Bartak v. Comm'r

T.C. Memo. 2004-83

UNITED STATES TAX COURT

ANN E. BARTAK, Petitioner v.
COMMISSIONER OF INTERNAL REVENUE, Respondent

Docket No. 5170-02. Filed March 23, 2004.

Terri A. Merriam, Wendy S. Pearson, and Jennifer A. Gellner,

for petitioner.

Margaret A. Martin, for respondent.

MEMORANDUM FINDINGS OF FACT AND OPINION

VASQUEZ, Judge: Respondent determined that petitioner did

not qualify for relief from joint and several liability pursuant

to section 6015(b), (c), or (f).1 The issue for decision is

1
Unless otherwise indicated, all section references are to
the Internal Revenue Code, and all Rule references are to the Tax
(continued...)
 - 2 -

whether petitioner is entitled to relief from joint and several

liability pursuant to section 6015(b) or (f) for 1980, 1981,

1982, 1983, 1984, 1985, and 1986.2

FINDINGS OF FACT

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

The first stipulation of facts, second stipulation of facts,

third stipulation of facts, and the attached exhibits are

incorporated herein by this reference. At the time she filed the

petition, petitioner resided in Hacienda Heights, California.

Petitioner and Her Husband

Petitioner has a high school education. After high school,

petitioner worked for the telephone company for 2 years.

Petitioner married Ernest F. “Joe” Bartak (Mr. Bartak) in 1964.

As of the time of trial, petitioner and Mr. Bartak were married.

Petitioner wrote all the checks for the household expenses

and maintained possession of the household checkbook. Petitioner

handled all the household bills. Petitioner had access to all

the family’s tax information and documents.

Petitioner’s Relationship With Mr. Bartak

During the years in issue, family financial decisions were

discussed between petitioner and Mr. Bartak. Mr. Bartak did not

1
(...continued)
Court Rules of Practice and Procedure.
2
In her petition, petitioner sought relief pursuant to
sec. 6015(b) and (f). Accordingly, sec. 6015(c) is not in issue.
 - 3 -

conceal anything from petitioner. Mr. Bartak did not deceive or

mislead petitioner. Mr. Bartak did not hide, or try to hide, any

information or documents from petitioner.

Mr. Bartak never threatened or coerced petitioner into

making investments, signing their tax returns, or signing checks.

Mr. Bartak did not abuse petitioner.

Hoyt Partnerships

Walter J. Hoyt III and some members of his family were in

the business of creating tax shelter limited partnerships for

their cattle breeding operations (Hoyt partnerships). As part of

their services, the Hoyt organization also prepared the

investor’s tax returns. For a description of the Hoyt

organization and its operation, see Bales v. Commissioner, T.C.

Memo. 1989-568; see also River City Ranches #1 Ltd. v.

Commissioner, T.C. Memo. 2003-150; Mekulsia v. Commissioner, T.C.

Memo. 2003-138; River City Ranches #4, J.V. v. Commissioner, T.C.

Memo. 1999-209, affd. 23 Fed. Appx. 744 (9th Cir. 2001).

Investment in SGE 1983-1 and TBS #1

In the early 1980s, Mr. Bartak heard about the Hoyt

partnerships from his coworkers. Mr. Bartak met with Mr. Hoyt

and reviewed the Hoyt partnerships investment brochures. He

understood, and it was explained upfront, that he and petitioner

would eventually have to pay taxes on an investment in the Hoyt

partnerships. Mr. Bartak was told that when he entered into a
 - 4 -

Hoyt partnership he and petitioner would be able to receive a

refund of all the money they paid in taxes for the last 3 years.

Mr. Bartak showed petitioner the Hoyt partnerships

promotional materials, and she read them. Petitioner attended

Hoyt organization meetings and met Mr. Hoyt. From 1983 through

1986, petitioner attended most, if not all, Hoyt organization

meetings that were close to her home. Mr. Bartak asked Mr. Hoyt

questions about the Hoyt partnerships in petitioner’s presence so

that petitioner could learn about the Hoyt partnerships.

Petitioner also asked some questions about the Hoyt partnerships.

Petitioner understood that she and Mr. Bartak would obtain

tax credits and deductions and that there would be large losses

associated with their investment in the Hoyt partnerships.

Petitioner knew that the tax aspects were a big part of the

investment in the Hoyt partnerships.

Petitioner was not interested in investing in the Hoyt

partnerships. Petitioner was skeptical about the Hoyt

partnerships. She did not expect to make a profit even though

Mr. Hoyt said they would. From the very beginning, “something

about it didn’t sit right with” petitioner, and she was never

comfortable with the deductions claimed on her returns associated

with the Hoyt partnerships.

On April 7, 1984, petitioner and Mr. Bartak signed

subscription agreements to invest in Shorthorn Genetic
 - 5 -

Engineering 1983-1 (SGE 1983-1), series “A” and “B” units. Above

their signatures, the documents state: “The UNDERSIGNED intends

that their signature hereon shall constitute not only a

subscription but shall also constitute their signature to the

Partnership Agreement”. Below petitioner’s signatures the

documents state: “Signature of Spouse or other Subscriber if

purchase is made jointly”. This was petitioner and Mr. Bartak’s

initial investment in one of the Hoyt partnerships.3

In 1983, petitioner and Mr. Bartak paid no “cash” to SGE

1983-1. In 1984, petitioner and Mr. Bartak paid $17,000 in

“cash” to SGE 1983-1. By 1985, petitioner and Mr. Bartak had

paid at least $31,000 in “cash” to SGE 1983-1.

In late 1984 or early 1985, after petitioner and Mr. Bartak

invested in SGE 1983-1, they went to the Hoyt organization

property (Hoyt ranch). Between 1983 and 1986, petitioner went to

the Hoyt ranch three to four times. After their initial trip to

the Hoyt ranch, petitioner and Mr. Bartak invested in other Hoyt

partnerships including Timeshare Breeding Service #1, Ltd. (TBS

#1). Petitioner and Mr. Bartak signed a subscription agreement

dated February 10, 1985, for TBS #1. Below their signatures, the

line next to “JOINT TENANTS WITH RIGHT OF SURVIVORSHIP” was

marked.

