited situations where the requesting spouse knew or had reason to know of an item giving rise to a deficiency c significant benefit the requesting spouse has significantly benefitted beyond normal support from the unpaid liability see sec_1 b d lack of economic hardship the requesting spouse will not experience economic hardship within the meaning of sec_4 c of this revenue_procedure if relief from the liability is not granted e noncompliance with federal_income_tax laws the requesting spouse has not made a good_faith effort to comply with federal_income_tax laws in the tax years following the tax_year or years to which the request for relief relates f requesting spouse’s legal_obligation the requesting spouse has a legal_obligation pursuant to a divorce decree or agreement to pay the liability revproc_2000_15 sec_4 provides in pertinent part that the list of positive and negative factors is a partial listing and that it is not intended to be exhaustive revproc_2000_ sec_4 also confirms that the secretary may grant equitable relief if taking into account all the facts and circumstances it is inequitable to hold the requesting spouse liable for all or part of the unpaid liability or deficiency our analysis of the relevant facts and circumstances is set forth below a positive factors i marital status petitioner and mr wiener continue to be married this positive factor does not apply ii economic hardship an analysis of economic hardship under revproc_2000_15 supra is conducted using rules similar to those provided in sec_301_6343-1 proced admin regs revproc_2000_15 sec_4 b c sec_301 b ii proced admin regs provides that the commissioner will evaluate a requesting individual’s claim of economic hardship by considering any information offered by the individual that is relevant to the determination including but not limited to the individual’s income assets and liabilities age ability to earn responsibility for dependents the amount reasonably necessary for basic living_expenses and the allowable living_expenses for the individual’s geographic area petitioner i sec_75 years old and has not been employed outside the household since petitioner’s monthly cashflow as of the date of trial came from social_security payments and distributions from the loismae wiener trustdollar_figure although petitioner had begun selling clothing out of her house the activity had not yet generated a profit petitioner and mr wiener’s monthly expenses exceeded their monthly social_security payments although petitioner and mr wiener had covered their excess expenses in the past with funds obtained from the loismae wiener trust and the charles wiener trust the record supports a finding that the loismae wiener trust which was supposed to be for the benefit of petitioner had been used by mr wiener who was the trustee as a source of funding for mr wiener’s business and had been reduced in value to dollar_figure as of march dollar_figure the wieners’ primary asset is their home which they valued at trial and in the form 433-a that they submitted to the irs at dollar_figure although the home i sec_28as of date the loismae wiener trust had assets with a value of dollar_figure 29the record does not clearly establish that the trust account at charles schwab co was the only asset of the loismae wiener trust but we infer from the record as a whole that it was not encumbered by any mortgage it is encumbered by the federal_tax_lien as of date the unpaid tax_liabilities including interest and penalties approximated dollar_figure respondent argues petitioner did not prove that she will suffer economic hardship because she did not file complete information regarding her financial condition respondent alleges failure in two respects petitioner represented on her form 433-a that mr wiener operated a business and petitioner failed to disclose mr wiener’s job search and petitioner did not include the wieners’ beneficial interests in the loismae wiener trust and the charles wiener trust in the listing of their assets on the form 433-a petitioner submitted the form 433-a to respondent almost a year after respondent denied her relief respondent’s appeals_office could not have been misled by any alleged error sec_30 on the date form 433-a regarding mr wiener’s employment status or petitioner’s interest in the trusts when it denied her relief on date 30petitioner did not misrepresent her husband’s employment status on her form 433-a checks issued from the loismae wiener trust to mr wiener’s company prove that his business was still active at the time petitioner submitted the form 433-a to respondent additionally the wieners’ and tax returns and the form 433-a put respondent on notice that mr wiener’s business was not successful mr wiener’s lack of business income for at least of consecutive years and mr wiener’s testimony that he was finally closing his business at the time of trial are not inconsistent with either the form 433-a that lists mr wiener as a businessman or petitioner’s trial testimony that mr wiener was looking for a new job although petitioner made at least one mistake in completing the form 433-a dated date in that she did not disclose her interest in the loismae wiener trust we do not conclude that the omission was either deliberate or misleading when all of the facts and circumstances are considered petitioner was required to submit and apparently did submit copies of her and federal_income_tax returns to the irs as part of her application_for relief under sec_6015 both the and joint returns disclosed her interest in the loismae wiener trust in addition