Goings v. Commissioner

T.C. Memo. 1997-87

UNITED STATES TAX COURT

BEVERLY D. GOINGS, Petitioner v.
COMMISSIONER OF INTERNAL REVENUE, Respondent

Docket No. 12090-94. Filed February 19, 1997.

Randy P. Zinna, for petitioner.

Stevens E. Moore, for respondent.

MEMORANDUM FINDINGS OF FACT AND OPINION

WRIGHT, Judge: Respondent determined deficiencies in,

additions to, and penalties on petitioner’s Federal income tax

for taxable years 1985 through 1990 in the following amounts:1

1
Unless otherwise indicated, all section references are to
the Internal Revenue Code in effect during the years at issue,
(continued...)
 - 2 -
Year Deficiency 6653(b)(1) 6653(b)(2) 6653(b)(1)(A) 6653(b)(1)(B) 6661 6663
1
1985 $49,562 $ 24,781 --- --- $12,391 ---
2
1986 66,134 --- --- $99,125 33,042 ---
3
1987 97,352 --- --- $73,014 24,338 ---
1988 1,473 108,178 --- --- --- 36,059 ---
1989 21,904 --- --- --- --- --- $16,428
1990 3,300 --- --- --- --- --- 2,475
1
50% of the interest due on $49,562
2
50% of the interest due on $132,166
3
50% of the interest due on $97,352

After concessions, the issues for decision are:

(1) Whether petitioner is liable for additions to tax and

penalties for fraud under section 6653(b) or section 6663 for any

taxable year at issue. We hold that she is not.

(2) Whether petitioner qualifies for "innocent spouse"

relief under section 6013(e) for any taxable year at issue. We

hold that she does not.

FINDINGS OF FACT

Some of the facts have been stipulated and are so found.

The stipulation of facts and the attached exhibits are

incorporated herein. At the time the petition was filed in this

case, petitioner resided in Baton Rouge, Louisiana. During the

years at issue, petitioner was married to Wayne T. Goings (Mr.

Goings). Petitioner and Mr. Goings (occasionally the couple)

were divorced on March 19, 1993. The couple filed joint Federal

income tax returns for each taxable year at issue.

Petitioner is a high school graduate. She is also a

graduate of a secretarial school, having completed a 9-month

1
(...continued)
and all Rule references are to the Tax Court Rules of Practice
and Procedure.
 - 3 -

training program. In 1964, upon completion of the above-

referenced secretarial training program, petitioner began working

for the Louisiana State Department of Transportation (LSDT) as a

secretary in LSDT's legal department. She remained with LSDT

until January 1988, when she began working part time as a

secretary in a law firm located in Baton Rouge, Louisiana.

Petitioner quit this part-time position shortly after obtaining

it. Petitioner's income from wages during the taxable years at

issue were as follows:

Year Wage Income

1985 $13,426.66
1986 13,413.74
1987 14,394.71
1988 22,775.85
1989 10,800.00
1990 9,768.00

Like petitioner, Mr. Goings earned a high school diploma.

Thereafter, without earning a degree, he attended three State

universities between June 1964 and April 1969. Following a short

recess, Mr. Goings returned to college and obtained a bachelor's

degree in general studies in 1973. Commencing in 1969, Mr.

Goings was employed by Allied-Signal, Inc. (Allied). Allied,

among other things, produced polyethylene resin. During the

years at issue, Mr. Goings was Allied's distribution manager.

Mr. Goings received the following income from wages during the

years at issue:
 - 4 -

Year Wage Income

1985 $49,754.84
1986 54,745.39
1987 65,025.18
1988 57,669.00
1989 59,259.99
1990 88,275.39

In 1984, petitioner and Mr. Goings created a corporation

called Bevway Chemical Corporation, Inc. (Bevway) The name

Bevway consists of the first three letters of Beverly and Wayne,

petitioner's and Mr. Goings' first names. Before its dissolution

in 1991, Bevway was in the business of brokering scrap resin.

Also occurring in 1984, petitioner, Mr. Goings, Robert S.

Morris (Morris), and Mary B. Morris formed a corporation called

Deep South Chemical Corporation (Deep South). Deep South was in

the business of mixing resin with other chemicals. Deep South

was dissolved in May 1986.

In October 1985, Mr. Goings and Morris formed Highland

Enterprises, Inc. (Highland). Shortly after its formation,

Highland purchased Deep South's assets and began conducting Deep

South's business. Morris eventually terminated his ownership

position in Highland, leaving petitioner and Mr. Goings as

Highland's sole owners.