3
Petitioner and Mr. Bartak invested in additional Hoyt
partnerships during and subsequent to the years in issue.
 - 6 -

Neither petitioner nor Mr. Bartak sought advice from a tax

professional about the Hoyt partnerships before or after

investing. Arvis W. Drowns, Jr., petitioner and Mr. Bartak’s tax

return preparer before they invested in the Hoyt partnerships,

did not review the Hoyt partnerships promotional materials.

Petitioner never suggested seeking the advice of someone outside

the Hoyt organization regarding the Hoyt partnerships. Mr.

Bartak never consulted, or stated that he had consulted, with an

independent tax professional regarding the Hoyt partnerships.

Mr. Bartak did not force petitioner to invest in, or sign

documents related to, the Hoyt partnerships. There was no

hostility or threats. Mr. Bartak wanted petitioner to sign the

documents because he wanted to make sure she was fully aware of

the investments.

Petitioner signed checks, including checks on accounts held

jointly by petitioner and Mr. Bartak, made payable to Hoyt

partnerships or the Hoyt organization. One of the checks

petitioner wrote was for the “audit pool”--a fund for Hoyt

partners who were audited by the Internal Revenue Service (IRS).

Petitioner and Mr. Bartak’s Other Investments

In addition to the Hoyt partnerships, petitioner and Mr.

Bartak had several other investments at the time they invested in
 - 7 -

the Hoyt partnerships. Petitioner and Mr. Bartak owned stock and

had invested in other partnerships.

One partnership petitioner and Mr. Bartak were partners in

invested in real estate. Petitioner signed the documents for

this partnership investment.

Another partnership petitioner and Mr. Bartak were partners

in was Silver Screen Partners, Ltd. This partnership invested in

movies that had not yet been made.

Another partnership petitioner and Mr. Bartak were partners

in was Cornerstone Investment. Cornerstone Investment was formed

to operate a building materials yard. Before they invested in

Cornerstone Investment, petitioner and Mr. Bartak visited

Cornerstone Investment’s property and saw what Cornerstone

Investment would be doing.

Mr. Bartak also invested in limited partnerships and real

estate with his, and petitioner’s, son William.

Documents from the Hoyt Organization

Petitioner and Mr. Bartak received promotional materials

from the Hoyt organization about the Hoyt partnerships. Mr.

Bartak accumulated and maintained a file of all the documents he

received related to petitioner and Mr. Bartak’s investments in

Hoyt partnerships--whether from the Hoyt organization or from the

IRS.
 - 8 -

Mr. Bartak provided petitioner the Hoyt partnerships’

brochures. Mr. Bartak did not deny petitioner access, or hide

from petitioner, any documents related to their investment in the

Hoyt partnerships. Mr. Bartak wanted petitioner to look at the

Hoyt organization’s materials and to hear what petitioner thought

about the Hoyt partnerships.

One of the promotional materials petitioner and Mr. Bartak

received included the following language under the heading

Specific Risks Involved: “A change in the tax laws or an audit

and disallowance by the IRS could take away all or part of the

tax benefits, plus the possibility of having to pay the tax along

with penalties and interest”. It further stated:

This term [“decapitated”] is crude, but it is a concept
that is very applicable to the comparison of having a
disallowance of your tax deductions by the Internal
Revenue Service. The prospect of having to pay the
taxes when you have put your tax money into the cattle,
and it’s gone, is a financial wreck.

The brochure went on to state that there was no assurance that

things would be “O.K.” and:

If you’re like most people, your first impression of a
W.J. HOYT SONS livestock purchase was “this deal looks
to good to be true”! We know you’ve heard “if a deal
looks to good to be true, it probably is”. You
probably looked at this business and thought at first
“no way can that be legal”.

You only considered going into the cattle business
after you heard about the tax benefits. Tax benefits
were your incentive to look at this kind of business.
 - 9 -

BEWARE OF THE PITFALLS, HOWEVER. Cattle breeding is a
risky business and may also bring an IRS examination
because it is lowering your taxes.

Another document, titled “Partnership Memorandum and Amended

Agreement of Limited Partnership”, petitioner and Mr. Bartak

received from the Hoyt organization contained the following

statements:

2. THIS PARTNERSHIP INVOLVES CERTAIN RISKS TO THE
PARTNERS, INCLUDING TAX RISKS (SEE “RISK FACTORS”)
* * *.

* * * * * * *

4. THE CONTENTS OF THIS MEMORANDUM ARE NOT TO BE
CONSTRUED AS INVESTMENT, LEGAL OR TAX ADVICE. EACH
PARTNER SHOULD CONSULT HIS OWN COUNSEL, ACCOUNTANT OR
BUSINESS ADVISOR AS TO LEGAL, TAX AND RELATED MATTERS
CONCERNING THIS INVESTMENT.

* * * * * * *

Unit holders should consider the various investment
risk factors of the Partnership, which are set forth in
“Risk Factors,” including the possibilities of adverse
tax treatment * * *.

* * * * * * *

The Partnership has not received a ruling that it will
be classified as a Partnership for Federal income tax
purposes (See “Income Tax Consequences”).

* * * * * * *

CERTAIN TAX CONSIDERATIONS. In judging whether to
subscribe for Units, a Partner should consider the tax
consequences thereof which include, among others: (a)
possible taxation of an amount in excess of proceeds
actually received on the sale of the Units and/or the
Partnership properties and on undistributed net income,
(b) the possibility that the Partnership will not be
treated as a Partnership for tax purposes * * *, (c)
the possibility that the Internal Revenue Service will
 - 10 -

not give effect to the allocation of profits and losses
contained in the Partnership Agreement, * * *, (e) the
risk that an audit of the Partnership’s income tax

return may result in an audit of a Limited Partners’
own individual tax return * * *.