on the form questionnaire for requesting spouse that petitioner submitted in support of her form_8857 petitioner filled out information regarding the wieners’ monthly income and expenses one of the income items she listed was loans from family in the amount of dollar_figure respondent’s investigation of this item must have disclosed petitioner’s discretionary interest in the loismae wiener trust in addition mr wiener testified that respondent was aware of the loismae wiener trust because the 31although the description of the source and the amount was not necessarily accurate both petitioner and mr wiener described the money they received from the trusts as loans throughout this proceeding and that description reflects their contention that mr wiener intended the distributions to be loans moreover it appears that the amount listed on the questionnaire under the heading loans from family was the amount necessary to make the wieners’ monthly cash intake equal the amount of their monthly expenses the representation implicit in the above was consistent with proof in the record that mr wiener used money from the two trusts to cover cashflow shortfalls wieners offered to compromise their tax_liabilities with funds from the trust petitioner also did not fail to disclose any beneficial_interest in the charles wiener trust although the record does not contain any trust agreement or will establishing the charles wiener trust there is no evidence that petitioner is or was a beneficiary of the charles wiener trust in addition respondent must have known of the existence of the charles wiener trust as the result of negotiating the agreement with the wieners and or the trust for the sale of the morris lane property the totality of the facts and circumstances supports a finding that petitioner will suffer economic hardship if sec_6015 relief is not granted petitioner’s primary asset is her interest in her current home because the home is not encumbered by a mortgage petitioner does not make any mortgage payments nevertheless the monthly expenses of the wieners exceed their monthly income petitioner is in her 70s and has health problems her husband also has serious health problems and the complications from his treatment require hospitalization approximately twice each year petitioner has no other significant source_of_income to pay her reasonable living_expenses her safety net consisting of her interest in the loismae wiener trust has been eroded over the years by her husband’s frequent raids on trust assets and will not likely remain available as a material source of petitioner’s support for much longer petitioner has shown that her current monthly income and remaining assets are insufficient to meet her current level of monthly expenses and that she would experience economic hardship if she were not granted relief this factor applies and favors granting relief iii abuse by nonrequesting spouse petitioner admits that mr wiener did not abuse or threaten her this positive factor does not apply washington v commissioner t c pincite iv no knowledge or reason to know for the reasons stated in our analysis of this factor under sec_6015 we conclude petitioner had reason to know of the items giving rise to the deficiencies and or failed to satisfy her duty_of inquiry regarding the items this positive factor does not apply v nonrequesting spouse’s legal_obligation because petitioner is not separated or divorced from her husband this positive factor does not apply vi liabilities solely attributable to nonrequesting spouse we concluded earlier in this opinion that because mr wiener was the sole investor in sga and petitioner did not participate in making the investment the erroneous items giving rise to the deficiencies are solely attributable to mr wiener this factor favors granting relief b negative factors i attributable to the requesting spouse because the tax_liabilities are attributable to mr wiener this negative factor does not apply ii knowledge or reason to know as discussed previously we conclude that petitioner had reason to know of the items giving rise to the deficiencies and or failed to satisfy her duty_of inquiry regarding the items ordinarily this factor would weigh heavily against granting petitioner equitable relief under sec_6015 revproc_2000_15 sec_4 b in this case however mr wiener intentionally withheld information from petitioner regarding the sga investment and on several occasions actively misled her about the existence and extent of the tax_liabilities we doubt seriously whether petitioner would have received any meaningful information from mr wiener about the sga investment even if she had inspected the returns and inquired about the sga losses for this reason we conclude that although this negative factor applies it is not entitled to greater weight in our analysis iii significant benefit petitioner argues she did not significantly benefit beyond normal support from the sga investment losses giving rise to the deficiencies factors indicating that a taxpayer receives a significant benefit from a tax loss include paying a child’s education expenses making special purchases for the taxpayer or her family or frequent travel see washington v commissioner supra pincite monsour v commissioner tcmemo_2004_190 the record does not establish that petitioner enjoyed any of these benefits respondent argues that petitioner benefited because the wieners received tax refunds as a result of the reported losses however we have accepted as credible petitioner’s testimony that she was not aware of the refunds until approximately