t c memo united_states tax_court william c and elaine gaskins petitioners v commissioner of internal revenue respondent pasquale t quinn and sabina a quinn petitioners v commissioner of internal revenue respondent docket nos james j riley for petitioners filed date keith l gorman for respondent memorandum findings_of_fact and opinion parker judge respondent determined deficiencies in federal_income_tax for petitioners william c and elaine gaskins and additions to tax for fraud under sec_6653 for william c gaskins as follows taxable_year deficiency addition_to_tax sec_6653 big_number dollar_figure big_number dollar_figure big_number big_number respondent determined deficiencies in federal_income_tax for petitioners pasquale t and sabina a quinn and additions to tax for fraud under sec_6653 for pasquale t quinn as follows taxable_year deficiency addition_to_tax sec_6653 dollar_figure dollar_figure big_number big_number big_number big_number unless otherwise indicated all section references are to the internal_revenue_code in effect for the taxable years before the court and all rule references are to the tax_court rules_of_practice and procedure after concessions the issues remaining for decision are whether petitioner elaine gaskins is entitled to relief as an innocent spouse under sec_6013 and whether petitioner sabina a quinn is entitled to relief as an innocent spouse under sec_6013 1petitioners william c gaskins and pasquale t quinn conceded they are liable for their respective deficiencies for taxable years and and for the additions to tax under sec_6653 for taxable years and respondent conceded petitioners william c gaskins and pasquale t quinn are not liable for the sec_6653 addition for taxable_year findings_of_fact some of the facts have been stipulated and are so found the stipulation of facts supplemental stipulation of facts and the exhibits attached thereto are incorporated herein by this reference petitioners william c and elaine gaskins the gaskins and petitioners pasquale t and sabina a quinn the quinns resided in minersville pennsylvania at the time they filed their respective petitions their cases have been consolidated for trial briefing and opinion petitioners' business activities prior to william c gaskins mr gaskins worked as a roofer in the philadelphia and delaware area while working in philadelphia for the roofers' union mr gaskins worked for a john mccullough from until or mr gaskins owned and operated his own roofing business known as minersville roofing and sheet metal company the first roofing company the business address wa sec_142 sunbury street minersville pennsylvania pasquale t quinn mr quinn worked for the first roofing company this company fell behind in its payments of withheld employment_taxes to the internal_revenue_service irs mr gaskins was also the subject of a criminal investigation with respect to these employment_taxes but was never charged 2paragraph of the parties' stipulation of facts contains an incorrect name for this first roofing company the court relies upon mrs gaskins' testimony as to the correct name of the first company the irs ultimately assessed a responsible_officer penalty under sec_6672 the 100-percent penalty against mr gaskins for this delinquency tax lines were filed against mr gaskins eugene clark mr clark was the irs revenue_officer responsible for collecting this penalty mr gaskins failed to pay the taxes and the first roofing company went out of business in or the gaskins organized and mr gaskins ran minersville roofing and siding company the second roofing company due to the unpaid debts of the first roofing company the gaskins incorporated the second roofing company in mrs gaskins' name mr gaskins using the equipment from the first company performed the jobs he had already arranged and thereby continued in the roofing business mr gaskins listed mrs gaskins as president of the second roofing company while he had not asked her permission to list her as an officer he informed her he was going to do this mrs gaskins was at all times aware that she was at least nominally the president of the second roofing company the second roofing company employed the same secretary who had worked for the first roofing company mrs gaskins occasionally assisted her with the secretarial work the secretary paid the company bills but mrs gaskins sometimes made bank_deposits in the late 1970's the second roofing company also became delinquent in remitting its withheld employment_taxes the irs contacted the second roofing company and asked for mrs gaskins since she was listed as that company's president the 100-percent penalty was ultimately assessed against mrs gaskins in or mrs gaskins made monthly payments of about dollar_figure on these taxes making the payments either in person at the irs office in pottsville pennsylvania or by mail in the period from about through late or early finally equipment of the second roofing company was-sold to pay off the employment_taxes mr clark was the revenue_officer responsible for collecting this penalty the penalty was ultimately paid in full the second roofing company operated until late or early in the latter part of mr gaskins and mr quinn had organized west pine construction company west pine initially half of the stock was placed in mr quinn's name and the other half in mrs gaskins' name west pine was involved in stripmining anthracite coal west pine opened a bank account at the citizens' national bank of ashland on date with a deposit of dollar_figure the signature card contained the signatures of benjamin greenberg francis mccullough charles wertz and mr quinn mr quinn served as the secretary of west pine mr quinn's home functioned as west pine's office although he did not even have a desk there for some period west pine used a post office box address in through the efforts of john mccullough other persons invested in west pine oscar glassman invested about dollar_figure and joseph crosley about dollar_figure individuals who each invested approximately dollar_figure were herbert fisher charles conwell thomas walsh john mccullough and possibly benjamin greenberg herbert fisher was an attorney in philadelphia west pine entered into various leases to obtain mining rights one lease dated date was signed in the names of mrs gaskins as president and mr quinn as secretary two leases dated date and date were signed in the names of mr gaskins as president of west pine and mr quinn as secretary a judgment note in the amount of dollar_figure and an accompanying letter both dated date were signed in the names of mr quinn as secretary and mrs gaskins as assistant secretary mr quinn signed and filed federal corporate_income_tax returns for west pine for the relevant periods mr quinn signed checks for west pine and kept the checkbook he would write out checks at his kitchen table at some point mr quinn lost his eyeglasses and mrs quinn would assist him by writing out the checks under mr quinn's direction which mr quinn would then sign sometimes mr quinn would borrow his wife's glasses so that he could write out the checks himself for some period mrs gaskins had signatory authority over the west pine bank account beginning in december of mrs gaskins' name appears along with mr quinn's name as signers drawers not endorsers of west pine checks in most instances mr quinn signed mrs gaskins' name as the drawer of these checks mr gaskins had given mr quinn permission to sign mrs gaskins' name mr quinn and mrs gaskins never discussed this arrangement but she was aware that he was signing her name on the checks prior to the time in december of when mrs gaskins' name first appears on west pine checks mr quinn had signed the name of-william devers mr devers to the west pine checks with mr devers' permission mr devers had worked with mr gaskins earlier when the latter was a roofer in philadelphia and delaware mr devers also worked at west pine mr gaskins and mr quinn were generally compensated for their work on a weekly basis however sometimes their paychecks were delayed or at least were not turned over to their wives in a timely manner mr gaskins and mr quinn each received a dollar_figure per-week expense allowance from west pine these expense checks were issued to mr gaskins mr quinn or cash on a few occasions during the years at issue mrs gaskins received checks from west pine in reimbursement for business telephone calls made from her home some of the investors messrs crosley walsh and mccullough received paychecks even though they did not perform any services for west pine messrs crosley and walsh also received dollar_figure expense checks west pine also leased lincoln continental automobiles for messrs crosley walsh conwell gaskins and quinn during the years in issue messrs gaskins and quinn drove