* * * * * * *

The income tax returns of the Partnership may be
audited, and in turn, such audit may result in the
audit of the returns of each Partner. In addition, the
Commissioner of Internal Revenue has announced that the
Service is engaged in a program of intensified audits
of partnerships. Various deductions claimed by the
Partnership on its returns of income could be
disallowed in whole or in part on audit, which would
result in an increase in the taxable income of the
Partnership, and in turn, each Partner.

If a tax deficiency is determined, the taxpayer is
liable for interest (compounded on a daily basis) on
such deficiency from the due date of the return.

* * * * * * *

BASED ON THE INVESTMENT OBJECTIVES OF THE PARTNERSHIP,
THE GENERAL PARTNERS BELIEVE THAT THERE ARE SUBSTANTIAL
GROUNDS FOR ARGUING THAT THE PARTNERSHIP IS NOT A “TAX
SHELTER.” HOWEVER, NO ASSURANCE CAN BE GIVEN THAT THE
IRS WILL NOT ATTEMPT TO CLASSIFY THE PARTNERSHIP AS A
TAX SHELTER NOR WHETHER SUCH ATTEMPT WOULD BE
SUCCESSFUL.

* * * * * * *

THE FOREGOING ANALYSIS CANNOT BE, AND IS NOT INTENDED
AS, A SUBSTITUTE FOR CAREFUL TAX PLANNING,
ACCORDINGLY, PARTNERS ARE URGED TO CONSULT THEIR TAX
ADVISORS WITH RESPECT TO THEIR TAX SITUATION AND THE
EFFECTS OF OWNING PARTNERSHIP UNITS.

Tax Returns

Petitioner and Mr. Bartak filed joint Federal income tax

returns for 1980, 1981, 1982, 1983, 1984, 1985, and 1986. For
 - 11 -

1980, 1981, and 1982, Mr. Drowns prepared their returns. For

1983, 1984, 1985, and 1986, the Hoyt organization prepared their

returns.

On their joint income tax return for 1980, petitioner and

Mr. Bartak reported $39,188 in wages. In arriving at total

income, the only additions and subtractions were $565 in interest

income, $577 in taxable refunds of State and local taxes, and a

$5,205 Schedule E, Supplemental Income Schedule, loss. This

Schedule E loss was attributable to petitioner and Mr. Bartak’s

investment in a non-Hoyt partnership. The total tax listed was

$3,664. The Federal income tax withheld listed was $4,631.

On their joint income tax return for 1982,4 petitioner and

Mr. Bartak reported $48,797 in wages. In arriving at total

income, the only additions and subtractions were $312 in interest

income, $14 in dividends, $570 in taxable refunds of State and

local taxes, and a $1,017 Schedule E loss. This Schedule E loss

was attributable to petitioner and Mr. Bartak’s investment in a

non-Hoyt partnership. The total tax listed was $5,714. The

Federal income tax withheld listed was $5,641.

On their joint income tax return for 1983, petitioner and

Mr. Bartak reported $53,827 in wages. In arriving at total

income, the only additions and subtractions were $302 in interest

income, $59 in dividends, $541 in taxable refunds of State and

4
Petitioner’s 1981 joint return is not part of the record.
 - 12 -

local taxes, and a $34,923 Schedule E loss. Most of the Schedule

E loss ($32,288) was attributable to the Hoyt partnerships.5 The

total tax listed was zero. The Federal income tax withheld

listed was $6,532.

In 1984, petitioner and Mr. Bartak sold their real estate

partnership investment. Petitioner and Mr. Bartak had a large

capital gain ($112,247) associated with the sale of this

investment.

On their joint income tax return for 1984, petitioner and

Mr. Bartak reported $51,993 in wages. In arriving at total

income, the only additions and subtractions were $9,785 in

interest income, $1,707 in taxable refunds of State and local

taxes, a $112,247 capital gain (related to the sale of the real

estate partnership investment), and a $146,112 Schedule E loss.

Most of the Schedule E loss ($143,278) was attributable to

petitioner and Mr. Bartak’s investment in the Hoyt partnerships.

The total tax listed was $92. The Federal income tax withheld

listed was $5,874.

On their joint income tax return for 1985, petitioner and

Mr. Bartak reported $48,667 in wages. In arriving at total

income, the only additions and subtractions were $10,249 in

interest income, $454 in dividends, $1,343 in taxable refunds of

5
We make no finding that petitioner and Mr. Bartak’s
initial Hoyt partnership investment actually was in 1983.
 - 13 -

State and local taxes, a $1,310 capital loss, and a $22,924

Schedule E loss. Most of the Schedule E loss ($22,646) was

attributable to petitioner and Mr. Bartak’s investment in the

Hoyt partnerships. The total tax listed was $540. The Federal

income tax withheld listed was $5,069.

On their joint income tax return for 1986, petitioner and

Mr. Bartak reported $57,108 in wages. In arriving at total

income, the only additions and subtractions were $11,123 in

interest income, $279 in dividends, $1,389 in taxable refunds of

State and local taxes, and a $34,733 Schedule E loss. Most of

the Schedule E loss ($34,195) was attributable to petitioner and

Mr. Bartak’s investment in the Hoyt partnerships. The total tax

listed was $320. The Federal income tax withheld listed was

$6,569.

Petitioner reviewed her joint returns page by page and she

looked at the items related to the Hoyt partnerships. The large

losses associated with her investment in the Hoyt partnerships

did not surprise her. Petitioner thought that the large

deductions were the reason for investing in the Hoyt

partnerships. Mr. Bartak specifically explained to petitioner

the items on the 1983 return related to the Hoyt partnerships.

The Schedules K-1, Partner’s Share of Income, Credits,

Deductions, etc., issued by Hoyt partnerships (SGE 1983-1 and TBS

#1) to petitioner and Mr. Bartak for 1983, 1984, 1985, and 1986
 - 14 -

list the following under the area for partner’s name: “Ernest F.

& Ann E. Bartak”.6

In 1984, petitioner and Mr. Bartak applied for a refund of

their 1980, 1981, and 1982 taxes in the amounts of $3,714,

$4,709, and $5,580, respectively.