years after the wieners received them and that she did not benefit from them mr wiener handled all deposits into the joint bank account and reconciled the account balance mr wiener testified that he believes the refunds were transferred to his business and we see no indication that petitioner’s lifestyle improved after mr wiener deposited the refunds we conclude on the totality of the facts and circumstances that petitioner did not significantly benefit from the losses that gave rise to the deficiencies this negative factor does not applydollar_figure iv lack of economic hardship as discussed previously petitioner has established that she will suffer economic hardship if relief is not granted this negative factor does not apply v noncompliance with federal_income_tax laws in subsequent years respondent does not argue that petitioner has untimely filed income_tax returns or untimely paid any income taxes due for years after respondent instead contends that petitioner was noncompliant with federal_income_tax laws because she transferred title to the morris lane property to the charles wiener trust did not disclose her beneficial_interest in the loismae wiener trust stopped paying installments required by a duly executed installment_agreement and did not submit information in connection with several offer-in-compromise requests this negative factor focuses on whether the requesting spouse made a good-faith effort to comply with federal_income_tax laws in the tax years following the years to which the request 32we treat the fact that a requesting spouse does not significantly benefit from the item s giving rise to a deficiency as an additional positive factor in our analysis of whether a requesting spouse qualifies for relief under sec_6015 see eg ferrarese v commissioner tcmemo_2002_249 for sec_6015 relief related see revproc_2000_15 sec_4 e respondent does not assert that petitioner and mr wiener failed to file all required returns or failed to pay all required taxes for years following the years at issue respondent’s complaint focuses instead on actions that he apparently contends demonstrate petitioner’s willingness to game the tax system in favor of her own economic position we have already addressed the disclosure issues and petitioner’s transfer of the morris lane property while we agree with respondent that the timing of the transfer is suspicious and was probably motivated at least in part by mr wiener’s knowledge of the resolution of the tax_court litigation and or the assessments that occurred in august and september of we do not find that the transfer violated any obligation to report or pay tax in years after or that petitioner knew about the assessments at the time she transferred title to the morris lane property mr wiener was aware of the tax_liabilities and we suspect that his motivation in encouraging petitioner to transfer title to the house was related at least in part to concerns that the irs might seize and sell the home however the record does not persuade us that petitioner deliberately attempted to avoid or evade payment of a known tax_liability mr wiener credibly testified that he kept petitioner in the dark regarding the sga investment the audit of sga and the resulting tax_court litigation petitioner did not sign the stipulated decision resolving the litigation both petitioner and mr wiener testified that petitioner did not learn that she was liable for substantial income_tax liabilities resulting from the sga investment until approximately years after the tax_liabilities were assessed and approximately years after petitioner transferred the morris lane property to the charles wiener trust we turn then to petitioner’s conduct with respect to the installment_agreement petitioner and mr wiener entered into an installment_agreement in that required them to make monthly payments of dollar_figure they made the required_payments for several years until their financial condition worsened although the record is not clear it appears that mr wiener attempted to contact the revenue_officer with whom he had negotiated the agreement to let him know that the wieners could no longer afford to make the dollar_figure monthly payment in any event the wieners continued to make monthly payments albeit in a reduced_amount until they stopped making payments completely in when petitioner filed her request for sec_6015 relief we do not view these facts as establishing a lack of good- faith compliance on petitioner’s part rightly or wrongly petitioner relied on her husband to deal with the details of their financial and tax matters we cannot conclude that a failure to abide by the terms of an installment_agreement in the face of financial difficulties equals a failure on petitioner’s part to make a good-faith effort to comply with federal tax laws after we conclude that this negative factor does not apply vi requesting spouse’s legal_obligation because petitioner was not solely responsible for paying the liabilities at issue this negative factor does not apply c conclusion of the six positive factors two factors weigh in favor of relief and four factors do not apply of the six negative factors one factor weighs against granting petitioner sec_6015 relief and the other factors do not apply the positive and negative factors enumerated in revproc_2000_15 sec_4 however are not the only things we consider we recognize that petitioner did not review her tax returns but her failure was consistent with her apparently well-established but unwise reliance on her husband to manage their financial and tax affairs even