Robert Bordelon (Bordelon) was an established customer of

Allied. He was in the business of processing scrap resin into

marketable pellets. In order to assure a ready supply of scrap
 - 5 -

resin for his business, Bordelon made monetary payments to Mr.

Goings during each taxable year at issue. In exchange for these

kickback payments, Mr. Goings, in his capacity as Allied's

distribution manager, made Allied's scrap resin available for

Bordelon to purchase. These kickback payments were in addition

to the price Bordelon paid Allied for the resin. Bordelon made

the following kickback payments to Mr. Goings:

Year Kickback

1985 $110,000
1986 139,000
1987 230,000
1988 492,000
1989 66,000
1990 10,000

Allied was unaware of Bordelon's payments to Mr. Goings and

expressly prohibited its employees from establishing such payment

arrangements with its customers.

Petitioner and Mr. Goings did not report any of the payments

Bordelon made to Mr. Goings on their original returns for any

taxable year at issue. They did, however, report $27,000 of the

$139,000 that Mr. Goings received from Bordelon in 1986 as gross

receipts on Bevway's corporate tax returns for taxable years 1986

and 1987.

Cheryl Millin (Millin) prepared the couple's joint returns

for 1985 through 1990. Millin also prepared income tax returns

for Bevway, Deep South, and Highland. Millin was unaware of
 - 6 -

Bordelon's payments to Mr. Goings at the time she prepared the

couple's joint returns for taxable years 1985 through 1988.

She first learned of such payments when Mr. Goings inquired as to

the procedure for filing amended tax returns sometime in 1989.

Petitioner did not review any of the couple's joint returns prior

to signing them.

In September 1989, the IRS initiated an examination of

Bordelon's 1987 Federal individual income tax return. That

examination revealed Bordelon's kickback payments to Mr. Goings.

The examination also revealed that Bordelon had not issued a Form

1099 to Mr. Goings with respect to any of the kickback payments.

Bordelon subsequently issued a Form 1099 to Mr. Goings with

respect to the payments made in taxable years 1986, 1987, 1988,

and 1989.2

In November 1989, after receiving the Forms 1099 from

Bordelon, Mr. Goings and petitioner filed amended tax returns for

taxable years 1986, 1987, and 1988 (the amended returns). Each

amended return listed the kickback payments as income and

contained the corresponding additional tax payment. Petitioner

and Mr. Goings did not amend their 1989 tax return, and it is

unclear from the record whether they amended their 1985 or 1990

returns.

2
It is unclear from the record whether Bordelon issued a
Form 1099 to Mr. Goings with respect to the payments made in 1985
and 1990.
 - 7 -

Also occurring in November 1989, the IRS initiated an

examination of the couple's original returns for taxable years

1985 through 1988. This examination revealed that the kickback

payments were not reported on those returns. In October 1990,

the IRS sent an appointment letter to petitioner and Mr. Goings

explaining that the IRS was auditing the couple's returns for

1987 and 1988.3 The letter sought to schedule an appointment

with petitioner and Mr. Goings at their home. Shortly after

receipt of that letter, Mr. Goings contacted the IRS and

confirmed the appointment.

On November 5, 1990, Revenue Agent Jeanne Gavin (Gavin)

arrived at the couple's home. Gavin was greeted by Mr. Goings

and was informed that petitioner would not be present at the

meeting. Gavin conducted the interview with Mr. Goings. In the

course of the meeting, Goings informed Gavin that he was aware of

how much money he had received from Bordelon and that Bordelon

had only made kickback payments to him in 1986, 1987, and 1988.

Mr. Goings also admitted that he knew such payments should have

been reported on his tax returns.

In December 1990, Gavin recommended that a criminal

investigation be instituted against petitioner and Mr. Goings.

A criminal investigation was subsequently initiated against Mr.

Goings, but it did not extend to petitioner. In July 1993, Mr.

3
The examination was eventually extended to cover 1985
through 1990.
 - 8 -

Goings was indicted under section 7206(1) for two counts of

filing false Federal income tax returns for taxable years 1987

and 1988. It was the omission of the income received from

Bordelon from the couple's joint returns that gave rise to this

indictment. In January 1994, Mr. Goings entered a guilty plea to

both counts. His sentence included an 11-month prison term.