On March 10, 1998, respondent mailed petitioner and Mr.

Bartak a letter and report explaining computational adjustments

made to their 1980, 1981, 1982, 1983, 1984, 1985, and 1986

returns as a result of adjustments made to the partnership

returns of SGE 1983-1 for 1984, 1985, and 1986. These

computational adjustments resulted from the Court’s opinion in

Shorthorn Genetic Engg. 1982-2, Ltd. v. Commissioner, T.C. Memo.

1996-515.

Shorthorn Genetic Engg. 1982-2, Ltd. v. Commissioner

Petitioner and Mr. Bartak filed a notice of election to

participate in one of the dockets (28383-89) of Shorthorn Genetic

Engg. 1982-2, Ltd. v. Commissioner, supra, filed a joint motion

to consolidate for trial, briefing, and opinion in that case, and

6
This is also true for Schedules K-1, Partner’s Share of
Income, Credits, Deductions, etc., issued by various Hoyt
partnerships to petitioner and Mr. Bartak in the years subsequent
to the years in issue (1987 through 1996), although some of the
Schedules K-1 do not contain their middle initials and on some
the word “and” is spelled out. Again, we make no finding that
petitioner and Mr. Bartak actually invested in the Hoyt
partnerships in 1983.
 - 15 -

filed a stipulation of facts in that case. Petitioner and Mr.

Bartak signed each of these documents.

In the notice of election to participate, petitioner and Mr.

Bartak stated:

Ernest F. and Ann E. Bartak satisfy the requirements of
Section 6226(d), Internal Revenue Code of 1986, because
they were a partner during the applicable period(s) for
which readjustment of partnership items is sought and,
if such readjustment is made, the tax attributable to
such partnership items may be assessed against them.

Request for Relief From Joint and Several Liability

On or about July 14, 2000, petitioner mailed respondent a

Form 8857, Request for Innocent Spouse Relief (and Separation of

Liability and Equitable Relief).7 In 2001, Tax Examiner Bonnie

F. Halbert (Ms. Halbert) was assigned to review petitioner’s

request for section 6015 relief.

In processing petitioner’s claim, Betty Sneed, another

employee of respondent, requested Hoyt partnership related

information regarding petitioner and Mr. Bartak from Revenue

Agent Deborah Ritchie.8 Ms. Ritchie provided: A computer

7
Petitioner requested relief for the tax years 1980
through 1997. On Nov. 14, 2000, respondent mailed petitioner a
letter advising her that the request was premature for the years
1987 through 1996 as the request related to a potential
assessment from a TEFRA (Tax Equity and Fiscal Responsibility Act
of 1982) partnership proceeding that, as of that date, had not
been concluded. On Nov. 30, 2000, respondent mailed petitioner a
letter advising her that the request for 1993 was not premature.
Petitioner’s 1993 tax year is not before the Court.
8
Ms. Ritchie worked on the “Hoyt audit team” and the “Hoyt
(continued...)
 - 16 -

printout for Hoyt partnerships taxable years related to

petitioner and Mr. Bartak; copies of subscription agreements,

powers of attorney, and partnership agreements signed by

petitioner and Mr. Bartak; copies of Schedules K-1 issued to

petitioner and Mr. Bartak from the Hoyt partnerships; and copies

of checks signed by petitioner or Mr. Bartak made payable to Hoyt

partnerships.

On November 28, 2000, petitioner’s counsel mailed respondent

a supplement to petitioner’s section 6015 claim. Ms. Halbert

reviewed and considered all the materials and information

petitioner submitted regarding her section 6015 claim.

On August 10, 2001, Ms. Halbert prepared a written

evaluation of petitioner’s claim. Ms. Halbert concluded that

petitioner was not entitled to section 6015(b) relief because

petitioner knew of the Hoyt partnerships and owned the item that

gave rise to the deficiency (i.e., the Hoyt partnerships). Ms.

Halbert concluded that there were no factors favoring granting

section 6015(f) relief and the following factors weighed against

granting section 6015(f) relief: (1) Lack of economic hardship,

(2) the liability was not solely attributable to the

nonrequesting spouse, and (3) the requesting spouse had knowledge

8
(...continued)
tax shelter project”. The Hoyt tax shelter project examined Hoyt
partnerships. Ms. Ritchie assisted District Counsel in preparing
Hoyt partnerships cases for trial.
 - 17 -

or reason to know. Accordingly, Ms. Halbert concluded it was not

inequitable to hold petitioner liable.

On August 24, 2001, respondent mailed petitioner a

preliminary determination with respect to petitioner’s request

for relief from joint and several liability for 1980 through

1986. Respondent determined that petitioner was not entitled to

relief pursuant to section 6015(b), (c), or (f).

On November 27, 2001, respondent mailed petitioner a notice

of determination that determined petitioner was not entitled to

relief from liability pursuant to section 6015(b), (c), or (f)

for 1980 through 1986. That same day, respondent mailed Mr.

Bartak a letter notifying him that petitioner’s request for

relief from joint and several liability had been denied.

After the petition and answer in this case were filed,

petitioner’s section 6015 claim was forwarded to respondent’s

Appeals Office. Appeals Officer Gloria J. Flandez was assigned

to review petitioner’s case. Ms. Flandez reviewed and considered

the information submitted to her by petitioner and her attorneys.