if petitioner had reviewed the tax returns and inquired about the sga losses we believe that it is unlikely petitioner would have received the information necessary to evaluate whether to file the returns as prepared mr wiener consistently misled petitioner by not telling her about the investment in sga and then representing to petitioner years later that any_tax issues with the irs related to his business and would be resolved petitioner who is in her 70s and has health problems did not significantly benefit beyond normal support from the deduction of the sga losses and she has suffered from her reliance on her husband who in his capacity as a trustee of a_trust established under the will of petitioner’s mother for petitioner’s benefit repeatedly took funds from the trust to cover various expenses as of the date of trial the trust has been reduced to less than dollar_figure and will provide little security for petitioner in the future given petitioner’s age her health and the financial hardship that she will experience if she is not granted relief under sec_6015 we conclude on the totality of the record that petitioner qualifies for relief under sec_6015 and that respondent’s determination to the contrary is in error we have carefully considered all remaining arguments made by the parties and to the extent not discussed above find those arguments to be irrelevant moot or without merit to reflect the foregoing decision will be entered for petitioner


t c memo united_states tax_court james d schlicher petitioner v commissioner of internal revenue respondent docket no filed date jon r vaught for petitioner jeremy mcpherson for respondent memorandum findings_of_fact and opinion parr judge respondent determined a deficiency in and additions to petitioner's federal_income_tax for the taxable_year as follows year deficiency sec_6651 sec_6654 dollar_figure additions to tax dollar_figure dollar_figure - - after concessions by the parties the only issue for decision is whether pursuant to sec_1034 petitioner may defer recognition of the gain from the sale of his principal_residence in livermore california in excess of the amount allowed by respondent we hold he may as set out below findings_of_fact some of the facts have been stipulated and are so found the stipulated facts and the accompanying exhibits are incorporated into our findings by this reference at the time the petition in this case was filed petitioner resided in clayton california for petitioner did not file a federal_income_tax return nor did he pay any federal_income_tax for that year either through withholdings or estimated_tax payments in petitioner had taxable interest_income of dollar_figure on date petitioner was unmarried and he did not have any dependents to calculate the deficiency in issue respondent used the rate applicable to single persons for the taxable_year in issue petitioner concede sec_1 that he is liable for additions to tax under sec_6651 and sec_6654 computed on any deficiency in tax for which we determine he is liable both parties concede that each of the acres of the clayton property purchased by the petitioner should be considered to be of equal value all section references are to the internal_revenue_code in effect for the year in issue and all rule references are to the tax_court rules_of_practice and procedure unless otherwise indicated all dollar amounts are rounded to the nearest dollar unless otherwise indicated in petitioner purchased a principal_residence the livermore residence and approximately acres of land in livermore california the livermore property for dollar_figure the livermore residence was approximately big_number square feet in size and there were several small farm structures on the property between and petitioner made dollar_figure in capital improvements to the livermore residence and dollar_figure in capital improvements to the farm structures petitioner's total adjusted_basis in the livermore residence farm structures and acres of land was dollar_figure while living on the livermore property petitioner operated a mobile farrier horse-shoer business out his dodge pickup truck which was equipped with a horse-shoeing camper although petitioner parked his truck on the property he did not operate the farrier business on the livermore premises in petitioner received gross_receipts from his farrier business of dollar_figure and paid deductible business_expenses of dollar_figure petitioner also operated a horse boarding and breeding business on pasture land that he leased from neighbors at any given time petitioner boarded approximately horses for clients on the leased premises in addition petitioner kept one stallion approximately brood mares and colts on the leased premises which he owned and used in his horse breeding business petitioner did not use these horses for personal purposes petitioner's gross_receipts from this activity are referred to in the notice_of_deficiency as schedule c gross_receipts petitioner did not use any of the livermore property for business purposes in petitioner received gross_receipts from his horse boarding and breeding business of dollar_figure and paid deductible business_expenses of dollar_figure petitioner owned some personal horses that he rode for pleasure which he kept on the acres used as his livermore residence petitioner had a fence around the acres corrals that were used to exercise his personal horses and a barn used for boarding petitioner did not allow any of the boarded horses in the area where he kept his personal horses on date petitioner sold the livermore residence