these lincoln continental automobiles mr quinn paid the automobile leases and insurance from the west pine checking account john mccullough had asked mr quinn to put messrs crosley and walsh on the payroll and to pay the other expenses as a favor to him for having found the investors once or twice mr quinn wrote a west pine check to mr conwell to cover the latter's personal telephone bill substantial amounts of personal or nonbusiness expenses were paid out of the west pine checking account west pine regularly was delinquent in the payment of its quarterly federal employment_taxes beginning in march or april of until november of mr clark was the revenue office responsible for monitoring west pine's federal employment_tax deposits when west pine's employment_tax returns were late mr clark would regularly summons the records necessary to prepare those returns mr clark met with mr quinn on numerous occasions to prepare west pine's employment_tax returns in early irs revenue_officer john higgins mr higgins took over the west pine account on date mr higgins interviewed mr quinn with regard to the 100-percent penalty for west pine's employment_taxes during that interview mr quinn indicated that the officers of west pine had been mrs gaskins president to oscar glassman president to june or date mr quinn secretary to june or date and joseph crosley vice president to june or date in february of west pine had filed a petition for bankruptcy protection the amended disclosure statement filed in the bankruptcy court on date listed the shareholders of west pine's common_stock as john mccullough then deceased and his widow percent thomas walsh and kathleen walsh percent joseph crosley and marie crosley percent the quinns percent the gaskins percent oscar and lillian glassman percent charles t conwell percent and herbert fisher percent all of the shares except those belonging to the glassmans and the crosleys were pledged as security for loans from oscar glassman and joseph crosley of dollar_figure and dollar_figure respectively the amended disclosure statement listed west pine's officers as mr gaskins acting president mr quinn acting secretary thomas walsh acting treasurer joseph crosley acting vice president and charles conwell acting assistant vice president mrs gaskins was not listed as an officer following a criminal investigation mr gaskins and mr quinn were charged with diverting receipts belonging to west pine mr gaskins and mr quinn were convicted of federal 3petitioners william c gaskins and pasquale t quinn have conceded in this case that they received receipts nor whether the diverted receipts included the rental of the lincoln continental automobiles and the payment of personal or nonbusiness expenses out of the corporate bank account income_tax evasion under sec_7201 filing a false return under sec_7206 and conspiracy under u s c sec_371 for the taxable_year they were acquitted of the same charges for the years and respondent determined that mr gaskins and mr quinn each had diverted receipts from west pine in the amounts of dollar_figure dollar_figure and dollar_figure for and respectively and adjusted the gaskins' and the quinns' incomes as reported on their federal individual income_tax returns upwards accordingly see supra note both the gaskins and the quinns filed joint federal_income_tax returns for these years and therefore respondent in the notices of deficiency determined the resulting deficiencies against mr and mrs gaskins jointly and against mr and mrs quinn jointly however the additions to tax for fraud were determined only against mr gaskins and mr quinn mr gaskins and mr quinn have conceded the deficiencies for all years and the additions to tax for fraud for and respondent has conceded the addition_to_tax for fraud for mrs gaskins and mrs quinn seek relief in this court from these deficiencies as innocent spouses under sec_6013 for all years petitioner elaine gaskins background mrs gaskins was born on date she graduated from high school in she received no further formal education or training the gaskins were married on date and as of the date of the trial remained married prior to her marriage and for months after her marriage mrs gaskins worked as a secretary thereafter she worked as a receptionist for a doctor until march of when her first daughter rochelle was born the gaskins have two daughters rochelle and sharon from until mrs gaskins' primary occupation was that of a homemaker during the years the second roofing company was in operation she assisted mr gaskins to the limited extent as described earlier in mrs gaskins took a job as cafeteria worker in the minersville area school district which paid between dollar_figure and dollar_figure per hour with no employee_benefits she quit this job in june of in may of she began a secretarial job in the domestic relations office located at the schuylkill county courthouse in pottsville pennsylvania this job paid dollar_figure per hour and offered medical benefits for her family mrs gaskins has also done some freelance work for a local newspaper receiving from dollar_figure to dollar_figure per month for articles she submitted financial responsibilities mrs gaskins always took care of the family finances endorsing and depositing mr gaskins' paychecks into her checking account or cashing them and using the funds to pay the family's bills mrs gaskins endorsed and deposited many of the expense checks mr gaskins received from west pine from june of through september of when the gaskins were first married they had a joint checking account a year or two later this was changed into mrs gaskins' name only since she paid all the bills to mrs gaskins' knowledge mr gaskins did not have a checking account or other bank accounts thereafter for a short time in the late 1960's the gaskins had had a savings account containing approximately dollar_figure received as wedding gifts as far as mrs gaskins knew the gaskins had no other bank accounts between and for the years at issue mrs gaskins did not prepare the gaskins' federal individual income_tax returns but she assembled the information for preparation of the returns and met with the tax_return_preparer prior tax_liabilities mrs gaskins first learned of the employment_tax problems with the first roofing company in or when the gaskins incorporated the second roofing company mrs gaskins then learned that mr gaskins had received letters from the irs mailed to the first roofing company's office requesting payment of these taxes mr gaskins also had problems with his individual federal tax returns for taxable years through the irs assessed a fraud_penalty against mr gaskins with respect to his individual tax deficiencies beginning in late december of through may of the irs sent several notices to mr gaskins regarding his individual income taxes for those earlier years mrs gaskins knew that tax lines were placed against mr gaskins mrs gaskins however believed mr gaskins' tax_liabilities stemmed from his failure to pay over the first roofing company's employment_tax withholdings she was not aware that mr gaskins had problems with his individual income taxes for however mrs gaskins was aware of the irs criminal investigation into the first roofing company mrs gaskins learned of the second roofing company's failure to pay employment_taxes when the secretary informed mrs gaskins that the irs had called the office asking for mrs gaskins the irs ultimately assessed a 100-percent penalty against mrs gaskins for-this employment_tax liability mrs gaskins' knowledge of west pine's operations mrs gaskins did not know who incorporated west pine she never attended any shareholder meetings she only visited a west pine work site on one occasion in the company of mr gaskins and their children so the children could see where their father worked mrs gaskins never performed any duties for west pine mrs gaskins was not aware of west pine's suppliers or customers mr gaskins had told mrs gaskins that he wanted her to be listed as president of west pine and that her name would be used to sign checks since he could not sign anything mr gaskins had also told mrs gaskins he had given mr quinn permission to sign her name to the west pine checks mrs gaskins believed that it was mr quinn who was signing her name to west pine checks mrs gaskins permitted this practice accepting the explanation that he did not know anything about the business mr quinn had the checkbook and was at the work site and this arrangement was more convenient mrs gaskins knew mr quinn was an officer of west pine the treasurer she thought during the years through mrs gaskins suspected that west pine had financial problems when mr gaskins did not give his paycheck to her at regular intervals mrs gaskins had no knowledge of any unreported