On or about November 6, 2002, after completing her review of

petitioner’s case, Ms. Flandez prepared an Appeals Case

Memorandum. Ms. Flandez concluded that petitioner was not

entitled to relief from liability pursuant to section 6015(b),

(c), or (f) for 1982 through 1986. Appeals Team Manager Robert

M. Spooner approved Ms. Flandez’s Appeal Case Memorandum.
 - 18 -

Petitioner’s Financial Status

On February 28, 2003, petitioner and Mr. Bartak signed a

Form 433-A, Collection Information Statement for Wage Earners and

Self-Employed Individuals. The Form 433-A contained the

following statements: Petitioner and Mr. Bartak owned the home

that they purchased in July 1984 for $200,000, with a current

value of $236,590, a loan balance of $86,931, and a monthly

payment totaling $1,698; they had no dependents they could claim

on their tax return; they had two checking accounts, one at US

Bank and the other with F&A Federal Credit Union, with a total

balance of $9,014; and they had “other” accounts, two with

Whittier Municipal Credit Union, one with F&A Credit Union, and

one with A.G. Edwards & Sons, Inc., with a total balance of

$46,689. Their investments (Form 433-A investments), listed as

totaling $285,872, included: (1) Horizons (Deferred Comp) with a

current value of $80,949; (2) Keyport (Annuity) with a current

value of $17,163; (3) New York Life (Var. Annuity) with a current

value of $42,524; (4) Uniprop Income FWD II with a current value

of $17,500; (5) U.S. Savings Bonds with a current value of

$13,300; (6) U.S. Savings Bonds (Ann’s Trust) with a current

value of $2,450; (7) Cornerstone with a current value of $72,000;

(8) Lucent Technologies with a current value of $3,685; (9)

N.C.R. with a current value of $88; (10) Vodaphone with a current

value of $1,176; (11) Verizon with a current value of $5,851;
 - 19 -

(12) AT&T with a current value of $1,598; (13) S.B.C. with a

current value of $11,375; (14) Q with a current value of $748;

and (15) Fidelity Invest. with a current value of $15,465. They

had available credit of $39,000. They also owned two cars (a

2000 Chevy Suburban and a 2002 Honda Civic) worth a total of

$31,915 and with outstanding loans totaling $30,219; they listed

no personal assets (i.e., zero).

In determining the current value of their Form 433-A

investments, petitioner and Mr. Bartak valued them at 70 percent

of the face value even though the Form 433-A states: “Current

Value: Indicate the amount you could sell the asset for today.”

In determining the current value of their real estate, petitioner

and Mr. Bartak valued their home at “80% quick sale value” even

though the Form 433-A states: “Current Value: Indicate the

amount you could sell the asset for today.”

Under the monthly income and expense analysis on Form 433-A,

petitioner and Mr. Bartak listed monthly wages of $1,561, monthly

interest/dividends of $200, monthly pension/Social Security of

$7,051, and other (settlement) of $796 per month for total

monthly income of $9,608. Under total living expenses,

petitioner and Mr. Bartak listed $1,600 for food, clothing, and

miscellaneous; $2,452 for housing and utilities; $1,205 for

transportation; $175 for health care; $2,390 for taxes; and $850

for other expenses comprising attorney’s fees ($600), church
 - 20 -

contributions ($230), and dues ($20). This brought their total

expenses to $8,672 per month.

Attached to the Form 433-A were the following: An annual

property tax bill for the fiscal year July 1, 2002, to June 30,

2003, from Los Angeles County for petitioner and Mr. Bartak’s

home with a current assessed value and taxable value of $295,738;

a statement from the County of Los Angeles Deferred Compensation

and Thrift Plan (Horizons) listing a total account balance of

$115,641.11 as of December 31, 2002; a US Bank statement listing

an ending balance of $1,560.31 as of January 22, 2003; a F&A

Federal Credit Union statement listing a total ending balance of

$7,453.78 as of January 31, 2003; a F&A Federal Credit Union

statement listing a total ending balance of $7.11 as of December

31, 2002 (this account is separate from the one with the

$7,453.78 account balance); a Whittier Municipal Employees

Federal Credit Union statement, account number 4228006, listing

an ending balance of $456.34 as of December 31, 2002; a Whittier

Municipal Employees Federal Credit Union statement, account

number 1061001, listing an ending balance of $1,225.84 as of

December 31, 2002; and their 2001 joint tax return which listed

adjusted gross income of $56,283. In arriving at adjusted gross

income, their 2001 joint return listed $83,889 in total pension

and annuities and a taxable amount of $31,937.
 - 21 -

OPINION

I. Evidentiary Issue

As a preliminary matter, we must decide whether a document

petitioner submitted during the trial of this case should be

admitted into evidence. At trial, petitioner sought to introduce

a “fraud referral” memorandum for Walter J. Hoyt III (Exhibit

187-P). Respondent objected to the admission of Exhibit 187-P on

the grounds of authentication, relevance, and hearsay. We

reserved ruling on Exhibit 187-P’s admissibility.

Petitioner failed to make any arguments regarding the

admissibility of Exhibit 187-P in her opening brief. In her

reply brief, petitioner stated: “Petitioner has addressed the

relevance and purpose of Exhibit 187-P in her opening brief, in

the context of proposed findings of fact.”

For the reasons stated in Doyel v. Commissioner, T.C. Memo.

2004-35 (abandonment, hearsay, lack of authenticity, relevancy,

and wastefulness), we do not admit Exhibit 187-P into evidence.

II. Section 6015 Relief

In general, spouses filing joint Federal income tax returns

are jointly and severally liable for all taxes due. Sec.

6013(d)(3). Under certain circumstances, however, section 6015

provides relief from this general rule. Except as otherwise

provided in section 6015, petitioner bears the burden of proof.
 - 22 -

Rule 142(a); Jonson v. Commissioner, 118 T.C. 106, 113 (2002),

affd. 353 F.3d 1181 (10th Cir. 2003).

In arguing that petitioner is entitled to relief pursuant to

section 6015, petitioner relies upon the regulations related to

section 6015. Sections 1.6015-0 through 1.6015-9, Income Tax

Regs., are applicable for elections or requests for relief filed

on or after July 18, 2002. Sec. 1.6015-9, Income Tax Regs.

Petitioner filed her election prior to this date; accordingly,

the regulations are inapplicable.

Petitioner also cites chief counsel advice and Tax Court

summary opinions to support her claims. Parties are statutorily

proscribed from citing chief counsel advice as precedent. Sec.

6110(k)(3); see Willamette Indus., Inc. v. Commissioner, 118 T.C.