and the adjoining acres for dollar_figure he incurred dollar_figure in sale expenses thus the adjusted_sales_price was dollar_figure and petitioner's total adjusted_basis was dollar_figure therefore petitioner realized a gain from the sale of dollar_figure in december of petitioner purchased acres of undeveloped land in clayton california the clayton property for dollar_figure the property is comprised of an upper steeply- hilled wooded area and a plain the upper portion of the property which is zoned for residential building has a better view of the surrounding countryside and of mount diablo than does the plain the plain where petitioner's boarding facility is located consists of a 100-year flood zone this area is also a native american archaeological site therefore petitioner is petitioner's gross_receipts from this activity are referred to in the notice_of_deficiency as schedule f gross_receipts legally precluded from constructing any residential buildings on this portion of the property however petitioner is permitted to build agricultural structures on this portion of the land within the 2-year period following the date of sale of the livermore residence petitioner incurred expenses of dollar_figure to construct a residence garage and a barn on the clayton property which he used for personal purposes in this same time period petitioner spent substantial amounts of money to construct buildings for use in his boarding and breeding business while living on the clayton property petitioner continued to work as a farrier and to board and breed horses petitioner concedes that he operated his horse boarding and breeding business on 7-½ acres of the clayton property after the purchase at any given time petitioner boarded an average of horses on the clayton property approximately the same number of horses that he boarded on the leased premises in livermore petitioner fenced off the horse boarding and breeding facility from the remainder of the clayton property using special fencing safe for horses in the fenced area there is a 20-stall barn and paddocks an enclosed area used for pasturing or exercising horses not all of the boarded horses are kept in the stalls some of them stay in the fenced areas outside while others remain in the paddocks petitioner does not train horses on his premises nor does he give lessons or offer horseback riding facilities in fact access to the riding trails from the clayton property is obstructed by the presence of mount diablo if a boarding client wants to train ride or exercise a horse the client must transport the animal to another facility in the area the business portion of the clayton premises is not used for anything other than breeding and boarding horses while petitioner has several personal horses that are generally located on the portion of the clayton property not used for business occasionally he puts them with the boarded horses at no time however are the boarded horses permitted on the residential portion of the clayton property when petitioner moved to livermore it was substantially less congested than it had become by the time petitioner sold the property in by petitioner could no longer keep many horses on the property during this time petitioner was also having problems with his neighbors who were throwing cat litter over his fence in addition petitioner became increasingly concerned about liability issues because children in the neighborhood would climb over his fence and get too close to his personal horses petitioner finally decided to sell the livermore property when one of these children got onto his property and turned some of the horses loose when petitioner decided to purchase the clayton property he did not do so because it would be conducive to his business operations had this been petitioner's primary consideration he would have bought level land rather than property consisting of a steeply hilled area and a flood zone of archaeological importance in fact when looking for a new residence petitioner's first priority was to find a piece of property on which he could live out the rest of his life petitioner enjoys living in clayton because it is a secluded rural_area where he can be close to nature he also likes being in the country where the houses are not close together and where he does not have to contend with less than congenial neighbors petitioner lived with his girlfriend patsy lyons at both the livermore and the clayton residences each of them rides horseback and has ridden petitioner's personal horses on the steeply-hilled portion of the clayton property and on the plain petitioner uses the upper wooded area for hiking there is also a dirt road that goes up the steeply hilled portion of the property which is accessible by car horse and foot during the springtime petitioner's personal horses graze up there to keep the grass down petitioner never allows the horses from his boarding or breeding business to use this area petitioner keeps all acres of the clayton property fenced off from neighboring houses when petitioner originally constructed his residence on the clayton property he was considering building it in the upper wooded area however because that area needed extensive clearing petitioner would not have been able to prepare the site and build a house within the 2-year period required_by_law instead petitioner built his residence above the plain on a cleared plateau which abutted the upper steeply hilled section of the clayton property opinion respondent determined a deficiency against petitioner for of dollar_figure and additions to tax under