During the course of the criminal proceedings, Mr. Goings

admitted to receiving the $1,047,000 in income described above

from Bordelon.

In April 1991, petitioner and Mr. Goings formed an

irrevocable trust (the trust), transferring three parcels of real

property and several items of equipment to the trust. The

couple's three children were the beneficiaries of the trust.

Of the three parcels of real estate transferred to the trust, one

was purchased in November 1981 for $26,000, one was purchased in

September 1987 for $315,000, and one was purchased in November

1989 for $15,000. In 1991, petitioner transferred real property

worth $146,280 to the trust. Between 1992 and 1994, Highland

paid the following amounts of rent to the trust for use of

various pieces of equipment and the real property described above

as having been purchased in 1987 for $315,000:

Year Amount

1992 $40,940
1993 28,223
1994 49,038
 - 9 -

Between 1992 and 1994, the trust distributed the following

amounts to its three beneficiaries:

Year Amount

1992 $40,000
1993 32,693
1994 49,038

During the years at issue, petitioner and Mr. Goings

maintained at least one joint checking account (the joint

account). Petitioner managed this account. She balanced it

periodically and paid her family's household bills with checks

drawn against it. The couple also maintained a joint investment

account with Merrill Lynch (the Merrill Lynch account).

Petitioner and Mr. Goings opened the Merrill Lynch account in

March 1986 with an initial investment of $150,000. The account

statements for the Merrill Lynch account were sent to the

couple's home. In addition to the two accounts previously noted,

Mr. Goings also maintained an individual account (the individual

account) to which petitioner did not have signatory access.

Petitioner, however, was aware of the individual account and drew

two checks against it by signing Mr. Goings's name. The payments

Bordelon made to Mr. Goings were deposited in the couple's

accounts as follows:
 - 10 -

Payment Bevway Individual Joint Merrill Lynch
Year Amount Corporation Account Account Account
1985 $110,000 $10,000 $62,767
1986 139,000 27,000 $ 11,000 48,000 $ 53,000
1987 230,000 230,000
1988 492,000 81,000 411,000
1989 66,000 66,000
1990 10,000 10,000
Totals $1,047,000 $37,000 $102,000 $110,767 $760,000

Respondent determined that petitioner and Mr. Goings had

unreported income in the following amounts and from the following

sources:

Source 1985 1986 1987 1988 1989 1990

Payments from
Bordelon $110,000 $112,000 $230,000 $492,000 $66,000 $10,000
Dividends from
Allied 24
Other Income
Bevway 15,000
Highland 50,250
Total $110,024 $162,250 $245,000 $492,000 $66,000 $10,000

Respondent mailed the notice of deficiency to petitioner on April

15, 1994.
 - 11 -

OPINION

Petitioner concedes that she is not entitled to "innocent

spouse" relief for taxable year 1990. Additionally, petitioner

did not raise the affirmative defense of the statute of

limitations in her pleadings for any taxable year at issue.

Accordingly, we find that petitioner has waived such defense.

Rule 39.

Prior to resolving the issues of this case, it is necessary

to address a preliminary matter. Petitioner devotes an extensive

portion of her posttrial briefs to a contention that certain

testimony elicited at trial from Revenue Agent Gavin was

inadmissable hearsay. Petitioner further maintains that the

issues of this case should be resolved in her favor because,

petitioner maintains, respondent's arguments are dependent upon

such inadmissable hearsay. We refrain from presenting a

discussion of the admissibility of specific portions of Agent

Gavin's testimony because, contrary to petitioner's assertion,

the extent of respondent's reliance upon such testimony is

limited to respondent's fraud argument and only insignificantly,

if at all, extends to her innocent spouse argument. As is

discussed below, we resolve the issue of fraud in petitioner's

favor. We reach our conclusion with respect to the "innocent

spouse" issue without considering the contested portions of Agent

Gavin's testimony.
 - 12 -

Issue 1. Addition to Tax for Fraud.

Respondent bears the burden of proving fraud by clear and

convincing evidence. Sec. 7454(a); Rule 142(b). Respondent must

establish that petitioner underpaid her taxes for each taxable

year at issue and that some part of that underpayment was due to

petitioner's intent to conceal, mislead, or otherwise prevent the

collection of such taxes. Parks v. Commissioner, 94 T.C. 654,

660-661 (1990); Hebrank v. Commissioner, 81 T.C. 640, 642 (1983);

see also Webb v. Commissioner, 394 F.2d 366, 377 (5th Cir. 1968),

affg. T.C. Memo. 1966-81. For the reasons set forth below, we

find that respondent has failed to satisfy her burden.