126, 134 n.10 (2002). By statute, summary opinions shall not be

treated as precedent. Sec. 7463(b).

A. Relief Under Section 6015(b)

To qualify for relief from joint and several liability under

section 6015(b)(1), a taxpayer must establish:

(A) a joint return has been made for a taxable
year;

(B) on such return there is an understatement of
tax attributable to erroneous items of 1 individual
filing the joint return;

(C) the other individual filing the joint return
establishes that in signing the return he or she did
not know, and had no reason to know, that there was
such understatement;
 - 23 -

(D) taking into account all the facts and
circumstances, it is inequitable to hold the other
individual liable for the deficiency in tax for such
taxable year attributable to such understatement; and

(E) the other individual elects (in such form as
the Secretary may prescribe) the benefits of this
subsection not later than the date which is 2 years
after the date the Secretary has begun collection
activities with respect to the individual making the
election * * *.

The requirements of section 6015(b)(1) are stated in the

conjunctive. Accordingly, a failure to meet any one of them is

sufficient for us to find that petitioner does not qualify for

relief pursuant to section 6015(b). Alt v. Commissioner, 119

T.C. 306, 313 (2002).

Respondent contends that petitioner failed to establish the

requirements of subparagraphs (B), (C), and (D). Petitioner

admits that the Hoyt partnerships caused the erroneous items on

the returns. Petitioner, however, contends that the Hoyt

partnerships are not attributable to her.

Petitioner was a partner in the Hoyt partnerships. She

signed documents relating to her and Mr. Bartak’s investment in

the Hoyt partnerships. See Hayman v. Commissioner, 992 F.2d

1256, 1260-1261 (2d Cir. 1993), affg. T.C. Memo. 1992-228.

Although petitioner may have signed checks to the Hoyt

organization because Mr. Bartak asked her, some of the checks

made payable to Hoyt partnerships were drawn on petitioner and

Mr. Bartak’s joint bank account.
 - 24 -

Furthermore, it is clear that the Hoyt organization treated

her, and Mr. Bartak, as a partner in the Hoyt partnerships. The

Schedules K-1 the Hoyt organization issued regarding their

investment in SGE 1983-1 and TBS #1 listed petitioner as a

partner in these Hoyt partnerships.

Finally, Mr. Bartak may have taken the initiative and played

a more dominant role in deciding to invest in the Hoyt

partnerships, but petitioner agreed to invest in the Hoyt

partnerships and she did it jointly with Mr. Bartak. Petitioner

testified that she thought that she and Mr. Bartak personally

owned the cattle at the Hoyt ranches. Additionally, petitioner

admitted, in her petition and the notice of election to

participate in Shorthorn Genetic Engg. 1982-2, Ltd. v.

Commissioner, T.C. Memo. 1995-515, to being a partner in SGE

1983-1.

Accordingly, we conclude that the understatements are not

attributable to the erroneous items of one individual filing the

joint returns. See Ellison v. Commissioner, T.C. Memo. 2004-57,

(investment in Hoyt partnership was attributable to the taxpayer

requesting section 6015 relief because she was a partner in the

Hoyt partnership); Doyel v. Commissioner, T.C. Memo. 2004-35

(same).

The failure to meet the requirements of section

6015(b)(1)(B) is sufficient for us to find that petitioner does
 - 25 -

not qualify for relief pursuant to section 6015(b). Alt v.

Commissioner, supra at 313. Although we need not decide whether

petitioner satisfies the requirements of subparagraphs (C) and

(D), for the sake of completeness, we shall briefly discuss the

application of 6015(b)(1)(C) and (D). See Jonson v.

Commissioner, supra at 119.

This case is appealable to the U.S. Court of Appeals for the

Ninth Circuit. Accordingly, with regard to section

6015(b)(1)(C), we apply the standard set forth in Price v.

Commissioner, 887 F.2d 959, 963 (9th Cir. 1989), revg. an Oral

Opinion of this Court. Golsen v. Commissioner, 54 T.C. 742

(1970), affd. 445 F.2d 985 (10th Cir. 1971). For reasons similar

to those stated in Doyel v. Commissioner, supra, in which we

applied the standards set forth in Price, petitioner had reason

to know of the understatements.

Contrary to her assertion, petitioner was involved in her

family’s financial affairs. Although she may have not played a

“dominant” role or been the initiator, the decision to invest in

the Hoyt partnerships was made in consultation with petitioner.

Petitioner was shown the documents relating to the Hoyt

investments, signed Hoyt investment documents, was aware that the

Hoyt investment was supposed to result in substantial tax

savings, and attended Hoyt investor meetings.
 - 26 -

Petitioner was aware of the large deductions taken on her

joint tax returns associated with the Hoyt investments. The Hoyt

investment materials she was shown and had the opportunity to

review apprised her of tax risks associated with the investment.

These facts establish that petitioner had “reason to know”. See

Jonson v. Commissioner, 118 T.C. at 117.

Petitioner and her husband testified that petitioner was

aware of the investment in the Hoyt partnerships, that she had

access to all of the files/information regarding the Hoyt

investment, and that Mr. Bartak made no effort to deceive

petitioner regarding the family’s financial affairs. This

further supports a finding that petitioner had reason to know of

the understatement. Id. at 118.

Petitioner claims that Mr. Hoyt’s deceit is relevant to the

determination of “reason to know”. Although Mr. Hoyt’s deceit

may be relevant, it does not lead to the result petitioner seeks.

The purpose of section 6015 relief is to protect one spouse

from the overreaching or dishonesty of the other. Purcell v.

Commissioner, 826 F.2d 470, 475 (6th Cir. 1987), affg. 86 T.C.

228 (1986). Relief is inappropriate where it would allow the

requesting spouse to escape liability for apparently legitimate

claims that are later disallowed. See Bartlett v. Commissioner,

T.C. Memo. 1997-413.