sec_6651 and sec_6654 of dollar_figure and dollar_figure respectively these deficiencies were based on respondent's determination that petitioner had capital_gains from the sale of his principal_residence in livermore california because petitioner failed to establish how much of the acres of the new property which he purchased in clayton california was used by him as his principal_residence petitioner asserts that he used only 7-½ of the acres of the clayton property for his horse boarding and breeding business that the remaining land was used as his principal_residence and therefore that his investment therein qualifies for nonrecognition treatment under sec_1034 in the notice_of_deficiency respondent failed to allocate any portion of the acres of the clayton property to petitioner's residence however at trial respondent concedes that acre out of the acres was used by petitioner as his principal_residence under the general_rule of sec_1001 petitioner is required to recognize the gain on the sale of the livermore property however pursuant to sec_1034 a taxpayer may defer gain from the sale of a principal_residence provided such gain is rolled over to a new principal_residence within the time prescribed in the statute sec_1034 provides that a taxpayer must recognize gain from the sale of his principal_residence only to the extent the adjusted sales price8 of that sec_1001 provides in pertinent part as follows c recognition of gain_or_loss --except as otherwise provided in this subtitle the entire amount of the gain_or_loss determined under this section on the sale_or_exchange of property shall be recognized sec_1034 provides in pertinent part as follows a nonrecognition of gain --if property in this section called old residence used by the taxpayer as his principal_residence is sold by him and within a period beginning years before the date of such sale and ending years after such date property in this section called new residence is purchased and used by the taxpayer as his principal_residence gain if any from such sale shall be recognized only to the extent that the taxpayer's adjusted_sales_price as defined in subsection b of the old residence exceeds the taxpayer's cost of purchasing the new residence sec_1034 b provides in pertinent part as follows b adjusted_sales_price defined -- in general--for purposes of this section the term adjusted_sales_price means the amount_realized reduced by the aggregate of the expenses for work performed on the old residence in order to assist in its sale limitations--the reduction provided in paragraph applies only to expenses-- continued residence exceeds the cost of property purchased and used as a new principal_residence within years before or after the date of sale moreover where part of the new residence purchased is used as the taxpayer's principal_residence and part is used for business purposes only the portion of the cost allocable to the residential use is entitled to sec_1034 nonrecognition beckwith v commissioner tcmemo_1964_254 grace v commissioner tcmemo_1961_252 sec_1 c ii income_tax regs thus pursuant to sec_1034 and the regulations thereunder only the portion of the clayton property used by petitioner as his principal_residence during the 2-year period following the sale of the livermore property may be included in the cost of purchasing such residence whether or not property is used by a taxpayer as his residence depends upon all the facts and circumstances in each case including the good_faith of the taxpayer 92_tc_206 sec_1 c i income_tax regs continued a for work performed during the 90-day period ending on the day on which the contract to sell the old residence is entered into b which are paid on or before the 30th day after the date of the sale of the old residence and c which are-- i not allowable as deductions in computing taxable_income under sec_63 defining taxable_income and ii not taken into account in computing the amount_realized from the sale of the old residence to carry his burden_of_proof thus entitling petitioner to the nonrecognition benefits of sec_1034 he must prove that he has satisfied all of the section's requirements rule 290_us_111 70_f3d_548 9th cir at trial and on brief petitioner asserts that respondent's notice_of_deficiency was arbitrary and excessive and not entitled to a presumption of correctness thus shifting the burden_of_proof to respondent where in determining the deficiencies for the taxable_year in issue respondent failed to allow for the cost of any of the replacement real_property in clayton california to support his position petitioner relies on such cases as 377_f2d_65 9th cir revg tcmemo_1964_223 73_tc_394 and 83_tc_269 however petitioner's reliance on this line of cases is misplaced it is well settled that the commissioner's determinations in a notice_of_deficiency generally are presumed correct and the taxpayer bears the burden of proving that those determinations are erroneous rule a 290_us_111 70_f3d_548 9th cir however a showing that the statutory notice is arbitrary and excessive within the rule_of 293_us_507 may have the effect of shifting the burden of going forward to respondent jackson v commissioner supra as a general_rule this court will not look behind the statutory_notice_of_deficiency to examine the evidence used in making the determination jackson v commissioner supra pincite on rare occasions however we have recognized an exception to the foregoing rule in cases involving unreported income where the respondent introduced no predicate evidence but rested on the presumption of correctness and the