The issue of fraud presents a factual question that must be

decided on the basis of an examination of all the evidence in the

record. Mensik v. Commissioner, 328 F.2d 147 (7th Cir. 1964),

affg. 37 T.C. 703 (1962); Stone v. Commissioner, 56 T.C. 213, 224

(1971); Stratton v. Commissioner, 54 T.C. 255, 284, supplemented

by 54 T.C. 1351 (1970). Fraud is never presumed; it must be

established by some independent evidence of fraudulent intent.

Beaver v. Commissioner, 55 T.C. 85 (1970). Fraud may be proved

by circumstantial evidence and inferences drawn from the record

because direct proof of a taxpayer's intent is rarely available.

Spies v. United States, 317 U.S. 492 (1943); Rowlee v.

Commissioner, 80 T.C. 1111 (1983); Stephenson v. Commissioner, 79

T.C. 995 (1982), affd. 748 F.2d 331 (6th Cir. 1984).
 - 13 -

Fraudulent intent may be inferred from various "badges of

fraud," including understatement of income, implausible or

inconsistent explanations of behavior, concealing assets, and

failure to cooperate with tax authorities. See Bradford v.

Commissioner, 796 F.2d 303, 307 (9th Cir. 1986), affg. T.C. Memo.

1984-601; Webb v. Commissioner, supra at 379; Marcus v.

Commissioner, 70 T.C. 562, 577 (1978), affd. without published

opinion 621 F.2d 439 (5th Cir. 1980). A taxpayer's

sophistication, education, and intelligence may be considered in

determining whether or not he or she had fraudulent intent.

Halle v. Commissioner, 175 F.2d 500, 503 (2d Cir. 1949), affg. 7

T.C. 245 (1946); Niedringhaus v. Commissioner, 99 T.C. 202, 211

(1992). The taxpayer's evasiveness on the stand, inconsistencies

in his or her testimony, and the lack of credibility of such

testimony are factors in considering the fraud issue. Bradford

v. Commissioner, supra; Toussaint v. Commissioner, 743 F.2d 309,

312 (5th Cir. 1984), affg. T.C. Memo. 1984-25.

Following a careful review of the record, we conclude that

respondent has failed to satisfy her burden with respect to this

issue. Although respondent has clearly and convincingly

established that an underpayment exists with respect to each

taxable year at issue, she has not clearly and convincingly

established that a portion of any such underpayment was due to

petitioner's fraud. The four indicia of fraud cited by

respondent do little more than suggest that petitioner may have
 - 14 -

collaborated with Mr. Goings to understate their combined income.

Such indicia, however, do not satisfy respondent's burden of

proof. Stated simply, we find respondent's argument with respect

to this issue thin and unpersuasive.

Issue 2. Innocent Spouse.

As a general rule, a husband and wife who file joint tax

returns are jointly and severally liable for Federal income tax

due on their combined incomes. Sec. 6013(d)(3); Park v.

Commissioner, 25 F.3d 1289, 1292 (5th Cir. 1994), affg. T.C.

Memo. 1993-252. Section 6013(e), however, mitigates this general

rule to some extent. Park v. Commissioner, supra. Nonetheless,

Congress regards joint and several liability as an important

counterpart to the privilege of filing joint tax returns, which

generally results in a lower tax on the combined incomes of

spouses than would be due were they to file separate returns, and

any relaxation of the rule of joint and several liability depends

upon compliance with the conditions of section 6013(e).

Sonnenborn v. Commissioner, 57 T.C. 373, 380-381 (1971).

However, because of its remedial purpose, the "innocent spouse"

rule, as section 6013(e) is commonly referred, must not be given

an unduly narrow or restrictive reading. Sanders v. United

States, 509 F.2d 162, 167 (5th Cir. 1975). The question of

whether a taxpayer has established that he or she is entitled to

relief as an "innocent spouse" is one of fact. Park v.

Commissioner, supra at 1291.
 - 15 -

Pursuant to section 6013(e)(1), an "innocent spouse" is

relieved of liability if he or she proves: (1) A joint return

has been made for a taxable year; (2) on such return there is a

substantial understatement of tax attributable to grossly

erroneous items of the other spouse; (3) he or she did not know,

and had no reason to know, of such understatement when he or she

signed the return; and (4) after consideration of all the facts

and circumstances, it would be inequitable to hold him or her

liable for the deficiency in income tax attributable to such

understatement. See Park v. Commissioner, supra at 1292.