As was the case in Mora v. Commissioner, 117 T.C. 279, 288
 - 27 -

(2001), where we denied relief under section 6015(b) in a case

involving Hoyt investments, neither petitioner nor Mr. Bartak

knew the facts that made the flowthrough losses from the Hoyt

partnerships unallowable as deductions on their joint returns,

and both petitioner and Mr. Bartak put their trust in the Hoyt

organization to determine the basis for, propriety of, and amount

of their deductions.

It is significant that petitioner knew (1) of the Hoyt

investment, (2) the Hoyt investment was designed to generate

large deductions resulting in substantial tax savings, (3) those

deductions were taken on joint returns for the years in issue,

and (4) there was a risk that the deductions might be disallowed

by the IRS. Jonson v. Commissioner, 118 T.C. at 118.

“Tax returns setting forth large deductions, such as tax

shelter losses offsetting income from other sources and

substantially reducing * * * the couple’s tax liability,

generally put a taxpayer on notice that there may be an

understatement of tax liability.” Hayman v. Commissioner, 992

F.2d at 1262. Furthermore, the court in Price noted that the

size of the deduction in issue vis-a-vis the total income

reported on the return, when considered in light of the fact that

the taxpayer knew of the investment and its nature, is enough to

put the taxpayer on notice that an understatement exists (and,

therefore, if the duty of inquiry is not discharged, leads to an
 - 28 -

imputation of “reason to know” of the understatement). Price v.

Commissioner, 887 F.2d at 966 ($90,000 deduction and just more

than $100,000 in income). Petitioner did not satisfy her duty to

inquire. Id. at 965-966; see also Mora v. Commissioner, supra at

289 (involving a Hoyt investment).

A reasonable person, faced with petitioner’s circumstances

and in petitioner’s position, would have had reason to know of

the understatement. We conclude that under the Price approach

petitioner had reason to know of the understatements.

Furthermore, for reasons similar to those stated in Doyel v.

Commissioner, supra, and discussed infra regarding section

6015(f), it is not inequitable to hold petitioner liable for the

understatements contained on her joint returns. We note that the

equitable factors we consider under section 6015(b)(1)(D) are the

same equitable factors we consider under section 6015(f). Alt v.

Commissioner, 119 T.C. at 316.

The understatements are not attributable to the erroneous

items of one individual filing the joint returns for 1980 through

1986, petitioner had reason to know of the understatements on

these returns, and it is not inequitable to hold the petitioner

liable for the deficiencies in tax for 1980 to 1986. On the

basis of all the facts and circumstances, we conclude that

petitioner is not entitled to relief pursuant to section 6015(b).
 - 29 -

B. Relief Under Section 6015(f)

Respondent argues that he did not abuse his discretion in

denying petitioner equitable relief under section 6015(f).

Respondent’s denial of relief is reviewed under an abuse of

discretion standard. Cheshire v. Commissioner, 115 T.C. 183, 198

(2000), affd. 282 F.3d 326 (5th Cir. 2002); Butler v.

Commissioner, 114 T.C. 276, 292 (2000). Our review is not

limited to respondent’s administrative record. Ewing v.

Commissioner, 122 T.C. 32 (2004).

As directed by sec. 6015(f), the Commissioner prescribed

procedures in Rev. Proc. 2000-15, 2000-1 C.B. 447,9 respondent

uses to determine whether an individual qualifies for relief

under section 6015(f).

1. Revenue Procedure Enumerated Factors

In this case, none of the six factors in Rev. Proc. 2000-15,

2000-1 C.B. 447, weighing in favor of granting relief are

present: (1) Petitioner was not separated or divorced from Mr.

Bartak, (2) petitioner will not suffer economic hardship if

relief is denied, (3) petitioner was not abused by Mr. Bartak,

(4) petitioner knew or had reason to know of the item giving rise

9
We note that Rev. Proc. 2003-61, 2003-32 I.R.B. 296 (Aug.
11, 2003), superseded Rev. Proc. 2000-15, 2000-1 C.B. 447. Rev.
Proc. 2003-61, sec. 6, 2003-32 I.R.B. at 299. The new revenue
procedure, however, is effective for requests for relief filed on
or after Nov. 1, 2003. Id. Accordingly, it is inapplicable to
the case at bar.
 - 30 -

to the deficiency, (5) Mr. Bartak did not have an obligation to

pay the liability pursuant to a divorce decree, and (6) the items

giving rise to the deficiencies are not attributable solely to

Mr. Bartak. See Washington v. Commissioner, 120 T.C. 137, 147

(2003). Additionally, the following factors weighing against

relief are present:10 (1) The items giving rise to the

deficiencies are attributable to petitioner, (2) petitioner knew

or had reason to know of the item giving rise to the deficiency,

and (3) petitioner will not suffer economic hardship. Id.

As we found, supra, the items giving rise to the

deficiencies are attributable to petitioner, and she knew or had

reason to know of the understatements under the Price standard.

Petitioner’s tax liabilities for 1980 through 1986 totaled

$82,680. Even if we were to include the interest due on that

liability as of April 2002 (the most current information

available in the record), petitioner and Mr. Bartak have hundreds

of thousands of dollars in assets in excess of this amount.

As of February 2003, based on the information she provided,

the assets listed on the Form 433-A had a total current fair

market value of approximately $675,000.11 Additionally, after

10
The absence of factors weighing against equitable relief
does not weigh in favor of granting relief--they are neutral.
Doyel v. Commissioner, T.C. Memo. 2004-35; see Washington v.
Commissioner, 120 T.C. 137, 149 (2003).
11
In reaching this figure, we used the following figures:
(continued...)
 - 31 -

allowing petitioner expenses of $8,672 listed on the Form 433-A--

a figure provided on the Form 433-A and not entirely

substantiated by underlying evidence--petitioner had $936 per

month (approximately $11,232 per year) available to pay toward

the outstanding tax liability.

We note that, at trial, Mr. Bartak claimed that the amount

of monthly wages should have been listed as $1,400 as opposed to

the $1,561 listed on the Form 433-A. Even if we were to accept

this figure, based on petitioner and Mr. Bartak’s 2001 return, it

appears that they understated the amount of their monthly income.