petitioner challenged the notice_of_deficiency dellacroce v commissioner supra pincite citing jackson v commissioner supra delaney v commissioner tcmemo_1982_666 affd 743_f2d_670 9th cir petitioner contends that his case is governed by the exception rather than the general_rule we disagree respondent's determination is not based on petitioner's alleged unreported income therefore petitioner does not fall within the exception described above accordingly the burden_of_proof rests with the petitioner rule a petitioner sold the livermore residence and adjoining acres for an adjusted_sales_price of dollar_figure and realized a gain from the sale of dollar_figure under the provisions of sec_1034 petitioner must recognize such gain to the extent that the portion of the cost of the clayton residence which is allocable to residential use is less than dollar_figure petitioner purchased acres of undeveloped land in clayton california for dollar_figure he also spent dollar_figure to construct a residence garage and barn there is no dispute that the livermore residence and adjoining acres are to be treated as residential in their entirety moreover the parties agree that the gain realized from the sale of the livermore property to the extent attributable to the portion of the clayton property used for petitioner's horse boarding and breeding business does not qualify for sec_1034 nonrecognition however where the parties diverge is with respect to the number of acres of the clayton property that petitioner used as his residence in making an allocation between residential and business use we note that neither the statute nor the applicable regulation nor case law provides a specific method for determining what portion of a realized gain is attributable to the nonresidential use of the new residence sec_1 c ii income_tax regs merely states that an allocation must be made wigfall v commissioner tcmemo_1982_171 in support of her position that petitioner used only acre of the clayton property as his residence respondent heavily relies on beckwith v commissioner tcmemo_1964_254 we do not agree that beckwith is controlling in light of the facts of the instant case in beckwith the taxpayer purchased approximately acres of land built a residence on the property and asserted that the portion of the land not used for business must necessarily be regarded as his residence respondent contends that the facts in beckwith are closely analogous to the facts at issue here we disagree in beckwith nearly of the acres purchased by the taxpayer were held in reserve under a soil conservation contract with the u s department of agriculture and approximately acres consisted of marshland and some wooded area with respect to the land held in reserve by the united_states we found that the taxpayer's residence could not reasonably be said to include these acres in the case at bar however there is no restriction on petitioner's right to use all acres of his land except to the extent that he is precluded from building residential structures on the flood plain because of its archeological importance petitioner may build and has indeed built agricultural structures on such property moreover petitioner uses a portion of this area for his boarding and breeding business with respect to the wooded area in beckwith we held that this was not part of the residence noting that the taxpayer had used some of this area to conduct helicopter experiments which detracted from its characterization as a residence more importantly the taxpayer in beckwith only regarded the house itself and appurtenant acres as his residence however in the instant case the petitioner regards and uses all of the clayton property as his residence except for the portion allocated to his business at trial the petitioner repeatedly and unequivocally testified that he moved to the clayton premises because he appreciates nature admires unobstructed views of the countryside enjoys living in open spaces where he can hike and ride horseback and ultimately desires to live the rest of his life there we find petitioner's testimony to be credible on brief the respondent relies on grace v commissioner tcmemo_1961_252 for the proposition that occasional or insignificant use of property such as for storage of business tools is not sufficient to determine its character as business property in grace we found a taxpayer's business use of his residence to be insignificant where he merely stored construction tools in part of his basement accordingly we held that an allocation between the business and residential use was not required for purposes of sec_1034 nonrecognition respondent treating the instant case as the converse of grace contends that the petitioner here used the upper steeply hilled section of the clayton property only insignificantly and thus such use was insufficient to constitute residential use as required by sec_1034 we find that respondent's reliance on grace is misplaced in grace we concluded that a taxpayer's storing business tools in the basement of his home was insignificant business use so that no allocation was required for purposes of sec_1034 and the regulation thereunder however it does not follow that petitioner's use of the upper steeply hilled portion of his property was so insignificant as to establish that it was not used by him as his residence moreover we do not believe that petitioner's use of this area was insignificant petitioner and his girlfriend patsy lyons have used the upper steeply hilled portion of the clayton property for horseback riding hiking walking and simply to