Petitioner bears the burden of establishing that each of the four

requirements of section 6013(e) has been satisfied. Purcell v.

Commissioner, 826 F.2d 470, 473 (6th Cir. 1987), affg. 86 T.C.

228 (1986); Sonnenborn v. Commissioner, supra at 381-383.

Moreover, the requirements of section 6013(e) are conjunctive; a

failure to meet any one requirement prevents a spouse from

qualifying for relief. Park v. Commissioner, supra at 1292;

Purcell v. Commissioner, supra; Bokum v. Commissioner, 94 T.C.

126, 138 (1990), affd. 992 F.2d 1132 (11th Cir. 1993).

The parties agree that petitioner and Mr. Goings filed a

joint return for each taxable year at issue. The parties also

agree that there is a substantial understatement of tax

attributable to grossly erroneous items of Mr. Goings for each

taxable year at issue. Respondent contends, however, that

petitioner knew or had reason to know of such substantial
 - 16 -

understatements and that it would not be inequitable to hold her

liable for the deficiencies attributable to those

understatements. Petitioner disagrees.

Section 6013(e)(1)(C)

In resolving whether petitioner had reason to know that the

returns she signed for the years at issue contained substantial

understatements within the meaning of section 6013(e)(1)(C), the

Court must inquire whether a reasonably prudent person, under the

circumstances of petitioner, could have been expected to know at

the time of signing each return that each such return contained a

substantial understatement or that further investigation was

warranted. Bliss v. Commissioner, 59 F.3d 374, 378 (2d Cir.

1995), affg. T.C. Memo. 1993-390; Park v. Commissioner, supra at

1293 (citing Sanders v. United States, supra at 166-167 and n.5);

Bokum v. Commissioner, supra at 148. The relevant knowledge is

of the transaction giving rise to the income omitted from the

return, rather than of the tax consequences of such transaction.

Quinn v. Commissioner, 524 F.2d 617, 626 (7th Cir. 1975), affg.

62 T.C. 223 (1974). Consequently, a spouse who has reason to

know of such a transaction does not qualify for relief as an

"innocent spouse". Park v. Commissioner, supra; Sanders v.

United States, supra. Additionally, a spouse may have a duty to

inquire further if he or she knows enough facts so as to be

placed on notice of the possibility of a substantial

understatement. Guth v. Commissioner, 897 F.2d 441, 444-445 (9th
 - 17 -

Cir. 1990), affg. T.C. Memo. 1987-522. Factors to be considered

in determining whether a taxpayer had reason to know within the

meaning of section 6013(e)(1)(C) include: (1) The level of

education of the spouse seeking relief; (2) the alleged innocent

spouse's involvement in his or her family's financial and

business activities; (3) any substantial unexplained increase in

the family's standard of living; and (4) the culpable spouse's

evasiveness and deceit about the family's finances. Park v.

Commissioner, supra at 1293. In reaching our decision, we

consider the interaction among these factors, and different

factors may predominate in different cases. Bliss v.

Commissioner, supra at 378.

With respect to each taxable year at issue, we find that

petitioner has failed to establish that she had no reason to know

that her joint return contained a substantial understatement.

We first consider petitioner's level of education. Despite

her brief attendance at a secretarial trade school, we find that

petitioner is not formally educated beyond the high school level.

The trade school petitioner attended was not an institution of

higher learning, and we reject respondent's attempts to

characterize it as such. The secretarial training petitioner

received was practical in nature and was designed to prepare

students to enter the labor force with skills necessary to

perform secretarial duties effectively and efficiently. Such
 - 18 -

training was not otherwise designed to advance the level of

petitioner's formal education.

Respondent contends that petitioner's 20-plus years as a

secretary in LSDT's legal department serves as an adequate

substitute for petitioner's lack of formal education beyond the

high school level. We disagree, and, in light of the entire

record, coupled with our observations of petitioner at trial,

conclude that this factor narrowly favors petitioner.