The Form 433-A reflects $200 per month of interest and dividend

whereas their 2001 return reported $5,621 of taxable interest

(i.e., approximately $468 per month) and $1,551 of dividend

income (i.e., approximately $129 per month). The 2001 return

also reported $6,005 of Schedule E income (i.e., approximately

$500 per month) which is not reflected on the Form 433-A. If we

11
(...continued)
$9,014 for the checking accounts, $46,689 for the “other”
accounts, $408,388 for the Form 433-A investments (the 100
percent fair market value of the other investments (the $285,872
listed 70 percent value adjusted to 100 percent--i.e., $285,872
divided by 70 percent equals $408,388), $1,696 for the cars
($31,915 minus the outstanding debt of $30,219) and $208,807 for
the equity in their home (based on a fair market value of
$295,738, as listed on their tax bill, minus the outstanding debt
of $86,931). The amount listed on their real estate tax bill
appears to represent fair market value. Cal. Rev. & Tax. Code
secs. 110, 110.5, 401 (West 1998). This figure does not include
the $39,000 of credit petitioner listed as available on the Form
433-A.
 - 32 -

were to make all these adjustments, total income would equal

approximately $10,345 per month leaving $1,673 per month

(approximately $20,007 per year) available to pay towards the

outstanding tax liability.

Petitioner did not present evidence that demonstrated that

petitioner will be unable to pay her reasonable basic living

expenses if relief is not granted. Sec. 301.6343-1(b)(4),

Proced. & Admin. Regs. Some of the expense figures provided on

the Form 433-A are unsupported and seem excessive. Accordingly,

we conclude that respondent was correct, and did not abuse his

discretion, in determining that petitioner would not suffer

economic hardship.

2. Additional Facts and Circumstances

Petitioner claims that Mr. Bartak played the dominant role

in handling the financial affairs of their family and she did not

have a choice not to sign the Hoyt documents or her tax returns.

Petitioner testified that Mr. Bartak “usually” handled the

family’s investments and that he would come to her about an

investment after he investigated it and thought they should

invest. Petitioner may have left the final decision to invest in

the Hoyt partnerships to Mr. Bartak; however, petitioner

acquiesced or agreed to go along with Mr. Bartak’s wishes.

Petitioner also claims that she did not want to sign the

Hoyt partnership documents or her returns. Petitioner, however,
 - 33 -

testified that she signed the documents to “avoid making things

difficult at home.”

Petitioner further testified that when she signed the tax

returns in issue, she would say: “I’m signing this under

protest.” Petitioner, however, explained that she merely stated

this as an expression of her frustration and that she signed the

returns in order to keep peace in the family. Petitioner and Mr.

Bartak testified that Mr. Bartak (1) did not force her, or

threaten her, to sign the returns, Hoyt documents, or checks, (2)

did not force her, or threaten her, to invest in the Hoyt

partnerships, and (3) that Mr. Bartak did not abuse her.

Petitioner also notes that Mr. Bartak opened all the mail

from the Hoyt organization and the IRS. Petitioner testified

that she could have looked at the mail and Mr. Bartak’s files

regarding the Hoyt partnerships if she had wanted. Mr. Bartak

did not hide, or try to hide, any mail from petitioner.

Petitioner testified that she saw everything that she wanted to

see.

Petitioner claims that Mr. Hoyt’s deceit is relevant to the

determination whether petitioner is entitled to relief under

section 6015(f). Ms. Flandez considered the fact that both

petitioner and Mr. Bartak were deceived by Mr. Hoyt. Even if Mr.

Hoyt’s deceit is relevant, it does not lead to the result

petitioner desires.
 - 34 -

The purpose of section 6015 is to protect one spouse from

the overreaching or dishonesty of the other. See Purcell v.

Commissioner, 826 F.2d at 475. The understatement in tax in this

case is attributable to a mistaken belief on the part of both

petitioner and Mr. Bartak as to the legitimacy of the tax shelter

deductions. Under these circumstances, we perceive no inequity

in holding both spouses to joint and several liability. Bokum v.

Commissioner, 94 T.C. 126, 146 (1990), affd. 992 F.2d 1132 (11th

Cir. 1993); McCoy v. Commissioner, 57 T.C. 732, 735 (1972).

In considering all the facts and circumstances, it is worth

noting that petitioner was skeptical about the supposed tax

benefits provided by the Hoyt partnerships. Petitioner testified

that she was uncomfortable with the Hoyt partnerships because she

was leery that “something like this” (i.e., the tax problems)

would happen and that she “had a real foreboding about it”.

Petitioner also testified that she had an uneasy feeling about

the tax aspects of the Hoyt partnerships.

Furthermore, petitioner and Mr. Bartak took Hoyt partnership

deductions on their 1983 return. Mr. Bartak testified that he

thought he and petitioner invested in SGE 1983-1 in 1983. They

did not sign any documents, however, related to their investment

in a Hoyt partnership until April 1984. Taking deductions for

years prior to their investment in the Hoyt partnerships should

have raised additional suspicions.
 - 35 -

Ms. Flandez also noted that the arguments petitioner

presented to her raised the possibility of asset transfers in an

attempt to avoid collection.

Petitioner also argues that respondent made blanket “pro

forma” denials of Hoyt investor section 6015 claims. We

disagree. Respondent’s agents assigned to review petitioner’s

claim conducted a full, impartial, and fair evaluation of

petitioner’s section 6015 claim. They reached their conclusions

on the basis of the facts and circumstances present in this case.

See also Doyel v. Commissioner, T.C. Memo. 2004-35, in which we

further explained the flaws in petitioner’s arguments on this

issue.

On the basis of all the facts and circumstances, we conclude

that respondent did not abuse his discretion in denying

petitioner relief pursuant to section 6015(f).

In reaching our holdings, we have considered all arguments

made by the parties, and, to the extent not mentioned above, we

conclude they are irrelevant or without merit.

To reflect the foregoing,

Decision will be entered

for respondent.