income which mr gaskins received from west pine see supra note every or months mrs gaskins would make payments on her 100-percent-penalty for the second roofing company in person at the pottsville irs office occasionally mrs gaskins would bring in information on mr gaskins' 100-percent penalty for the first roofing company during mrs gaskins' visits to the pottsville irs office she was distressed that she had been assessed the 100-percent penalty and mr clark explained the responsible_person penalty to her in her conversations with mr clark mrs gaskins denied she had any position or capacity with west pine in the latter half of mr clark came into possession of copies of some of west pine's checks and bank signature cards he then met with mrs gaskins about these items told her of west pine's delinquent employment_taxes and advised her of her potential liability mr clark showed mrs gaskins the west pine checks and asked her about her signatures on the front of those checks mrs gaskins told him that mr quinn had signed her name to the west pine checks in response to her concern about the potential for another 100-percent-penalty assessment mr clark advised her to get an affidavit from mr quinn confirming that mr quinn had signed her name and to have her name removed from the bank signature cards on a subsequent visit in late mrs gaskins told mr clark that she could not do that since she had signed the checks in after the gaskins' individual return had been filed mrs gaskins contacted the family's tax_return_preparer for advice regarding west pine's tax problems the tax_return_preparer declined to get involved or offer assistance mrs gaskins understood from mr gaskins that west pine's tax_liabilities and other bills were discussed at meetings held in philadelphia meetings that she did not attend on date irs revenue_officer higgins interviewed mrs gaskins relative to the recommendation for a 100-percent-penalty assessment with respect to west pine's employment_tax liability during this interview mrs gaskins stated that while she was not an officer of west pine she may have been listed as comptroller at trial mrs gaskins testified that she was listed as west pine's president not at the time of west pine's incorporation but closer to the time west pine ceased operating mrs gaskins explained the apparent discrepancy in her answers by stating that in she did not know whether she actually had been listed as president mrs gaskins further explained that she answered mr higgin's questions based on information given to her by mr gaskins in anticipation of that interview mrs gaskins did not distrust her husband and she simply repeated what he had told her house mortgages and related expenses the gaskins live in a three-bedroom ranch house where they have resided since july of they obtained their first mortgage on the house from state capital savings and loan in the principal_amount of dollar_figure in january of the gaskins obtained a dollar_figure loan at an interest rate of dollar_figure percent secured_by their residence from pacific finance consumer discount company of the dollar_figure amount dollar_figure was applied towards credit insurance dollar_figure was disbursed to household finance dollar_figure was paid to the recorder of deeds and dollar_figure was disbursed to the gaskins in february and march of the gaskins borrowed dollar_figure at an interest rate of dollar_figure percent and dollar_figure at an interest rate of dollar_figure percent respectively from transamerica financial consumer discount company transamerica these loans were secured_by their residence transamerica disbursed the proceeds of the date loan as follows dollar_figure to pay off the balance on a previous loan from transamerica dollar_figure to household finance dollar_figure for insurance and recording fees and dollar_figure directly to the gaskins proceeds of the date loan the second mortgage paid the balance of dollar_figure remaining on the date transamerica loan dollar_figure to household finance and title insurance and recording fees of dollar_figure leaving dollar_figure for the gaskins the gaskins used a portion of these funds to replace the broken oil burner in their home with a coal stoker and to pave the dirt driveway at their home on date the gaskins transferred title to their house from their joint_ownership to mrs gaskins individually as of date the gaskins' property taxes for1983 and remained unpaid and the county scheduled the property to be sold from february through august of the gaskins failed to make payments on their first mortgage dollar_figure per month and were threatened with foreclosure on date transamerica filed to foreclose on the second mortgage since the gaskins-had not made any payments dollar_figure per month since date the gaskins' default on the second mortgage note caused the loan to become immediately due in full the amount due on principal and interest plus attorney's_fees was dollar_figure as will be described below funds were obtained to pay this mortgage and the foreclosure sale was averted mrs gaskins paid the and property taxes on date as of date the-1988 property taxes remained unpaid and again the county threatened to sell the house on date meridian mortgage corporation then the holder of the first mortgage sent notice of its intention to foreclose if defaulted payments and late fees for the months of april through june of were not made within days on date meridian mortgage wrote again requesting payments for august through october of as of date the property taxes for and remained unpaid the gaskins have made no improvements to this house which is in a state of disrepair they have not purchased any new furniture since at least personal bankruptcy on date the gaskins filed a petition in the united_states bankruptcy court for the eastern district of pennsylvania the gaskins' petition listed the irs as a creditor of mr gaskins in the amount of approximately dollar_figure according to the bankruptcy petition the gaskins owed local_taxes of dollar_figure and owed household finance dollar_figure on a loan borrowed to pay taxes they also owed household finance dollar_figure on a second loan used for the purchase of a major appliance when the gaskins filed the bankruptcy petition a suit was pending in the case credit alliance corp and leasing service corp v william and elaine gaskins on date the gaskins filed to withdraw the bankruptcy petition mr gaskins' medical_condition and resulting disability_income mr gaskins suffers from several medical problems he has had diabetes since about polycythemia and arteriosclerosis in july of to improve circulation in his lower extremities caused by aorticiliac occlusive disease he had arterial bypass surgery due to the limitations in movement imposed by this condition mr gaskins' doctor considered him to be totally disabled however sometime in mr gaskins went to work in a coal mine on date mr gaskins injured his lower back while lifting rock for the sharp mountain coal company mr gaskins has not worked since this injury he still suffers from back pain in early mr gaskins returned to the hospital for tests and the physician recommended that the arterial bypass surgery be repeated that surgery was not performed until in mr gaskins suffered a stroke in december of and march of he had procedures performed on his carotid arteries which were clogged mr gaskins continues to have problems with his legs in mr gaskins applied for social_security polycythemia is a condition marked by an abnormal increase in the number of circulating red blood cells webster's ninth new collegiate dictionary disability benefits on date mr gaskins was granted benefits fora period of disability from date through december after his accident in the coal mine mr gaskins appealed the cessation of his benefits on date the social_security administration issued its decision that mr gaskins had continued to be disabled since in october of mr gaskins received a lump-sum payment of dollar_figure of retroactive social_security disability_income mrs gaskins received two checks in the amounts of dollar_figure and dollar_figure as retroactive payments herself and for her children respectively mr gaskins used his lump-sum award towards the mortgages to avert the threatened foreclosures on the family home beginning in october of the family received monthly social_security income of dollar_figure from which dollar_figure in medical insurance premiums was deducted the family continues to receive social_security income in the amount of dollar_figure monthly for the benefit of the gaskins and their daughter sharon mr gaskins also received workers'_compensation as a result of his mining accident on date mr gaskins requested that his workers'_compensation benefits be commuted to enable