enjoy the unobstructed view of the countryside and mount diablo during the springtime petitioner's personal horses graze up there when petitioner originally built his principal_residence on the clayton property he was considering building it in the upper wooded area however he chose not to do so because he would not have been able to clear the area and build a house within the 2-year period of sec_1034 based on the entire record we find that petitioner's use of the upper steeply hilled area was significant and sufficient to constitute residential use cf grace v commissioner supra petitioner asserts that he used only 7-½ acres of the clayton property for business and that the remaining 43-½ acres were used as his residence to support his position petitioner relies on cases such as richards v commissioner tcmemo_1993_422 respondent agreed that the taxpayer's homesite and acres of dry pasture land constituted residential property estate of campbell v commissioner tcmemo_1964_83 where the taxpayer's residence is part of a property also used for business nonrecognition applies not only to the home itself but to the environs and outbuildings relating to the dwelling_unit and bennett v united_states ustc par aftr2d n d ga the taxpayer's residence included an entire acre tract rather than the 2-½ acres determined by respondent we agree with petitioner at trial petitioner testified that at any given time he boarded an average of horses on the clayton premises which was approximately the same number of horses that he boarded in livermore petitioner kept these horses fenced off from the remainder of the clayton property using special fencing safe for horses in the fenced area there is a 20-stall barn and paddocks petitioner keeps some of the boarded horses in the stalls some in the fenced areas outside while others remain in the paddocks at trial petitioner testified and we find as fact that the boarded horses were never allowed on the upper section of the property the testimony of mr vogel the revenue_agent called as a witness for respondent supports petitioner's testimony at trial mr vogel who had been to the clayton property more than a half of a dozen times testified that he never saw any horses on the upper steeply hilled portion of the clayton property petitioner testified that he does not train horses on his premises nor does he give riding lessons or offer horseback riding facilities access to the riding trails from the clayton property is obstructed by the presence of mount diablo therefore a boarding client who wants to train ride or exercise his or her horse must transport the animal to another facility in the area furthermore because petitioner uses the business portion of the clayton premises solely for breeding and boarding horses he needs less land for such business than for example someone who operates a horse training and horseback riding facility finally we mention in passing that the good_faith of a taxpayer is taken into account in determining whether or not property is used by a taxpayer as his residence 92_tc_206 sec_1 c i income_tax regs in assessing petitioner's credibility we note that we were influenced by the testimony of mr vogel the revenue_agent who was called as witness for respondent at trial mr vogel testified that petitioner's girlfriend and bookkeeper patsy lyons spent a substantial amount of time with him reconstructing petitioner's records moreover the agent testified that both she and the petitioner were very cooperative and that he had complete faith that what she was telling him was correct given that the petitioner is a credible witness and based on the entire record we find that petitioner used only 7-½ of the acres of the clayton property for business on brief respondent argued in the alternative that the remaining 43-½ acres of the clayton property not used for business were held by petitioner for investment respondent contends that the upper steeply hilled portion of the clayton property which is zoned for residential use could be divided into home sites that petitioner could then sell for a profit respondent points to the fact that petitioner had a 280-foot well drilled on one of the home sites for future use as evidence that petitioner held this portion of the clayton property for investment we disagree before building his current residence petitioner drilled a well on the upper steeply hilled portion of the land to make sure that he could hit water however petitioner decided it was more practical to build elsewhere on the site whatever desire petitioner had to build on the upper portion was abandoned when he built his current residence and remains no more than a vague dream moreover petitioner enjoys solitude and credibly testified that he did not purchase the clayton property for investment purposes but rather as a place where he could live the rest of his life untroubled by close neighbors accordingly we find that petitioner held the remaining 43-½ acres as his residence and not for investment residential purposes may include appreciating nature living in open spaces hiking horseback riding and enjoying unobstructed views of the countryside in fact this is quite common in the western portion of our country as in clayton california where land is more plentiful nothing in sec_1034 prohibits us from finding that such use constitutes significant use for residential purposes accordingly we find that petitioner has met his burden of proving that he used the remaining 43-½ acres of the clayton property as his residence to reflect the foregoing decision will be entered under rule