We next consider petitioner's involvement in her family's

financial and business affairs. Perfect knowledge of one's

family's financial affairs is not required to satisfy the reason

to know standard. Shea v. Commissioner, 780 F.2d 561, 567 (6th

Cir. 1986), affg. in part, revg. in part and remanding T.C. Memo

1984-310; Sanders v. Commissioner, 509 F.2d at 168. We conclude

that petitioner has failed to establish that her involvement in

her family's affairs was insufficient to put a reasonable person

in her position on notice that the income reported in the returns

at issue was erroneous or that further inquiry was warranted.

While petitioner maintains that Mr. Goings had exclusive

control of her family's financial affairs, this contention is

contradicted by petitioner's own testimony. Petitioner testified

that she, not Mr. Goings, managed her family's joint checking

account. In 1985 and 1986, $62,767 and $48,000, respectively, of

the funds Bordelon paid Mr. Goings were deposited into the joint

account managed by petitioner. Such deposits are significant in
 - 19 -

light of petitioner's testimony that, although she was unaware of

her husband's annual salary from Allied, she believed that such

salary was approximately $50,000. Petitioner does not attempt to

explain this disparity. That is, petitioner does not attempt to

explain how Mr. Goings could deposit the above amounts into the

joint account while supposedly earning $50,000 per year. A

taxpayer claiming innocent spouse relief cannot simply turn a

blind eye to facts within his or her reach that would have put a

reasonably prudent taxpayer on notice that further inquiry needed

to be made. Sanders v. United States, supra at 169.

Similarly, the couple's Merrill Lynch investment account was

also a joint account, and, between 1987 and 1989, a total of

$760,000 was deposited into such account. The statements for the

Merrill Lynch account were mailed to the couple's residence and

were readily available for petitioner's review. We decline to

accept petitioner's self-serving testimony that she never

examined such records because such testimony is unreasonable and

lacks credibility.

The third factor we consider is the presence of unusual or

lavish expenditures by petitioner's family. A taxpayer claiming

relief as an innocent spouse cannot close his or her eyes to

unusual or lavish expenditures that might have alerted him or her

to unreported income. Terzian v. Commissioner, 72 T.C. 1164,

1170 (1979); Mysse v. Commissioner, 57 T.C. 680, 699 (1972). The

presence of unusual or lavish expenditures may put a taxpayer on
 - 20 -

notice that it is probable that income is being omitted from a

joint return. Estate of Jackson v. Commissioner, 72 T.C. 356,

361 (1979).

We agree with respondent that the record contains ample

instances of unusual or lavish expenditures that should have

placed petitioner on notice that she and Mr. Goings were spending

more money than they were reporting on their joint returns. In

1985, the couple purchased two pieces of real estate for a total

purchase price of $190,000. They paid $47,500 in cash and

financed the remainder with a note requiring quarterly

installment payments of approximately $8,000. Similarly, in 1986

the couple established their Merrill Lynch investment account

with $150,000. In 1987, petitioner and Mr. Goings made another

real estate purchase, paying the entire $315,000 purchase price

in cash. In 1989, the couple paid delinquent taxes in the amount

of $297,345. Petitioner and Mr. Goings also purchased real

estate in 1990 for $95,000 in cash.

Petitioner's argument with respect to this factor is cursory

and lacks meaningful substance. At trial, when questioned about

the above-referenced real estate purchases and the creation of

the investment account, petitioner acknowledged her signature on

related documents but emphatically denied knowing anything about

the substance of the underlying transactions. Specifically,

petitioner claims that she routinely signed documents without

reading them and that the documents relating to the above-
 - 21 -

referenced real estate purchases and the creation of the

investment account were among the documents that she signed

without reading. Petitioner also explains that the absence of

unusual or lavish expenditures is apparent from the fact that her

children attended public schools and that she did not make any

substantial expenditures herself.

We are not persuaded by petitioner's assertions in this

regard. Because her testimony is self-serving and lacks

credibility, we decline to accept it. Accordingly, we conclude

that this factor favors respondent.

The fourth factor we consider is whether Mr. Goings was

forthright about the omitted income. Petitioner has not

established that Mr. Goings was evasive concerning his true level

of income. It is obvious from the record that Mr. Goings did not

attempt to conceal the kickback income from petitioner. Indeed,

quite the contrary is true. Mr. Goings deposited approximately

83 percent, or $870,767, of the kickback income into the couple's

joint accounts. Nearly 11 percent of the kickback income was

deposited into an account managed by petitioner. In contrast,

less than 10 percent of the kickback income was deposited in Mr.