him to pay the second mortgage and prevent foreclosure on the home in december-of a lump-sum payment of dollar_figure was approved from which dollar_figure-in attorney fees was deducted some of the remaining funds were used to pay off the second mortgage taxes and other past due bills health insurance from until the gaskins family had no medical insurance beginning in october of when mr gaskins was approved for his retroactive social_security payments he received medicare insurance coverage his hospital insurance coverage was effective retroactive to january of these insurance benefits applied to mr gaskins only not to the other members of his family during to the gaskins received several past due notices related to medical charges on date mrs gaskins was approved for public assistance which entitled her to free medical_care mrs gaskins' secretarial job at the schuylkill county courthouse which she began in may of now provides medical insurance for the gaskins and their daughter other resources and assistance received during-the early 1980's mrs gaskins' father gave them money mr gaskins' sister gave them several hundred dollars the gaskins did not repay this money in the gaskins sold a piece of undeveloped real_property for dollar_figure the gaskins had purchased thi sec_5 2-acre property in for dollar_figure at a tax sale of the proceeds from 5it appears that mr gaskins did not elect to take the supplemental medical insurance coverage retroactive to date which was made available for a cost of dollar_figure this cost could be paid in a lump sum or deducted from the next monthly benefit checks the sale dollar_figure went to the irs to be applied to mrs gaskins' 100-percent-penalty debt on date the department of public welfare authorized fuel energy assistance for the gaskins this was used to buy coal to heat their house the gaskins received public welfare benefits in the amount of dollar_figure every weeks and food stamps for a period of about years prior to october of during the period through the gaskins' daughters rochelle and sharon wore second-hand clothes sharon wore her older sister's clothes in or their neighbors the stabinskys gave some of their daughters' clothes to rochelle and sharon relatives also gave the girls their old clothes their grandparents bought them shoes school clothes and other school items their grandparents took them to amusement parks and bought them swimsuits and ice cream in the summer and toys for christmas mr gaskins' mother gave the gaskins family food to prepare thanksgiving and christmas dinners mrs gaskins' parents and mr gaskins' sister also bought them food their neighbor michael stabinsky mr stabinsky brought them coal during the winter of mr gaskins' sister also gave them coal mr stabinsky hooked up rabbit ears to the gaskins' television on at least three occasions when their cable service was disconnected for nonpayment so that the children could watch television on date mr gaskins cashed in two life_insurance policies he received only dollar_figure due to dollar_figure owed on loans made against these policies these loans had commenced in with additional_amounts borrowed in and lifestyle from until mrs gaskins drove a plymouth fury the fury in and the gaskins also owned a dodge truck which they financed through chrysler credit corporation in the fury's transmission failed and the gaskins bought a chevrolet celebrity for mrs gaskins at that time the gaskins also owned a cadillac and a 1973ford mrs gaskins had the chevrolet for only days when an accident destroyed the car mrs gaskins' father then gave her a ford fairlane which she was still driving at the time of the trial in the gaskins owned a ford a ford and a oldsmobile from until the early 1980's mrs gaskins had store charge cards at the sears and pomeroy's department stores she stopped using the pomeroy's card the sears account was referred to a collection agency and the card was recalled mrs gaskins made payments on the delinquent sears account restoring her credit rating so that during the summer of she was able to open store charge accounts again she has never had credit cards such as visa or american express mrs gaskins has never owned any expensive jewelry the gaskins have never gone on a family vacation nor has mrs gaskins herself gone on a vacation the only time the gaskins have gone out to dinner excluding fast food restaurants was for their daughter's wedding rehearsal dinner the gaskins have never owned any expensive items such as furs a boat or race horses the gaskins have never had any stocks bonds or other investments other than that in mr gaskins' companies the gaskins' older daughter was a senior at kutztown university at the time of the trial her education was financed primarily by loans grants and a scholarship the gaskins contributed only dollar_figure to dollar_figure per year for her college education petitioner sabina a ouinn background mrs quinn was born on date she graduated from high school in and began working shortly thereafter she received no further formal education or training except for months of unemployment during mrs quinn was in the work force almost continuously from until june of when she stopped working due to an accident for nearly all of this year period mrs quinn has worked as a legal secretary from until june of she worked part time even though she was in her 60's and receiving social_security retirement income mrs quinn continued working in her later years to earn money for her car payments of dollar_figure per month for her medical insurance costs of dollar_figure every months and for spending money the quinns were married in and as of the trial in this case were still married in they moved in with mrs quinn's parents the angelos the angelos continued living in the house and were living there until at least at some point title to the property was transferred from the angelos to the quinns mrs quinn has lived in this house for all but years of her life the house is one half of a duplex with three bedrooms one bathroom and a small yard mrs quinn has paid for maintenance such as new windows siding shutters and brickwork however there have been no material alterations or additions to the house during the quinns paid off one mortgage with payments that year totaling dollar_figure in the same year they obtained a new mortgage in the amount of dollar_figure the quinns have two daughters patricia miller patricia and linda greis linda who were and years of age respectively at the time of the trial patricia attended bloomsburg university and albright college she also did post graduate work at bloomsburg from to and from october of to june of patricia lived with the quinns during the latter period patricia did not pay rent but assisted with the household expenses in when patricia married for the first time and in when patricia remarried the quinns did not contribute towards the wedding or reception expenses linda attended college with the assistance of student loans and earnings from her part-time jobs she was graduated from the university of delaware in patricia helped linda with rent and other college expenses in august of linda moved to germany to be with her husband she lived there for or years while in germany linda had a child and thereafter worked as a teacher at a military installation financial responsibilities mrs quinn was responsible for paying the family bills with her own or mr quinn's funds balancing the checkbook and handling the family bank accounts mr quinn gave mrs quinn his west pine paychecks which she deposited into one of their accounts she also prepared the quinns' federal_income_tax returns for the years at issue knowledge of west pine's operations mrs quinn had no knowledge of west pine's operations or financial obligations other than what she garnered from the west pine checks she wrote out under mr quinn's direction mrs quinn was unaware of west pine's customers suppliers or creditors from writing out those checks mrs quinn knew west pine had employees by the names of devers and hobbs in addition to mr quinn and mr gaskins when she did not receive his paycheck from mr quinn she thought that he had not been paid she thought that mr quinn did not always receive his paycheck on time because he paid the other men first and then himself when sufficient funds were available other than his paychecks mrs quinn knew of no other funds mr quinn received from west pine mrs quinn never visited any west pine work sites mrs quinn never attended any meetings related to west pine she was not an officer or director of the corporation she did not know whether she was listed as a shareholder mrs quinn knew mr quinn was the secretary of west pine during the years through she knew mr quinn visited the pottsville irs office but she did not know the purpose of his visits she was familiar with that irs office and with mr clark from her own work responsibilities with the law firm and she knew mr quinn had to file west pine's quarterly payroll tax returns there mrs quinn did not learn of west pine's tax problems until she was called to testify at her husband's criminal trial in philadelphia in credit alliance action and aftermath on date credit alliance corporation credit alliance entered a default judgment against the quinns in the united_states district_court for the eastern district of pennsylvania on the basis of the quinns' personal guarantees of payment of west pine equipment lease purchases credit alliance also entered this judgment in the court of common pleas of schuylkill county pennsylvania on date mr quinn had signed mrs quinn's name to the guarantee without her 6in after the years before the court two men from philadelphia appeared in her home and insisted that she sign a blank stock certificate for west pine mrs quinn did not wish to sign without contacting an attorney but did so under pressure from these men and mr quinn she did not know the purpose of this certificate no evidence of the certificate or its purpose was presented at trial permission or knowledge mr quinn had been served with a summons regarding the credit alliance action but mrs quinn did not learn about it until a month later mrs quinn then hired an attorney to defend her in this credit alliance matter and paid him a retainer of dollar_figure mrs quinn was ultimately relieved of liability for the credit alliance debt mrs quinn was so distressed by this incident that she contemplated divorcing mr quinn she was afraid that credit alliance would attempt to take her home and the assets for which she and mr quinn had worked hard and scrimped and saved over a lifetime she felt mr quinn was destroying their life together by not making her aware of what he had done and by jeopardizing their life savings the quinns did not get a divorce but instead they agreed to transfer their joint assets to mrs quinn or to mrs quinn jointly with one or the other of their two daughters since that time the quinns' relationship has been strained at the trial mrs quinn was still visibly upset by this episode in their lives thus in december of the quinns transferred title to three undeveloped schuylkill county lots to mrs quinn's name alone the quinns also transferred title to their house into the names of mrs quinn and patricia joint bank accounts were closed or title transferred none of these accounts contained any unusually large amounts or any deposits from unknown sources at the time of these various transfers mrs quinn was not aware of any_tax problems of west pine and was not aware of any_tax problems that she and her husband might have in regard to west pine mr quinn retained the insurance policies in his name through the prudential insurance_company of america prudential insurance and the franklin life_insurance_company as of the time of the trial the quinns had a joint checking account and two safe deposit boxes mrs ouinn's assets and other income the quinns have had bank passbook savings accounts since at least and they have contributed to them regularly and accrued interest on these accounts over the ensuing years accounts were held in the names of mrs quinn the quinns jointly mrs quinn and patricia mrs quinn and linda and linda and patricia throughout the years amounts were transferred from one family account to another accounts were closed and new ones opened as of december of the quinns had accumulated at least dollar_figure in their bank savings accounts of this amount dollar_figure was in mrs quinn's account at home savings association of pennsylvania home savings the savings account the quinns held jointly at american bank and trust american contained dollar_figure periodically during the 1970's mrs quinn purchased government savings bonds series e or ee bonds with face values of dollar_figure and dollar_figure in the names of herself and patricia during to mrs quinn cashed in and rolled over some of those savings bonds into h or hh bonds for at least the years through and interest of dollar_figure per year was earned on series h or hh savings bonds held in the names of mrs quinn and linda and another dollar_figureb00 per year on series h or hh savings bonds held in the names of mrs quinn and patricia the quinns owned certificates of deposit cd's mrs quinn purchased cd's some in her name only and some jointly with her children mrs quinn and patricia had a money market savings account they opened in on date mrs quinn and patricia received dollar_figure from the sale of the three undeveloped lots on date mrs quinn deposited dollar_figure the proceeds from cashing in a life_insurance_policy into the checking account she had with patricia the quinns took ira deductions on their federal_income_tax returns as follows dollar_figure dollar_figure dollar_figure no evidence was presented as to where these contributions went or to whose credit during later years mrs quinn made at least the following contributions to her ira's dollar_figure dollar_figure dollar_figure as of date mrs quinn had an investment in the t rowe price new income fund through her employer's retirement_plan worth dollar_figure on date a check was written to mrs quinn from her employer's pension_plan in the amount of dollar_figure on date mrs quinn rolled over this distribution into an ira at prudential bank and trust company prudential bank which consisted of one ira cd for the same amount in mrs quinn cashed in a prudential insurance annuity receiving dollar_figure in december of mrs quinn received a partial_distribution in the amount of dollar_figure from the aba members retirement program prudential bank issued a distribution of dollar_figure from mrs quinn's ira cd on date during mrs quinn received distributions totaling dollar_figure from the prudential bank ira cd during she also received dollar_figure in distribution of all of the funds in one of her employer plans that fund had earlier been in another such employer plan on date the quinns had a total of dollar_figure in bank accounts mostly savings keogh_plans and ira's and dollar_figure in various government savings bonds the ira accounts which belonged to mrs quinn totaled dollar_figure the bank account funds with the exception of dollar_figure held jointly by mrs quinn and mr quinn were held by mrs quinn alone or by mrs quinn and one or the other of their daughters the savings bonds were held jointly by mrs quinn and one of her daughters or grandchildren and were purchased or rolled over from purchases in the 1970's over years of financial records 7the prudential bank and trust company later became known as the prudential savings bank or the prudential bank we will use the term prudential bank to refer to this banking institution throughout this opinion regardless of its full name at the time being discussed showed no unusual increases in the quinns' assets just a steady accumulation of savings mr ouinn's income mr quinn has not been employed since with the exception of a short_period of time during when he worked for sharp mountain coal company mr quinn incurred a work- related injury on date on date state workmen's insurance fund sent him a check in the amount of dollar_figure representing compensation_for date through date less attorney fees thereafter mr quinn received a disability check of dollar_figure every two weeks in mr quinn was already years old and eligible to collect social_security retirement benefits as of date mr quinn's monthly income from worker's compensation was dollar_figure and from social_security dollar_figure in mr quinn opened and made two contributions totaling dollar_figure to his annuity account with prudential insurance mr quinn received a partial withdrawal dated date of dollar_figure from his prudential insurance annuity account which with his permission was deposited into a joint bank account belonging to mrs quinn and linda in mr quinn received dollar_figure in retirement income from the cash surrender of a metropolitan life_insurance_company policy as of date the prudential insurance annuity_contract was worth dollar_figure on date mr quinn requested that this contract be distributed as a life_annuity paying monthly payments to him or after his death to his beneficiaries the amount of each monthly payment is dollar_figure lifestyle from to mrs quinn drove a volkswagen rabbit mr quinn may have had a pickup around that time at the time of the trial mrs quinn drove a volkswagen during the years at issue mrs quinn did not purchase expensive clothing drive expensive automobiles or dine at expensive restaurants mrs quinn has simple tastes and has always lived a modest lifestyle mrs