Goings's exclusive account. Although making deposits into an

exclusive account may indicate evasive intent, we hesitate to

conclude that Mr. Goings possessed such intent in light of the

amount of funds he deposited into the couple's joint accounts.
 - 22 -

Having thoroughly examined the circumstances of the instant

case, we conclude that petitioner has failed to establish that

she had no reason to know of the substantial understatements of

tax contained on her joint returns resulting from the omission of

the income that Mr. Goings received from Bordelon during each of

the taxable years at issue. Of the four factors discussed above,

only petitioner's level of education supports her argument. The

weight we attribute to such factor, however, does not exceed the

amount of weight we attribute to any of the remaining three

factors, each of which favors respondent. Accordingly, we find

that, based on the entire record, petitioner had reason to know

of the substantial understatement of tax on her joint returns for

each taxable year at issue resulting from the omission of the

income that Mr. Goings received from Bordelon.

Section 6013(e)(1)(D)

The next matter we consider is whether it would be

inequitable to hold petitioner liable for the deficiencies in tax

attributable to the omitted kickback income. See sec.

6013(e)(1)(D). In answering this question, we take into account

all of the facts and circumstances. Id.; sec. 1.6013-5(b),

Income Tax Regs. A factor to be considered is whether the spouse

seeking relief significantly benefited, either directly or

indirectly, from the omitted income. Buchine v. Commissioner, 20

F.3d 173, 181 (5th Cir. 1994), affg. T.C. Memo. 1992-36; sec.

1.6013-5(b), Income Tax Regs. Normal support, which is to be
 - 23 -

measured by a couple's circumstances, is not considered a

significant benefit. Sanders v. United States, 509 F.2d at 168;

Terzian v. Commissioner, 72 T.C. at 1172; Mysse v. Commissioner,

57 T.C. at 699. A significant benefit exists if expenditures

have been made which are unusual for the taxpayer's accustomed

lifestyle. Terzian v. Commissioner, supra. Other factors

include: (1) Whether the spouse seeking relief has been deserted

by the other spouse or is divorced or separated from that spouse,

sec. 1.6013-5(b), Income Tax Regs.; and (2) probable future

hardships that would be visited upon the purportedly "innocent

spouse" were he or she not relieved from liability. Sanders v.

United States, supra at 171 n.16.

Based upon the record in the instant case, we conclude that

petitioner has failed to establish that she did not receive

significant benefits from the funds that Mr. Goings received from

Bordelon. Petitioner has failed to establish that Mr. Goings

used the kickback funds in a manner that did not benefit her

significantly. To the contrary, the record indicates that such

funds were used for the significant benefit of the family. A

total of $110,767, or nearly 11 percent, of the omitted income

was deposited into the couple's joint checking account.

Petitioner managed and drew checks against that account.

Similarly, $760,000 of the kickback funds was deposited into the

couple's joint Merrill Lynch investment account and was

subsequently invested in various assets. Additionally,
 - 24 -

petitioner and Mr. Goings made substantial real estate purchases,

presumably using, at least in part, funds received from Bordelon.

Her attempts to explain such purchases are unpersuasive.

Moreover, petitioner has not established that such benefits were

consistent with her then-existing lifestyle, nor has she

established that they constituted normal support.

When assessing whether it would be inequitable to hold

petitioner liable for the deficiencies attributable to Mr.

Going's receipt of unreported income, we also consider whether

petitioner was deserted or divorced subsequent to that activity.

Although petitioner and Mr. Goings were divorced in 1993, we find

that such circumstance does not outweigh the significant benefits

petitioner received from the omitted kickback income.

Furthermore, petitioner has not established that any hardship she

would encounter as a result of incurring liability for the

deficiencies attributable to the omission of the kickback income

from the joint returns at issue would make it inequitable to hold

her jointly liable for those deficiencies.

Accordingly, we find that it would not be inequitable to

hold petitioner liable for the understatements attributable to

the funds Mr. Goings received from Bordelon during the taxable

years at issue.

Because petitioner has failed to satisfy all of the

conjunctive factors set forth in section 6013(e)(1), we hold that

she does not qualify for "innocent spouse" relief and is
 - 25 -

therefore jointly and severally liable for the deficiencies in

tax, additions to tax, and penalties for each taxable year at

issue. However, petitioner is not liable for any additions to

tax or penalties for fraud.

To reflect the foregoing,

Decision will be

entered under Rule 155.