quinn has never owned any expensive jewelry she has store charge cards at boscov's and pomeroy's department stores the quinns dine out less than once a month they go to moderately priced restaurants or make use of discount coupons when their children were young the quinns took a few family vacations staying at the beach for or days the quinns have not been on a vacation together in years in mrs quinn and linda went to the bahamas for days to celebrate linda's college graduation from until the present mrs quinn has given gifts averaging dollar_figure per month to her three grandchildren using her own or mr quinn's funds she also gave gifts of money to her daughters from june of through june of mrs quinn made payments totaling dollar_figure on linda's student loans mrs quinn gave linda dollar_figure to buy a house in august of the property was titled in the names of both linda and mrs quinn during and mrs quinn assisted linda who was then a single parent in paying her bills including her mortgage on date mrs quinn paid dollar_figure for plastic surgery to remove a scar from linda's lip mrs quinn gave linda a dollar_figure check for christmas in in august of mrs quinn paid dollar_figure for one of linda's graduate school courses in june of mrs quinn gave linda dollar_figure to purchase a different house the mortgage was issued in both of their names mrs quinn also paid dollar_figure of the closing costs on the new house opinion the issues for decision in these consolidated cases are whether mrs gaskins is entitled to relief as an innocent spouse under sec_6013 and whether mrs quinn is entitled to relief as an innocent spouse under sec_6013 normally spouses who have filed a joint_return are jointly and severally liable for the tax due sec_6013 however sec_6013 relieves a spouse of liability for the tax including interest penalties and other_amounts attributable to the substantial_understatement of tax of the other spouse if that spouse meets the following requirements a joint federal_income_tax return was filed there is a substantial_understatement of tax attributable to grossly_erroneous_items of the other spouse - in signing the return the alleged innocent spouse did not know and had no reason to know of the substantial_understatement and taking into account all the facts and circumstances it would be inequitable to hold the alleged innocent spouse liable for the deficiency attributable to such substantial_understatement sec_6013 mrs gaskins and mrs quinn each have the burden of proving that she meets these requirements rule a a petitioner who fails to meet all of the requirements of sec_6013 will not qualify for innocent spouse relief 9_f3d_290 3d cir affg tcmemo_1992_580 826_f2d_470 6th cir affg 86_tc_228 94_tc_126 affd 992_f2d_1132 11th cir respondent has conceded that both mrs gaskins and mrs quinn meet the first two requirements of sec_6013 we shall consider each petitioner in turn with respect to the remaining two requirements mrs gaskins knowledge of the understatement mrs gaskins argues that she had no actual knowledge nor did she have reason to know of any diverted receipts from west pine or substantial understatements of tax and therefore she should be afforded relief as an innocent spouse respondent contends that mrs gaskins has not established her lack of knowledge or that she had no reason to know a taxpayer seeking innocent spouse relief must establish that he or she in signing the return did not know and had no reason to know that there was a substantial_understatement of tax sec_6013 e c the record clearly shows that mrs gaskins had no actual knowledge of any understatement of mr gaskins' income and the resulting substantial_understatement of tax the question is whether she had reason to know about such understatement a spouse has reason to know if a reasonably prudent taxpayer under the taxpayer's circumstances at the time of signing of the return could be expected to know the return was erroneous or that further investigation was warranted 872_f2d_1499 11th cir affg tcmemo_1988_63 bokum v commissioner t c pincite a taxpayer cannot close her eyes to facts or unusual expenditures that might give her reason to know of unreported income and a substantial_understatement of tax 72_tc_1164 57_tc_680 if a spouse knows enough facts to be put on notice of the possibility of a substantial_understatement she has a duty to inquire further 897_f2d_441 9th cir affg tcmemo_1987_522 weiss v commissioner tcmemo_1995_70 failure to inquire may cause knowledge of the understatement to be imputed to the taxpayer 887_f2d_959 9th cir citing levin v commissioner t c memo 57_tc_732 factors to be considered in determining whether the spouse had reason to know are the alleged innocent spouse's level of education the spouse'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 price v commissioner f 2d pincite stevens v commissioner f 2d pincite 93_tc_355 mrs gaskins has a high school education she has had no training or work experience in financial matters mrs gaskins deposited mr gaskins' paychecks and many of his expense checks into her checking account which for most of the years of their marriage was the only account that she was aware that the gaskins had she was responsible for paying the family's bills for the years at issue the gaskins used a tax_return_preparer to prepare their federal_income_tax returns involvement with a spouse's business may give rise to a duty to inquire into the activities of that business see 780_f2d_561 6th cir revg and remanding on other grounds tcmemo_1984_310 dickey v commissioner tcmemo_1985_478 shapiro v commissioner tcmemo_1986_142 mrs gaskins knew little about west pine's operations however she knew that mr gaskins wanted to list her as an officer of west pine and to use her name to sign west pine's checks mr gaskins had used mrs gaskins' name to incorporate the second roofing company and had named her as its president because the outstanding tax debts from the first roofing company precluded mr gaskins from conducting business in his own name likewise mr gaskins used mrs gaskins' name in running west pine however knowledge of these facts would not alert mrs gaskins as to any unreported income mr gaskins received from west pine the evidence is contradictory as to whether and when mrs gaskins was listed as an officer of west pine regardless mrs gaskins was not assigned any duties and was not involved in the operation of west pine if she was an officer she was an officer in name only and not charged with any special duty to inquire because of any office to which she may have been named see bell v commissioner tcmemo_1989_107 wife was shareholder and on board_of directors but had no authority carter v commissioner tcmemo_1977_322 wife's only duty as secretary was to sign stock certificates at her home mrs gaskins had signatory authority over the west pine checking account the mere fact of having signatory authority is insufficient to charge mrs gaskins with reason to know of the understatement of mr gaskins' income from west pine see porter v commissioner tcmemo_1991_561 mrs gaskins' name was being signed to west pine checks by mr quinn beginning in december of and mrs gaskins knew this from mr gaskins' paychecks and expense checks that she endorsed yet we do not believe that had mrs gaskins signed the checks personally she would have known any more about west pine's operations and the diverted receipts or that further investigation was warranted first since west pine did not have an office mrs gaskins would have signed these checks at her house or that of the quinns not at the mining site where she might have witnessed any of the business activities second she would have signed the checks in blind compliance with mr gaskins' or mr quinn's instructions just as she allowed them to sign her name third given mrs gaskins' lack of knowledge of the mining business lack of knowledge of west pine's activities specifically and lack of experience with corporate bookkeeping it is unlikely that information presented in the checkbook would have aroused her suspicions see 897_f2d_441 9th cir wife who signed organization's checks under husband's instruction held to have no reason to know of understatement coleman v commissioner tcmemo_1988_538 wife who had access to business books-for limited period and who had no understanding of bookkeeping system held to have no reason to know mrs gaskins' knowledge of west pine's withholding_tax problem in late did not put mrs gaskins on notice of the possibility of diversion of corporate receipts west pine's failure to pay the withheld employment_taxes to the irs and the fact that mr gaskins periodically failed to give his paycheck to her would have suggested that west pine had no money not that mr gaskins was diverting corporate receipts mrs gaskins presented evidence about the lack of expenditures on household repairs furnishings clothes or vacations this evidence demonstrated the gaskins' inability to make timely payments on many of their financial obligations and their efforts to avert foreclosure by their creditors nothing in the gaskins' spending habits and lifestyle would have aroused mrs gaskins' suspicions she was living at or below the poverty level perceived evasiveness of the culpable spouse may trigger a duty to inquire stevens v commissioner f 2d pincite park v commissioner tcmemo_1993_252 affd 25_f3d_1289 5th cir good communication between the spouses may support a finding that the taxpayer was aware of the understatement 992_f2d_1256 2d cir affg tcmemo_1992_228 this assumes that a nonevasive spouse is more likely than an evasive spouse to communicate-relevant knowledge to his or her spouse conversely a taxpayer who is unaware of being misled by the other spouse may not have reason to know of the understatement or a duty to inquire as to the possibility of an understatement guth v commissioner f 2d pincite mrs gaskins believed mr gaskins to be trustworthy in our view mr gaskins while not evasive just did not share information about his business activities with mrs gaskins mrs gaskins was unaware of mr gaskins' individual tax debts from earlier years learned of the first roofing company's problems only when mr gaskins used her name to incorporate the second roofing company and learned of west pine's employment_tax problems from irs revenue_officer clark at the time of signing the individual tax returns for the years and mrs gaskins was not alerted to inquire further into mr gaskins' business dealings based on our review of these factors as applied to mrs gaskins we hold that mrs gaskins did not know and had no reason to know of the substantial understatements of mr gaskins' income when signing their federal_income_tax returns for the taxable years or inequity of holding mrs gaskins liable mrs gaskins argues it is inequitable to hold her liable because she has not benefited from any unreported income and the family has suffered many hardships respondent alleges that mrs gaskins has not proved it would be inequitable to hold her liable to qualify for innocent spouse relief the taxpayer must show that given all the facts and circumstances it would be inequitable to hold the taxpayer liable for the tax_deficiency attributable to the substantial_understatement of the other spouse sec_6013 one factor to consider is whether the taxpayer seeking relief significantly benefited from the erroneous items of the other spouse here unreported income 93_tc_672 normal support is not a significant-benefit sec_1 b income_tax regs estate of krock v commissioner supra pincite flynn v commissioner t c pincite normal support is determined by the circumstances of the parties 509_f2d_162 5th cir estate of krock v commissioner supra pincite flynn v commissioner supra pincite furthermore while a meager lifestyle may negate a reason to know or that a spouse significantly benefited the court_of_appeals for the third circuit87 has indicated that such a lifestyle need not lead to the conclusion that it is inequitable to hold the spouse liable for the tax particularly where assets have accumulated for the spouse's later use purificato v commissioner f 3d pincite from a financial standpoint the gaskins have lived a bleak existence they have had a history of borrowing to pay for consumer items and being delinquent on their debts other than their house and old automobiles the gaskins have no assets respondent cites 57_tc_373 and 72_tc_1164 for the proposition that mrs gaskins has not met her burden of showing she did not benefit since she has not accounted for_the_use_of the diverted income in sonnenborn v commissioner mrs sonnenborn the treasurer of the corporation from which the omitted income derived knew of the payments from the 8an appeal in this case would lie to the court_of_appeals for the third circuit corporation to the taxpayers she failed to prove that she did not know or have reason to know such payments were income rather than the loans the taxpayers alleged them to be since mrs sonnenborn did not provide any information as to the use of these payments this court would not speculate and held that she did not establish that she did not benefit in terzian v commissioner the taxpayer did not know the source of funds in a bank account transferred to her this court therefore assumed the account contained funds from the omitted income however since the amount was considered to be for the taxpayer's ordinary support this court found she did not significantly benefit mrs gaskins had no knowledge of any unreported payments to her husband nor did she receive any unexplained benefits or assets it is impossible for her to explain something she did not know about her burden is to show she did not benefit it is clear from the record that mrs gaskins received no benefit from the omitted income another factor to consider is whether the spouse seeking relief had been deserted by or divorced or separated from the culpable spouse sec_1 b income_tax regs yet this is only one of the factors to be considered and sec_6013 relief is not limited to spouses whose marriages have ended mysse v commissioner t c pincite mrs gaskins continues to be married to mr gaskins a fact which neither helps nor hinders her case a third factor is whether probable future hardships would be visited upon the innocent spouse if she is not relieved of liability sanders v united_states f 2d pincite n mrs gaskins has argued that the hardships the family has suffered due to mr gaskins' disability and the previous lack of medical coverage make it inequitable to hold her liable for the deficiency the court_of_appeals for the third circuit has stated that hardships which do not affect tax_liability do not bear a relationship to the innocent spouse issue purificato v commissioner f 3d pincite instead we must consider the hardship to the spouse seeking relief if made to share the tax_liability and whether that spouse would have to pay the tax out of her own assets id pincite if mrs gaskins were made to share mr gaskins' tax_liability her only asset their house would be used to help satisfy the tax that house was acquired long before the years involved in this case also the funds to avert the threatened foreclosure on the mortgages on that house came from mr gaskins' disability payments under worker's compensation and social_security not from any unreported income from west pine since mrs gaskins has derived no benefit or assets from mr gaskins' omitted income it would be inequitable for mrs gaskins to be required to pay the tax given these facts and circumstances we conclude that it would be inequitable to hold mrs gaskins liable for the deficiencies in tax arising from mr gaskins' understated income for the taxable years and mrs ouinn knowledge of the understatement mrs quinn argues she did not know and had no reason to know of any substantial understatements of income on the quinns' returns respondent counters by stating that mrs quinn has not met her burden_of_proof on this required element for relief the record is clear that mrs quinn had no actual knowledge of the understatement of mr quinn's income thus we must decide whether she had reason to know of such understatement mrs quinn has a high school education and work experience as a legal secretary she had no special knowledge of financial matters she controlled the family finances mrs quinn deposited their paychecks paid the household bills balanced the checkbook and managed their savings their savings were in passbook savings accounts government savings bonds ira accounts employer retirement or pension plans and certificates of deposit she prepared the quinns' joint tax returns for the years at issue mrs quinn was not familiar with or involved in the operations of west pine she was not an officer or director occasionally she wrote out west pine checks under mr quinn's direction for his signature what knowledge she had of west pine's activities was limited to information gathered from this ministerial duty as underscored by mrs quinn's strong emotional reaction to recalling the events related to the credit alliance suit even after the passing of years she had-no awareness of any of mr quinn's business activities that would give rise to personal liability prior to her discovery of that matter in june of after the years involved in this case up until that time mrs quinn had trusted mr quinn and had no reason to question his actions see 3_f3d_1342 9th cir revg t c memo and tcmemo_1991_472 supplemental opinion moreover even if she had learned of the credit alliance matter before the filing of their individual tax_return that would not have alerted her to the possibility that mr quinn had received unreported income from west pine if anything that lawsuit plus mr quinn's apparent failure to receive his regular paychecks from west pine would have suggested that west pine had no money not that mr quinn was diverting corporate receipts mrs quinn has maintained a moderate lifestyle with no lavish expenditures_for most of her married life she has lived in the house purchased and occupied by her parents she and her husband have worked their entire adult lives regularly setting aside money into passbook savings accounts government savings bonds cd's and retirement plans for themselves and their children mrs quinn has assisted her children financially when needed the largest sum at any one time being dollar_figure to help her younger daughter purchase a house nothing in the record indicates an increase in spending or a large increase in assets during or after the years at issue based on these facts we hold that mrs quinn did not know and had no reason to know of any understatements of income on the quinns' federal_income_tax returns for the taxable years or ineguity of holding mrs quinn liable mrs quinn contends that it would be inequitable to hold her liable for the tax_deficiency arising from the understatements because she has not benefited from the omitted income respondent's position is that it would not be inequitable since mrs quinn has not proved she did not benefit nothing suggests a significant benefit accrued to mrs quinn as a result of the understatement of mr quinn's income mrs quinn continued her usual frugal spending and savings habits see 496_f2d_431 10th cir the large volume of financial documents submitted by mrs quinn fails to indicate any large or unusual amounts being deposited into her accounts or into those she previously held with mr quinn the majority of her assets reside in her law firm retirement plans and are attributed to her earnings over the many years of her year participation in the work force the assets accumulated in the course of the quinns' normal working life do not derive from the omitted income and are not a significant benefit as with mrs gaskins respondent argues that mrs quinn must account for the diverted income she cannot account for something she knows nothing about see our discussion of this requirement as to mrs gaskins above as with mrs gaskins we reject respondent's argument mrs quinn knew of no diverted funds had no reason to know of any diverted funds and possessed no assets in excess of those accrued in the course of ordinary support and a lifetime of steady savings mrs quinn has amply demonstrated that she derived no benefit from any unreported income of her husband the quinns remain married although their relationship has suffered during when learning of the credit alliance suit mrs quinn considered getting a divorce her confidence in mr quinn was shaken she felt her financial security for which she had worked and scrimped and saved her entire life being threatened rather than pursue divorce proceedings the quinns agreed that their joint assets including the house given to them by mrs quinn's parents be transferred to mrs quinn either in her name alone or jointly with one or the other of their two daughters remaining in the marriage however does not preclude mrs quinn from relief should liability be imposed on mrs quinn the debt would be paid from her assets primarily her retirement_funds and the house given to her by her parents this would be inequitable since she did not benefit from mr quinn's omitted income given all the facts and circumstances we conclude that it would be inequitable to hold mrs quinn liable for the deficiencies in tax arising from mr quinn's understated income for the taxable years and we hold that both mrs gaskins and mrs quinn are entitled to innocent spouse relief under sec_6013 based on the concessions and the above holdings decisions will be entered for petitioners elaine gaskins and sabina a ouinn on the innocent spouse issue for and decisions will be entered for respondent on the deficiencies in tax for and and the addition_to_tax for fraud for and as to petitioners william c gaskins and pasquale t quinn


internal_revenue_service number release date index number ---------------------------------------- --------------------------------------------------------------- ------------ -------------------------------------------------------- --------------------------------- ------------------------ department of the treasury washington dc third party communication none date of communication not applicable_person to contact ------------------- id no ------------- telephone number --------------------- refer reply to cc psi plr-100808-08 date july -------------------------------------------------------------------------------- -------------------------------------------- ---------------------------------------------------- x ------------------------------------------------------------------------- ----------------------------------------- a ----------------------------------------- b ------------------------------ country country state date date date a ------------ ----------- ------------- ------------------- --------------------- -------------------------- -- dear --------------- this responds to a letter dated date submitted on behalf of x requesting a ruling on the status of x as a disregarded_entity the information submitted states that x was formed under the laws of country on date x has been granted in a separate private_letter_ruling an extension of time to file form_8832 entity classification election to be treated as a disregarded_entity effective date x’s original sole shareholder was a a state corporation subsequently on date a sold approximately a of the class a common_stock of x to b a country corporation this sale of stock to b was rescinded on date both date and date occurred during the same taxable_year plr-100808-08 the service recognizes that a rescission may be given full effect in abrogating a transaction under certain conditions when these conditions are met the transaction is disregarded for federal_income_tax purposes in this connection revrul_80_58 1980_1_cb_181 states the general legal principles pertaining to the doctrine_of rescission in the following terms the legal concept of rescission refers to the abrogation canceling or voiding of a contract that has the effect of releasing the contracting parties from further obligations to each other and restoring the parties to the relative positions that they would have occupied had no contract been made a rescission may be effected by mutual agreement of the parties by one of the parties declaring a rescission of the contract without the consent of the other if sufficient grounds exist or by applying to the court for a decree of rescission the revenue_ruling states that there are at least two conditions that must be satisfied for the remedy of rescission to apply to disregard a transaction for federal_income_tax purposes first the parties to the transaction must return to the status quo ante that is they must be restored to the relative positions they would have occupied had no contract been made second this restoration must be achieved within the taxable_year of the transaction x a and b were restored to the relative positions they would have occupied had x’s stock never been sold to b in addition this restoration occurred within the same taxable_year as the original transaction therefore the legal doctrine_of rescission applies to disregard the sale of x stock to b and prevent any change in the entity classification of x arising from the sale of x’s stock to b based solely on the facts submitted and representations made we rule that provided that x makes a valid entity classification election pursuant to the above- mentioned private_letter_ruling to be treated as a disregarded_entity effective date and provided that this election was not otherwise changed since this effective date x will be treated as continuing to be a disregarded_entity during the period from date to date and thereafter we further rule that the rescission of the stock sale will not be treated as the liquidation of a partnership on date except as expressly provided herein we express or imply no opinion concerning the federal 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 of the code provides that it may not be used or cited as precedent plr-100808-08 in accordance with a power_of_attorney on file with this office a copy of this letter is being sent to x’s authorized representative sincerely j thomas hines chief branch office of associate chief_counsel passthroughs and special industries enclosures copy of this letter copy for sec_6110 purposes cc